Beyond Buy-and-Hold # 41
All of the work that I have done in the investing field is rooted in the insights revealed by Yale Economics Professor Robert Shiller?s research, popularized in his book Irrational Exuberance. The idea that a Buy-and-Hold strategy could work was rooted in the research of University of Chicago Professor Eugene Fama?s research, which was discredited by Shiller in 1981. My aim is to integrate the legitimate Fama insights (which were numerous) and the Shiller corrections into a package of investing ideas that can actually work in the real world. I call this package ?Valuation-Informed Indexing.?
The strange thing about it is that I go places where Shiller has never gone.
I say that stocks are not nearly as risky now that we know that we need to take valuations into consideration when setting our stock allocations. Shiller doesn?t say that.
I say that the heavy promotion of Buy-and-Hold strategies for 30 years after they were discredited by the academic research was the primary cause of the economic crisis. Shiller doesn?t say that.
I say that the Old School safe withdrawal rate studies got the numbers that millions of middle-class workers used to plan their retirements wildly wrong and that we will be seeing political turmoil for years to come as a result of this horrible mistake. Shiller doesn?t say that.
Why doesn?t Shiller say these things? For that matter, why doesn?t Shiller endorse my saying of them? I wrote him an e-mail once with the hope of establishing ongoing communication about how to open the internet up to honest and informed exploration of his investing ideas. He did not respond. Huh?
I of course do not know why Shiller has been so reticent to help people learn about the far-reaching implications of his research. However, I can offer a few clues, based on statements that Shiller himself has made and on behavior I have seen from others who believe that valuations matter and who have evidenced a great reluctance to offer public comments about what this means in practical terms for investors.
Shiller once said in an interview that he has never shared all that he knows about stock investing because he would be viewed as ?unprofessional? if he did. That?s such a strange statement. Isn?t it the goal of investing professionals to learn and teach the realities to the greatest extent possible? How did Shiller ever come to believe that people would think less of him if he helped us all out?
Call on me, teacher! I know! I know!
My contribution to the stock investing universe
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!
The Buy-and-Holders have a problem. They really do believe in Buy-and-Hold. They think they are helping people when they advise them to follow this strategy. But they cannot entirely dismiss claims rooted in the academic research because Buy-and-Hold itself claims to be rooted in the academic research. And there is now 30 years of academic research showing that Buy-and-Hold can never work for the long-term investor.
The Buy-and-Holders are in a pickle!
They are hurting.
Buy-and-Hold Investors are investors in pain. Being human, they lash out.
Seeing that causes people like Shiller to keep it zipped. People don?t like to be hated and Buy-and-Holders often feel drawn to hate those who point out the practical investing implications of our finding in 1981 that valuations affect long-term returns.
Shiller has never told us all that he knows about stock investing. Lots of people haven?t. That?s too bad. We all are a poorer people (in more than one sense of the word) as a result.
We need to turn this around. Each and every one of us needs to pitch in and do what he or she can to help the Buy-and-Holders to understand that their legitimate contributions were very significant, to get over their defensiveness and to begin learning about all the exciting stuff that has come out in the last 30 years of academic research.
We?re all in this together. There?s not one person alive who does not on some level of consciousness want to learn how to invest effectively. We?re not enemies, we?re friends. We are all capable of making mistakes and we all have made them.
I look forward to the day when Robert Shiller gets over his reluctance to tell us everything he knows about how stock investing works. I look forward to the day when I get over that same reluctance. Yes, I feel it too. I think we all do. We all will be speaking about stock investing a lot more clearly and intelligently and honestly in the future than we ever have in the past.
Rob Bennett is co-developer of a stock cycles calculator called ?The Returns-Sequence Reality Checker.? His bio is here.
Rob Bennett is co-developer of a stock cycles calculator called ?The Returns-Sequence Reality Checker?. Rob?s bio is here.