Robert J. Shiller

Uh, what I've done as an alternative to that approach is I've pulled up what they've said, and I'm gonna give you some of the things they've said just so, so you can rebuttal them, um, and have your say on them.

One of the things that they often say is that long-term, real inflation-adjusted home price appreciation in the US is about 1% annually, and one of my guests cited Robert Shiller as the evidence of that.

After maintenance, um, which usually equals 1% to 2%, um, property taxes, which equals about 1%, insurance, and transaction costs, the net real returns approach roughly zero on average.

So when you say housing is a great investment, are you referencing the gross appreciation, which is the, the, the, the, the total appreciation or the net returns after taxes, maintenance, insurance, and selling costs?

So if you then understand how those things work, Then just overlay, okay, well, let's look at, again, not just the last 10 years' data, but let's look at data going back as far as I can find.

And, you know, there's great data available, for example, from Robert Shiller going back to the 1900s for some of the US market data.

And look at, well, when GDP did this or when home sales did that and when... unemployment did this how did that interact with the stock market how did it interact with the bond market did bonds always act as a good hedge to equities and the answer is no they didn't why didn't they what was going on differently in the 1970s that meant that they didn't react the correlations were different to how they have been at some points in more recent history and You know, if you'd understood that, it would have helped to predict that in 2022, for example, both bonds and stocks were going to go down together.

But also to think about asset classes beyond just traditional stocks and bonds, but to understand that, for example, why is it that at some times throughout history, gold has done very well? And at some times throughout history, gold has done very badly.

And so what I would say to you is understand what's driving it.

Understand that One of the great successes of American capitalism is the fact that if you look at, you know, Bob Shiller's data going back to the 1800s and you realize that we had a massive whoosh down in real earnings right after World War I, as we were recovering from the war excesses and we were still in the gold standard at the time.

Right around 1921, real earnings were roughly some version of $5 a share, if you will, if you were talking about the S&P 500.

At last read, that number was something like 250.

I was into NASA.

And he said, OK, Robert, I believe in the stock market.

I believe in America.

My father was like Horatio Alger.

So we know people are supposed to buy low, sell high, and we know people don't do that.

Why don't they do that? And behavioral economics studies that.

In the summer of 2000, I met Robert Shiller, Robert Shiller, a Yale professor, one of the founders of behavioral economics, had a book called Irrational Exuberance out that summer.

And a lot of it was about behavioral economics, about why do people act irrationally.

And I've got other charts that show that as well.

The only thing that is similar, but it is similar, the price to earnings ratio, the Cape, the best one, Robert Shiller has the best, that was his innovation.

The CAPE, cyclically adjusted price earning ratio from Robert Shiller was 44 at the top of the 2000 bubble, way higher than at the top of the 2007 peak because that was not a bubbly boom.

That was from the baby boom on a spending.

OK, 44.

For real estate, it's tricky because you don't have indices like you do with financial assets.

I used Robert Shiller's data on housing prices prior to 1986, and he has the data set going back almost a century.

And the Case-Shiller Index since then, where it actually is a reported index on real estate prices.

Incidentally, these are the prices of real estate.

You know, maybe the worker's hearing, "Okay, great.

Jobs are plentiful," but the investor is hearing, "Okay, rates might stay higher for longer, and that affects my individual stocks that I'm invested in." And this gets into the idea of narrative economics, which I love, and it was coined by Robert Shiller.

And the basic idea is that stories don't just describe economic conditions.

They can also influence what happens next.