A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“Look at What the Price Indifference That Is at the Core of the Buy-and-Hold Project Has Done to Us Over and Over Again Over the Years. A Great Depression When the CAPE Value Hit 33? Huh? What the F? Stagflation When the CAPE Value Hit 25? Huh? What the F? A Great Recession That Caused Millions to Lose Their Jobs and That Has Brought on a Good Bit of Political Unrest in Recent Years When the CAPE Value Hit 44? Huh? What the F?”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Can you introduce me to this VII investor that has been following VII since 1870? I would like to meet him and ask him a few questions.

This is why I have been calling for the launching of a national debate re these matters. That national debate will be our opportunity as a people to ask ourselves some profound questions about our behavior as investors going back to the time when the first stock market opened for business.

There is only one difference between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Hold is rooted in a belief that investment choices are rational. If the decisions we make about stock investing are rational, it follows that the market price does a good job of reflecting the true value of our stock holdings. Buy-and-Hold makes intuitive sense. OF COURSE investors are rational when deciding what to do with their retirement money. Their financial futures are at stake. Why would they not make rational choices?

Valuation-Informed Indexing is rooted in a very different premise, one that most people find highly counter-intuitive. Shiller’s wife has a degree in psychology. She got him interested in doing the “revolutionary” (his word) research that he did by talking to him about the many ways that research in the psychology field shows that humans are generally NOT entirely rational creatures. We certainly engage in large amounts of rational behavior. We are the rational animal. But the full reality is that we are also the rationalIZING animal. We lie to ourselves. All the time. Our brains are capable of discerning truth. But when our brains tell us something to which we have a strong emotional repulsion, we turn off our brains and go with what we want to believe over what the evidence shows to be the reality.

There are many alcoholics who are highly functioning people. They hold good jobs. They make lots of money. They help people. They are respected in their communities. All the while, they are engaging in behavior that threatens to destroy their family and their reputation and their health. What happens if a friend tries to tell an alcoholic that he has a problem that he needs to address? The alcoholic gets angry and insists that he can quit drinking any time he pleases. He has no problem. He will give up the friend if it comes to that. He will not give up the drink that is in the process of destroying him. Rational? Not even a tiny bit. But the alcoholic is not dumb. He develops in his mind a logical case for why he has the drinking under control that is strong enough for him to persuade himself that it is so. He is not entirely persuaded. If he were, he wouldn’t get angry when the subject came up. He is sufficiently persuaded to be able to go on drinking, which is his deep emotional desire.

That’s the story, Anonymous. We invest irrationally. We delude ourselves. We are all in on it. The investment advisers are in on it. The academic researchers are in on it. The bloggers are in on it. The book authors are in on it. To get to a CAPE value of 30, we pretty much all need to be in on it. If we permitted the Buy-and-Hold dogmas to be challenged in public places, the illusion would shatter and we would gain the ability to invest more effectively. That sounds like a good thing just as it sounds like it would be a good thing for the alcoholic to stop drinking. But the idea of not drinking is hated by the alcoholic and so he uses all his energies to develop ever more complicated rationalizations for why his drinking behavior is just fine. And the idea of acknowledging that our stock portfolios are worth only one-half of what we have fooled ourselves into believing they are worth is hated by the Buy-and-Hold investor with a burning, undying hate. He will stop the discussion of the 38 years of peer-reviewed research showing us that this is so if it is the last thing he does.

Shiller is trying to help us. He is trying to take us to a new place, a better place, a place where we can earn higher returns while taking on less risk. But, to get there, we need to work up the courage to acknowledge that we did not always know everything that there is to know about stock investing, that it was still possible in 1980 that we could achieve huge advances if we continued to perform research and to give those who came up with revolutionary research findings a fair hearing.

You say that you want to ask questions of the investor who has been around since 1870. The question that you should be asking is: “Why have you f’d up so terribly so many times? U.S. stocks provide a long-term average return of 6.5 percent real. How could anyone ever come up with a strategy that would cause that investment class to be less than a stellar choice? But look at what the price indifference that is at the core of the Buy-and-Hold project has done to us over and over again over the years. A Great Depression when the CAPE value hit 33? Huh? What the f? Stagflation when the CAPE value hit 25? Huh? What the f? A Great Recession that caused millions to lose their jobs and that has brought on a good bit of political unrest in recent years when the CAPE value hit 44? Huh? What the f?

The question that I would ask the 1870-2019 investor is: Why do you keep doing this to yourself? Why not just practice price discipline when buying stocks as you do when you buy sweaters and bananas and automobiles? Wouldn’t that make more sense?

Valuation-Informed Indexing makes all the sense in the world. The trouble is that it makes as much sense as telling an alcoholic to join a 12-step program. It could solve a huge problem. But it would solve the problem by causing humans to give up a cherished illusion and the emotional humans love their illusions so much that they will fight very, very, very hard to hold on to them.

Shiller is trying to help us. The peer-reviewed research in this field is trying to help us. The thousands of our fellow community members who have expressed a desire that honest posting be permitted at every discussion board and blog on the internet are trying to help us. Will we let them? That’s the question that we most need to be asking the 1870-2019 investor, who is us.

I think that we are going to permit ourselves to advance to a far superior approach to investing, the first true research-based strategy. I wish that we were not doomed and determined by our emotional nature to hurt ourselves so seriously before getting to the point where we work up the courage needed to take the leap. But that’s the reality of the day. We want to move forward. If we didn’t want to move forward, we would not have awarded Shiller a Nobel prize for his work. But we very, very, very much want to keep drinking too. We want to believe that the numbers on our portfolio statements are rooted in economic realities and that we can count on those fictional amounts to finance our retirements. We are for the time stuck standing at the threshold of something amazing and afraid to take the step forward that we need to take to live better lives from that time forward.

I wish us luck!

Rob

“I Only Feel Competent to Address One Question. Are Stock Prices Determined By Rational Assessments or By Emotional Inclinations? There Are Lots of Smart People Around Who Address Themselves to All of the Hundreds of Other Important Issues That Arise in Discussions of Stock Investing. That Said, I Believe That the Valuations/Emotions Question Is BY FAR the Most Important Investing Question. And I Not So Humbly Submit That I Am the World’s Leading Expert on That One Important Question.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

If someone came to you today and said they wanted to invest their life savings of $5 million by following the VII strategy, what specific investments and percentage allocations would you give them as a recommendation?

I like that question. It seems down-to-earth and real.

I only feel competent to address one question, Anonymous. Are stock prices determined by rational assessments or by emotional inclinations? There are lots of smart people around who address themselves to all of the hundreds of other important issues that arise in discussions of stock investing and I prefer that people looking for guidance turn to those others over me because I don’t believe that I possess any special expertise re any of those matters.

That said, I believe that the valuations/emotions question is BY FAR the most important investing question. It is also the most ignored investing question. The valuations/emotions question is the undiscovered continent of investing analysis. There is nothing more important in any market than the exercise of price discipline and, without an understanding of the valuations/emotions question, it is not possible for the stock buyer to exercise price discipline effectively when buying stocks. I would say that getting a handle on the valuations/emotions question is 70 percent of the story of how to become a successful long-term stock investor. It is one question but it is the one question that is so important and so poorly understood today that getting a handle on that one question provides the investor with 70 percent of what he needs to know to achieve his goals.

And I not so humbly submit that I am the world’s leading expert on that one important question. I didn’t set out to become the world expert on valuations/emotions. I was just some guy at a discussion board on early retirement who didn’t want to see my friends suffer failed retirements and thus worked up the courage to point out that the study that they were using to prepare their retirement plans lacked a valuations adjustment despite 21 years (at that time) of peer-reviewed research showing that one is required to get the numbers right. The reactions that I saw to that post told me that I was on to something “revolutionary,” to use Shiller’s word.

I saw intense positive reactions (many people told me that I was the first person who ever talked about stock investing in a way that made complete sense to them) and I saw intense negative reactions (a greater number either advanced death threats or tolerated those who advanced death threats in their presence). I knew when I saw those reactions that the story of how as a society we have for decades avoided exploring the far-reaching implications of Shiller’s work was the biggest story that I was ever going to stumble upon and that, if I truly believed that journalism is a noble calling (I do or I wouldn’t have made it my life’s work), then I had better get about the business of nailing this one down.

