Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Rob,
You are moving the goal posts. Read again. You made the claim that rich people are more vulnerable. You are wrong. I have explained why. When someone has $10 million and the S&P has a drop, it does not have much of an impact on how they live. They are not “vulnerable” as you claim. In fact, they are in a position to capitalize on drops. Look at how the rich have profited off of every “crisis” including the current Covid-19 situation.
I agree that someone who has $10 million in assets is not as vulnerable as someone who has $500,000 in assets. Absolutely.
The question that I explored in the blog entry is why the price crash has been so long deferred. I wrote that one big factor is that as a nation we are richer today. It’s not just people who have $10 million in assets who are richer, people who have $500,000 in assets are richer too. People in both camps want to hold on to what they’ve got and the last 39 years of peer-reviewed research is perceived by them to be a threat to their ability to do that. If those people has not built nice lives for themselves, they would not care as much and they might have permitted the crash to take place back in 2006, as Shiller predicted. As we have become a richer nation, it has become more difficult to make the transition from a bull market to a bear market. Shiler was using data from earlier time-periods to form his prediction. That data obviously did not reflect the increased wealth that we have all enjoyed in more recent decades of our history.
Increased wealth is a good thing. But it makes us more anxious about stock price crashes. And thereby causes bull markets to last longer and to be more destructive when they arrive.
Rob
When has Shiller predicted the next crash?
Shiller published a paper in July 1996 saying that investors who stuck with their high stock allocations despite the high valuations that applied at the time would live to regret it within 10 years. That’s predicting a price crash.
Rob
So that prediction was wrong. But you still didn’t answer my question. When has Shiller predicted the next crash?
So that prediction was wrong. But you still didn’t answer my question. When has Shiller predicted the next crash?
The title of his book is “Irrational Exuberance,” Anonymous. To say that irrational exuberance exists is to predict a price crash whenever stock prices get out of hand. At the time when Buy-and-Hold was developed, the dominant academic theory re how stock investing works was the Efficient Market Theory. If the market is efficient, stock prices are set by a rational process and the risk of a price crash is the same at all times. If there is such a thing as irrational exuberance, the risk of a crash increases with increases in prices. A high CAPE level always predicts a price crash to someone who believes that Shiller’s Nobel-prize-winning research is legitimate research.
Rob
Who cares what Shiller said in the last century? Let’s see what he’s saying now, shall we?
https://www.project-syndicate.org/commentary/making-sense-of-soaring-stock-prices-by-robert-j-shiller-et-al-2020-11
Instead of just using CAPE, “a measure we call the Excess CAPE Yield (ECY) puts the long-term outlook for the world’s stock markets in better perspective…the level of interest rates is an increasingly important element to consider when valuing equities. To capture these effects and compare investments in stocks versus bonds, we developed the ECY, which considers both equity valuation and interest-rate levels. To calculate the ECY, we simply invert the CAPE ratio to get a yield and then subtract the ten-year real interest rate.”
Uh oh…
“This indicates that, worldwide, equities are highly attractive relative to bonds right now.”
Uh oh!
Last line: “But, at this point, despite the risks and the high CAPE ratios, stock-market valuations may not be as absurd as some people think.”
NOOOOO!!! Perhaps by “some people” he was referring to you. Anyway, that’s about as clear as he can be. Stocks are “highly attractive.” Right from the horse’s mouth. Now you can move on to more productive pursuits. Isn’t that great?
You posted a link to that article in an earlier comment and I responded to it there. I also have submitted a column at the Value Walk site commenting on it.
I care what Shiller said in the work that he did that led to him being awarded a Nobel prize. It’s important. We should be discussing it at every site on the internet, without a single exception.
I’m fine with being placed in the group that thinks that today’s stock prices are absurd. I don’t agree with what Shiller says here. But I think his comments should certainly be part of the debate. I’d like to see lots of smart people comment on his article and thereby help us all come to a better understanding of these issues.
I thinky today’s stock prices are dangerous. And I think it would be fair to say that your comments here are emotional. Which proves the point that Shiller made in the research that caused him to be awarded a Nobel prize — stock investing is a highly emotional endeavor. The more emotional investors get, the more risky stocks are. At this moment in time, investors are highly emotional and stocks are highly risky.
Or so Rob Bennett sincerely believes, in any event.
My best wishes to you and yours.
Rob
No, YOU’RE emotional. Which means you are wrong. Gosh, that was easy.
People ARE commenting about this new earth-shattering metric, the ECY. They are saying it’s Shiller moving the goal post out of embarrassment for having been so wrong for so long. Therefore it doesn’t need to be discussed anywhere. Let alone obsessed about for over two decades.
Do you think that Shiller is embarrassed over having been awarded a Nobel prize, Anonymous?
You are entitled to your opinion. I do not share your opinion. When I post, I say what I believe.
