Robert Shiller

“I Have Not Been Able to Find Anyone Who Has Made a Serious Effort to Explore the Practical Strategic Implications of Shiller’s Work. It’s Just Been Sitting There Waiting for Someone to Jump On It.”

May 12, 2012 by Rob

Yesterday’s blog entry reported on an e-mail sent by academic research Wade Pfau to me on January 16, 2011. My response is set forth below.

Wade:

Your last sentence is the amazing thing. I cannot get over this. Shiller’s book was very well received and it has been out for over 10 years. But I have not been able to find anyone who has made a serious effort to explore the practical strategic implications of Shiller’s work. It’s just been sitting there waiting for someone to jump on it.

The subtitle of the paperback version of Shiller’s book is: “The National Bestseller That Revolutionized the Way We Think About the Stock Market.” So it should not be a surprise to anyone that agreement with these ideas leads to the adoption of new strategies.

In fairness, this didn’t hit me either for a long time. I just kept drilling in different areas and then one day it hit me that the common thread was that everything I did was an attempt to identify strategic implications of Shiller’s findings. The reason this is controversial is that no one has done this before. People want to see it approved by experts before they go with it. Somebody needs to go first to get the ball rolling.

I do not have the ability to do research and have no interest in developing that ability. My aim is to be the journalist who tells the story of the shift to the new model and who explains to the typical middle-class investor what the research that
will be done means for him or her. I need to have people do the research so that I can demonstrate to readers that experts have signed off on all this.

It’s an exceedingly odd story. But that’s indeed where things stand, so far as I am able to figure all this out.

Rob

“I Definitely Need to Cite [You] as the Founder of Valuation-Informed Indexing…. Shiller Pointed Out the Predictive Power of P/E10 But Never Discussed How to Incorporate It Into Asset Allocation.”

May 11, 2012 by Rob

Yesterday’s blog reported on an e-mail that I sent to academic research Wade Pfau on January 16, 2011. Wade responded later the same day. He endorsed John Walter Russell’s characterization of a paper purporting to show that long-term timing does not work as testing “idiot switching.” He said: ” ‘Idiot switching.’ That is great, and describes exactly what the Fisher and Statman paper does. You and John have a great knack for coining new terms. I think VII is a much better term than any alternatives I’ve come across.” He added that he did not think it would be appropriate to use the term “idiot switching” in an academic paper.

Wade also reported that “as always, I will be reading all your links.” He said: “I definitely need to cite some of your work as the founder of VII, as I have not found anyone else who can lay claim to that. Shiller pointed out the predictive power of PE10 but never discussed how to incorporate it into asset allocation, as far as I know.”

Valuation-Informed Indexing #87 — The Fair-Value P/E10 Number Is Somewhere Between 14 and 16

April 11, 2012 by Rob

I’ve posted Entry # 87 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Fair-Value P/E10 Number Is Somewhere Between 14 and 16.

Juicy Excerpt: Yale Economics Professor Robert Shiller, the grandfather of the Valuation-Informed Indexing model, puts it at 16. There’s a good case that can be made for that number. But “16” is not the only reasonable answer to the question “What is the fair-value P/E10 number?”

John Walter Russell, former owner of the www.Early-Retirement-Planning-Insights.com site, did the statistical work for development of The Stock-Return Predictor and the other calculators available at my web site. John put the fair-value P/E10 number at 14. He explained why in this article: Typical Values of P/E10.

Beyond Buy-and-Hold #53 — This Is the Best Time in History to be a Stock Investor

September 8, 2011 by Rob

I’ve posted Entry #53 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called This Is the Best Time in History to be a Stock Investor.

Juicy Excerpt: Please use Shiller’s data to choose any month from 1870 forward and look at the P/E10 level that applied to determine what stock allocation you should have been going with at that time. Then move ahead 10 years to see what return applied. Shiller’s data doesn’t identify the precise return. But, if the P/E10 level stayed the same or rose or fell only a bit, the return was solid or at least acceptable. If the P/E10 level fell hard, the return was poor or perhaps downright panic-inducing. Please complete this exercise for as many cases as you need to to convince yourself that you should always look at the P/E10 level of stocks before buying them.

Financial Highway Article #1 — The Shiller Revolution: The New Way to Invest

August 12, 2011 by Rob

I’ve been accepted as a Staff Writer at the Financial Highway site. I expect to be posting two articles there per month.

My first article for the site is called The Shiller Revolution: The New Way to Invest.

