Trading Nation

Robert Shiller: Stocks and bonds are overvalued—but I like oil

Robert Shiller on commodities
Robert Shiller on stocks vs. bonds
Robert Shiller reflects on valuations

For more than a year, Nobel-winning economist Robert Shiller has been warning investors that stocks look expensive. Similarly, he sees valuations in the bond and real estate market as unattractive. But there is one asset he thinks investors may be under-appreciating: oil.

In no way is the Yale professor suggesting that investors leave stocks or bonds in order to get into crude oil futures. Rather, he points out that commodities have historically performed relatively well, and oil's economic importance makes it an especially interesting potential holding.

"Commodities are a good part of an investment portfolio," Shiller said Thursday in a "Trading Nation" interview. "They're not highly correlated with the stock and bond markets, and they've had a good return over a long time period."

When asked specifically about commodity holdings in his own portfolio, Shiller said he is exposed to oil.

"One should have a wide variety of assets in one's portfolio. And oil, by the way, is a particularly important asset to have in one's portfolio, because we need it, and the economy thrives on it," he said.

"So yeah, prices have come down a lot, partly because of the invention of fracking," which has increased supply levels. "Will that reverse and go up smartly? I don't know. But I'm just thinking—historically, commodities have been a good part of a portfolio, and they're not pricey, so why not?"

At the same time, Shiller acknowledges that holding oil is "risky" and makes clear that "I'm just looking at a long-term portfolio; I'm not trying to time the market. See I'm an academic, you know?"

"My portfolio is something that my wife and I manage," he added. "It's not a model for everyone. But I do have oil."

When it comes to stocks, Shiller said they are "overpriced," but "when the stock market is as high as it is now, it often just keeps going up. So I think it is important to diversity but I think stocks—these might be famous last words—but they have a good chance of being a reasonable investment."

Over the next few years, Shiller predicts that "the market will provide a return, but it's not much more than a dividend yield. I mean, it could go up or it could go down, but just count on your dividends, and that's it."

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