Rob Bennett to Academic Researcher Wade Pfau: “I Am a Bit Disappointed With the Defensive Tone. I Am Extremely Uncomfortable With the Idea That No Shift At All Is Required. I View That Take As a Dangerously Irresponsible One. I Hear a Certain Amount of Apologizing for Bringing the Subject Up in Your Paper.”

Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on December 10, 2011. I sent a follow-up e-mail the same day.

Wade:

The valuations paper is certainly a step forward. So little work has been done in this area that each new study helps people become more comfortable with the idea of considering valuations.

I was a bit disappointed with the defensive tone. There is no question but that the conventional view is that there is no need to justify Buy-and-Hold strategies, that there is some sort of magic to accepting the idea of making no allocation shifts as a reasonable default. I have never heard anyone justify this position. So I don’t buy it. My view is that an investor must make a choice as to his allocation and that staying at the same allocation at all times is just another choice (one that I personally find intellectually indefensible). I don’t have dogmatic views as to how much of an allocation shift is appropriate in different circumstances. But I am extremely uncomfortable with the idea that no shift at all is required; I view that take as a dangerously irresponsible one. I hear a certain amount of apologizing for bringing the subject up in your paper. Perhaps that is politically smart. But I worry that it allows the dominant “Buy-and-Hold is fine” view to remain dominant
a bit longer.

According to my calculator, the SWR varies from 2 percent to 9 percent. Who are we helping if we suggest that it is acceptable to say that it is always 4 percent? (I understand that you are not saying that directly but I feel that it is an implication that follows from any suggestion that Buy-and-Hold is a reasonable strategy). I don’t object to people defending Buy-and-Hold on grounds that the market really is efficient. That follows intellectually. But I believe that we need to get about the business of settling the question of whether the market is efficient or not and from that point forward accept that research that fails to adjust for the effect of valuations is analytically invalid and must be corrected. It’s too dangerous to leave the question open indefinitely.
If we don’t even know whether valuations have an effect or not, we really are at so primitive a stage of understanding that I question whether we should be calling the analyses we perform “research.” To leave so basic a question unresolved is cowardly, in my assessment (I don’t mean to aim that word at you in particular but at all who work in this field, including journalists as well as researchers).

All that said, there’s a place in the world for a multitude of viewpoints and a multitude of approaches, It could be that your approach will prove to be more influential than mine. Perhaps my experiences have biased me. So I certainly wish you the best of luck with it and i hope the paper generates more discussions coming at the question from a variety of perspectives.

Rob