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

What a quandary for you, Rob. You are shooting holes in their credibility.

So, I guess you won’t be referring to Shiller or to Wade Pfau anymore since they are not reliable sources based on your comments.

Unless…………………..we put them on different “levels”…….hhhhmmmmmm………..maybe that will work. Of course, Rob, you will be the new leader and then the other people are on levels below you. It just comes down to what level you put them.

Help us out with that Rob.

You’re raising a legitimate and interesting and important point, Pink.

You are right that Shiller and Pfau and Bogle hurt their credibility when they say things that conflict with other things they have said. I agree 100 percent.

I am of course going to continue to cite them. I rank Shiller as the most important investing analyst of all time, I rank Bogle second and I say that Wade has done work worthy of a Nobel Prize. I can’t very well talk about stock investing and not make reference to the giants.

Do you know the root cause of my “quandry”? Shiller and Bogle and Pfau are friggin’ HUMANS! WhaChaGonDo, you know?

They are humans and they make mistakes. That’s pretty much what it all comes down to.

The Buy-and-Hold Pioneers are heroes of mine. They are the Big Mistake Makers and yet they are my heroes. Why would that be?

Because it is easy to sit on your duff and just nod your head at the conventional wisdom and get rich doing it while it takes some fortitude to put on your Big Boy Pants and get out there in the world and mix it up and take a chance that you might get something wrong and that someone out there in the Big Bad World might notice and tell all your friends and you will look like a fool. The Buy-and-Hold Pioneers went to places no one had ever gone before and helped us all out in a big way by doing so. There wouldn’t be any Valuation-Informed Indexing today if they hadn’t done so. So, yes, they are heroes. That can never change. That’s already written up in the book. They will always be heroes for the many legitimate and powerful insights that they developed and advanced.

The difference between you and me is that you start with a premise that being found to have made an error is a horrible thing. I do not see it that way even a tiny bit. There can of course be circumstances where someone would make a mistake because he is dumb or lazy or whatever. In those circumstances, it might be fair to say that discovery of the mistake reflects poorly on the person who made the mistake.

But there are lots of circumstances in which just the opposite is so, circumstances in which the mistake is made because the person who made it was sticking his neck out for the benefit of all of us. In those sorts of circumstances, we should celebrate the discovery of mistakes. When we discover a mistake and then fix it, all sorts of new possibilities open up. It is by making mistakes that we make huge advances.

We humans start out not knowing everything. We often make mistakes because we have to choose one of two roads and we have no means of being sure which road is the right one. We try one road and, when it fails us, we go back and take the other road. And taking that other road takes us to the place where we wanted to go all along. The mistake lead us to the right place through a circuitous route. Had we remained frozen in our tracks afraid to choose one road or the other because we viewed making a mistake as the worst thing that could ever happen to a person we never would have made our way around to choosing the right road. Mistakes are good stuff when they are part of a sincere and brave effort to learn the truth!

I am 99 percent sure that Bogle has made mistakes and I love him all the same. I love him because of the many wonderful things he has taught me. I am 99 percent sure that Pfau has made mistakes and I love him all the same. I love him because of the many wonderful things he has taught me. I am 99 percent sure that Shiller has made mistakes and I love him all the same. I love him because of the many wonderful things he has taught me.

Now –

There ARE such things as bad mistakes, mistakes that make the world a worse place rather than a better place.

Death threats are bad mistakes. Demands for unjustified board bannings are bad mistakes. Advances of tens of thousands of acts of defamation are bad mistakes. Threats to get academic researcher fired from their jobs are bad mistakes.

It’s part of my job to point out those sorts of mistakes as well. I don’t enjoy that part of the job so much. But it is work that very much must be done. If I and others fail to point out those sorts of mistakes, we see more of those sorts of mistakes. That means that more people are found liable in civil proceedings. And more people go to prison. And those going to prison earn longer sentences. Not good. Not good. Not good.

