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.
Wade:
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!
Rob
I next heard from Wade on December 20, 2011. He shared the following link:
http://www.advisorperspectives.com/dshort/guest/Kay-Conheady-Does-the-Trend-Matter.php
My response, sent the same day, is set forth below.
Wade:
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.
Rob
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.”
I can’t say that I have ever experienced any real-world success with my approach.
But that won’t stop you continuing to beat the same dead horse.
You’ve got me figured out, Evidence.
And you know what?
Bogle did the same thing with indexing. They called it “Bogle’s Folly.”
Bogle continued beating the dead horse and we all live better lives today as a result. So three cheers for John Bogle!
I am John Bogle’s best friend in the world. My guess is that he doesn’t see it that way today. But I believe he will see it that way in days to come. When he comes around, I will shake his hand warmly and go out for a beer with him and together we will plot ways to get out the message that middle-class investors need to hear to learn how to achieve far higher returns at greatly reduced risk.
You and I will be the best of friends on that day too, