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

Shiller is interviewed in this week’s Barrons. Does he finally warn people to get out? Um, no. In fact the title of the article is “Who Says This Stock Market Is Overpriced?”

Barrons: Is it time, then, to discard the CAPE as a predictive tool?

Shiller: Well, I wouldn’t. It may yet do that [be correct].

And that is as strongly as he defends the metric that has guided your investing strategy for the last 21 years. And Shiller’s personal investments?

“I still have U.S. stocks…I have European and emerging markets stocks, and not much fixed income. I have some real estate funds and REITs outside the U.S.”

Not much fixed income means he is mostly in stocks. When PE10 is insanely high. Any comment, Rob? Are the goons forcing him to buy stocks?

I have several comments.

My first comment is “thanks for bringing this to our attention.

Shiller is the founder of Valuation-Informed Indexing. He has never used that word. It is my word. I noticed back in 2002 that neither Shiller nor anyone else had ever explored in depth the many far-reaching implications that follow from his “revolutionary” (that’s Shiller’s word) research findings of 1981. I needed a name to apply to the investing model that logically follows from a belief in Shiller’s work and I came up with the name “Valuation-Informed Indexing.” Shiller himself rarely explores the practical how-to-invest implications of his work. He sticks to theory in his formal writings. He sometimes touches on the how-to-invest implications in interviews but almost always only in a vague and unsatisfying way and he frequently says things in one interview that conflict with things he has said in other interviews. I cannot claim full credit for Valuation-Informed Indexing because it is Shiller’s work that drives the machine but Shiller cannot be said to have endorsed the many things that I say follow from his Nobel-prize-winning work because he has not put his name to my explorations of the implications of his work.

So my first comment is to say “thank you” on behalf of the millions of middle-class investors who I believe should be trying to learn more about how stock investing really works in the real world. We all need to know more about what Shiller thinks re these matters and you Goons often bring to my attention things that he has said that I would otherwise not know about. You are helping me when you do that and you are helping investors who read the words at this site either now or after the next crash when you do that. I am grateful.

Shiller doesn’t disown Valuation-Informed Indexing in the words that you quote. He doesn’t say that anything that I have said is wrong. His words are consistent with my words. But I think it is 100 percent fair of you to suggest that he is showing a distinct lack of enthusiasm for the Valuation-Informed Indexing concept (a concept rooted in his own Nobel-prize-winning research) in the words that you quote. It is an exceedingly odd phenomenon.

My take is that Shiller has lots of experience with the anger that is provoked in Buy-and-Holders when they hear about what the last 36 years of peer-reviewed research tells us about how stock investing works in the real world and that he tries hard to steer clear of advancing comments that will cause that anger to be directed to him. That’s what I believe, Anonymous. I see it as a 100 percent human reaction. No one likes to have other people angry at him. No one likes to have other people calling him names. No one likes to see other people experience pain and angst and unhappiness. Shiller is responding in a human way to a situation that he did not create, to a situation that he was placed in as a result of the circumstances of his life. He discovered some amazing stuff about how stock investing works and the implications of what he has discovered upset lots of people in a very big way and his response has been to hold back on offering clear comments on the many far-reaching implications of his work.

I believe that it is unfortunate that Shiller has acted in this way. I would like to see him respond in more forthright ways. If he showed leadership in this regard, lots of others would feel emboldened to follow the path he pioneered. When Shiller speaks in a tentative way, others who see value in his work follow his lead and speak in a tentative way as well. The result is that knowledge of and belief in the Valuation-Informed Indexing model grows more slowly than it would were Shiller leading the charge into battle every day. That hurts each and every one of us, Buy-and-Holders and Valuation-Informed Indexers alike, in my assessment.

It is of course correct to say that P/E10 may prove to be a predictive tool yet once again, just as it has proven to be a predictive tool for 147 years running now. So Shiller’s comment is of course correct. But it is an awfully defensive way to make the point. If I were asked that question, I would ask back in response why anyone would think that it might NOT prove to be a predictive tool yet once again. It appears that there was some discussion that came before the words you quote in which it was noted that we have not yet seen a drop to fair-value P/E10 levels and that we have been at super-high P/E10 levels for longer than any earlier time in history. That much is so and that’s an important point to raise in an interview with Shiller. He DOES need to be asked to explain that — it is a good reason for having doubts about Valuation-Informed Indexing. But I think that I could make a much more powerful case in favor of Valuation-Informed Indexing than Shiller offered here.