My best wishes to you,
Rob
“ When I post, I say what I believe.”
You say what you need to say to fit your story, while ignoring everything else.”
“ I care what Shiller said in the work that he did that led to him being awarded a Nobel prize.”
That’s not true as you ignore his comments about how to interpret his work and that he has said that you shouldn’t use CAPE for timing the market.
He hasn’t said that. You are referring to an offhand comment that Shiller made in an interview which was entirely unclear. It is possible that he was referring only to short-term timing, in which case I obviously agree.
I have been saying for 18 years now that we should open every discussion board and blog to honest posting re the last 39 years of peer-reviewed research. If we did that, we could ask Shiller for a clear and complete statement re his belief re market timing. We all should want that. So we all should work together to get that.
I believe that Shiller would say that he believes that long-term market timing always works. His research certainly shows that. But I also think that it would be a plus to hear Shiller himself say that in clear and firm and simple terms. The fact that Shiller published research in 1981 showing that long-term timing always works and that there are still people in the year 2020 questioning whether he believes that is just amazing. Amazing and sad. We all need to know the story here.
I say that there is zero possibility that long-term market timing does not work in a world in which valuations affect long-term returns. In such a world (the world we happen to live in!), stock investment risk is not constant but variable. In a world in which stock investment risk is variable, any investor who wants to keep his risk profile constant over time MUST engage in market timing. There is no other way to pull if off.
Wade Pfau studied these matters for 16 months. He concluded that market timing always works. He expressed amazement that many other researchers had not performed the same investigations that he performed. The reason why they didn’t is that the Buy-and-Holders have penalized those who have tried to advance humankind’s knowledge re these matters. We need to bury Buy-and-Hold and move forward together as a society.
Market timing always works and is always required. Market timing is price discipline and no market can survive without price discipline. When large numbers of investors become convinced that market timing is not required, we always eventually see a price crash and an economic crisis. There is no other way that the relentless promotion of Buy-and-Hold strategies could ever turn out.
Please mark me down as saying that market timing always works and is always required. Please mark me down as saying that the “idea” that there is an alternate universe somewhere in which market timing might not work or might not be required is the most dangerous “idea” that ever came along in the history of personal finance and economics. Shiller has of course said similar things. Shiller has described the intellectual leap from the finding that short-term price changes are unpredictable (University of Chicago Economics Professor Eugene Fama showed this in research published in the 1960s) to the Buy-and-Hold belief that the market sets prices properly as “one of the most remarkable errors in the history of economics.”
That’s my sincere take re these terribly important matters, in any event.
My best wishes, etc.
Rob
“He hasn’t said that. You are referring to an offhand comment that Shiller made in an interview which was entirely unclear. It is possible that he was referring only to short-term timing, in which case I obviously agree. ”
He has also never given any words or advice to time the market with CAPE. It is merely YOUR interpretation.
Wade Pfau does NOT recommend VII or timing. We can read every book he has written and every column he has posted on the internet. Your website and your word is not trusted given how often you lie and manipulate what people say.
“Market timing always works and is always required.”
That is also wrong. Show just one failed case of buy and hold. Further, YOU don’t practice market timing. If you really believed it, you would have done so with your own investments.
Shiller has said that he believes that irrational exuberance is a real thing. He went so far as to use those words as the title of his book. If irrational exuberance is a real thing, then it is obviously a huge danger to all of us. If part of our portfolio is comprised of irrational exuberance, we cannot even know how much money we have saved for retirement. We all need to be doing everything in our power to overcome irrational exuberance. And the only way to do that is through market timing. Market timing is the key to long-term success in stock investing.
Shiller hasn’t said those words. I would like to hear him do so. He published the research that is the foundation for those words. He wrote a best-selling book explaining what the conventional understanding of how stock investing works is in error. He was awarded a Nobel prize. He has done a lot. But, yes, we should all want to hear him address these matters directly and in great depth. How about dropping all of the criminal stuff? I am 100 percent sure that Shiller would be happy to address all questions put to him once the criminal stuff has been brought to a full and complete stop. That’s the answer, Anonymous.
And of course the same is so with Wade Pfau. The 16 months in which he was doing honest work helping me to develop the Valuation-Informed Indexing concept were the happiest 16 months of his life. He should not have had his career threatened as a result of that work. You Goons should be placed in prison cells for your acts of extortion. Then all of the rest of us will be free to explore whatever investing questions we wish to explore. The laws against extortion are good and necessary laws. We need to pull together as a society to see that they are enforced in a reasonable manner. I believe that we will see that happen in the days following the next price crash.
When Wade said “Yes, Virginia, Valuation-Informed Indexing works!” he was endorsing Valuation-Informed Indexing. And of course the scores of statements he offered describing the results of the 16 months of research he co-authored with me all make the same general point coming at it the question from a multitude of different angles.