The mistakes on matters of substance I will point out in 10 seconds. I try to be sure before pointing out a mistake made by a Shiller or a Bogle or a Pfau because I view these people as giants and I want to do all I can to avoid making mistakes myself and I think it makes sense to presume that the giants know what they are talking about and to indicate that they have made mistakes only when there is a great amount of evidence showing that this is truly so. But when the evidence shows that it is so, I feel comfortable pointing out these sorts of mistakes without too much fuss and bother. Pointing out these sorts of mistakes helps us all (including the person making the mistake) that it is a wonderful thing to be able to do that when there is strong evidence showing that a mistake was indeed made.

It naturally causes me a great deal more anguish to point out the other kind of mistake. It has to be done. But it hurts to do it. Pointing out those sorts of mistakes when they are made by my friends causes me to eat more cookies to dull out the pain. I don’t need to be eating more cookies! I point out these sorts of mistakes because I must. But I do it as a last resort. It’s a downer. A necessary downer if we are ever to advance in our understanding of how stock investing works. But a serious downer all the same.

So you will see me being very careful when it comes to saying that my friends Jack or Robert or Wade have committed that sort of mistake. Wade has certainly done so. He was telling a lie when he said that he thought Greaney was the hero of our discussions. Jack has certainly gone there. He behaved irresponsibly when he learned what Lindauer has done to compromise the integrity of a board with his name on it and failed to take prompt action. I am not aware of cases in which Robert has traveled that dark road. The worst I can say about Robert given the evidence that has appeared before my eyes is that he pulls his punches because he is a naturally genial person and doesn’t want to hurt people’s feelings. I think he needs to be tougher given the circumstances that prevail. But that’s the worst that I can say about Robert given what I have seen through today.

We are humans, Pink. We are going to make mistakes from time to time. If that is too horrible a reality for you to contemplate, you had better just climb back under the covers and give it up, this investing analysis business is not for you. Mistakes are part of the game we are playing and it is not a part that any of us (Rob Bennett most certainly included!) can avoid.

We are all going to make mistakes. It’s what we do when we learn about the mistakes we make that makes the difference.

Now –

There is a strange element to this particular story. The usual rule is that mistakes are discovered and then corrected in an amount of time far, far less than 33 years. The thing that is different in this particular case is that the mistake that Shiller discovered way back in 1981 has gone uncelebrated (mistakes should be celebrated because their discovery leads to huge learning experiences!) for 33 years now. What’s up with that?

It’s not because this mistake doesn’t matter much that it has gone uncelebrated and uncorrected for so long. The reality is just the opposite. This mistake has gone uncorrected because it is such a biggie. This mistake affects whether we get to retire at age 65 or not! This mistake affects whether we can avoid all future economic crises or whether our entire economic system fails. Discovery of this mistake means that we need to correct every textbook in the field. And on and on.

You’ve heard of The Company That Is Too Big to Fail? This is The Mistake That Is Too Big to Correct!

Except it must be corrected!

As a society we cannot bear the thought of acknowledging and thereby correcting this mistake. Yet as a society we cannot bear the thought of correcting the mistake either! It’s a mess!

We need to proceed with love.

That’s all I can say about the situation in which we find ourselves.

To proceed with love is to be sure always to show respect and affection and gratitude to the people who made the mistake for the great good they did us all in being brave enough to have ventured to a place where making mistakes came with the territory. And to proceed with love is to be sure not to let our friends get involved in the bad sorts of mistakes that destroy them and lots of others. We need to be as honest as we possibly can be without crossing the line and becoming uncharitable while also being as charitable as we possibly can be without crossing the line and becoming dishonest.

All you do when you point out to me that even giants like Robert Shiller have made mistakes re this matter is to impress on me once again how important it is that we all work together to make it to the other side of The Big Black Mountain. If freakin’ Robert Shiller is making mistakes re this stuff, what chance does the ordinary middle-class investor have of getting it all right? The fact that Shiller is still making mistakes is yet another sign of the huge OPPORTUNITY that presents itself to us here. This is one big mistake. It follows that the gains we are all going to enjoy as a result of correcting this mistake are going to be amazing.