I have now spent 17 years of my life doing just that. I think that I have done a good job. I of course did not do it on my own. I had help from thousands of fine people, including some of the biggest-name experts in the field and lots of ordinary folks who just want to gain a better understanding of how to invest in stocks with less risk and with a good chance of earning far higher returns in the long run. I have told the story. I have been denied the readership that my work merits because of the corruption that has come to dominate this field in the Buy-and-Hold Era. But I believe that as a society we will be dealing with that corruption in the days following the next price crash. And then the work that I have done will be helping millions of people in a very big way. Shiller’s research changes everything. Absolutely everything. And I am the only guy walking Planet Earth today who can tell the story with the depth and detail with which it is told on the pages of this web site, So good for me (and good for all the people who have helped out — that includes you Goons!), you know?

So I know something very, very very important. And I know it in great detail and in great depth. But I know only one thing (the valuations/emotions thing). If I venture outside of my area of expertise, all that I am going to do is to mess people up. So the wise course of action for me is to keeping hitting away at the one big thing that I know better than anyone else while taking a pass on the hundreds of things that lots of others know better than me.

That’s preface.

I would tell that person that valuations matter and why I believe that and then try to answer any questions that he had or to address any concerns that he had. Does that answer your question?

I don’t believe that there is one answer to your question. I write for the average person. So I recommend index funds. I am persuaded by arguments that were advanced by Jack Bogle (one of my heroes) that index funds are the best choice for the average investor. I would refer people to Bogle’s writings for more detail on why index funds are best for the average person. But I would make that recommendation.

I would of course tell the person that, while investing in index funds as Bogle recommended, they need to take valuations into consideration when setting their stock allocation, which Bogle did not recommend. So I would not just say “do whatever Bogle said.” I would say to do what Bogle said re the many questions that Bogle got right but to not do what Bogle said re the very important question that Bogle got terribly wrong. If the person wanted to know why I am so sure that Bogle got that one important question so terribly wrong, I would tell him. But I would suggest that he read Bogle’s work to gain a good understanding of why index funds are a good choice because I think that Bogle handles that one perfectly well and probably better than I could (since I learned most of what I know about that topic from reading Bogle’s work).

What if the person were a more sophisticated investor, one who believed that he is capable of picking stocks effectively? I would tell him to go for it and wish him luck. I would warn him that investors can fool themselves about their abilities to pick stocks. Bogle pointed out that reality and I think he was right to do so. But I do believe that there are some investors who have the ability to add to their returns by picking stocks effectively and so I would tell the guy that and suggest that he check out all the people who offer good advice on how to do that. I don’t believe that I have much to offer in that area and so I would not say more than that.

Does that answer the question?

I would certainly recommend a lower stock allocation than what is generally recommended today because stock valuations are so scary high today. I would not recommend a stock allocation of zero unless the person was in highly unusual circumstances (as am I). I would recommend 30 percent stocks in the usual case. The reason is that short-term timing does not work and thus it is possible that we will see prices shoot up over the next year or two and I think it is better psychologically if the investor gets to share in those gains to some extent in the event that that happens. So 30 percent stocks would be my general recommendation.

I like TIPS and IBonds and CDs for the non-stock portion of the portfolio. But I am okay with other options for investors who have a strong desire to go with other options. I was talking with a friend about these matters about two weeks ago and I persuaded him that most experts are not giving due consideration to valuations. He hated the idea of going with TIPS or IBonds or CDs because he believes that the returns available from those asset classes today are too small. So he came up with the idea of moving a good portion of his money to high-dividend-paying stocks. He wanted me to endorse that choice. I did not do it.

I said that it made a good bit of sense to me. I said that I could imagine endorsing it if lots of people who believe that valuations matter studied it and came to the conclusion that it is a good choice. But I said that as of today I have not seen enough research on and discussion of that particular question to put my name to an endorsement. I did not oppose the idea. But I just don’t feel sure enough that that is the way to go to put my name to an endorsement. I feel sure that valuations matter. So I endorse valuation-informed strategies. But I believe that more study is needed re lots of follow-up questions. That’s why I always argue for the launching of a national debate re these matters.

I hope that that helps at least a tiny bit, my dear friend.

My best and warmest wishes to you and yours.

World Expert (re One Question Only!) Rob

“I Loved Your Article Explaining How Thousands of Wasted Studies Were Published re the Issue of Depression Because Research With a Dubious Foundation Was Accepted Uncritically By Too Many. I Have Devoted the Last 17 Years of My Life to Exploring How This Same Phenomenon Applies in the Investing Advice Field.”