Juicy Excerpt: There’s been little public debate about the far-reaching claims Shiller puts forward in his book. When that changes (and there’s good reason to believe this is going to happen soon), sparks are going to fly…. Why haven’t you heard more about this research? Most investors and most experts are reluctant to give up on Buy-and-Hold just yet. But wait until the next stock crash (the historical data indicates that we should be expecting prices to fall 65 percent from today’s levels sometime over the next few years). That will bring on a groundswell of interest in new and and safer and more effective investing strategies.

VII #50 — “Approximately True” Investing Advice Doesn’t Cut It Anymore

July 12, 2011 by Rob

I’ve posted Entry #5o to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called “Approximately True” Investing Advice Doesn’t Cut It Anymore.

Juicy Excerpt: How are we going to hold back the crowds anxious to make a speedy transition from Buy-and-Hold to Valuation-Informed Indexing?

But wait.

There are no crowds! People hate Valuation-Informed Indexing. I am the concept’s leading promoter on the internet and it is more common for me to be greeted with bricks thrown in my direction than with welcoming committees. How come? What’s going on?

One big problem is that most promoters of Valuation-Informed Indexing take far too apologetic a tone when making the case. I point you to a comment Shiller makes in his book Irrational Exuberance that I think should strike anyone persuaded by Shiller’s case as polite to the point of excess, perhaps even outright odd.

Beyond Buy-and-Hold #41 — Robert Shiller Pulls His Punches

June 9, 2011 by Rob

I’ve posted Entry #41 in my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called Robert Shiller Pulls His Punches.

Juicy Excerpt: My claim to fame on the internet is that I am the person who discovered the analytical errors in the Old School safe withdrawal rate studies. I helped lots of people out with that one. But it wasn’t the word “thanks” that I heard most often in response.

I had people threaten to kill me. I had people say my parents are alcoholics. I had people say my children don’t respect me. I had people say that my wife has left me. I had people tells lies about my financial circumstances. In short, I had people trying to plant an impression in other people’s minds that I am something less than “professional.” I’ve been Shillered!

ITNR #50 — Game Changers: Part Two

May 11, 2011 by Rob

I’ve posted Column Entry #50 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Game Changers: Part Two.

Juicy Excerpt: Stock returns are slightly predictable at five years out but the correlation between valuations and returns is not statistically significant at this point. At 10 years out, statistically significant return predictions are possible but the range of possible returns is large; that is, the precision of the predictions that can be made is not great. Greater precision is possible at 15 years out and the valuation level that applies on the day of an index fund purchase tells us 78 percent of what we need to know to know the return that applies at 20 years.

“Sure, He [Shiller] Does Support Value-Informed Indexing”

January 13, 2011 by Rob

Set forth below are comments that were posted by Azanon to the blog entry titled “Does Shiller Endorse Valuation-Informed Indexing?”:

Sure he does (support value informed indexing). I’ve watch all of the Yale lecture series of his economics class that are available for free on the web, and it is painfully obvious that Shiller endorses the concept of considering valuations, the current “animal spirit”, and the degree of irrational exuberance in place at any given time. He is constantly being interviewed to access the real estate market and its future direction.

If he feels all of these things can be intelligibly accessed, then certainly he would support the idea of making portfolio adjustments based upon market climate, not just upon one’s age or risk tolerance.

Rob, “value informed investing” is not as shunned as I think you believe that it is. I have read 100s of articles during my adult years with topics accessing whether various stocks, sectors, the (U.S.) market in general, or world markets are under or overpriced which often include suggestions to move into or out of the topic of discussion. The concept in general is practiced as least as often as buying-and-holding (in theory).

Outside of theory, true buy-and-holding is EXTREMELY rare. I can’t say that I know a single individual that has maintained a pre-defined buy-and-hold allocation which survived both the 2000 crash and the 2007 crash, without either one of these events compelling them to do something different (in other words, fail at buying and holding).

VII #24: Does Shiller Endorse Valuation-Informed Indexing?

January 11, 2011 by Rob

I’ve posted column entry #24 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Does Shiller Endorse Valuation-Informed Indexing?

Juicy Excerpt: Shiller has said surprisingly little about how to implement his investing ideas. His focus has been on doing research and on setting forth a new theory of how stockinvestingworks (the subtitle of his book is: “The National Bestseller That Revolutionized the Way We Think About the Stock Market.”). The idea behind this column is to put forward one person’s take on where our understanding of how stock investing works is headed presuming that Shiller’s ideas prevail in days to come. My ultimate aim is to launch a national debate in which we will hear thousands of people offering views on these topics, some of them likely being at least somewhat in line with what I suggest here and some of them likely sketching our very different perspectives on where things are headed.

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