The credibility thing is not a concern to me. Yes, Shiller had made mistakes. That shows that he is human. People should have known that all along. If they don’t, they need to know it now. Shiller is one of the darn humans and we had all better keep that in mind when considering any words he puts forward or we are likely going to get ourselves and our friend Robert in a great deal of trouble somewhere down the line.

Shiller makes mistakes. If that means he lacks credibility in your eyes, then he lacks credibility in your eyes. Just please be fair and accept that that means that all the other humans lack credibility in your eyes as well.

I make mistake too, Pink. I am one of the darn humans too. I should lack credibility in your eyes as well.

And of course you make mistakes. So you should lack credibility in your eyes as well.

That pretty much covers it.

I will continue to cite the humans who make mistakes because they are the best we’ve got and I am grateful for their wonderful contributions and I want to share them with all my friends. I will also continue to point out their mistakes in an effort to help them find their way to a better place.

What a quandary I face!

I wish you all good things in this beautiful New Year.

Rob

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

Rob,

It looks Shiller is once again in odds with you. Last week we saw his statements saying you can’t time the market, particularly using CAPE. Shiller, in fact is still heavy into the market. Now, take a look at what he says was the cause of the recent and ongoing financial crisis:

http://www.project-syndicate.org/commentary/robert-j–shiller-asks-why-innovative-ideas-to-prevent-another-financial-crisis-have-gained-no-political-or-media-traction

He puts it primarily on the boom and bust of the real estate market.

Uh, oh Rob. In your fantasy world, is he now a part of the vast conspiracy?

Thanks for bringing this article to our attention, Pink. I agree in part with the point you make. But only in part. But the article is one that people following these issues need to be aware of in any event.

The conspiracy you refer to is a conspiracy of ignorance. Shiller’s “revolutionary” (his word) 1981 finding that valuations affect long-term returns changed our understanding of how stock investing works in a fundamental way. If valuations affect long-term returns, the market is not efficient (properly priced) and both overvaluation and undervaluation are real things. The market was overvalued by $12 trillion in 2000. If overvaluation is real, as Shiller showed, that $12 trillion of consumer spending power was going to disappear from the economy over the course of the next 10 years. Hence, the economic crisis that we experienced in September 2008.

There’s nothing difficult to understand in that paragraph. It is as easy to understand the primary cause of the economic crisis as it is to understand that the errors in the Old School safe-withdrawal-rate studies should have been corrected within 24 hours of the time that they became public knowledge (the morning of May 13, 2002). The studies have not been corrected as of today and as of today there are still lots of smart and good people who are not properly assigning blame for the economic crisis to the reckless and relentless and ruthless promotion of Buy-and-Hold strategies in the years leading up to it.

You have on many occasions argued that for this to be so there would have to be some sort of grand “conspiracy.” My response every time you have raised this point has been to say that the conspiracy that is doing us so much harm is a Conspiracy of Ignorance. Prior to 1981, we did not know how stock investing worked — Shiller provided us with a very big piece of the puzzle. SInce 1981, we have failed to incorporate the many far-reaching implications that follow from Shiller’s breakthrough research into our model for understanding how stock investing works.

Humans learn about things by talking them over. We have as a society not yet given ourselves permission to talk these things over in clear and firm and blunt language. We very, very, very much need to do that. We need to have a National Debate on the implications that follow from Shiler’s research and on the 33 years of peer-reviewed academic research confirming and expanding his findings. I certainly do not say otherwise. I very, very, very much want to see that National Debate begin by the close of business today.

You are correct to say that Shiller put the blame for the crisis on the boom and bust of the real estate market. That’s silly. First of all, the phony stock market gains fueled the boom in real estate prices. When $12 trillion of Funny Money is put in the hands of stock investors, they obviously spend a lot of that windfall on real estate. Second, the bubble in stocks was far larger than the bubble in real estate. The real estate bubble certainly was a contributing factor. But the real estate bubble was secondary. The stock market bubble (which was caused by the popularity of The Buy-and-Hold Idea, the idea that investors don’t need to exercise price discipline when buying stocks and that phony, bull market gains can be counted as real and permanent wealth) was primary.

Shiller should be saying that. If you point is that Shiller should be saying that, I certainly agree.

