Set forth below are some words that Wade Pfau, Associate Professor of Economics at the National Graduate Institute for Policy Studies in Tokyo, Japan (Wade is the fellow who recently posted preliminary research showing that Valuation-Informed Indexing beats Buy-and-Hold is 102 of the 110 rolling 30-year time-periods in the historical record), posted as a comment to yesterday’s blog entry. My responses will appear in the comments section.
Dear Rob,
We haven’t talked for a while, and I thought I’d drop by to say hi.
I’m still working on the valuations-based investing topic, but it has been going a bit slower. I have noticed you’ve been writing many interesting articles about my blog post, and I appreciate all your comments. It is hard to keep track of all your articles, but I do especially like the one with six criticisms of my research.
Admittedly, I lost some enthusiasm about the topic when I found out I was only rehashing the stock formula investing plans of the 1940s and 1950s. But I think it is still an interesting topic. I’m slowing the pace down as well, because I am trying to more formally explore the risk side as well by looking at things such as Sharpe ratios. I had the goal of finishing the paper by the end of February, and I think that is still a reasonable goal, but not guaranteed.
One thing that slowed me down is on February 4th I started looking at the issue of using overlapping historical data to combine the working and retirement phases of retirement planning into a complete whole. I was quickly amazed by the results, and I’ve spent the last 8 days writing a paper about this. This paper doesn’t rely on valuations, at least in an explicit sense, because I am trying to make it as uncontroversial as possible. But it is still going to be controversial, as it suggests that the traditional approach to retirement planning (as described on pages 10 and 11 of the Bogleheads’ Guide to Retirement Planning, for example) is counterproductive and possibly damaging. I think you might enjoy reading this paper. It may provide you a fresh angle on your own work, as I am also suggesting that the idea of “safe withdrawal rates” is not particularly useful as well. This may be some counter-intuitive stuff. I’ve got a blog post about it:
http://wpfau.blogspot.com/2011/02/safe-savings-rates-new-approach-to.html
The paper is complete, and in the actual paper I go into more detail about the situation for recent retirees, which I don’t mention much in the blog post. I will email you the paper, because it will be a few days before the place I submitted the working paper to will make it available for public viewing. They have editors check the papers first.
I think I will talk the weekend off (Lost Season 6 with Japanese subtitles – so my wife can properly enjoy as well – has finally been released). But next week I will be working on the valuations stuff again.
Best wishes, Wade
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