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

Do you think Shiller sits around all day wondering what is on Rob Bennett’s mind?

I do not.

But I believe that every single person in the United States would benefit if Shiller would address a lot of the questions that I have raised over the past 17 years about the implications of his Nobel-prize-winning research. I believe that Shiller could tell us things that we all need to hear and I want to do everything in my power to get us to a place where we all start hearing those things. His ideas are powerful and important. We are hurting ourselves by accepting a situation where we are not benefiting from them to the extent we could.

Say that someone had discovered the cure for cancer and that the people who profit from running cancer treatment centers engaged in criminal behavior to stop people from hearing about what this person had done. And that I said on the internet that we all should be doing what we could to get the message about how to cure cancer out to everyone. Would that person be thinking about what was on my mind every day? No. But it would still be a good thing if we could persuade that person to report the criminal behavior and thereby change the circumstances that applied so that he could get his message out.

I want to benefit from Shiller’s research. And I want you to benefit from Shiller’s research. And I want every person alive in the United States to benefit from Shiller’s research. I think it is a shame that there has been a cover-up. Had there never been a cover-up, the opposition to spreading the word about Shiller’s research would be far less than it is today. Each day that the cover-up continue makes things worse. So I would like the cover up to end today.

Does that help at all?

Rob

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

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

Does Shiller even know you exist? If so, why hasn’t he reached out to you?

That’s a very good question, Anonymous. Shiller should be involved in this. Getting Shiller involved would be an obvious way to resolve matters. If Shiller said “Rob Bennett raises some excellent points and I do not think that he should be banned from participating at even a single site,” that would obviously help my case. And if Shiller said “Rob Bennett sounds like a dangerous nutcase,” that would obviously help your case. It is my belief that both sides should want to hear Shiller’s input. It is also my belief that, if both sides requested his input in a civil and respectful manner, he would be willing to provide it. So it is my recommendation that we do that.

John Walter Russell once wrote to Shiller to ask for help with a technical matter re the Shiller data-set. Shiller responded to that question in a helpful manner. i contacted Shiller once or twice (I believe that it was twice but I am not willing to swear to that without spending some time checking my records) to let him know about the stuff that has been going on for 17 years now and to in a quiet way ask for his help. He did not respond to those e-mails.

Shiller’s lack of involvement sums up the entire problem we face. Shiller used the word “revolutionary” in the subtitle of his book to describe his new understanding of how stock investing works. And he was awarded a Nobel prize for his research. So clearly he changed our understanding of how stock investing works in fundamental ways.

I am not able to imagine even a remote possibility that Shiller believes that the safe withdrawal rate is always the same number. If valuations affect long-term returns (Shiller’s research shows this), then stock investment risk is not a constant but a variable. The safe withdrawal rate is a risk assessment tool. So, if Shiller’s understanding of how stock investing works is legitimate, the safe withdrawal rate is a number that VARIES, not a number that is constant. That is inescapable ABC logic.

So, if Shiller believes in what I have been saying for 17 years now and if he knows that I exist (he should since I have contacted him and I know that he reads unsolicited e-mails because he read the one from John Walter Russell), he should have put forward a statement saying that “I agree with Rob Bennett that the safe withdrawal rate is a number that varies with changes in the valuation level.” That statement would help a great deal.

But leave me out of it. Say that I never once commented on safe withdrawal rates. Shouldn’t Shiller have addressed the question regardless? People at the Motley Fool board were using Greaney’s study to plan their retirements. If there is 38 years of peer-reviewed research showing that it is not possible to calculate the safe withdrawal rate accurately without taking valuations into consideration, should’t Shiller have spoken up long before I did? It’s a pretty darn serious thing to have one’s retirement fail. Shiller certainly should have spoken up.

And we can leave Shiller out of it too. Say that for some reason Shiller did not speak up. Shouldn’t people who believe in Shiller’s work have spoken up? How about the people who awarded him the Nobel prize? Shouldn’t they have said something? How about Shiller’s students at Yale? Haven’t any of them taken the time to realize that the Buy-and-Hold retirement studies get the numbers wildly wrong and, if they have, why the heck haven’t they spoken up?

These are all good questions and they are all hard questions. Shiller OBVIOUSLY should have spoken up. People who believe in Shiller’s work OBVIOUSLY should have spoken up. On safe withdrawal rates. And on scores of other critically important investment-related topics. We need to launch a national debate on these matters. The only way to get a debate going is for people to speak up. There is no other way. So people MUST speak up.

