Yesterday’s blog entry reported on an e-mail that I received from Academic Researcher Wade Pfau on December 11, 2011. My response, sent later the same day, is set forth below.
If your approach works, I will be thrilled. From the first days of these discussions, I have strongly favored the blunt approach and have been mystified that others don’t see it the same way. I can’t say that I have ever experienced any real-world success with my approach. So I cannot blame somebody for trying something different. I certainly hope you are able to bring some people around.
I agree with your characterization that Michael’s paper spoke a bit more strongly than your most recent one and that your Fisher and Statman paper told the story straight and with no chaser. I probably would have been more excited about Michael’s paper in an earlier day. Today, I am alarmed about where things are headed economically and so I tend to feel that it is not strong enough medicine. I’m obviously still happy that he put it out. It certainly has to count as a positive.
Keep the faith!
I next heard from Wade on December 20, 2011. He shared the following link:
My response, sent the same day, is set forth below.
Thanks very much for bringing that article to my attention. Kay was kind enough to include my name in a listing of people who have done work in this area. It made me very happy to see that.
She is raising an issue that I believe is often overlooked even by those who accept that valuations matter. People ask me all the time — What allocation should I go with at each P/E10 level? The question drives me a little crazy because I don’t
believe there is one good answer to it. It’s not just the P/E10 level that matters. It is also critically important to know at what point on the trend line that P/E10 level is turning up.
I have sent a note to Kay congratulating her on the article and thanking her for mentioning me. I am thinking of writing a response article that would look more closely at the WHY question — people are skeptical of claims that stock prices follow patterns until they come to a clear understanding of why that is the case. That’s the missing piece here, in my assessment.
It always makes me glad to see your name show up in my e-mail in box. For me,the hardest part of promoting Valuation-Informed Indexing has been the loneliness that goes with the job. It helped to be able to talk things over with John Walter Russell on a daily basis until he died in October 2009. Now it gets hard sometimes. So it means a lot to me when I see the name of a friendly correspondent.
Wade responded the same day. He said: “I had a chance to read her article now, and I can see that it does really tie in to what you’ve discussed before about the direction of PE10 as well.”