Robert Shiller on Thinking Outside the Box and Seeing Things Others Don't

In 2000, the Dow Jones Industrial Average was at record heights, with tech companies trading at valuations that made you think the old rules of finance no longer applied. If Cisco (Nasdaq: CSCO ) kept up with analyst growth projections, it would have eventually grown larger than the U.S. economy.

The world was different, people said. Recessions were a thing of the past. Technology would create limitless prosperity. The stock market wasn't a bubble. It was reflecting the new reality.

Yale economist Robert Shiller didn't buy it. He wrote a book, Irrational Exuberance, explaining why there was no way to justify valuations.

That was his first win.

Five years later, real estate was the new boom. Since land was a limited resource, prices could only go up, people said. And since housing was a leveraged investment, it was an easy road to huge wealth.

Again, Shiller didn't buy it. Again, he wrote a book about it, explaining why prices were way too high.

That was win No. 2.

How do you stand apart from the crowd and see things others don't? I asked Professor Shiller in an exclusive interview last month. Have a look:

What do you think? Share your thoughts below.

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Report this Comment On January 13, 2012, at 5:18 PM, xetn wrote:

Of course this completely overlooks the predictions of the Austrian school economists who rely on the Austrian Theory of the Trade Cycle, which predicts booms and bust based on large increases in the money supply which in turn, drives down the price (interest rate) of money below what the market would have determined.
Report this Comment On January 13, 2012, at 10:33 PM, traviscwaller wrote:

Schiller is one of the few anyone can trust when it comes to speaking about the real estate market!
Report this Comment On January 13, 2012, at 10:59 PM, portefeuille wrote:

On June 23, 2009 I drew a trend line for the rally of the S&P 500 index that started in March 2009.
(see comment #15 here -> http://caps.fool.com/Blogs/ellipsis/217478.)
http://farm3.staticflickr.com/2483/3656143968_4f3dc81ceb_z.j....
a recent update (from here -> http://caps.fool.com/Blogs/chart/667955.).
http://farm8.staticflickr.com/7147/6676698537_503ea41f3e_b.j....
Report this Comment On January 13, 2012, at 11:00 PM, portefeuille wrote:

links to those blog posts.
http://caps.fool.com/Blogs/ellipsis/217478
http://caps.fool.com/Blogs/chart/667955
Report this Comment On January 13, 2012, at 11:06 PM, portefeuille wrote:

(I am pretty sure no one else draws that trend line even now. People somehow think trend lines are straight lines. oh well, ...)
-----
Some have a style
That they work hard to refine
So they walk a crooked line
But she won't understand
Why anyone would have to try
To walk a line when they could fly
-----
http://www.youtube.com/watch?v=HjQ76vqwYMk
Report this Comment On February 02, 2012, at 3:20 PM, rojp08 wrote:

Terrific piece!
...the ability to listen to the beat of your own drum should never be underestimated...