Robert Schiller was among two other Nobel Prize winners in economics, recognized for his work in developing analytical models that more accurately depict the efficiency of financial markets. Whether or not you, as investors, agree with his ideas, it's clear that he is an influential voice and has watched the modern-day industry grow from its infancy.
Today, we'll offer a few discussion points gathered from interviews Schiller sat down for with the Washington Post and The Motley Fool. During these discussions, Shiller offered his views on where the markets are headed, some of the headwind risks facing investors and how the global economic system's growing pains are influencing returns.
One of the most interesting things he had to say related to short-term data consumption. In the chase for profit, too many investors look at new information without trying to figure out precisely how it fits together with older data.
"I think that there's too much faith in analysis of short-term data," he said. "You see some pattern, and you can do a statistical test and prove that it is significant or passes the smell test to a statistician. But the problem is, the world is always changing. It's not a stable thing. The underlying human parameters may be stable, but you can see that there is institutional and cultural evolution, and it's not something that you can quantify."
He also suggested that investors keep an eye on the course of economic history. Doing so will help them realize that the cyclical aspects of the market are oftentimes the ones that hurt the most.
"My standard advice, is be respectful of history," said Shiller. "Every time creates its own opportunity, and a time of great economic turmoil is a time of opportunity. You have to think creatively about that."
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