I’ve posted Entry #625 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called What CAPE Value Justifies Alarm?
Juicy Excerpt: Robert Shiller was recently quoted as saying that he is not alarmed over today’s CAPE value even though “It kind of puts us where we were in other times in history that were relatively extreme.” According to Shiller, the author of the book Irrational Exuberance, “the stock market has performed very well over the last 100 years. I like to look at long-term time horizons. And so when it’s highly priced, it doesn’t necessarily make it a horrible investment.” I do not agree. I am alarmed by today’s high CAPE value.
So, who do we agree with. You or Shiller? You are broke and unemployed. Shiller is not. Not a hard choice as to which one of you to believe.
You are allowed to believe in whoever you want to believe in, Anonymous. Me or Shiller or anyone else. It’s a personal chouce.
I think I did a very good thing by pointing out the error in Greaney’s retirement study. I’m proud that I eventually worked up the courage to do that. Some would say that was a mistake. There were people who I met at the personal finance bloggers conventions who made tons of money saying the sorts of things that I was saying in the days before I advanced that famous May 13, 2002, post. I could have been one of them. No board bannings! No death threats! No divorce! That was open to me. And I was warned. It wasn’t like you Goons threatened to murder my loved ones on the afternoon of May 13, 2002. That only happened after I made it pretty darn clear that I intended to continue to say that the Greaney study lacked a valuation adjustment no matter what. So that was a choice.
I think it was a wonderful choice. I see is as my finest moment. I suppose that Wade Pfau would say that that was the wrong choice. The heat got too hot for him and he moved out of the kitchen. I said: “give me all you got!”, you know? I didn’t enjoy the heat. Not one little bit. But I preferred taking the heat to going back to being a little mouse in the corner, knowing that the Greaney study lacked a valuation adjustment and not saying anything about it. Yoy may recall that I said in an email to Wade that he was “insane” to flip to the Goon side. From my perspective, that’s the reality. His perspective is different. Different people do different things. Different people lead different sorts of lives.
It could be argued that Shiller has made things worse. I think his research is amazing. Obviously. But the other side of the story is that we have had higher CAPE values remain in place for longer lengths of time than was ever the case prior to the publication of Shiller’s research. It’s as if Shiller discovered the cure for cancer and then the number of people dying from cancern increased. That’s pretty messed up. That obviously wouldn’t have been the case if he has included a chapter in his book in which he pointed out that, gven his research findings, there is preciselty zero chance that the safe withdrawal rate could be the same number at all CAPE levels so we need to pull together as a nation of people and get all the Buy-and-Hold retirement studies corrected immediately. That certainly would have made a difference. Shiller messed up.
Or did he?
If Shiller has said things as clearly as I say them, it may be that he never would have been able to get his book published and that he never would have been awarded that Nobel prize. So I wouldn’t have known about him and I never would have come to learn all the things that I believe that I have come to learn. The CAPE value would be every bit as high as it is today. The difference is that I wouldn’t be 80 percent finished a book on how all this stuff came to be. So, when the next Buy-and-Hold Crisis hit and we were at risk of the CAPE falling to 8, I wouldn’t be around to reassure people that a CAPE of 8 is every bit as crazy as a CAPE of 29 and thereby prevent us from falling into the Second Great Depression. So maybe Shiller is a hero for playing it the way he did. There are different ways of looking at things.
Bob Dylan has a song called “Born in Time.” The world exists before we come along and then we enter it and do our best to make our way through it in some sort of sensible way. That’s life, that’s how it goes. I like you Goons. I liked you before I put up the May 13, 2002, post and I like you today. But I also like learning stuff about how the world works and then passing along what I have learned to people interested in knowing about it. That’s why I became a journalist. It’s not just what I do. It’s what I AM. That runs deep.
There’s never been a bigger journalistic opportunity than the one I stumbled onto on the morning of May 13, 2002. The shift from Buy-and-Hold to Valuation-Informed Indexing changes the world in a very big and very positive way. And it’s all backed by 41 years of Nobel-prize-winning research. It affects not just millions of people but hundreds of millions of people. And it’s me leading the parade. I am near completion of the book that no one else (including our friend Robert Shiller!) has had the courage to write. This is bigger than the Watergate story. It’s bigger than when Rachel Carson worked up the courage to write “Silent Spring.” My life producced this book. All of the crazy experiences that I have been through over the years somehow produced a person who would see this matter through to completion even when people who he loved and respected told him “hey, you might want to let someone else lead the charge, cowboy.” This story is me. It just is. I’m proud of it.
Yes, the divorce hurts like the blazes. That level of pain causes me to ask questions. If there’s a God (I believe there is), then my first question to him is going to be “Was that really necessary, couldn’t you have found some other way to make whatever point it is that you were trying to make?” But I can’t say that I would have played it differently even if I had known that it was going to lead to this awful, awful divorce. I had trained all my life to get the big story and the big story fell into my hands and so I did what I was trained to do. The last line of my first book was about how a dog feels when he chases a frisbee and how gaining financial independence early in life lets you gain access to that feeling. That’s how it played out for me. The saving stuff permitted me to pursue the investing stuff. And the investing stuff turned out to be the biggest story of my lifetime. It’s amazing and humbling to be at the center of it.
I am not going to say that Shiller did wrong. I can see the case for saying so. I can also see the case for saying he did not do wrong. I think that only God can render final judgments re some of these questions. I think that I probably behaved in the only manner in which I was capable of behaving, given the importance of the story and given what I am deep inside. I try to look at everyone involved (including you Goons!) in a spirit of love and just accept that crazy things happen in this mixed-up world of ours from time to time and that the past 20 years just happened to be one of those times. And I of course hope (and believe) that all will be set right on the final page of our little saga. I was born in time and I did the best that I could do with the little stretch of life handed out to me. That darn Greaney study really does lack a valuation adjustment! I am sure!