I naturally wish you all the best that this life has to offer a person.
Rob
“Shiller hasn’t said those words. I would like to hear him do so.”
You just confirmed exactly what I said. He has never said to time the market with CAPE and it is all part of what you want him to say. Interpretations don’t matter. Facts matter.
Your comments about Wade are only on your website. Wade has not made those comments on anything he has produced. You are not an author of his paper, by the way.
You just confirmed exactly what I said. He has never said to time the market with CAPE and it is all part of what you want him to say. Interpretations don’t matter. Facts matter.
Your comments about Wade are only on your website. Wade has not made those comments on anything he has produced. You are not an author of his paper, by the way.
If Wade felt free to speak honestly about these matters, he obviously would credit me as co-author of our research paper. He spoke about my contributions on many occasions. He said that I was the person to discover the error in the Buy-and-Hold retirement studies and that I was the person to conceive and develop the Valuation-Informed Indexing strategy that we were testing in our peer-reviewed research paper.
Shiller said to time the market using CAPE when he said that investors who stuck with their high stock allocations in 1996 despite the high valuations that applied at the time would live to regret it within 10 years. If lowering your market timing because you don’t want to suffer losses isn’t market timing, what the heck would market timing look like?
I believe that Shiller should have explored the benefits of market timing in great depth either in his book or in a sequel to it. I certainly would like to hear more of Shiller’s thoughts on how precisely to go about market timing. It is because Shiller did not explore these issues in depth in his book that I got involved doing so. I saw it as a huge opportunity to help millions of people to explore in depth the far-reaching implications of Shiller’s amazing research findings and that is the work that I have been doing for 18 years now and continue to do to this day.
I wish that everyone in this field were doing this work. The more people we have working on it, the quicker our progress will be. The shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. We all should be doing everything we can both to get the word out about the benefits of market timing and to learn all we can about the best possible ways to practice it.
My sincere take.
Rob
“If Wade felt free to speak honestly about these matters, he obviously would credit me as co-author of our research paper.”
Wade is free to speak and he has spoken. He spoke about how much harm you have caused him. It is obvious why he won’t speak to you anymore, just like many other people. In fact, just look at how no one will post anything in your support in these comment sections.
Wade does not want people to know that he flipped to the Goon side. The answer to that is not for me to flip to the Goon side too. The answer is for everyone else to refuse to flip so that we can get the word out about the last 39 years of peer-reviewed research and we can all live better lives from that point forward. No one should he committing criminal acts. We all should be doing everything we can to open every site on the interest to honest posting, without a single exception.
That’s the answer, Anonymous. I am sure.
Rob
Sorry, but you are not a mind reader. Wade has made his positions clear. Wade has been a highly respected expert, yet you are not. I think I know which one of you to trust with the truth.
I wish you all good things, Anonymous.
I hope that that helps at least a tiny bit.
Rob
Or put another way, do I believe the written and spoken words of Robert Shiller and Wade Pfau, or do I believe the wishful interpretations of Rob Bennett (the person that lacks any formal investment training and admits he is not a numbers guy). Not a hard choice.
Whatever you believe, you believe, Anonymous.
I believe that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins.
My best and warmest wishes to you and yours.
Rob
“I believe that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins.”
Did you lie on that thread when you admitted you were wrong and apologized? Was Wade Pfau wrong when he also corrected you?
I had no intention to deceive when I posted my apology. I was suffering from cognitive dissonance. I strongly believed that the Greaney study lacked a valuation adjustment. I had checked it many times before I put up my famous post saying that it did not. But scores of people whom I respected and considered friends were telling me that I was wrong and the board community, which I loved, was being torn apart at the seams. I somehow persuaded myself that I might be wrong and that an apology was in order.
Yes, Wade was wrong when he said what he said. What he said was absolutely idiotic. He said that Greaney had solved the problem on the first day when he said that anyone who wanted to take a lower withdrawal rate could do so. That was of course never the issue in dispute. The issue was whether those of us who believed that a valuations adjustment was required to get the number right should be permitted to say that. Greany understood that, if people became aware of the error in the study, they would lose confidence in it and he did not want that to happen. I don’t believe that Wade came up with those words on his own. I believe that he was afraid that you Goons would do damage to his career (he told me this) and so he agreed to sign on to words that Greaney composed that he obviously did not think had anything to do with the problems we experienced.
Rob
“Yes, Wade was wrong when he said what he said. What he said was absolutely idiotic.”
Based on Wade’s qualifications, I would say he was right and you are wrong. I don’t see anyone else saying otherwise, other than you.
It will be interesting to see what people say in the days following the next price crash, Anonymous.
Rob
“ It will be interesting to see what people say in the days following the next price crash, Anonymous.”
We saw what people said when the crashes you predicted didn’t happen.
Okay.
I wish you all good things, in any event.
Rob