Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
<i>Why doesn’t the job take priority over the book?</i>
Because it affects so many more people. The job affects me and my family. The book affects millions and millions of people.
If you found out about the 911 terrorist attacks before they happened, would you elect not to inform the authorities on grounds that there was some risk that reporting the matter would put you in personal danger? Could you sleep at night from that point forward if you elected to keep your mouth shut? I think that I would have to say something. I don’t want to have millions of destroyed lives on my conscience. I want to do what I can to help my country out when it is in grave danger.
My sincere take.
Rob
“The job affects me and my family. The book affects millions and millions of people.”
Wrong. The difference is that a job would be in the real world. The book is imaginary. You always choose imaginary over real world, because the real world is cold and mean and requires effort. It doesn’t fit in with your selfish hedonistic philosophy.
I view Get Rich Quick strategies as imaginary.
The reason why I prefer research-based strategies is that research helps us to appreciate reality and thereby to keep our imaginations in check.
The CAPE today is 37. That means that roughly 60 percent of the value of your stock portfolio is nothing more than irrational exuberance, stuff of no real and lasting value.
The way we fight irrational exuberance is through market timing. That’s why I am such a big advocate of market timing.
Rob
“ The book affects millions and millions of people.”
If the last 20 years of posting on the internet hasn’t worked for you, how will it be any different with a book?
The book by itself will not change anything.
I believe that the thing that will change things is the next price crash. Buy-and-Holders are today telling people that their stock portfolio has a value of more than two times its real, lasting value. If the CAPE drops to 8, as it has by the end of earlier bear markets, the Buy-and-Holders will then be telling people that their stock portfolio is worth only half of its real, lasting value. The Get Rich Quick element of the Buy-and-Hold marketing pitch will be no more.
At that time, we will be going through a lot of rough stuff, Millions of failed retirements. Hundreds of thousands of failed businesses. Millions of people thrown out of their jobs. Intense political frictions. We are going to need to pull together as a nation and make the transition to the first true research-based investment strategy. The purpose of my book is to help us through that transition.
Rob
“If the CAPE drops to 8, as it has by the end of earlier bear markets”
And if disco comes back, my Donna Summer records will be worth a fortune.
Why do you hang your entire existence on CAPE, but completely ignore Excess CAPE Yield, which says stocks are currently a better deal than bonds.
Shiller has positioned himself so he can claim to be right no matter what happens. People see right through such duplicity. A book on Shiller will never sell, even if it finally gets written (doubtful) and published (impossible).
If your message is already on the internet, why is there a need for a book? It seems to be a waste of time as it is just repetitive. Wouldn’t that time be better spent working a job and bringing in money?
“If the CAPE drops to 8, as it has by the end of earlier bear markets”
And if disco comes back, my Donna Summer records will be worth a fortune.
Why do you hang your entire existence on CAPE, but completely ignore Excess CAPE Yield, which says stocks are currently a better deal than bonds.
Shiller has positioned himself so he can claim to be right no matter what happens. People see right through such duplicity. A book on Shiller will never sell, even if it finally gets written (doubtful) and published (impossible).
I don’t quite follow what you are getting at when you say that Shiller has positioned himself to be right no matter what happens. My guess is that you are unhappy that he has not said when the crash will come. So, if crashes arrive randomly, we will sooner or later see one and he will be able to claim “credit” for it. If Shiller is right about how the stock market works, then that’s just the way things are. If stock prices are determined by shifts in investor emotion, how could anyone say when a crash will come? Emotions are by definition irrational and thus unpredictable. No one can predict when emotions will shift. So no one can predict when a crash will come. It’s just not possible.
The mistake that the Buy-and-Holders make is in thinking that, since we cannot predict when a crash will come, we cannot effectively assess when the risk of a crash is greater. When an alcoholic drives home from a bar, the odds are that he will not get into an accident. There are probably alcoholics who have driven drunk ten times in a row without incident. Does it follow that drunk driving is safe? It does not. The odds of getting in an accident might go from one in a thousand for a sober driver to one in ten for a drunk driver. So driving drunk is insanely risky. It’s the same with going with a high stock allocation at times of crazy high CAPE values. You can do that numerous times and suffer no negative consequences. But then you can lose 75 percent of your life savings in a crash and that will set you back in a big way for the remainder of your lifetime. You would have been better off to assess how much extra risk you were taking on when the CAPE value went to crazy places and to have worked to keep your risk profile constant over time (which would require market timing).
