Paging through the current issue of the Atlantic Monthly, I came across a two-page ad from a financial-services provider asking for a piece of my retirement savings. That wasn't surprising. What was surprising was who the organization had chosen as its celebrity endorser: Robert Shiller, the economist and author of Irrational Exuberance. That book, published in March 2000 when the market was reaching its dizziest heights, argued that the best explanation for those incredible highs was, in fact, irrationality. On CNBC and elsewhere, Shiller became one of the most prominent bearish gurus in America. Wouldn't that sort of make him an odd choice for luring your investment dollars?
No! At first I thought it was, but the more I ponder, the more sense it makes. Shiller is in fact an excellent choice to stand in as the icon of what has lately become the hottest idea in market-land: prudence.
It used to be that prudence was for wimps. Fortunes—and the opportunity to retire 10 years early or whatever—accrued to the risk-tolerant. Everyone admired, even wanted to be, a venture capitalist or a hedge-fund manager, since they seemed to making a mint in no small part because they had the courage to take risks. A kind of negative calculus ensued: If you didn't get in on a high-flying share (what were you trying to do, understand the company?), or you bailed before the top, you were "leaving money on the table." This kind of thinking (as Shiller himself might agree) is most popular when stocks are going up across the board. For quite some time after stocks stopped going up, the reaction was a straightforward backlash: One by one the celebrated trappings and heroes of 1990s money culture were discarded and demonized. You might think that using Shiller in an ad is a mere extension of that backlash, but I think that's a little off. Because to me, the most interesting facet of the backlash was what didn't happen: Investors did not abandon the markets altogether. The citizen-shareholder kept his head down, but he hung in there.
Now the herd has gradually found its new direction, charging away from bad old risk as the ultimate signifier of savvy and toward a new one—good, wise caution. Now there's something to brag about. "I don't know about you," I can imagine the former Bull Market Geniuses saying expansively, "but I have got one hell of a cautious portfolio. I am preserving my wealth like nobody's business!" Apparently the millionaire next door actually got shellacked by at least one foolhardy investment—even the president's mother-in-law got creamed!—so the new strategy is to avoid being the sucker next door.
Therefore, the most wild-eyed boosters of the market's unlimited potential now preach the virtues of prudence. Just the other day James "Dow 36,000" Glassman lectured readers of the Wall Street Journal's op-ed page on the importance of a balanced portfolio. Remember all those ads making fun of clueless stockbrokers being crushed by hotshot do-it-yourself investors who had the moxie to manage their own portfolios? Well, post-Enron, there's now a vogue for, of all things, getting some expert to tell you what to do with your money. (Recent Journal headline: "Regulators Will Allow Pros To Manage 401(k) Accounts.") Nowadays you can't get away from Fidelity ads on CNBC in which some Regular American is grateful (and somehow smug) that someone at a big financial firm will tell him or her what to do.
Again, this isn't exactly a backlash anymore; it's a readjustment. The magazine ad that got me thinking about all this is for TIAA-CREF, and it's hardly an anti-markets broadside. (The Teachers Insurance and Annuity Association College Retirement Equities Fund is best known for handling retirement benefits for educators, but any U.S. resident can invest in, for instance, one of its mutual funds.) True, the ad notes that the markets are full of "bad judgment, lousy information, half-baked strategies." But what it implies is that the wise investor knows all this—and invests accordingly. "That's why Professor Shiller's retirement dollars are invested with a company whose levelheaded thinking stands out in a world where impulse and intuition are bucking intelligence and insight." You can't hide from the market, so why run?
Just out of curiosity, I checked in with Shiller about his first-ever appearance in an advertisement. "I guess it is a little surprising that I was picked for such an ad campaign, since bearish views of the market are often unwelcome," he replied. "I like to imagine that I was picked not for my bearish views but for my sensible outlook." Exactly so: At this point people probably don't even remember Shiller as bearish, since the performance of the post-2000 stock market has instead made a pretty good case for his having been sensible all along.
(A few extra notes on this for the record. The ad's fine print says that Shiller "became a participant in 1975." I asked about this and he explained that, as one would suspect, that was the year he got a university teaching job and was automatically enrolled. Nevertheless, he seems to be an authentic fan as he notes that his TIAA-CREF options include "real alternatives to stocks" such as real estate and inflation-indexed bonds; "I believe in the product I am advertising." He was paid $5,000 for appearing in the ad, and he gave that money to charity.)
What has really changed since risk ruled and prudence was for suckers? The market has fallen, which of course makes stocks, in general, somewhat less risky than they were when they were at their peak. (That doesn't mean they can't fall to new lows tomorrow morning—nothing can remove all risk from investing in markets.) Meanwhile, people who want to pursue massive financial rewards will have to take big risks to obtain them—and some people will do precisely that. But it'll likely be awhile before we hear a lot of celebrating the virtues of risk. Until then, I guess we'll celebrate prudence. For most people, that's not a bad idea at all.