The reality, as you know, is that few people speak up. A few people have spoken up in limited ways. Bill Bernstein said in his book that the Buy-and-Hold studies get the safe withdrawal rate wrong. But he didn’t offer much follow-up. He didn’t try to publicize the matter as a means of protecting the people who used bad numbers to plan their retirements, as I have. Bogle advanced a statement indicating that he thought Valuation-Informed Indexing can work. But he put it in a form that made it come across as a sort-of foot-dragging endorsement of the concept. Bogle certainly did not say “Valuation-Informed Indexing works!” with an exclamation point, like Wade Pfau did.

There are scores and scores of examples of the same general phenomenon. Lots of people want to be associated with Valuation-Informed Indexing in a very limited way but they do not want to have the level of abuse that has been directed at me directed at them. So they offer tentative, limited, one-time endorsements. Those sorts of endorsements do not possess the power needed to get the national debate that I believe we desperately need to get launched.

I believe that the underlying problem is that Shiller’s advance is so big. If he had discovered some small thing, the Buy-and-Holders all would have reacted by thanking him and making the change needed and everyone would be happy. But showing that stock prices are determined by investor emotion rather than by rational assessments of economic developments is like discovering that it is the earth that revolves around the sun rather than the sun that revolves around the earth. People just cannot process that change. So we have been stuck for 38 years in this strange place where the dominant model for understanding how stock investing works has been discredited by new peer-reviewed research but where one becomes a social outcast if one dares to draw attention to this terribly important reality.

All that you have to do to see how this weird state of affairs is maintained is to read Shiller’s book. Irrational Exuberance is in my view the best book ever published on how stock investing works. But the strange reality is that there is not one word in it that tells people how to go about investing their money! And that’s what people who buy investing books want to find out when they buy them! Shiller wanted to avoid the red-hot controversies that I have provoked over the past 17 years. So he took a pass on all of the how-to-invest questions; those are the ones that the Buy-and-Holders don’t like being questioned on. So Buy-and-Hold remains dominant on the how-to questions nearly four decades after the research was published challenging the core premise of the Buy-and-Hold Model. It’s a mess!

I would like to hear Shiller address himself to all the questions that I have raised. I believe that he will do so in the days following the next price crash. Because I think that the tensions will grow sufficiently intense at that time that he will have no choice but to do so. It may seem safer to address those issues when people are no longer counting on Irrational Exuberance money to finance their retirements (the Irrational Exuberance money will have disappeared from people’s accounts in the days following the next crash).

I think it would be better to address these questions today. I believe that people are going to be pissed about the losses they have suffered in the days following the next price crash and they are going to get even more pissed when they learn that the people who get paid big salaries to know about this stuff have known for 38 years that major challenges have been raised to Buy-and-Hold. So I think we have as a society created a volatile situation, not just economically but also politically. But a decision to go forward with the national debate is a decision that we need to make as a society. We all get a vote. I get one vote, just like everybody else, and I have obviously been getting outvoted over and over again over the first 17 years of our discussions.

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 all comes down to whether Shiller’s Nobel-prize-winning research is legitimate or not. ”

I don’t think even Shiller would agree with you. Nor would Shiller agree with your interpretation of his work.

I think you’re wrong.

Now, I’ve said a lot of things over the course of the past 17 years. I’ve written hundreds and hundreds of articles on Valuation-Informed Indexing. It seems entirely possible to me — likely, even — that Shiller would not sign on to some of the things that I have said, You know what? That’s healthy. That’s what we should want to see. Shiller has a different brain from mine and he has lived through different experiences. It would be extremely weird if he signed onto every word that I have ever put forward. So we shouldn’t expect that.

But we should all want to know the details. Which we the points re which Shiller agrees with Rob Bennett? Which are the points re which Shiller disagrees with Rob Bennett? Which are the points re which Shiller generally but not entirely agrees with Rob Bennett? Which are the points re which Shiller is not sure what he thinks about what Rob Bennett has said because he has not given the matter enough thought just yet?

We all need to know the answers to those questions. Where Shiller says that he agrees with me, that would give me some comfort that I am on the right track and make me feel more comfortable sharing the ideas far and wide. Where Shiller says that he thinks that I am wrong, that would prompt me either to change my idea so that I can win Shiller’s endorsement or to develop a better explanation of the idea as it exists so that I can more effectively persuade him. Shiller would of course be trying to persuade me too in cases where he thought that I was wrong. His efforts to develop more effective arguments would force him to think through matters more carefully and further refine and develop his own ideas. And then entirely new ideas would pop out of his brain as a result. Which of course would work to the benefit of each and every one of us, Buy-and-Holders and Valuation-Informed Indexers alike.

Opening up every site on the internet to honest posting re the last 38 years of peer-reviewed research in this field is a win/win/win/win/win, Anonymous. It’s not possible for the rational human mind even to imagine any possible downside. We are looking at the biggest advance in our understanding of how stock investing works ever achieved in the history of investment analysis.