Your comment about Donna Summers records suggest that you see a CAPE level of 8 as something that comes in and out of fashion. Economic crises are not something outside of us that just happen now and again. We CAUSE economic crises with our love of Get Rich Quick/Buy-and-Hold investment strategies. The market is going to get the price right sooner or later. That’s what markets do. There is no getting around it. The natural thing to do is to adjust our stock allocation in response to price changes to keep our risk profile constant. When we refuse to do that (which is what the Buy-and-Holders advise), we make the market dysfunctional. When it can find no other way to get prices down, it eventually crashes them. That causes a massive loss of consumer buying power, which causes an economic contraction. All these things are connected. They are inevitable in a world in which open discussion of the last 40 years of peer-reviewed research is prohibited.
Lucky for us, they are NOT inevitable in a world in which honest posting is permitted. Permit honest posting and all the bad stuff about stock investing goes away. The crazy ups and downs in prices are OPTIONAL. In a functioning market, there would be small ups and downs as the market tested various price levels. But none of the crazy stuff. Because the market would possess the ability to ADJUST when investor emotion got too out of hand. Buy-and-Hold takes away that ability to adjust. Which produces pleasant results in the short term. And then terrifying results in the long term. It is not a coincidence that things have always gone like that. It is a logical impossibility that things could ever play out any other way.
The wonderful thing is that the last 40 years of peer-reviewed research teaches us for the first time how the stock market really works. Knowing that, we can all live richer and better lives than we ever imagined possible at earlier times. But to reap the benefits of our good fortune we need to permit honest posting. Which most of us have always wanted! You Goons are only 10 percent of the population. The vast majority of us are Buy-and-Holders. You have that working for you. But the vast majority of us support the laws against death threats and extortion and so on. Our sympathies for Get Rich Quick investment strategies have kept you Goons in business for 19 years now. But, when prices drop below fair-value levels, there is no more Get Rich Quick element at work. At that point, I believe that the sympathies will change and the majority will favor the enforcement of U.S. laws in discussions of investing. That will change everything in short order.
I hang my hat on Shiller’s model for understanding how stock investing works. The difference between the two models is that Shiller’s model posits that investors are highly emotional while Buy-and-Hold posits that investors are 100 percent rational and act in pursuit of their self-interest. Everything else follows from that. It is true that the relative appeal of stocks increases when interest rates are low. But, if we just permitted honest posting, stock prices would never get so high that we would need to lower interest rates to such a crazy extent to keep the stock market afloat. The way to deal with the craziness of today’s stock prices is not to spread the craziness to other markets. It is to permit honest posting and thereby empower investors to rein in their irrationality.
That’s my sincere take, in any event.
Rob
If your message is already on the internet, why is there a need for a book? It seems to be a waste of time as it is just repetitive. Wouldn’t that time be better spent working a job and bringing in money?
A book present the complete case in a complete and in-depth and detailed manner. There is great explanatory power in that,
Shiller’s research was available for many years before I came on the scene. Did it get the job done? If all that people needed was to have to realities mentioned somewhere, we wouldn’t have a CAPE value in the mid-30s today. We do. Because the Buy-and-Hold/Get Rich Quick message has been repeated many more times than the research-based/Valuation-Informed Indexing message. This is why I say that we need to open ever discussion board and blog on the internet to honest posting re the peer-reviewed research, without a single exception. Repetition persuades. Ask anyone who works in advertising.
A book is one element in the overall persuasion campaign. The book is not for people with a casual interest. It is for the people who have an intense concern. Those people have a persuasive power far beyond their numbers. Those people will dig into the material in a book and will be persuaded only if all of the claims check out. Then they will convert thousands and thousands (ultimately millions) if they do. The book is not anything close to the entire persuasion campaign. But it is an essential element of it.
Buy-and-Hold would not have achieved the dominance it has achieved without “Stocks for the Long Run” and “A Random Walk Down Wall street” and “Common Sense on Mutual Funds.” The Valuation-Informed Indexers need their own books. “Irrational Exuberance” is amazing. But Shiller took a pass on two huge aspects of the story: (1) the how-to strategic questions; and (2) the story of how his work has been covered up for many years. Those are the issues that I address with a good bit of depth in my book.
Rob
“I don’t quite follow what you are getting at when you say that Shiller has positioned himself to be right no matter what happens.”
Obviously, if the market crashes, Shiller says classic CAPE was right. If the market soars, he says Excess CAPE Yield was right.
And as always, you ignored my simple question. Why is CAPE everything, but ECY is nothing? They both come from the same Nobel Prize winner.
To some extent, I agree with you re this one. I think that everyone (Buy-and-Holders and Valuation-Informed Indexers alike) should be holding Shiller (and all others, to be sure) accountable. We are 19 years into this and we have not yet seen Shiller asked “Is the safe withdrawal rate a constant or it is a number that varies with changes in valuation levels?” We should know what Shiller and everyone else thinks about that question.