The point that is evaded in the interchange is that stocks have also not in recent years behaved in accord with how the Buy-and-Hold model says they should behave. The annualized real return for stocks from January 2000 through December 2016 was 2.25 percent real. Huh? There is not one Buy-and-Holder alive who would have predicted that if you asked him in January 2000 what sort of return he thought we would see from stocks for the next 17 years. Something very, very, odd is going on in the market in recent years and it is the most important public policy issue before us as a nation today to figure out what it is.

It COULD be that Valuation-Informed Indexing does not work. I don’t believe that and Shiller doesn’t believe that. But neither of us can see the future and neither of us are incapable of errors in judgment. So that COULD be the case. But it also could be the case that Buy-and-Hold is in error. That in fact MUST be the case if Valuation-Informed Indexing is not in error; the two models for understanding how stock investing works cannot be reconciled — it is a logical impossibility that they are both correct. There is a certain charm in the humble way in which Shiller makes his case, I will give him that much. But as the fellow who performed the research that discredited the Buy-and-Hold Model (if it is valid, as I believe it to be), it is Shiller’s JOB to make the strongest case possible for the new model (while also being charitable to those who continue to believe in the model that he discredited and while also acknowledging his own human imperfections and noting that there are developments that have taken place that justify SOME doubt about the Valuation-Informed Indexing project, to be sure).

I am not able to say precisely what Shiller would say re these matters if he felt no pressure to avoid provoking Buy-and-Holders by speaking plainly. I think he would be much stronger in the case he makes for Valuation-Informed Indexing and for the failure of the Buy-and-Hold Model if he did not feel such pressures. But I also think that it is possible that he is experiencing a measure of cognitive dissonance, as Bogle experienced a measure of cognitive dissonance before him. And it is of course also possible (and likely!) that, even if no pressures to hold back were present, Shiller would disagree with me on several or even numerous points. It is a rare case in this world when two people agree on every point. Ask anyone who has ever been married for more than a week!

I credit Shiller for writing an amazing book and for producing the most important research ever published in this field. I would be horrified if any of my fellow humans ever came to the conclusion that I speak for him. I certainly do not. Nor does he speak for me, if you want to take it from the other direction. I am a guy who posts on the internet about his views on stock investing, views which are informed by a belief in the “revolutionary” (Shiller’s word) research produced by a Nobel-prize-winning economist in the year 1981, research which 100 percent discredits the Buy-and-Hold Model for understanding how stock investing works if it is indeed valid research (which I believe it to be), no more and no less.

We would all know more about what both Shiller and Bogle believe re all of these terribly important matters if as a society we came to the conclusion that we need to open every discussion board and blog to honest posting on safe withdrawal rates and scores of other important investment-related topics. We learn a little bit from this interview. But think how much more we would learn if we could ask Shiller to the next Bogleheads convention and put him on the hot seat for an hour (while anticipating putting Bogle on the hot seat in the following hour!) and if we did so in an environment in which it had become clear to every member of the community that we both permitted and encouraged hard-hitting questions on these matters because we understood as a people that it is by asking and obtaining clear answers to hard-hitting questions that we over time gain a better understanding of the realities. Shiller would both teach and learn in that environment, as would Bogle, as would I, as would you Goons, as would every single other community member who elected to participate in the powerfully enriching experience.

These are my sincere thoughts, Anonymous.

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

Rob

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

It’s interesting that you say there are no buy and holders even though there are plenty and the bogleheads has evidence. I increased my stock allocation moderately and bought plenty of stocks during the crisis.

The ironic thing is that the one ‘VII’ guy failed to make adjustments. I don’t understand how you can be so dense.

What happened in 2008 was a test of Buy-and-Hold but not a big test. All Buy-and-Holders say that they will hold through anything and we saw that that is not the case. Some — including the author of a book on Buy-and-Hold! — failed when they were put to the test.

Most did not fail. That’s fair to say. But how big was the test? It lasted a few months. You say that you would have held no matter how low prices fell and no matter how long low prices remained in effect. But you just don’t know what you would have done in such circumstances until you have lived through them, Taylor was 100 percent certain that he would never falter too. It’s all just words until you are actually living through the pressures that come with a loss of most of your life savings. So nothing you say about this is really persuasive.