The only hold-up for 17 years now has been that you Goons think it will be embarrassing for Greaney to acknowledge that the retirement study posted at his web site truly does not contain an adjustment for the valuation level that applies on the day the retirement begins, just as that nasty Rob Bennett noted in his famous post from the morning of May 13, 2002. What do you think Shiller will say re that one? Thousands of people have looked at the Greaney study over the past 17 years and not one has been able to identify where he put the valuation adjustment. I have a funny feeling that Shiller is not going to be able to identify one either. Gee, maybe it’s not such a great idea to open the entire internet up to honest posting re the last 38 years of peer-reviewed research in this field afterall.

We humans learn by talking things over with each other, Anonymous. That is how it is done. We venture forward with thoughts, we get feedback from other humans who possess different educations and different sets of life experiences and we refine our thoughts in response to the feedback so that over time they get better and better and better and better and better. That’s why our economic system has been sufficiently productive to support an average long-term gain of 6.5 percent real in the stock market for 150 years now. That 6.5 percent gain is the result of thousands and thousands and thousands of conversations that we are always having on thousands of different subjects in an environment in which it is universally understood that we are all permitted and encouraged to contribute our two cents and see what happens as a result.

That process broke down in the investment advice field 38 years ago. Thousands of good and smart people had come to the conclusion that Buy-and-Hold was the answer and had developed well-paying careers promoting the ideas that follow from a belief in Buy-and-Hold. Then this guy from Yale showed up and blew the entire thing to pieces intellectually. He published peer-reviewed research showing that the core idea of the Buy-and-Hold project was in error (stock prices are not developed via rational reactions to economic developments but via shifts in investor emotion). The normal thing would have been for us to have at that time launched a national debate aimed at determining which of the two models for understanding how stock investing works. It didn’t happen. The people who had built careers centered on a belief in Buy-and-Hold reacted not in the best interests of the people of the United States and not in accord with the principles on which our economic and political systems are built but pursuant to a desire to protect their turf.

And they have been killing us ever since. They have put millions of people at risk of suffering failed retirements. They have caused hundreds of thousands of businesses to fail. They have caused millions of people to lose their jobs. They have caused political frictions to grow. They have caused discussion boards to be burned to the ground. They have put a number of Goon posters at grave risk of being sent to prison in the days following the next price crash. They have caused us to miss out on the insights that would have been set forth in hundreds of books that would have been published if the people who had the desire and intelligence needed to publish them had not been afraid of what would be done to them by the Buy-and-Holders if they dared to tell others in clear and firm and convincing ways what their minds told them about the subject of how stock investing works.

If Buy-and-Hold cannot be questioned, our economic system cannot survive.

That’s the bottom line. We cannot continue to live as we have lived in the past if the embarrassment felt by the Buy-and-Holders over their 38-year cover-up has grown so great that they cannot bear ever again to permit honest posting re these matters. I love my country. I favor the idea of permitting honest posting in the investment advice field, just as we permit it in every other field of human endeavor. I believe that the laws against financial fraud are good and necessary laws. I favor reasonable enforcement of them in defense of the people of the United States, who need to gain the power to talk over the “revolutionary” (Shiller’s word) research findings of the past 38 years before even more damage is done by this massive act of financial fraud.

I love my country, Anonymous. So I believe that we will get to the other side of The Big Black Mountain. When we get to the other side, I will find out what Shiller thinks of every investing insight that I have advanced over the past 17 years. And I will learn a lot. And so will Shiller. And so will all the people listening in. Good. That’s the way it is supposed to work.

You will learn too. There’s a good chance that any learning you do will be done from a prison cell. Still, it’s better to learn from a prison cell than not to learn at all. I am happy that the amazing things that we are all going to see once we bring this massive act of financial fraud to a full and complete stop will work to the benefit even of the Goons who led the effort to bring us all down. It’s nice to think that there is something so good in this world (our economic and political system) that it brings ALL good so long as it remains in place.

I believe that Shiller will sign on to most of what I have said when we have all gained the freedom to talk about these matters freely and openly and honestly. I also believe that he will probably find a few areas where I went a bit off the tracks. And I very much look forward to learning about what those areas are so that I can make fixes. That’s how it works. That’s the beauty of our system when it is being shown the respect that it merits.

My best wishes to you, Goon friend.

Patriotic 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:

Of course Shiller holds back (lies) because the goons got to him as well. Right?

Shiller is human like all the rest of us. He wants to be liked. He wants to be respected. He doesn’t want to hurt the feelings of his fellow humans. I would like to see Shiller advance a clear and simple statement that: “the Buy-and-Hold retirement studies are in error and are likely to cause millions of failed retirements unless they are correctly immediately.” That would be helpful.