Is he part of a conspiracy?

He is one of a large number of generally responsible people who is acting in an irresponsible way (perhaps unintentionally, but still…) when he makes comments about the cause of the economic crisis.

I am not able to say whether Shiller knows that the stock bubble was the true cause of the economic crisis and he is saying otherwise with knowledge that what he is saying is wrong or whether he truly has not yet put two and two together and realized that it was the stock bubble that was the primary cause of the crisis and that the real estate bubble was only a secondary cause.

My guess is that it is a combination of both. Shiller is aware of the abuse that has been dished out to those of us who have posted honestly on what we have learned about stock investing as a result of the last 33 years of peer-reviewed research in this field. My strong hunch is that Shiller has seen a huge amount of abuse directed at his over the years (he has publicly confirmed that there has been at least limited abuse but my guess is that he could write a book describing the many forms of abuse that have been directed at him). So he possesses a natural desire to hold back on his criticism of the Buy-and-Hold Model.

When he holds back, he loses an opportunity to develop his understanding of the realities. So it is likely that he is suffering from a good bit of cognitive dissonance as well. He probably knows that the stock bubble played a larger role than he suggests with his comments but he also probably does not truly understand how deep the problem goes because he doesn’t want to know and his mind plays tricks on him to keep him from learning more.

One information bit that I can supply is that Shiller PREDICTED the 2008 economic crisis in his book, which was published in March 2000. In his prediction of the crisis, he properly attributed it to the out-of-control bull market. It is only after the crisis began and Shiller saw that others were holding back from stating the true cause of the crisis that he began engaging in the caginess that you caught him engaging in here.

That’s sad, is it not?

That hurts all of us, does it not?

I want Shiller to know as much about stock investing and the economic crisis and the dangers of stock bubbles and Buy-and-Hold investing strategies that he can possibly know. I want the same for my other good friend Jack Bogle. And I want the same for Bill Bernstein and Larry Swedroe and Wade Pfau and Scott Burns and Pink Unicorn and on and on and on.

Do you want the same, Pink?

If you do, you will do everything in your power to encourage everyone you know to do what they can to see that the National Debate begins prior to the close of business today. That is certainly what I am going to be doing.

There are a lot of people who don’t want to acknowledge that Buy-and-Hold caused the crisis. For some, it’s a money thing. For some, it’s a pride thing. Some are worried about lawsuits for investing advice they have given that was in conflict with the findings of the post-1981 research. Some are worried about prison sentences because they have engaged in acts of financial fraud as part of an effort to hold back public discussion of the implications of Shiller’s findings. And cognitive dissonance is a big part of the story in just about every case as well. So there are lots of bad stuff in the process of ruining all of our financial futures.

Shiller is a smart fellow. I rank him as the most influential investing analyst of all time, even ahead of my good friend Jack Bogle. I love the guy. But, yes, you are right to suggest here that Shiller is in the wrong to improperly identify the primary cause of the economic crisis. If he truly doesn’t know better, he certainly could know better and should know better, right? He is the author of the friggin’ research showing that valuations affect long-term returns! I mean, come on.

I want to see Shiller do better. I want to see Bogle do better. I want to see you do better. I want to see me do better. I want to see us all do better.

The cover-up helps absolutely no one. Because it cannot continue. If you are engaged in a cover-up that you know is going to come to an end in the not-too-distant future, the thing you should want is to bring it to a QUICK end. I don’t mean just to help the millions of middle-class people whose lives are being destroyed by the cover-up. Someone involved in a cover-up that is going to end soon should want that cover-up to come to a quick end for entirely selfish reasons too. There is going to be a price to be paid when the cover-up is exposed, right? The price grows bigger the longer the cover-up remains in place, right? So it follows that even those involved in the cover-up should want it brought to a quick and complete end.

Stocks were overpriced by $12 trillion. Overpricing always disappears. An economy that loses $12 trillion in consumer spending power obviously collapses.

It’s not hard intellectually.

