I’ve posted Entry #583 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Even People Who Believe in Shiller’s Research Aren’t Getting the Full Benefit Of It.
Juicy Excerpt: What Shiller showed is that stock investing is not strictly an individual activity but to a large extent a community endeavor. No one individual causes a bull market. Bulls are achieved when the entire society goes more than a little bit nutso. And of course we all suffer together when prices find their way back to earth. The stock market is in many respects a public resource, like clean air and clean water. Overvaluation of stocks is a form of pollution that ruins things even for those who are fully aware of how dangerous it is.
“What Shiller showed is that stock investing is not strictly an individual activity but to a large extent a community endeavor. ”
No, it is not a community endeavor. The top 10% of household own 89% of the stock wealth in the US.
That’s not so shocking. The top 10 percent owns most of the wealth in general. I would prefer it if wealth were distributed more evenly. But the full reality is that wealth benefits the entire society, including those who do not directly possess it. We would not have the medical advancements we possess if not for the amazing amount of wealth we have producted.
When we permit stocks to get insanely overpriced (as they are today), we cause hundreds of thousands of businesses to go under as a result of the inevitable price crash. That means that millions of people lose their jobs, A good number of those families lose their homes. The children in those families can’t go to college. Get Rich Quick/Buy-and-Hold investment strategies hurt us all in very serious ways.
My sincere take. We should permit honest posting re the last 40 years of peer-reviewed research.
Rob
If you don’t own stock, you will not have a successful retirement as you will not keep up with inflation.
I agree that everyone should own stock.
Where we differ it that I believe that we all have a responsibility to keep stock prices at reasonable levels so that we can use stock investments to finance our retirements. At today’s CAPE level, the most likely 10-year annualized return on stocks is a negative number. That’s a national scandal. Our relentless promotion of the Get Rich Quick/Buy-and-Hold “strategy: has turned this generally outstanding asset class into a poor one for all of us. Consistent promotion of long-term market timing could have stopped that from happening.
That’s my sincere take, Anonymous.
As you know, I wish you and yours the best.
Rob
You have to own ENOUGH stock. 90% of the US will likely struggle, except the small percentage with a reasonable pension. Only the rich (top 10%) are impacted by stock variations and they can ride through any market.
We couldn’t possibly disagree more. A Second Great Depression would impact all of us and that’s what stocks are priced to delivered to us today. We are fortunate that Shiller’s Nobel-prize-winning research permits all of that sort of thing in the past. Now we just have to work up the courage to stand up to you Goons and get the message out to million of people.
Wish us luck!
Rob
Wrong. You are already broke when you don’t own stocks. A second depression doesn’t change it.
Depressions destroy wealth. If we all followed research-based strategies, we would all own more stocks in the end. Irrational exuberance is the enemy. Get Rich Quick strategies are a long-term negative.
Rob
“ When we permit stocks to get insanely overpriced (as they are today), we cause hundreds of thousands of businesses to go under as a result of the inevitable price crash”
Businesses do not go under by a drop in their stock price. They go out of business due to lack of profitability.
“ If we all followed research-based strategies, we would all own more stocks in the end.”
Wrong again. 90% of the population has little to no stock. What strategy they use has no material impact. During this period of COVID, we have spent Trillions of dollars with direct payments to those in the 90% group. Based on the unemployment numbers, this was excess funds for most of those in the 90% group. For the most part, they spent the money instead of saving/investing. Again, the majority of stock is in the hands of rich people.
“Businesses do not go under by a drop in their stock price. They go out of business due to lack of profitability.”
Profitability is diminished when millions of people see their stock portfolios wiped out. People spent less when they lose a high percentage of their accumulated life savings.
Rob
“Wrong again. 90% of the population has little to no stock. What strategy they use has no material impact. During this period of COVID, we have spent Trillions of dollars with direct payments to those in the 90% group. Based on the unemployment numbers, this was excess funds for most of those in the 90% group. For the most part, they spent the money instead of saving/investing. Again, the majority of stock is in the hands of rich people.”
The more money those stocks own, the better for everyone. The people who own the shares receive a direct benefit. And everyone else benefits from the increased productivity that follows when people avoid Get Rich Quick investment strategies. The Get Rich Quick.Buy-and-Hold stuff generates some short-term profits. But in the long run Get Rich Quick strategies destroy wealth.
Rob
You still don’t understand. Let me try and help you understand by stating this more simply. You do not have any stocks, like a large number of Americans. If the market was cut in half today, your net worth would have no impact, right? Who took the big hit? The top 10% of households.
I would take a huge hit if a price drop of 80 percent put us in the Second Great Depression. That would affect me for the rest of my life. And it would affect my boys.
It’s not worth it. Get Rich Quick strategies make people feel a little better about their prospects for a time. Then a lot worse down the road. We would all be better off if we just accepted that the U.S. economy is productive enough to support an annual stock return of 6.5 percent real and let go of all the Buy-and-Hold/Get Rich Quick stuff.
My sincere take.
Rob
The financial system today is nothing like the 1920’s. Just look at how the Federal Reserve operates today. During your lifetime and mine, we
We seen plenty of stock drops, yet no repeat of the Great Depression. You can put away your Superman cape. You Arnott saving anyone from anything.
“The financial system today is nothing like the 1920’s. Just look at how the Federal Reserve operates today. During your lifetime and mine, we
We seen plenty of stock drops, yet no repeat of the Great Depression. You can put away your Superman cape. You Arnott saving anyone from anything.”
I don’t think it is worth taking the risk. I would permit honest posting.
Rob