He’s certainly holding back by not advancing that statement. Is he lying? I think so. He is telling the sort of lie that I told from May 1999 through May 2002, when I knew about the error in Greaney’s retirement study and I didn’t speak up. It’s a lie of omission, not a lie of commission. But if we were looking at any other field of human endeavor, we would certainly call that a lie . It’s hurting lots of people in a very serious way. The intellectual case for saying that the safe withdrawal rate studies are in error is rock solid. Why not say it?

The full reality, of course, is that Shiller has done more than any other human being alive to get us all to a place where none of us will need to lie about these matters ever again. He has told lots and lots and lots of truths about stock investing and he has demonstrated a lot of intelligence and a lot of courage and a lot of love in doing so. So, yes, he is a liar in some circumstances, like all the humans. But he is also a great man and, while calling him a liar out of honesty, we should be sure to emphasize that point in charity as well.

Does that answer your question? Shiller is like all the rest of us. I have done the same sort of thing. Bogle has done the same sort of thing. Pfau has done the same sort of thing. Bernstein has done the same sort of thing. Kitces has done the same sort of thing. Richards has done the same sort of thing. Shultheis has done the same sort of thing. And on and on and on and on and on.

Is it helping us to continue doing this thing, to continue pretending that there is some magical mystical way in which it adds something to the world for us all not to exercise price discipline when buying stocks, that it is okay to tell investors not to do so, to suggest that it might be a mistake to engage in long-term market timing? I sure cannot see how that could be so. I believe that every last one of us will be relieved when we all make it to the other side of The Big Black Mountain, when we all feel 100 percent free to speak openly and clearly and honestly about our views re stock investing just as we do when talking about hundreds of other matters that affect all of our lives.

The problem that we face is that the penalty that the Buy-and-Holders impose on those who speak honestly about the last 37 years of research is so severe and the reward for doing so is so slight that few of us can work up the courage to give voice to obvious truths. And of course the fact that so few do it makes things go a lot worse for the few who do. Once a certain percentage of the population is speaking honestly about how stock investing works, it will become the hip thing to do and then everyone will want to get in on the act and we will achieve advance after advance after advance. That will be super.

That’s obviously not where we are today. We need the penalty for posting honestly to be diminished and we need the reward for posting honestly to be enhanced. If Shiller is right, the constant promotion of Buy-and-Hold strategies is going to cause horrible life consequences for millions of people in days to come. Telling someone that “the safe withdrawal rate you are using was calculated in error and will probably cause your retirement plan to fail” is today upsetting enough to cause that person to vote in favor of banning the person saying that from an internet discussion board. But seeing the money in one’s retirement account drop by 50 percent changes things. I think that we are going to see a change in public attitudes when that happens.

I think that people are going to want to know what happened to their retirement money, they are going to want to know why their lives have been destroyed. I can tell them. That’s my job. I am a journalist and this is a big story. So I will tell them. And then we will have that national debate that I have been saying should have been launched many years ago. And we will sort out all these questions as a people.

I hope that we will engage on these questions in honesty. That’s critical. I also hope that we will engage on these questions in charity. That’s equally critical. I am reasonably confident (but not entirely so) that we will manage to take things to a good place, a place that each and every one of us wants to go to deep in our hearts.

I will be joking around with Robert Shiller in those days. I will say “Robert, you were kind of a liar re that safe withdrawal rate question for all those years, were you not, my good friend?” And he will say in return “Touche’, Rob, but no more so than you were from May 1999 through May 2002, right?” And I will laugh and we will embrace and we will both get back to the business of helping the flawed but generally good humans to overcome the Get Rich Quick urge that resides within all of us and to invest their retirement money more effectively.

Yes, Robert Shiller is a liar. Because he is one of those darned flawed humans. He is also a great man, one who has done more to advance our understanding of how stock investing works that any other human alive on the planet today. So I for one am willing to cut him a tiny bit of slack.

I hope that helps a small but, dear Goon friend.

Rob, Good Friend of the Great Liar Robert Shiller

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

“presuming that Shiller is right that 50 percent of your stock portfolio is the product of irrational exuberance”

Shiller would be very surprised to hear that he said that. Because he never did. You interpret Shiller like a terrorist interprets Islam. Using and perverting a good name to suit your own foul agenda.

His entire book says that. The title of the book is “Irrational Exuberance.”

If Shiller is saying precisely what Fama is saying, then why did the New York Times article reporting on awarding of Nobel prizes to both of them on the same day comment on how strange it was that two economists saying opposite things about how stock investing works were both being given the highest honor in the field on the same day?

Shiller is a friendly guy. Bogle could invite him to a session at the Bogleheads Forum where you could ask him what he thinks re all these matters. Does Shiller think that the safe withdrawal rate is always the same number or does he think that it is a number that varies with changes in valuation levels? Does Shiller think that the loss of trillions of dollars in spending power caused by the crash of 2008 (which was caused by the bull market of the late 1990s) was the primary cause of the economic crisis? Does Shiller believe that we will be returning to fair-value P/E10 levels in the not-too-distant future?

