I’ve posted Entry #655 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Research Findings Are Both Amazing and Completely Unremarkable.
Juicy Excerpt: To say that valuations affect long-term returns is to state the obvious. There are thousands of markets in existence. There is a market for pencil sharpeners and there is a market for paper clips and there is a market for cotton balls and there is a market for bowling balls. In every last one of them, the price that is paid for the product being offered for sale affects the value proposition obtained by making the purchase. What Shiller showed is that it works that way with stocks too. Common sense could have told us that. It’s certainly a nice thing that he reaffirmed the merit of looking at things with a common-sense perspective. But I think it would be fair to say that it’s more than a little odd that someone would be awarded a Nobel prize for doing that.
You seem to spend all you time talking about things that people never said, yet ignoring what they actually say. For example, Shiller never said to time the market with CAPE, yet you try to make it seem like he has endorsed it. On the flip side, you wife told you to get a job to support the family, yet you chose to ignore those words. It seems you like to live in some kind of bizzaro world opposites.
Shiller absolutely endorsed market timing in the clearest terms imaginable. He issued a paper in 1996 looking at how stocks perform long-term starting from the sort of CAPE level that applied at the time and ended it by warning stock investors who were going with a high stock allocation that they would live to regret it within 10 years. That’s market timing and there’s nothing even a tiny bit subtle about it.
He offered a throwaway comment in an interview years later in which he indicated that he had changed his mind about some aspect of the market timing story. The interviewer did not ask any follow-up questions and Shiller’s comment was not sufficiently detailed for us to be able to say precisely what he was trying to communicate. I certainly do not believe that he was trying to say that market timing is not required. To say that would be to reject the value of his entire life’s work. Someone wouldn’t reverse themselves re their entire life’s work, work that earned the person a Nobel prize, without being a lot more clear and a lot more detailed in the message.
But he was trying to communicate SOMETHING in that comment and, given how important the market timing question is to every investor alive today, we all should be doing everything in our power to find out precisely what. The only way to do that is to ASK HIM. This is why I have been advocating for years now that a group of us invite Shiller to sppear at the Bogleheads Forum for the purpose of getting a clear picture of his previse views on the merits of market timing and on whatever caveats he believes should be employed with any advocacy of it. I am of course 100 percent happy to participate in such an event, representing the Valuation-Informed Indexing side of the table..
I am confident that Shiller will go into great detail on the need for market timing and on the benefits that follow from it, both for the individual investor and for the society as a whole, in the days following the next Buy-and-Hold Crisis, when I believe that the bitter reaction to the exploration of the how-to implications of Shiller’s Nobel-prize-winning research by the Buy-and-Hold will have subsided a bit. I of course worry greatly about the collective pain that will be suffered by millions of good people during that crisis. But I greatly look forward to the huge economic advance we all will enjoy as a result of our collective decision to bring the ban on honest posting re these matters to a full and complete stop.
The Bennett/Pfau research shows that market timing is 70 percent of what it takes to achieve long-term investing succcess. If the Buy-and-Holders really did get it wrong in thinking that there might be some alternative universe where everything works the opposite of how it works here on good old planet Earth and market timing/price discipline is not always 100 percent required for every investor, we of course very much need to be spreading the word on a daily basis at every discussion board and blog on the internet.
That’s my sincere take re this terribly important matter, in any event.
My best and warmest wishes to you and yours, dear Goon friend.
Rob
Shiller never said to time the market with CAPE. Just the opposite. He said that you should not time the market with CAPE. You wouldn’t listen and that is why you are broke. Wade Pfau also does not recommend market timing. Just read his books, listen to his podcasts and check out his website.
Shiller said with absolute clarity in his 1996 paper that market timing works. His Nobel-prize-winning research shows that valuations affect long-term returns. If that’s so, then the value proposition of stocks CHANGES with changes in valuations. So an investor who refuses to engage in market timing thereby causes his risk profile to get out of whack. Not super smart, you know?
Wade researched the question for 16 months and concluded that: “Yes, Virginia, Valuation-Informed Indexing works!” The only thing that distinguishes Valuation-Informed Indexing from Buy-and-Hold is that Valuation-Informed Indexing calls for market timing and Buy-and-Hold does not. Wade sent me numerous emails during the time when we were working together expressing his amazement at how well market timing has worked for the entire history of the market, He was very clear and confident in his support of market timing.
Now, obviously, you can get people to say things they don’t believe by threatening them. That’s why we have laws against extortion. Take away the intimidation tactics that we have seen from the members of the Buy-and-Hold Goon Squads and in not too long a time we would all be in agreement that market timing/price discipline is always 100 percent required and we would all be practicing it and we would see the greatest surge of economic growth in our nation’s history. I can live with that, you know?
If there were any reason for beliving that market timing is not always 100 percent required, you Goons would have presented it many years ago. I mean, come on. Wade searched and searched for a single study suggesting that there might be circumstances in which market timing wouldn’t work and never came up with anything. Gee, I wonder why.
The “idea” that market timing might not always be 100 percent required was a mistake, Anonymous. The thing to do when you discover thwt you made a misatake re such an important matter is to FIX that mistake immediately and thereby get it behind you. I have been recommending that the Buy-and-Holders fix their mistake going back to the morning of May 13, 2002. I think that’s the answer.
I’m sure of it!
Rob
Neither Shiller no Pfau has stated to use market timing with CAPE and you know it. You just give it your spin. Setting that aside, there not one single successful outcome with market timing. You are the supposed expert on timing, yet even you went broke. Sorry, but the rest of us prefer to not be broke when we retire.