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Set forth below is the text of an e-mail that I sent on May 21, 2019, to Ed Yong, the author of an article posted at TheAtlantic.com titled A Waste of 1,000 Research Papers: Decades of Early Research on the Genetics of Depression Were Built on Nonexistent Foundations — How Did That Happen?:

Ed:

My name is Rob Bennett. I loved your article explaining how thousands of wasted studies were published re the issue of depression because research with a dubious foundation was accepted uncritically by too many. I have devoted the last 17 years of my life to exploring how this same phenomenon applies in the investing advice field. The Buy-and-Hold model for understanding how stock investing works was never truly supported in the peer-reviewed research, but many smart and good people believe that it was because the 38 years of peer-reviewed research that discredited it has been largely ignored. I have written an article that sums up my efforts to bring more attention to this national catastrophe and which reports on both the efforts of many to help out and on the reasons why such efforts have not thus far been sufficient to launch the national debate that we all very much need to see launched.

Here is a link to the article:

[Link provided here]

I would of course be thrilled to hear any reactions that you have to the article.

Thank you for the good work you have done in bringing this phenomenon to the attention of more people.

Rob

Valuation-Informed Indexing #447: Five Strategies for Weathering Market Declines Ineffectively

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I’ve posted Entry #447 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Five Strategies for Weathering Market Declines Ineffectively.

Juicy Excerpt: There is nothing difficult in knowing when to lower one’s stock allocation in response to increased risk. The historical return data showing us how stocks have performed starting from any of the various CAPE levels is available to all of us. Investors who want to keep their risk profile constant by adjusting their stock allocation in response to big price swings can do so. That strategy has always paid off in the long term. It is certainly so that investors cannot guess in advance when price drops are going to appear. But there is no need for investors to pull off this parlor trick. Investors who keep their risk profiles roughly constant over time do well in the long run. You don’t need to know the precise time when the strategy is going to pay off to understand why sooner or later it will. Stocks are a more risky investment class at times of high valuations. Investors should respect that well-documented reality.

Valuation-Informed Indexing #446: Robert Shiller’s Research Is the Best Response to the Growing Popularity of Socialism

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I have posted Entry #446 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Robert Shiller’s Research Is the Best Response to the Growing Popularity of Socialism.

Juicy Excerpt: A pre-Shiller capitalism doesn’t get the job done. Millions of middle-class people are counting on the money in their retirement accounts to assure their financial futures. If half of that income is the product of a temporary irrational exuberance, those people are going to lose confidence in our economic system when they see years of saving effort laid to waste. A healthy capitalism does not permit the sort of price crashes that have become typical of our stock market in pre-Shiller years. Shiller is trying to help us build a better capitalism. As someone who is concerned about the growing popularity of socialism, I hope that we begin listening more carefully to what he is trying to tell us.

“My Primary Project Today Is Writing the Book ‘Investing for Humans: How to Get What Works on Paper to Work in Real Life.’ I Expect to Finish That By the End of the Year. At That Time, My Intent Is to Seek Employment in the Corporate World. I Will Continue to Write My Weekly Column and to Respond to Blog Comments and to Contact Other Sites at Nights and on Weekends. I Can Continue Doing That Indefinitely Even If There Is Not Money Coming in From the Investing Work.”

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Set forth below is the text of several comments that I recently posted to the discussion thread for another blog entry at this site:

If another 20 years passes and you don’t get your story in The New York Times and you don’t see a dime of the $500 million payout, will you come to the conclusion that you wasted your time?

I think that another 20 years would just about do it, Anonymous. I am a stubborn cuss. But a person struggling to make his way through this mixed-up world of ours has to strive to be at least a tiny bit realistic.

No?

Flexible Rob

Can you afford to wait that long?

My primary project today is writing the book Investing for Humans: How to Get What Works on Paper to Work in Real Life. I expect to finish that by the end of the year. At that time, my intent is to seek employment in the corporate world. I will continue to write my weekly column and to respond to blog comments and to contact other sites at nights and on weekends. I can continue doing that indefinitely even if there is not money coming in from the investing work.

Rob

Job market is great right now. Why not go back to the corporate world now while things are good versus risking a potential down market in the future?

My most valuable asset is the 17 years of material that I house here at the site that tells the story of what the last 38 years of peer-reviewed research teaches us all about how stock investing works in the real world. My top priority is to protect and develop that asset. Finishing the book is a huge advance in that area. So that needs to come first.

