Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
One title does not apply to every situation and timeframe. It’s funny how you ignore everything else Shiller says.
The concept of irrational exuberance affects every aspect of the stock investing story, Anonymous. Every single thing. If the market is efficient, as was believed to be the case in the days when Buy-and-Hold was being developed, we can trust the numbers on our portfolio statement. In that case, it is economic realities that determine stock prices and we can plan retirements based on those numbers. But if Shiller’s Nobel-prize-winning research is legitimate, then those numbers are not real. They are largely the product of temporary investor mood swings, and we need to distinguish what’s real from what’s irrational exuberance to have any hope of being able to plan our financial futures effectively.
I don’t ignore everything else Shiller says. What I say is that we should be permitting discussion of what Shiller says at every site on the internet. What he said changes our understanding of how stock investing works in a fundamental way. Let’s all put our minds together and work together in a constructive spirit to advance our understanding of this critically important subject.
Does Shiller believe that the safe withdrawal rate is always the same number or does he believe that it is a number that changes with changes in valuations? We all should want to know the answer to that question. I said what I think 18 years ago, I think that Shiller would have said what he thinks by now if it weren’t for the criminal stuff we have seen coming from the Buy-and-Hold side of the table. I say that we should all pull together to bring the criminal stuff to a full and complete stop so that we can all learn at long last what Shiller believes re this matter. Then we should continue the discussions in the hopes of learning what thousands of others will have to say when they are permitted to speak without fear of having their careers destroyed or seeing their loved ones threatened.
There is not one school of academic thought as to how stock investing works. There are two. We have heard advocates of the Buy-and-Hold school thousands and thousands and thousands of times. Advocacy of the Valuation-Informed Indexing school is today banned at every large investing site on the internet. That ban is holding us back. The most important public policy matter before us today is the launching of the national debate that will bring that ban to a full and complete stop and insure that the same laws that apply in every field of endeavor other than the investment advice field will apply in the investment advice field as well.
Does all of that not make perfect sense?
Rob
“I don’t ignore everything else Shiller says. ”
To clarify, you take some of what he says and spin it to say what you want it to say (not what he actually says) and then you ignore the rest. This is just a factual observation.
The title of Shiller’s book is “Irrational Exuberance,” Anonymous. Is it spin to take note of the title he gave to his book?
If irrational exuberance exists, it is a logical impossibility that the safe withdrawal rate is the same at all valuation levels. There is obviously more risk when irrational exuberance is high. So the safe withdrawal rate is lower at those times.
We need to tell people that. There were thousands of people at the Motley Fool’s Retire Early board who were planning retirements based on Greaney’s claim that the safe withdrawal rate is always 4 percent.
I pointed out the error in Greany’s study on the morning of May 13, 2002, It has not been corrected to this day. Does that not concern you? It sure concerns me.
If the Buy-and-Holders got the numbers that people use to plan their retirements so wildly wrong, what else did they get wrong? I think we should be exploring that question at every discussion board and blog on the internet. Every day. That’s how we all learn over time.
The Buy-and-Holders did a great thing advancing the idea that investment advice should be rooted in peer-reviewed research. I love them for that. But science does not stand still. We learn new things all the time. We learned an important new thing in 1981. We learned that the market is not efficient and that irrational exuberance is a real thing. We learned that stock investing risk is not constant but variable. We learned that market timing always works and is always 100 percent required for all investors. We learned that, when large numbers of investors come to believe that market timing is not required, the market becomes dysfunctional and down the road we see a price crash and an economic crisis. The good news is — we learned how to bring an end to price crashes and economic crises. By permitting open discussion of what the peer-reviewed research shows at every internet site.
Irrational exuberance exists, Anonymous. It is the primary job of investment experts to help us all to do everything in our power to combat this horribly destructive force. How do we do that? Through market timing. It is the only means available to us to get the job done. We should all be thanking our lucky stars that Shiller’s Nobel-prize-winning research showed us what we had gotten wrong and pointed us in the direction of getting it right in the future.
My sincere take.
Rob
If even a few things you say were true, why have you failed to get just one single person to come on here and say that you are right?