Okay, Anonymous, I do wish you all good things, in any event.
My best wishes to you and yours.
Rob
“ My best wishes to you and yours.”
You say that, but then you call us all goons, tell us we are going to prison and hope we all go broke.
Tell us again as to who is making the abusive posting.
I call you Goons because you behave in a Goon-like manner. That’s a big part of the story. If you behaved nornally, people would not be afraid of you and we could all have the discussions about the research that our boards were formed to facilitate. If I don’t mention the Goon thing, I am leaving out an important part of the story. Without the Goon stuff, everyone would have learned what the research says many years ago and today’s CAPE value would not be 31.
I believe that there are going to be some people going to prison. I have done everything in my power to keep the prison sentences as limited as possible. Surprisingly enough, however, you Goons often do not listen to me. There’s only so much I can do.
I do not hope that you go broke. I do think we are going to experience another Buy-and-Hold Crisis within the next year or two or three. But we are all going to suffer as a result of that, even people who do not have any money in stocks (because millions of people will lose their jobs in a Buy-and-Hold Crisis).
Anyway, I do wish you all the best.
Rob
Rob,
It is name calling and abusive. Making up stories about going to prison is abusive. For the last two decades, you have told us all about a buy and hold crisis coming in the next 2 or 3 years will result in millions of us losing our jobs, yet each prediction comes and goes with nothing happening. That is just fear mongering. Of course your intent is just to try and distract from your failures, but you are doing it in a way that is clearly abusive.
20 years ago, you posted your retirement plans and how you would be successful, while also telling us about the market crash coming within a few years and how all the buy and holders would lose most of their money and jobs, along with going to prison. Today, we see that all of your predictions failed. You are broke and the buy and holders are doing just fine.
Outcomes matter. End of story.
I don’t think it’s abusive. I think it’s descriptive. The ban on honest posting in the investment advice field is the most important public policy issue facing the United States today. It’s a strange one. We have laws against death threats and extortion and so on that apply in every field of human endeavor outside of the investment advice field. So it’s hard for people to understand what is going on in the investment advice field.
My job as a journalist is to tell that story as clearly and as fully and as charitably as possible. Referring to you Goons as “Goons” is part of that (while at the same time noting the positive contributions you have made from time to time, which is something that I have also done).
Say that there is a one-in-a-hundred 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 truly does lack an adjustment for the valuation level that applies on the day the retirement beings. After 21 years of this stuff, I would put the odds more at something like 99.999 percent. But let’s just say that there is only a 1 percent chance that I was right all along. If that’s so, then we should be talking about the error that Greaney made in his study at every site on the internet, even on non-investment sites.
It’s important to keep in mind that Greaney is not the only one who has made that error. There have been thousands and thousands of newspaper and web site articles that have made reference to the “4 percent rule.” It’s become conventional thinking in this field that a 4 percent withdrawal is safe even though we have 42 years of peer-reviewed research showing that it is a logical impossibilty that the safe withdrsawal rate is the same number at all valuation levels.
We need to get word of what the last 42 years of peer-reviewed research says out to every citizen of this nation. It’s not just that we are going to see millions of failed retirements if we fail to do that. Heaven knows that that’s a very bad thing, but that’s not even the worst of it. What are the political implications if we see millions of failed retirements and millons of people losing their jobs and all the rest and only then do people learn that peer-reviewed research was published in 1981 showing that there is zero chance that a pure Get Rich Quick/Buy-and-Hold strategy could ever work for a single long-term investor?
Opening the entire internet to honest posting re the peer-reviewed research is not something that benefits only Valuation-Informed Indexers. It benefits Buy-and-Holders greatly. We all are capable of making mistakes and, by opening the internet to honest posting re the peer-reviewed research, we protect ourselves from taking on financial and criminal liability for those mistakes. The ban on honest posting has put our Buy-and-Hold friends in a horrible place. They have made lots of positive contributions. They deserve better. We all should be doing everything in our power to see the ban lifted by the close of business today, if not a good bit sooner.
That’s where I am coming from re this one in any event, my dear Goon friend.
I naturally wish you all the best that this life has to offer a person regradless of what investmet strategy you elect to follow, in any event.
Rob
20 years ago, you posted your retirement plans and how you would be successful, while also telling us about the market crash coming within a few years and how all the buy and holders would lose most of their money and jobs, along with going to prison. Today, we see that all of your predictions failed. You are broke and the buy and holders are doing just fine.
Outcomes matter. End of story.
I obviously don’t think that the vast majority is Buy-and-Holders are at any risk of going to prison. I was a Buy-and-Holder myself at one time. I don’t believe that I will be going to prison.
But, yes, I do believe that those who have engaged in criminal behavior to suppress the discussion of the last 42 years of peer-reviewed research on the internet are at risk of going to prison. I think that millions of people are going to be pissed off when they lose a large percentage of their life savings in the next Buy-and-Hold Crisis. We will have to wait to see how it all plays out. I believe that we should have been permitting honest posting re the peer-reviewed research all along and then of course there never would have been any problem.
The time to warn people about the dangers of a high CAPE level is before the Buy-and-Hold Crisis occurs, not after it talkes place.
That’s my sincere take, in any event.
Rob
We have seen it all play out, Rob. You are broke. You are wrong. The only criminal behavior is from you.
Got it, Anonymous.
My best wishes ro you.
Rob