ASK HIM! That’s the best way to find out if you really want to find out.

You’ll have to ditch the death threat garbage for a few days. I doubt very much that he is going to tolerate that garbage. If you want to know the answers to your questions, you will treat him with a measure of respect. And, if you treat him with a measure of respect, he will be willing to answer your questions.

You don’t want to know, Anonymous. That’s been the bottom line here going back to the first day. You want to believe that the numbers on your portfolio statement are real. So you don’t want to know about the 37 years of peer-reviewed research showing that overvaluation is the product of irrational exuberance, not economic realities. You hate me because I make that point over and over again in clear and simple ways. I don’t do it to hurt you. I think you are better off knowing the realities. I accept that you are free to disregard anything that I say — that’s up to you. But I insist on my right (and the right of all my fellow community members) to say what I believe without first having to ask “Mother May I?” of the Buy-and-Holders.

I say that Shiller was awarded a Nobel prize because he showed the stock overvaluation is caused by irrational exuberance, not economic realities, and because that finding stands everything that we once thought we knew about how stock investing works on its head. Why do you believe Shiller was awarded a Nobel prize, Anonymous? Please identify how in your view he changed our understanding of how stock investing works in a significant enough way to justify the awarding of a Nobel prize in economics.

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:

“Review the site.”

I’ve seen enough. There’s nothing good here.

“I put a post forward on the morning of May 13, 2002, saying that the retirement study posted at John Greaney’s site lacks a valuation adjustment. That’s huge.”

No. That’s also, quite literally, nothing. It’s of less significance than the dust mites in your bed.

“And the positive feelings are 50 times stronger”

So to summarize, the bad stuff is everything that is factual and documented. The good stuff is your “positive feelings.” In other words, your feelings are 50 times more real to you than actual reality. Which means we have no common frame of reference for continuing this discussion. Sound familiar?

I agree with you when you say “we have no common frame for continuing this discussion.”

We are starting from opposite premises.

If the market is efficient, Buy-and-Hold is the ideal strategy. If the market is efficient, stock price changes are determined by economic realities and investors can count on the numbers on their portfolio statement to reflect something of real and lasting significance. If the market is efficient, stock investing risk is a constant and the safe withdrawal rate is always the same number — 4 percent.

If valuations affect long-term returns, stock investing risk is variable (it depends on the valuation level that applies at a particular point in time) and the safe withdrawal rate drops as low as 1.6 percent at times of high valuations and rises to as high as 9.0 percent at times of low valuations. If valuations affect long-term returns, stock price changes are determined primarily by shifts in investor emotions and the numbers on portfolio statements reflect only a temporary emotional reality and it is only by adjusting for the effect of overvaluation or undervaluation that investors can know the true and lasting value of their stock portfolios and engage in effective financial planning. If valuations affect long-term returns, Buy-and-Hold is the purest and most dangerous Get Rich Quick investment strategy ever concocted by the human mind. It will cause an economic crisis every time it becomes popular because the market’s primary job is to get prices right and, once large numbers of investors come to believe in Buy-and-Hold, there is no means by which the market can get prices right again but to crash them.

Are we enemies?

We believe in different things. In your eyes, that makes me an enemy. So be it, you know? I don’t see you as an enemy. I certainly accept that you follow an investment strategy rooted in a different premise than the one that I follow. But I also accept that I could be wrong and thus it is important that I listen to people with other views and learn from them. Even if I am right about the core point, there are things that I can learn from people with other views — perhaps they have thoughts on some non-core point that will make my understanding of the realities firmer and clearer and more complete. So I think of you as a friend.

Shiller’s work is not rooted in feelings. That is of course silly. The man was awarded a Nobel prize for good reasons. He is saying the opposite of what Bogle is saying. The two could not be further apart in their views as to how stock investing works. But Shiller’s work is 100 percent solid. It has passed every test to which it has been put. Bogle’s work once appeared to be solid. Before Shiller came along, most informed people thought that the market was efficient. Shiller discredited that idea. Buy-and-Holders still outnumber Valuation-Informed Indexers 10 to 1. So there are still many good and smart people who believe that Buy-and-Hold is a real thing. But the intellectual work needed to discredit it has been around for 37 years. The idea that the market is efficient was disproven 37 years ago. If valuations affect long-term returns, there aint no way in God’s green earth that the market is efficient. If the market were efficient, returns would play out in the form of a random walk both in the short term and in the long term.