Rob

What kind of job will you look for?

I’ve been out of the job market for a long time. I cannot be super choosy. I will be looking for editing jobs or low level jobs in the legal field.

Rob

You can go get a job now, to help avoid your own failure and finish your book during nights and weekends.

That’s not my intent. I have a lot riding on getting this story out and I believe that there’s going to be a big opportunity to get people to listen in the days following the next price crash, when millions of people will be hurting and looking for explanations. So I don’t want to take any chances on not having the book ready to go when the next crash comes. And of course I don’t know when that is going to be. So my aim is just to get it all down in a way that satisfies my high standards and then move on to the job thing.

It’s possible that I could finish the book prior to the end of the year. In that event I could seek employment a few months sooner. However, I don’t want to count on that. Things have been going well. But my experience with big projects is that unexpected obstacles always come into play before you get to the finish line.

I naturally wish you the best of luck in all your future life endeavors.

Rob

 

Buy-and-Hold Goon to Rob: “You Seem to Think That People Have to Convince You That You Are Wrong. In Fact, It Is Just the Opposite.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

You seem to think that people have to convince you that you are wrong. In fact, it is just the opposite. Despite your claims to the contrary, you have failed to provide sufficient proof of your points. You keep referring to what you believe the research says. What you are really referring to is your opinion of what you want it to say. To support research, you must present outcomes data that is also reproducible.

I say that there are two schools of academic thought as to how stock investing works. Both Robert Shiller and Eugene Fama were awarded Nobel prizes for their research. But both cannot be right. Fama says that stock prices are set through a rational process. Shiller says that stock prices are set through an emotional process. Buy-and-Hold is rooted in a belief in Fama’s research. Valuation-Informed Indexing is rooted in a belief in Shiller’s research.

I don’t say that people have to convince me that I am wrong and I don’t say that I have to convince any others that they are wrong. What I say is that both Valuation-Informed Indexers and Buy-and-Holders should post honestly and avoid the use of acts of intimidation against those who subscribe to the other school of thought. That’s what the laws of the United States require and that’s what the published rules of every site to which I have ever posted require.

You and I do not agree re how stock investing works, Anonymous. You are a Buy-and-Holder and I am a Valuation-Informed Indexer. It doesn’t have to be a problem that we disagree. It can be a plus. I can learn from you and you can learn from me. But death threats are a problem. And demands for unjustified board bannings are a problem. And thousands of acts of defamation are a problem. And threats to get academic researchers fired from their jobs are a problem. That sort of thing needs to come to a full and complete stop by the close of business today.

Does that help?

Rob

“When the Buy-and-Holders Persuade Most Investors to Disdain the Exercise of Price Discipline, It Becomes Impossible for Prices to Be Set Right Through Normal Market Operations. That’s When You See a Crash. When a Crash Is the Only Means By Which the Market Can Get Prices Right, the Market Crashes Prices. It Is the Closing Off of Other Options for Getting the Price Right (That Is, It Is Buy-and-Hold) That Is the True Cause of Crashes.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry posted at this site:

See this:

http://www.city-data.com/forum/economics/3044226-hbo-documentary-2008-meltdown.html

I thought you said that buy and hold caused the Great Recession.

I did not watch that video because it is 90 minutes long.

Yes, I do believe that it was the relentless promotion of Buy-and-Hold strategies that served as the primary cause of the 2008 economic crisis. I do not say that there were no secondary causes. I say that there is always going to be something that is going to cause an economic crisis once valuation levels go to insanely high levels.

If honest posting were permitted, stock prices would be self-regulating. High stock prices make stocks less appealing because they bring long-term returns down. So high prices bring on sales, which lower prices. It all works out. However, when there is a Ban on Honest Posting, investors cannot gain access to the information they need to invest rationally. It is the market’s core job to get prices right. When the Buy-and-Holders persuade most investors to disdain the exercise of price discipline, it becomes impossible for prices to be set right through normal market operations. That’s when you see a crash. When a crash is the only means by which the market can get prices right, the market crashes prices. It is the closing off of other options for getting the price right (that is, it is Buy-and-Hold) that is the true cause of crashes. Markets in which price discipline is widely practiced do not crash.

There are always secondary causes for an economic crisis. But those factors would not cause nearly the same amount of human misery if they evidenced themselves at a time when prices were moderate or low. The true, real, deep cause of stock crashes is price indifference (Buy-and-Hold), in my assessment.