And we should know what stock allocation Shiller thinks is best when prices are at today’s levels. He has written that stocks are more dangerous than usual at today’s prices but also that things aren’t as bad as people like me suggest they are. The way to clear up the confusion is to ask him what allocation level he thinks makes sense. You Goons started asking me specifics like that on the morning of May 13, 2002. It is a good way to sharpen one’s understanding of what a person is saying. We should all be doing that with Shiller. And of course we should have been doing it with Bogel when he was alive. Bogle said in one post that he could see how Valuation-Informed Indexing could work. He should have been asked to square that statement with his many statements that market timing doesn’t. You Goons were very, very quiet when Bogle said that he could see how Valuation-Informed Indexing could work. A big part of the problem is that you DO NOT WANT TO KNOW how stock investing works. You prefer not to know to being confronted with mistakes that you have made in the past.
I wrote an entire column on the Excess CAPE YIeld stuff. I do not think it is nothing. But it certainly does not make me feel more comfortable about today’s stock prices. It makes me feel LESS comfortable. Today we have huge pressures for stock prices to fall over time and also huge pressures for interest rates to rise over time (which would bring stock prices down even more). That’s the worst of all worlds. I don’t think that Shiller covered himself in glory in the article in which he used the Excess CAPE yield concept to “justify today’s stock prices.
That said, yes, he IS a Nobel prize winner. So I think it is important that people listen carefully to what he has to say re these matters. The fact that the guy who is the leading advocate of the idea that valuations matter would say these things is a big deal and it counts in favor of the Buy-and-Hold position. I think that the answer is for everyone to join in the debate. We need to hear the positions of both sides expressed with the full strength with which they are felt. It’s theoretically possible that Shiller is right re this matter and that I am wrong. I don’t think so. But then, I wouldn’t, would I? Each investor needs to be exposed to both sides and to think the matter through and then to invest pursuant to the conclusions that he arrives at as the result of hard thinking about the matter. That’s the best that us flawed humans can do in this flawed world that we live in.
No one has all the answers. Not me. Not Shiller. Not Bogle. Not Lindaeur. Not Greaney. Not Pfau. We all need to give it our best shot and we all need to agree to abide by the laws of the country we live in when engaging in discussions re these matters. That’s the answer. I am sure.
Rob
“We need to hear the positions of both sides expressed with the full strength with which they are felt.”
That’s ridiculous. We only need to hear positions which are backed up with data. Your data-free feelings are of no value, no matter how many thousands of words it takes you to express them.
You obviously disagree. I guess we’ll see who is right, in the increasingly unlikely event that anyone ever reads your book.
Okay, Anonymous.
I naturally wish you all the best that this life has to offer a person regardless of what investing strategy you favor, in any event.
Rob
“ A book present the complete case in a complete and in-depth and detailed manner. There is great explanatory power in that,”
It seems that the internet can do that better versus a book. What are you putting in the book that you haven’t posted here?
I will not be putting anything in the book that I haven’t put in posts and in columns and so forth. The difference is that all of the ideas will be advanced in one place. That increases their power by many times. If one influential person reads the book and is convinced of the case, that person could play a role in opening the entire internet to honest posting re the past 40 years of peer-reviewed research. Then all of the material that I have developed over the past 19 years reaches a much larger readership and thousands of others who have grave doubts re the Buy-and-Hold dogmas come to feel safe participating and we are all off to the races,
Rob
“ The difference is that all of the ideas will be advanced in one place. ”
Which can be easily done by creating a single page with links to every point you want to make. Much easier and more focused versus a book.
No.
The 40-year ban on discussion of Shiller’s Nobel-prize-winning research has hurt millions of people in very serious ways. We need to come to terms as a society of people with what we have done as a society of people. To come to terms with this, we need to work through each aspect of the question carefully and completely. That takes a book-length treatment of the story.
In ordinary circumstances, the words “Valuations affect long-term returns” should have been enough to persuade every person on the planet that there is precisely zero chance that the safe withdrawal rate is the same number at all valuation levels. Things obviously did not play out that way, If we are to be certain that we will never need to go through something like this again, we need to know why. There’s not a one-page answer to that one. That one is going to take 150,000 words to answer properly.
We all need to come to terms with what has happened so that we can all move on to better things. There are no shortcuts. It’s taking shortcuts that got us to where we are today, with a CAPE level in the mid-30s. Not this boy, you know? I intend to do all that it is in my power to do to take us all to a far better place. I intend to give it my very best shot. I can do no more and I can do no less.
My best and warmest wishes to you.
Rob