We are all (including our good friend Robert Shiller) living in fear today. We have seen how ruthless the Buy-and-Hold Mafia is when someone dares to tell the truth re these matters. And all us humans are social creatures. We want to be liked. We don’t want to tell people that they were played for fools. We don’t want to tell people that their retirement plans were rooted in fantasies. We don’t want to tell people that they are on the hook for hundreds of millions in civil damages and in some cases looking ahead to long prison terms. I get all that.

What I don’t get is how people persuade themselves that there is some kindness in evidence in actions making things worse and worse and worse for every single person involved in this mess.

We are the luckiest generation of investors that ever walked Planet Earth. I vote for taking things to where we need to take them so that we all can tap into the benefits of the wonderful intellectual advances of the past 33 years.

Shiller is wrong to say what he said about the cause of the economic crisis. He is as much a part of a “conspiracy” as everyone else who has failed to speak out. That group included Rob Bennett until I worked up the courage to “cross” John Greaney by posting honestly on the errors in the Old School safe-withdrawal-rate studies on the morning of May 13, 2002.

Perhaps we should look at it from the other direction. What if Shiller DID speak out? That would bring all the ugly stuff to an end, would it not? That would make all our lives a lot richer in every sense of the word, would it not?

Someone is going to do it sooner or later. Perhaps it will be Shiller, perhaps it will be someone else. Given that someone is going to do it sooner or later, every last one of us (including those of us who will be going to prison) are better off if it happens sooner, are we not? It sure seems so to me.

Shiller isn’t just at odds with Rob Bennett. When Shiller fails to attribute the economic crisis to the insane bull market and to the long-discredited Buy-and-Hold strategy that caused it, Shiller is at odds with Shiller and with Shiller’s research and with the 140 years of historical return data on which Shiller’s research is based. That’s the real news here.

I hope that helps a bit.

You have my best and warmest wishes for a happy and prosperous New Year.

Rob

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

When can we expect your new You tube video where you say you know more than Shiller?

The reference here is to a podcast I did with the title “I Know More About Stock Investing Than John Bogle — and You Can Too!”

I can envision doing one like that re Shiller, Anonymous. I DID do a podcast with the title “Shiller Pulls His Punches” and I have written a number of columns in which I cast a critical eye at some comments he had made along the lines of those he made in the interview we are discussing here.

There has been a theme in the discussions going back to the first day in which some seem to view it as a horrible thing that I would know more about certain aspects of stock investing than recognized experts in the field. I come at that sort of thing from a 100 percent opposite perspective. I see it as my job to generate the best insights of which I am capable. If I am able to do work of which Bogle and Shiller are not yet capable, I see that as a wonderful, wonderful thing. It’s what I am always TRYING to do. The idea that I should apologize for going past Bogle or Shiller or anyone else is just nuts to me.

And the idea that Bogle or Shiller or anyone else should be troubled by me going past them ALSO seems nuts to me. Bogle is a giant. Shiller is a giant. Are they really so insecure that they are upset to see some guy whose only claim to expertise in this field is that he has figured out how to get stuff posted to the internet has raised some challenges to their ideas? Really?

If what I am saying is right, Bogle and Shiller should be thrilled. They can add my insights to their arsenal and thereby make their stuff that much more powerful.

If what I am saying is wrong, I think it would be fair to say that that is going to be exposed if honest debate is permitted.

So I sure don’t see any problem here.

I believe that I have taken Valuation-Informed Indexing to places that Shiller has never taken it, just as I have taken Buy-and-Hold to places that Bogle has never taken. I am proud of that. I have never given the idea of apologizing for it two seconds of consideration.

I am 100 percent happy to work with Bogle and Shiller. I would be thrilled. I respect both of them, I like both of them and I owe a huge intellectual debt to both of them.

What’s the bad part of all this? I see it as good stuff piled on top of good stuff piled on top if good stuff. If I were in Bogle’s shoes or Shiller’s shows I would be THRILLED if there were some fellow out on the internet keeping me honest and pointing out mistakes when I made them.