If you don’t think that there’s anything good at the site, don’t read it, Anonymous. There is certainly no law that says that you have to come here. There ARE laws limiting the sorts of tactics that you may engage in to block people who have an interest in hearing the message from hearing it. It is your violations of those laws that are going to get you sent to prison in the days following the next price crash. I will do what I can to help you out, you know? I have said that about 500 times. I will do what I can to explain your behavior in a way that might make people who have lost most of their retirement savings as a result of your actions less angry with you. I am not going to say that the Greaney study contains a valuation adjustment. I am not going to join you on the wrong side of the felony line. But I will do what I can.

The crash is going to hurt people. It breaks my heart that it is going to take another price crash to get these ideas out before millions of people, to help us all to advance in our understanding of how stock investing works in a big way. But whachagonnado, you know? I did everything that a human being can do to help us all avoid that pain. I did my part and then I did some more on top of that and then I did some more on top of that. I am not Superman. At some point I have to accept that we live in communities and we are going to need a few more community members (perhaps 10?) to work up the courage to stand up to you Goons if we are going to make good things happen here. I think we will find them. I think we are going to have John Freakin’ Bogle himself working on the side of the American people in the days following the crash. So I think we have good things to look forward to.

What do we do when we see the crash that Shiller has predicted, Anonymous? Do we throw our hands up in the air and give up? Is that the end?

I don’t think it is the end. I think we rebuild. I am grateful that we have 37 years of peer-reviewed research showing us how this stock investing thing works in the real world to help us with that rebuilding process. I am going to do what I can. I can do no more and I can do no less. I hope that you will be working with Bogle and me and Shiller and all the others when we make it to the other side of The Big Black Mountain. I think you will be. You’ll say “no, it could never happen.” But losing 50 percent of your life savings and seeing the suffering of millions of people may bring on a change of heart. It has been known to happen, my dear Goon friend.

We don’t have a common frame of reference re the investing stuff. We certainly believe in very different things in that realm. But I suspect that deep down we possess a common frame of reference re something even more important. In the United States, we have means of working out such differences. We talk them over. We don’t make use of death threats or demands for unjustified board bannings or thousands of acts of defamation or threats to get academic researchers fired from their jobs. Those sorts of things are not accepted behavior in any field of human endeavor outside of the investing advice field.

You can point to all the bad stuff we have seen during the first 16 years and argue that it is hopeless. I can point to the laws against financial fraud and show that the people of the United States are on my side on the ultimate question. We do not as a people approve of your tactics. So you are fighting a losing battle. Once people see the financial pain that is associated with permitting relentless promotion of a Get Rich Quick investing strategy and prohibiting discussion of the first true research-based strategy, those who engaged in the financial fraud stuff will be going to prison. That’s going to make a pretty darn big statement, you know? That’s going to get written up in the newspapers. That’s going to go viral.

The stuff that is on the wrong side of the felony line is not for me, Anonymous. If anything, I am trying to get you to move away from that stuff. I certainly do not feel any inclination to join you. We are making progress. We’ve got 37 years of peer-reviewed research showing us what works. We have seen a Nobel prize awarded to the economist who showed that Buy-and-Hold is a big pile of smelly garbage. We have had thousands of our fellow community members express a desire that honest posting be permitted at our boards. We have had scores of big-name experts make efforts to go honest on various points. We have seen you Goons go completely nuts, showing that even the most ardent advocates of Buy-and-Hold no longer believe that it can be defended in civil and reasoned debate. What does that tell you?

It tells me that we are close. Very, very close. A death threat is a Hail Mary pass. It is a desperate act. I don’t even think about throwing Hail Mary passes. I don’t have to. I have 37 years of peer-reviewed research on my side. That counts for something in this country. Ultimately, it is going to be the peer-reviewed research that wins the day. I wish it would have happened sooner. Very, very, very much. But I can’t say that I feel even the tiniest inclination to jump from the winning side just in time to line up a prison sentence for myself. Um — thanks but no thanks.

I hope that you have all the happiness that you are seeking in life.

If you have questions re Valuation-Informed Indexing, please let me know and I will offer you whatever help I am able to deliver. If you see no merit in it, please feel free to mosey on down the line knowing that you have my best wishes every step of the way.

I am going to continue posting honestly on safe withdrawal rates and on scores of other critically important investment-related topics. If I ever see any evidence that the Greaney study contained a valuation adjustment, you will see me reporting on it here within 24 hours of the time that I learn about it. If I never see any such evidence (I have developed a funny feeling over the years that I never will), I will just have to make the best of the circumstances in which I have been placed. I will post honestly. I will tell anyone giving thought to using that study to plan a retirement that it is in error. I will encourage all investing sites to warn people about the study so that we don’t see even more failed retirements than have already been set in motion by the errors in it.

Does all of that not make perfect sense? It sure seems to me that it does.

I do wish you all good things, my dear Goon pal.