Because, it someone says that one of the things that I say is right, they know that they will be led by logic to saying that all of the things that I say are right. That puts them in the position of saying that the thousands of powerful and wealthy and well-connected people who have been promoting the Buy-and-Hold concept for many years got it wrong and caused great financial pain for millions of people. If Shiller’s Nobel-prize-winning research is legitimate research, it was the promotion of Buy-and-Hold that served as the primary cause of the 2008 economic crisis. How do you think it makes the Buy-and-Holders feel to hear someone say that? What do you think the career prospects are of someone who angers that many powerful and wealthy and well-connected people?
The national debate re whether or not market timing is required should have been launched in 1981, when Shiller published his peer-reviewed research showing that there is precisely zero chance that an investment strategy that does not require market timing could ever work for a single long-term investor. Had it been done that way, the ideas that I talk about at this site would have gradually spread throughout the world and gotten slowly more popular over time and would probably be the dominant ideas today. The problem is that Shiller’s core finding was so at odds with the conventional thinking of the time (if the market were efficient, market timing would be a bad idea) that people’s minds just couldn’t take it in. People in this field suffered cognitive dissonance.
Which meant that they continued to promote the Buy-and-Hold idea that market timing is not required. The longer that continued, the harder it became to come clean. Now that the cover-up has continued for 40 years, it would look very, very very bad for the Buy-and-Holders for someone just t give voice to the obvious research-proven realities. So we are stuck.
We won’t get unstuck by continuing to live in fear of you Goons. Those of us who believe that Shiller’s Nobel-prize-winning research is legitimate research need to work up the courage to speak honestly. On safe withdrawal rates and on scores of other critically important investment-related topics. There is no other way to get to the place where we all want to be deep in our hearts, a place where we all can take advantage of all the research available to us, both the pre-1981 research and the post-1980 research, and live richer and fuller lives from that point forward.
It shouldn’t take 19 years to determine whether or not the retirement study posted at John Greaney’s web site contains an adjustment for the valuation level that applies on the day the retirement begins, Anonymous. I mean, come on.
Rob
“ Because, it someone says that one of the things that I say is right, they know that they will be led by logic to saying that all of the things that I say are right.”
Who told you this?
I experienced it myself. I was a Buy-and-Holder myself on the morning of May 13, 2002. John Bogle was my hero. I had no intention at that time of leading an effort to replace Buy-and-Hold with a new model for understanding how stock investing works. All that I thought that I was doing was suggesting that we should consider valuations when calculating safe withdrawal rates.
Was there any possibility that Greaney cuuld have corrected his study on the afternoon of May 13, 2002, and that we could have thereby put this thing to bed? There was not. I didn’t see that at the time. But there was not. Greaney probably suspected where things would go if he did that. That’s probably one of the reasons why he did not want to correct the study.
If we need to consider valuations when planning a retirement, we need to consider valuations when setting a stock allocation. And we need to consider valuations when looking for the cause of an economic crisis. And we need to consider valuations when making a determination as to whether we have saved enough to buy a bigger house. And we need to consider valuations when a Presidnet takes credit for a strong economy. And on and on and on.
If irrational exuberance is a real thing, it needs to be taken into consideration when examining any of hundreds of economic questions. Irrational exuberance is a huge issue. I have been writing about it on a daily basis for 19 years and I have barely scratched the surface of all of the important things there are to be said about it. Irrational exuberance changes everything we once thought we knew about stock investing and everything we once thought we knew about economics.
That’s why there is so much resistance is launching the national debate. Change is scary. Shiller’s Nobel-prize-winning research changes EVERYTHING.
We can’t change our understanding of safe withdrawal rates without also changing our understanding of hundreds of other things. Because the REASON why the Buy-and-Hold retirement studies are in error is so fundamental. The reason is that they assume investor rationality and the reality is that investors are often highly emotional. The reason why they are emotional is that they are human. And those same human actors are involved in lots of other endeavors every day and they are highly emotional when engaging in those endeavors as well.
This entire debate is about reason vs. emotion. That’s a big subject with implications reaching in all sorts of directions. It makes people who have come to be thought of as “experts” anxious to see all sorts of new questions being put on the table.
Rob