Your suggestion is that Bogle and Shiller are not thrilled. Perhaps. There certainly is evidence of that re Bogle and perhaps a tiny bit re Shiller. But I would have to hear direct language coming fro their own mouths to adopt your view of their reaction to my insights. It’s an uncharitable interpretation of their behavior. I need to see very clear evidence that that’s the problem before I am willing to conclude that that really is the case.

There is some sort of funny business going on. Of that I have no doubt whatsoever. And wounded personal pride has indeed been an issue over the 12 years. I hope that that is not the driver with either of my friends Jack or Robert. In any event, I would be letting them down if I didn’t continue to share with them the important stuff I continue to learn on an almost daily basis.

So I certainly intend to continue to share and to do everything that I possibly can do to help them both feel comfortable that nothing that I will ever do will detract from the very, very. very important work that both of them have done. That is already written in the book and cannot be changed at this point.

I hope that helps a bit.

Rob

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

Uh, oh Rob. Someone is on to you. Note the link someone gave to Shillers recent comments about how is still in the market and to not use CAPE for market timing. It seems there is a big whole in your boat and it is taking on water very quickly.

I haven’t read the Goon Central comments. But I’ve now read the article.

I disagree strongly with what Shiller is saying here.

I of course agree that the P/E10 value could go to 35. None of the research of the past 33 years tells us how high P/E10 can go. So he is 100 percent right re that one.

When he says “it’s not a clear signal yet,” he seems to be trying to use P/E1o to engage in short-term timing. ALL of the peer-reveiwed research (even pre-Shiller) tells us that that cannot possibly work. The idea that P/E10 can be used for short-term timing is just nuts. Shiller is of course right to reject the idea. But he should not need to say this. I know of not a single Valuation-Informed Indexer who has ever suggested in any way, shape or form that P/E10 can be used to engage in successful short-term timing.

He says “it’s not time to bail out.” It’s never time for the typical investor to bail out. Stock prices can always go higher, just as Shiller indicated in his other comments. So it makes sense for the typical investor to keep 25 to 30 percent of his portfolio in stocks even at times of insanely high valuations. Even if the P/E10 value went to 35, it would make sense for most investors to keep a small percentage of his portfolio in stocks. It could go up to 45. Or it could remain at 35 for a good amount of time.

There are VII strategies that call for some investors to go to zero stock allocations at specified P/E10 levels. I think those strategies make perfect sense. So I wouldn’t criticize anyone who elected to “bail out” at today’s prices. But I also would not criticize anyone who went with a 20 percent or 30 percent stock allocation at today’s prices. It’s a judgment call as to which way to play it. And of course all investors need to take their personal circumstances into account.

Shiller says that he is at 50 percent stocks and that younger people might want to go with even higher stock allocations. That is at complete variance with what he said shortly following the 2008 crash. He said then that it would not be safe to get back into stocks until the P/E10 had dropped below 10. Telling people that it is okay to go with a stock allocation of greater than 50 percent given where things stand today is exceedingly dangerous advice, in my assessment. I find this particular comment of Shiller’s shocking and even somewhat shameful.

The author of the article says that Shiller has said many times that P/E10 is not a good tool for timing the market. I follow these things closely and I am 99.999 percent sure that Shiller has never said that. He has certainly said that P/E10 cannot be used for short-term timing. There is zero evidence that it can be used for short-term timing. The peer-reviewed research that I co-authored with Wade Pfau shows that P/E10 has been an effective tool for long-term timing for 140 years now. If Shiller has ever said that P/E10 cannot be used for long-term timing, then he is wrong (according to the peer-reviewed research in this field). I don’t believe for two seconds that he has ever said this.

Shiller is saying dangerous stuff here. But nothing he says undermines the findings of the research that Wade and I produced together. The fact that the grandfather of VII would say such things publicly shows once again how imperative it is that the Ban on Honest Posting be lifted and that everyone affected by the economic crisis (and that’s all of us!) participate in a national debate on what the last 33 years of peer-reviewed research in this field tells us about how stock investing works.

Shiller doesn’t get it all. He’s in very good company re that one. He is a leader in this field. We all should be doing all that we can to see that he DOES get it all and that he helps us spread the word to the millions of middle-class investors who very much need to learn the realities.

Rob