No-Good-Site-Maker 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:

In this 1996 paper Shiller brazenly predicted a zero percent real total return over the ten year period starting in January 1996: http://www.econ.yale.edu//~shiller/data/peratio.html

Instead the results were 6.6% real per year. Now here’s where you blither about him being just a bit off, or just a bit early. You’ll spew some nonsense about how people who screw up like that don’t win Nobel Prizes. But the plain facts are that his ten year (“long term”) prediction was extremely clear, and it was spectacularly wrong.

And unlike you, Shiller learns from his mistakes. He will never make such a prediction again, no matter how much you want him grilled. You’re wasting your time waiting for Shiller to validate your folly. Ain’t gonna happen.

This post is gold in three respects, Anonymous.

One, I much appreciate the link to Shiller’s article from 1996. That’s the sort of thing that we all need to be talking about at every discussion board and blog on the internet. You are quite right in your suggestion that Shiller was at that time expressing himself in ways more akin to how I express myself. I obviously think that he was right on to do that. So I am glad to see confirmation of my impressions of what his research means in the link you present here.

Two, you were 100 percent right in your assessment of how I would react to the fact that Shiller was a little off in his comments. I acknowledge that he was off, there’s no dispute there. But I would say that he was 90 percent right and only 10 percent wrong (and that, unfortunately, that’s the best that any of us can do today, given the state of the world’s knowledge of how stock investing works in the real world). My assessment of Shiller’s “mistake” is precisely what you describe it to be.

Three, i think you are partially (but only partially) correct in your claim that Shiller “will never make such a prediction again.” I think you are right that it is his experience in not seeing these predictions come through that has made him reluctant to repeat them. I think that’s so of Bogle as well, if you want to know the full story. Bogle made a public comment about how future returns would be low because valuations were too high in the early 1990s and was proven as “wrong” re that one as Shiller was proven wrong re this one. And then Bogle himself engaged successfully in market timing in 2000, when he dramatically lowered his stock allocation because of the insanely high stock prices of that time. But this go-around he kept it to himself. He didn’t go sharing his opinions with others because he had had that earlier experience of looking foolish as the result of doing so. I get the sense that Shiller feels the same way. And so, yes, he is reluctant to offer predictions that are as clear and firm today.

But you say that he will “never” do this again. There I think you are wrong. I think that Shiller will return to making effective, research-based predictions in the wake of the next price crash, when the general public will be 10 times more receptive to his message than it is today. And Bogle will do the same. And everyone else in this field will do the same. That’s my sincere take.

The reality as demonstrated by every sliver of evidence available to us is that short-term timing never, ever, ever works and long-term timing always, always, always works and is always, always, always required for those who want to keep their risk profile roughly stable over time. For so long as prices remain insanely high, those who give public voice to these obvious truths are going to be met with a tsunami of hatred put forward by those desperately trying to retain confidence in the conventional wisdom of the pre-1981 time-period that it is not necessary to practice price discipline (long-term timing) to invest in stocks successfully for the long run.

I wish it wasn’t so. But it’s obviously so. I believe it will change with the next price crash. But we are all just going to have to wait a bit to find out for sure whether it does or not.

It is my strongly held view that Shiller was performing a huge public service by being so clear in the language that he used in the 1996 article. I wish he would speak the same way today. I understand why he is afraid to do so. I am entirely sympathetic to the situation he finds himself in. But I think we all need to hear the clear version of his message that he was happy to provide in the days before you Goons went completely off your rockers. But I think we will get the clear Shiller back again. It’s a question of us as a society sending the right signals. When we want clear Shiller, we will get clear Shiller. In the days following the next price crash, we will be sufficiently shaken up that we will all very much want clear Shiller.

I personally believe that even some of you Goons will be joining the party in those days, as amazing a “prediction” as that might appear to be to you. But we will see, you know?

My best wishes to you, old friend.

Clear-Shiller-Loving 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:

Here’s some new research, which you claim to always be interested in. The “fair-value CAPE”:

https://investornews.vanguard/valuing-the-stock-market-with-a-new-yardstick-the-fair-value-cape/

“As the figure below illustrates, the Shiller CAPE (cyclically adjusted price-to-earnings) ratio provided a fairly accurately forecast of 10-year-ahead returns—for a while. Since the mid-1990s, however, the predictive power of this metric has deteriorated.”

Specifically, the chart shows that Shiller’s results fall apart starting in 1996. Seems like that’s a significant year, but I can’t remember why. Anyway, the fair-value CAPE, which has smoked Shiller since then, is not predicting a crash. It says only that the market is somewhat overvalued.

Good news, right? You’re not really hoping for a crash are you? That would be ghoulish.

Thanks for the link.

The predictive value of the metric has deteriorated for a time because the insane level of mispricing which came into effect in 1996 has not yet resolved itself. Assume that stocks return to fair-value prices tomorrow and re-run the numbers and you will obtain very, very different results.