Rob

Valuation-Informed Indexing #445: How Low Will Stock Prices Go Following the Next Price Crash?

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I’ve posted Entry #445 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called How Low Will Stock Prices Go Following the Next Price Crash?

Juicy Excerpt: I have been writing on the internet about Shiller’s research for 17 years now and I have seen no evidence that today’s investors possess more emotional balance than did investors from earlier times. I wasn’t on the scene in those earlier days. But I have seen a lot of emotion evidenced by Buy-and-Holders in response to my writings on Shiller’s research. If investors of earlier days were even more emotional, please do not ever put me in a time machine and send me back to experience those days. I don’t think that I could take it.

Shiller’s claim that it is irrational exuberance that sets stock prices in bull markets contains a troubling suggestion. We can never appreciate the instability of stock prices set by emotion at the time that we are living through them. If stock prices really are set by emotion, the emotional creatures doing the price setting are not going to be capable of seeing what they have done. It is in the nature of an emotional phenomena that the rational mind cannot grasp it. Reason and emotion proceed on different mental tracks, they speak different languages.

“What Do You Think Shiller’s Reaction Would Be to the Peer-Reviewed Research Paper that I Co-Authored with Wade Pfau? I Think It Would Be Very Positive. I Think We Should Ask Him. We Should Lift the Ban on Honest Posting at Every Site on the Internet and Make Him Feel Comfortable Expressing His Views on This Subject in Detail and Then ASK HIM. We Could All Learn a Great Deal by Doing That.”

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Set forth below is the text of a comment that was recently posted to the discussion thread for another blog entry at this site:

Your long response shows that you know that you are wrong. Shiller told people not to use CAPE for timing (but you won’t listen). If he thought CAPE could be used for timing (short term or long term) he would have said so. Don’t put words in his mouth. Shiller told people to stay in the market (just like he did). You didn’t agree. You are clearly not on the same page.

Shiller said in July of 1996 that investors who were sticking with their high stock allocations despite the sky-high CAPE value that applied at the time would live to regret it within 10 years. That was clearly a recommendation that people with high stock allocations lower them until prices became more reasonable. It was a recommendation to time the market. It wasn’t a recommendation to engage in short-term timing. There is nothing in Shiller’s research that supports short-term timing. But it was a recommendation to practice long-term timing.

Lots of other big names in this field have recommended long-term timing. Wade Pfau has recommended long-term timing. In fact, he told me that he was practicing it with his own portfolio. And he co-authored a paper with me that showed in great detail that long-term market timing has been providing investors with results far superior to those provided by Buy-and-Hold for as far back as we have records of stock prices. Rob Arnott has recommended long-term market timing. Carl Richards has said that my work advocating long-term market timing has “huge value.” Even John Bogle has said that there are six times in an investor’s lifetime when it would make sense to change his stock allocation, three times when it would make sense to lower it because prices are too high and three times when it would make sense to increase it because prices are too low. That’s market timing and that’s the king of Buy-and-Hold saying that it makes sense. There are many people who are aware of the strong support for long-term market timing in the last 38 years of peer-reviewed research in this field.

All of those who believe that long-term market timing works and is required for investors who want to keep their risk profile roughly constant over time do not agree on precisely how long-term market timing should be practiced. That’s why we need a national debate on these matters. We need to hear everyone’s sincere opinion. And we need to ask questions about the various possibilities advanced. We need to learn. That’s what it comes down to. Shiller published his “revolutionary” research findings 38 years ago and the Buy-and-Holders have been engaging in criminally abusive practices to stop people from discussing their implications ever since. That needs to stop so that we can all learn what works best in all of the various circumstances that can turn up.

If Shiller had issued a clear statement saying that he does not think that long-term market timing works, you would share it with us. I have seen a statement in which he said that he used to think that timing based on CAPE worked but that he no longer thought so. That certainly cuts in your direction but it was not as clear a statement as you are suggesting it was. We need to ask Shiller to discuss that opinion in a place where he can be questioned as to precisely what he meant by it.