I find the historical return data persuasive. Most Buy-and-Holders sell when prices drop. Prices couldn’t drop as low as they do in bear markets if that were not so. All Buy-and-Holders swear that they will never sell no matter what but most Buy-and-Holders sell at the lows because that’s human nature and human nature counts for more than the Buy-and-Holders’ swearing at a time when prices are high that they will never sell. Anyone can justify violating an oath he took at an earlier time by pointing out that circumstances have changed. They ALWAYS change when prices reach levels as high as they are today. It’s important to take note of that at a time when something constructive can be done about it rather than waiting until all that is left to you are the sorts of rationalizations that we saw Taylor Larimore engage in back in 2009.

We can prove that one too. The proof is that the Buy-and-Holders who swear that they will never sell demand that those pointing to the last 36 years of peer-reviewed research be banned from “their” discussion boards. They cannot bear to hear the history of stock investing discussed in their presence. Why the heck not? If they are no darn confident that their strategy is going to work out, why does it bother them to hear another point of view discussed? That’s not a sign of confidence, Laugh. That’s not a sign of a good strategy.

I didn’t increase my stock allocation when prices were at fair-value levels. But there’s a way to check whether I lost confidence in my beliefs at that time or not. Go to the RobCasts that I recorded when prices were at moderate levels. I started every one off saying that stocks offered a strong long-term value proposition at those prices. Why did I say that if I didn’t possess confidence in the research? I possessed confidence and I demonstrated it with behavior that can be examined in a record that was created in real time.

And of course I did not just tell others that the value proposition for stocks was strong at the time, I took action to take advantage of that opportunity myself. I didn’t run around like a crazy person making sure to buy within 48 hours. I went about a process of making a reasoned buy that everyone in the family agreed to so that everyone in the family would be comfortable sticking with it for the long term. I played it just the way a Valuation-Informed Indexer should play it. We don’t believe in making emotion-based decisions. If I has been running around like a crazy person seeking to make the buy before time ran out on the amazing offer, that would have been emotional. I handled things in an emotionally healthy way. That is 100 percent in tune with the strategy and 100 percent in tune with what the last 36 years of peer-reviewed research in this field shows is what always works in the long term.

And why are you engaging in deception re this point today? You know what I did. Why don’t you come here and say: “Rob, I don’t agree with some of your other posts but I am impressed that, when the time came when prices were where you said they need to be for you to buy, you really did tell others to buy and begin taking steps to buy yourself. The real test of a strategy is not words but actions and you showed during that brief time-period when prices were at fair-value levels that you don’t just talk the Valuation-Informed Indexing talk, you actually walk the Valuation-Informed Indexing walk. As someone who is personally persuaded by advocates of a different strategy, I find that very cool and I am going to continue to ponder it as time goes on to see if there is something for me to learn in the contrast between your behavior and the behavior of Taylor Latrimore, one of my Buy-and-Hold friends who did not show the same courage of his convictions that you showed when the pressure was on.”

You cannot say those words, Laugh. It’s not in you. I mean no personal offence but it’s not in you because you are too scared to let in what happened in those months. You saw your Buy-and-Hold friends lose their confidence in their strategy at the very worst time to lose confidence in it. There is a part of your brain that you have silenced but that is still functioning in the background that tells you that that is something you should examine in some depth before Buy-and-Hold is put to its next test. The part of you that you silence wants to participate in civil and reasoned discussions at every discussion board and blog on the internet so that he learns as much as he possibly can by listening to as many different perspectives as possible. But the soul-crushing side of you, the Get Rich Quick side of you, the financially incompetent side of you, the Goon side of you, says: “No, keep on pumping out more dishonest and abusive garbage, it’s been working so great so far.”

I don’t think it has been working so great so far, Laugh. If it had been working, you wouldn’t be today walking a path that leads to a prison sentence in the days following the next price crash. You don’t possess confidence in your strategy and every post that you advance here shows it. You cannot discuss the last 36 years of peer-reviewed research in a civil and reasoned manner. You can’t even tolerate others discussing it while you sit off to the side a bit in silence. You feel compelled to crush such discussions when you hear them spring up. Not because you truly believe that the peer-reviewed research in this field is on your side. Because you WANT to believe that the peer-reviewed research is on your side and you cannot think of any other means to keep that fading belief alive other than to engage in insanely abusive and, yes, even criminal behavior to keep it from flickering out.

