Two weird ones.
The Buy-and-Holders never find fault with Shiller. I have never seen that happen. Not once in 21 years. I have a vague recollection that there were a tiny number of occasions on which someone offered a throwaway comment that was slightly disparaging. But criticism of Shiller is so infrequent that I am not able to recall details. The official talking point re Shiller is: He is a respected figure. That’s it. The Buy-and-Holders don’t praise him. They don’t say that he made hugely positive contributions. But they don’t find fault with him either. I would describe the Buy-and-Hold take on Shiller as patronizing. “It’s nice that you were awarded that Nobel prize, you can go run and play now.”
Overvaluation Exists
The Buy-and-Holders never question that overvaluation is a real thing. The idea that market timing is not required is rooted in a belief that the market is efficient, that investors are engaged in the rational pursuit of their self-interest. If that were so, there could never be any overvaluation. Investors would be on the look-out for inefficiencies in the market and would jump on them to profit from them as soon as they identified them. Mispricing is an obvious inefficiency; the rational thing to do is to price stocks properly. So the Buy-and-Hold position should be that overvaluation does not exist, indeed that it cannot exist. But I have never heard anyone make that argument.
If overvaluation exists, the market is not efficient. If the market is not efficient, market timing must work. It’s that simple.
The Buy-and-Holders appreciate that a claim that overvaluation doesn’t exist is laughable. So they don’t advance that claim. The Buy-and-Holders appreciate that Shiller’s research is of top quality and that his good reputation is well-earned. So they don’t find fault with Shiller or with his research.
The logical thing then would be to acknowledge that market timing works and is required. The only reason that I can come up with for why they don’t do that is that the cover-up has been going on for so long that it would look really bad to come clean now.
Cynics will suggest that there must be money in the Buy-and-Hold position. There is some short-term money. Everybody profits in the short term when stock prices are bid up higher than their real value. I’m sure that that’s a factor. But I don’t quite see why that would cause the Buy-and-Holders to oppose honest posting. Why not let people say what they believe and let the chips fall where the chips fall? Maybe it’s that they appreciate on some level of consciousness how vulnerable bull markets are to rational examination and they don’t want to see a price collapse for all sorts of reasons. I believe that the fact that the reality has been covered up for so long plays a role as well. It energizes the opposition to permitting a civil and reasoned discussion of these issues.
Market Timing Is Price Discipline
My point here is that the core question – whether market timing works or not – is not complicated. Market timing is price discipline. Price discipline has worked in every market that ever existed since the beginning of time. Why would anyone think it might be different in the stock market? The Efficient Market Theory caused the people who developed Buy-and-Hold to make a wrong turn, that’s all. Shiller’s research was not available to show people that the Efficient Market Theory is false back at the time when Buy-and-Hold was being developed. The plain truth is that there has never been any good reason to believe that market timing doesn’t work or isn’t required. The Efficient Market Theory was just an unfortunate mistake that we all should have moved beyond 42 years ago.
The Buy-and-Holders are smart people. One of my catch lines is to observe that: “I have never met a dumb Buy-and-Holder.” The fact that the Buy-and-Holders don’t criticize Shiller or his research or say that overvaluation does not exist shows that to be so. The Buy-and-Holders get it that those are losing arguments. And that those are the arguments that would dominate the debate once it was launched. That’s why the strategy has been to shut down all debate. Buy-and-Hold cannot survive reasoned debate, not in a world in which there is 42 years of peer-reviewed research discrediting the Efficient Market Theory.
Overvaluation/irrational exuberance is a real thing. It is the enemy of stockholders. It is the thing that makes stock investing risky. The only way to keep overvaluation/irrational exuberance under control is through market timing. So we will all live better lives once we use every investing site to make the case for market timing. That’s the deal.
Rob’s bio is here.