I believe that he was referring to his 1996 prediction, which failed. I believe that he is embarrassed by that prediction and he wanted to show that he learned something from the experience of making a prediction that did not play out. There are cautions that need to be kept in mind when practicing long-term timing; Shiller certainly believes that and I certainly believe that. But I don’t think that Shiller was saying that stock investing risk is constant. Shiller’s life work shows that stock investing risk is VARIABLE. If valuations affect long-term returns, as Shiller showed is the case, then stock investing risk VARIES with changes in CAPE levels. If that is so, then the investor who wants to keep his risk profile constant MUST adjust his stock allocation in response to big changes in valuations.

Do you believe that, if asked, Shiller would say that the safe withdrawal rate in January 2000 was 4 percent? I sure do not. That was the issue that I raised in my famous post of May 13, 2002. I asked a question: Should we be taking valuations into consideration when calculating the safe withdrawal rate? If Shiller’s research is legitimate, then we MUST do that or we will get the numbers wildly wrong and hurt people in very, very serious ways.

I would bet $100 that, if Shiller was asked, he would say that the safe withdrawal rate is not 4 percent at all CAPE levels. That is very important. We could prevent millions of failed retirements by getting that information out to people. We all should be doing everything we can to get a national debate launched and to get the information out to people that they need to be exposed to. Even those who end up sticking with a Buy-and-Hold strategy will end up learning from the experience.

I do not believe that Shiller and I are on the precise same page re HOW to engage in long-term market timing. He has made a number of statements in which he has said that he hopes to be able to avoid the worst effects of the coming price crash (he has said on numerous occasions that he believes a price crash is coming because prices are so insanely high) by watching for “indicators” and getting out of stocks at just the right moment. That’s short-term timing. Shiller’s research does not support short-term timing but he has made statements indicating that he intends to employ it himself to at least a limited extent. I think that he is on the wrong track re that one. So, no, we are not on precisely the same page.

Shiller has also indicated that he employs somewhat sophisticated strategies in trying to avoid the worst effects of the price crash that he believes is on the way. He looks for markets that are better priced at the moment than the U.S. market. That can work. John Walter Russell did some research on whether it is possible to avoid the effects of overvaluation in the broad U.S. market by investing in better-priced segments of the U.S. market or in non-U.S. markets. Doing something like that is still “timing.” If you change the types of stocks that you own because of a price that applies at a certain time, you are timing.

I am 100 percent in favor of the exploration of those sorts of strategies. I don’t personally write about them because I write for the typical investor and I don’t think that those strategies are suitable for people who are not willing to put the time or effort into studying things enough to make such strategies work. Also, my aim is more to get the debate launched than it is to advance specific recommendations that I advertise as the be-all-and-end-all answer for everyone. I don’t believe that knowledge has advanced enough in this area for anyone, Rob Bennett or Robert Shiller or anyone else, to be offering perfect final solutions to the investing problem. We are all still on an earlier point on the learning curve than the point at which that sort of thing would become possible.

Shiller and I are on the same page re the core questions — valuations affect long-term returns, stock investing risk is not constant but variable, investors who want to maintain constant risk profiles MUST make some adjustment to big valuation shifts, the safe withdrawal rate is a number that is sometimes higher than 4 and sometimes lower than 4. I don’t get the sense from his public comments that we are on precisely the same page re how to implement long-term market timing. But of course I know very little about what Shiller believes about how to implement long-term market timing because this is the forbidden question. This is the thing that we all need to debate and that debate is still being stomped out to this day.

What do you think Shiller’s reaction would be to the peer-reviewed research paper that I co-authored with Wade Pfau? I think it would be very positive. I think we should ask him. We should lift the Ban on Honest Posting at every site on the internet and make him feel comfortable expressing his views on this subject in detail and then ASK HIM. We could all learn a great deal by doing that. Including Shiller. Because he would get feedback on his reaction to the paper from Wade and me, which would help him as much as hearing Shiller’s reaction would help Wade and me come to a better understanding of these terribly important matters.

Have you stopped to consider how crazy it is that Shiller has never been asked to comment on the paper that I co-authored with Wade? That is in-freakin’-sane! I mean, come on. Our paper makes numerous bold assertions (all backed by the historical return data) about how to implement Shiller’s “revolutionary” (his word) research findings. Every investor on the planet would benefit from knowing what Shiller thinks about our paper. We should all be doing everything in our power to make him feel 100 percent comfortable talking about these matters in pubic and then get about the business of asking the man some darn questions.

That’s my sincere take, Anonymous. I naturally wish you all good things.

Rob