If stock prices are determined by a rational process, then there is no need to re-run the numbers. But, if stock prices are determined primarily by shifts in investor emotion, then it is absolutely imperative to do this. So the core question is — Are stock prices determined by economic realities or by shifts in investor emotion?

The way to test this is to check whether prices fall in the pattern of a random walk or not. If prices fall in the pattern of a random walk, it is reasonable to conclude that it is economic realities that are causing price changes. And, in the short term, we do indeed see a random walk. But in the long term, we do not see a random walk. In the long term, valuations affect long-term returns. Why? Because it is investor emotions that determine returns and valuations measure the extent of investor emotion present at various points of time. That’s what Shiller showed with his “revolutionary” (his word), Nobel-prize-winning research of 1981.

It would be very, very, very good news if there were a way to avoid another crash. I will certainly give you that one. If if it true that valuations affect long-term returns, the only way to avoid crashes is to educate investors as to the realities we have learned over the past 37 years. Stock prices are self-regulating so long as honest posting is permitted at every internet site. High prices equal low long-term returns and investors who are aware that long-term returns are going to be low sell stocks, which brings prices back to reasonable levels. Stock markets in which investors are not able to learn what the last 37 years of peer-reviewed research teaches us are runaway trains. It is price discipline that keeps markets functioning properly. Buy-and-Holders rule out any possibility of ever exercising price discipline when they make their first stock purchase. Not good (if the last 37 years of peer-reviewed research is legitimate research, which I believe it to be).

Ghoulish (But Only If Buy-and-Hold Remains Unchallenged for Too Much Longer) 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:

“I don’t buy it, Anonymous.”

Of course not. Like all cranks, your whole identity starts from the assumption that you are the smartest person in the world. But does the world treat you with the enormous respect you are due? Well, no. The world treats you more like a baby treats a diaper. How can that be?

Your answer: Goons. Your towering intellect somehow is incapable of overcoming a couple mentally inferior goons, who aren’t even trying.

Somehow all that doesn’t “logically follow”.

I don’t believe that I possess a towering intellect. And I don’t believe that you Goons are mentally inferior.

My enemy is the Get Rich Quick impulse that resides within all of us. We all are prone to permitting our emotions to overrule our intellects. That’s why stock investing has always been risky. Stocks are the most emotional asset class. Shiller gave us the research we need to gain better control of our emotions and thereby told us what we need to know to take the vast majority of the risk out of the stock investing project.

But our first reaction to hearing what he has told us is to feel insulted. The Buy-and-Holders tell us investors that we are perfectly rational creatures. That’s a flattering message. Shiller tells us that we are highly emotional and that we permit our emotions to hurt us, that we are self-destructive. That message is not so flattering. That message is insulting. That’s why Valuation-Informed Indexing has had a hard time gaining a foothold.

The question that remains to be answered is whether the losses we suffer in the next price crash will humble us enough to cause us to listen to what the last 36 years of peer-reviewed research is telling us. If it does, then we will all live far richer lives from that point forward and none of us will ever look back. If it does not, we will probably see our economic system go down because our need for accurate, honest investing advice is greater today than it has ever been before. We learned the realities of stock investing just in the nick of time. Now it’s a question of whether we want to take advantage of the huge benefits now available to us enough to be willing to consider the possibility that we might have gotten something wrong at an earlier time. I vote for considering that possibility.

You say that the story doesn’t logically follow. In a sense, it doesn’t. There’s a lot of irrationality in evidence in this story. But it is not possible to tell any story involving humans without being willing to examine some irrationality BECAUSE HUMANS ARE EMOTIONAL CREATURES. Acceptance of that core reality is what Shiller added to the mix. The Buy-and-Hiolders started with an ASSUMPTION that humans are 100 percent rational and then just followed the logic chain where it took them. They did a good job of following the logic chain but there is now 36 years of peer-reviewed research showing that their core assumption was in error. Investors are humans and humans are no more rational when buying stocks than they are when doing anything else that humans do.

Shiller added the human element to the stock investing story. He thereby made it possible to get the numbers right because every calculation done in an investing context is affected by the irrational behavior of the humans who buy and sell the stocks. This is why the title of my book is “Investing for Humans.” You cannot get stock investing right without taking into consideration the human element. Shiller’s revolutionary insight was that investors are human and humans are not 100 percent rational and therefore any investing strategy assuming they are cannot possibly work in the long run.

The Buy-and-Holders are flattering themselves when they tell themselves that they are capable of perfect rationality, Anonymous. I don’t say that to hurt the feelings of my Buy-and-Hold friends. I say it because I want my Buy-and-Hold friends to achieve financial success and a big part of that is knowing how stock investing works in the real world.

I hope that helps a small bit.

Rob