Tapping Into Shiller's Irrational Exuberance
(FORTUNE Magazine) – As the stock market seems to run out of steam, suddenly all those books predicting an infinite Dow look more pathetic than prophetic. Bad news for equity holders, great for Robert Shiller, author of Irrational Exuberance, a new book that calls the outlook for the market poor and "perhaps even dangerous." We caught up with the Yale professor of economics while he was on a London book tour.
Q: Congratulations on the timing of your book. April was particularly cruel for stocks.
A: I know.
Q: That must have been nice for you.
A: Well, I tend to view it that way.
Q: What would you have done if the stock market had skyrocketed in April?
A: Well, that's irrational exuberance.
Q: So you win either way.
Q: At one point, you write that people who feel like losers for missing the bull market would feel better if they rediscovered the importance of being a good friend or pursued the simple things in life. Isn't that tough to do when all of your neighbors are buying Porsches?
A: Yeah. If you're out of the market now, not only do you feel like a loser, but you can't be an interesting person, because everyone else is talking about the market. So I think there's a lot of reasons to get in from that point of view.
Q: But you haven't been in since 1998.
A: I'm actually not totally out. And I have my company, [home property valuation service] Case Shiller Weiss.
Q: That stops you from feeling like a loser among neighbors?
A: Oh, I don't feel like a loser.
Q: You pulled out of stocks in 1998 and you told Money that the only stock you owned was Kmart. Seems like lousy timing and picking.
A: I'd say my timing has been good. I was in the market from 1982 on. And the market went up something like tenfold over that period. So you can't call it perfectly.
Q: Sure, but Kmart?
A: My mother gave me that. It hasn't done well.
Q: Didn't you tell her not to dabble in stocks?
A: Yeah, but it was part of her ego support system. I let her dabble.
Q: A reviewer on Amazon accuses you of ending your book on a "Spenglerian note reminiscent of Arrow-Debreu...and Merton." Are those fighting words among economists?
A: I don't even understand. What is a Spenglerian note?
Q: I don't know. I thought it was some economist insult.
A: I know Arrow-Debreu and Merton, but not Spenglerian.
Q: You take Jeremy Siegel's book Stocks for the Long Run to task, but at the beginning you say your kids fish together.
A: He's an old friend. I actually told him to write that book. I urged him through thick and thin.
Q: Just so you'd be able to pick on him in your book?
A: No, no, no. It was '93 when he wrote that book. I didn't disagree with him at all.
Q: As an expert on value, how does $27.95 for your book measure up?
A: I think it's a great bargain.