Not this boy, Laugh. I am your friend. You cannot bear to acknowledge it, but that small, remaining, rational voice in your head sees it. That’s why you get so ugly. That voice is telling you what is real and the stronger, irrational voice that controls you cannot bear to hear what the small voice says. I speak up in tune with the small voice and you feel hate for me because you feel threatened by the small voice. The small voice comes from a good place within you. Taylor Larimore wished in the early months of 2009 that he had listened to his small voice on all those occasions when some kind person had suggested to him that he might want to give it a try. You have that chance today. You have that chance every day until the day comes when the money is gone and cannot be called back. It’s your friends who are telling you to at least give that small voice a listen before shutting the door on your future.

These are my sincere thoughts re these matters, Laugh. Hate me as much as you want. I cannot control that. But I really do believe deep in my heart that the very fact that you hate so much is evidence that the last 36 years of peer-reviewed research in this field is telling us all something very, very, very important.

It will be interesting to see how things play out. I naturally wish you all the best that this life has to offer a person regardless of what investing strategy you elect to follow today or at any time in the future.

Rob

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

So your argument is that buy-and-hold doesn’t work because no one buys and holds.

This is the logical fallacy known as “begging the question”, attempting to prove a point by simply restating your premise. It is a form of circular reason. Most people incorrectly use “begs the question” when they mean “raises the question”.

Just wanted you to learn something new.

It’s true that investors are not capable of buying and holding and that the Buy-and-Hold strategy cannot work until investors become capable of following it in the real world. Do you know what would make investors capable? Permitting honest posting on the last 36 years of peer-reviewed research! Stocks prices are self-regulating if investors are capable of accessing the information they need to access to act in their self-interest. The problem for all of us is that darn Ban on Honest Posting, the death threats and all the rest of it.

If investors have access to honest and accurate reports on the last 36 years of peer-reviewed research, you are not going to see any more bull markets. Prices would just always remain near fair-value levels (a P/E10 of 15). So there would be no need to change your stock allocation. Sticking with the same stock allocation is Buy-and-Hold, no? Is that not the basic idea, learning from the peer-reviewed research and always sticking with the same stock allocation?

Valuation-Informed Indexing is just Buy-and-Hold more fully developed. We didn’t know all there was to know about how stock investing works back in the late 1960s, when Buy-and-Hold was developed. In 1981, we clicked that last oh-so-important piece into place. Now we know. Intellectually. But 90 percent of us do not know the realities emotionally. For the remaining 90 percent of us to catch up with the Valuation-Informed Indexers, we would need as a society to act to open every discussion board and blog on the internet to honest posting. That’s how we spread the word. It is only by spreading the word re the last 36 years of peer-reviewed research that we can bring the 90 percent of investors still living in the world of 1980 up to speed.

We are not on different sides, Anonymous. Your first mistake was to assume that, because I was telling you something new, I was your enemy. Science is a quest for truth. When Bogle maden it a cardinal principle of Buy-and-Hold that investing should be rooted in realities revealed through the peer-reviewed research, he made it a cardinal principle of Buy-and-Hold that Buy-and-Hold would CHANGE over the years as new realities were revealed.

This is why I call those who post in “defense” of Mel Linduaer “Lindauerheads” rather than “Bogleheads.” If they were truly Bogleheads, they would be in favor of permitting honest posting on the last 36 years of peer-reviewed research. I am 10 times more of a Boglehead than Mel Linduaer is. Lindauer is a Lindaurhead, not a Boglehead. Now, the sad reality is that Jack Bogle himself is today more of a Lindaurhead than a Boglehead. That one is a strange twist. But in fairness to Lindauer, I think I have to acknowledge that that is the reality today. But I am still a proud Boglehead. I love the Jack Bogle who argued in his books that investors should root their investing strategies in the peer-reviewed research, not the one who allows his name to be used at a board at which the sorts of individuals who have put up posts in “defense” of Mel Lindauer are permitted to post.

It makes no sense to encourage investors to adopt Buy-and-Hold strategies while denying them access to the discussions of the last 36 years of peer-reviewed research that they need access to to be able to follow Buy-and-Hold strategies effectively for the long term.

That’s my sincere take re these terribly important matters, in any event.

Rob