My best wishes to you, Anonymous.
Rob
You are divorced because you wouldn’t listen to your wife, just like you ignore everyone else. Being broke and divorced is a horrible outcome.
We have a different perspective, Anonymous. I think that being honest with your friends about the numbers that they are using to plan their retirements is a wonderful outcome. I love my ex. I wouldn’t want her to have to live in a world in which there was no one who possessed the courage to be honest with their friends re the numbers that they were using to plan their retirements. So I have done what I could do to make the world a better world for her to live in even when she is not able because of her own life experiences to understand that that is what is going on.
My best wishes.
Rob
Actually, we have the same perspective that we need to honest with the numbers. Your number is zero. You are broke. You want your wife to have a secure retirement. She doesn’t, so she divorced you.
I believe that the same laws that apply in every field of human endeavor outside of the investment advice field need to be made applicable in the investment advice realm as well. If we are not going to permit ourselves to discuss the last 41 years of peer-reviewed research at every site on the internet, we should just shut down all of the peer-reviewed journals. The purpose of doing peer-reviewed research is to learn things. And we cannot learn from the new research unless we give ourselves permission to talk about it. The current state of play is not tenable as a long-term proposition.
That’s where I am coming from. It will be interesting to see how it all plays out, especially in the days following the next Buy-and-Hold Crisis.
Rob
It’s been discussed. You just like the answers. Your wife did what any logical wife would do. She needs to be supported and you failed. You are in your 60’s. Game over.
Okay, Anonymous.
Would you tell your friends to quit their jobs and ignore their wives? Would you tell your friends that it is okay to deplete your savings?
Only in the most extreme circumstances imaginable.
The situation in InvestoWorld today are the most extreme circumstances imaginable.
Say that there is a 1 in 100 chance that I was right in what I said in my famous post from the morning of May 13, 2002 — 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. Personally, I believe that the odds are more like 99.9999 percent. But let’s say for purposes of discussion that the odds are only 1 in 100.
If that’s the case, then we should be discussing that possibility at every investing discussion board and blog on the internet. Greaney isn’t the only one in this field who made the mistake of thinking that the safe withdrawal rate is always 4 percent. That mistake was repeated by thousands and thousands and thousands of investment advisors. There were newpaper articles on retirement planning that cited the infamous “4 percent rule.” The single most important purpose of investment advice is to help people put together their retirement plans. If the people in this field cannot get an error in a retirement study THAT INVOLVES THE SIMPLE CALCULATION OF NUMBERS corrected in 20 years, then I think it would be fair to say that the entire field has been corrupted in a very, very serious way.
That’s the state iof play today. We are facing not just an economic crisis. We are facing a political crisis. Look at what happened in the wake of the Buy-and-Hold Crisis of 1929. A significant percentage of the population was beginning to lose confidence in our system of government in the wake of the 1929 crisis. It’s worse today. In 1929, we wandered into a crisis because we didn’t know how the stock market worked. Today, we don’t have that excuse. Today we have 41 years of peer-reviewed research showing us how it works, research of such quality that its author was awarded a Nobel prize. Yet we are permitting the next Buy-and-Hold Crisis to take place because our Wall Street Con Men friends very, very, very much do not want to acknowledge that they made a mistake back in the 1960s when they came up with their “idea” that there mught be some alternate universe 20 billion light years away in which market timing/price discipline is not required at all times for every investor. Huh? How do you think the cover-up is going to fly when millions of middle-class people learn why they have lost much of thier life savings in the next Buy-and-Hold Crisis?
Would I tell me friends to risk getting killed by terrorists if they learned about the plans to attack the trade center buildings on 9/11 and informed tbe authorites? I would tell them to do anything they could come up with to protect themselves and their families. But, yes, ultimately, I would tell them that they had to inform the authorities of what they had come to learn. The alternative would be that they would not be able to sleep at night, that they would not be able to live with themselves from that point forward because of what their cowardice had done to thousands of human lives. In those extreme circumstances, I would say, yes, you somehow have to work up the nerve to do what simple must be done.
We cannot go forward as a nation unless we find some means of getting accurate, honest, research-based investment advice out to the millions of people who need access to it, Anonymous. That’s the bottom-line here. This is not an optional matter of national business. It is a 100 percent imperative matter. That is my sincere take re the matter, in any event.
My best and warmest wishes to you and yours regardless of what investment strategy you elect to pursue.
Rob
If you were right, you wouldn’t be broke and divorced.
We disagree, Anonymous. It’s BECAUSE I am right that I am broke and divorced.
If Greaney had included a valuation adjustment in his retirement study, he would have pointed to it when I called him out on the error. I think that Evidence nailed it when he said that nobody truly believes that Greaney included a valuation adjustment in his study. Greaney knew from, the first moment that there was zero chance that he could show that I was wrong. So he played it this other way, which led to me being broke and divorced.
There is no valuation adjustment in the study. I am sure.
Rob
“ We disagree, Anonymous. It’s BECAUSE I am right that I am broke and divorced.”
When you are right, you stay married. When you are right, you have a secure retirement. When Evidence agrees with you, you don’t have to twist his words and leave out what he really said.
Greaney did not tell you to quit your job. Greaney did not tell you to get out of the stock market. Greaney told you the same thing as you wife (get a job).
My best wishes to you, Anonymous.
Rob