Yesterday’s blog entry reported on an e-mail sent to me on January 16, 2011, by academic research Wade Pfau. Set forth below are the texts of my three response e-mails.
It’s always nice to hear from you. I am doing fine. Thanks for your kind comments re the podcast. I haven’t looked at the linked paper but I will look at it shortly.
Please ask any questions that happen to come up. I may or may not be able to help with them. If I am not, you will be helping me by leading me to discover holes in my thinking. That’s obviously important.
Your interest in the general subject encourages me. As you know, I have been walking this path for a long time. I was pulled onto it not out of a personal desire but as the result of a strange set of circumstances. As I continued down the path, I discovered more and more tentative findings that seem to me to offer great promise. So I have not been able to give up the effort either to disprove or affirm the basic concept.
In ordinary circumstances, this would be easy to do. But my experience has been that even many smart and good people do not want to look too closely even at tentative findings that suggest follow-up findings so far removed from the conventional wisdom of our day. So I have been frustrated in my effort either to convince myself that the ideas are not worth pursuing or to convince enough others that they represent genuine advances to get them the attention that they merit in the event that they are sound.
Any work you are able to do re these ideas will obviously help move the ball forward a bit. So I am happy that you are evidencing a good bit of interest. I will always be happy to help in any way I can whether that means that the ideas become better known or that they become discredited. The important thing is that the ideas either be advanced or killed based on the extent to which they do a good job of describing the realities.
Please take whatever time you need before moving to the next step in your explorations. It is clearly more important to get each step right than to move through many steps at a quick pace.
Thanks for bringing a measure of cheer and optimism to my Sunday morning!
I pulled up the paper.
I only took a quick look because I recall that one coming up in a discussion that was held at the Vanguard Diehards board at the time the paper was published. My recollection is that this is the paper that prompted John Walter Russell to coin the term “idiot switching.” I haven’t spent enough time with the paper to refresh my memory re their methodology but my recollection is that they did not do things in the way in which someone trying to make the strategy work would do things. The put the non-stock money in unnecessarily low-earning asset classes and I believe that they often made extreme shifts (from very low stock allocations to very high stock allocations) in response to modest P/E10 changes (I am not even sure if they always used P/E10 — it may be that they were using P/E1, which is far less reliable). I recall not being impressed by that paper when it came out.
I have two articles at my site that link to studies on the VII topic. As a journalist, I follow a broad interpretation of the word “study” (I am open to using anything that effectively makes the point). So it may be that these two articles will not be of value to you. But it is possible that one of the links or one of the excepts will lead you to something of use. So I thought I would pass these along.
Also, here is an article linking to 20 quotes that I collected making the essential point. I think it makes a compelling case to read all these comments in one place: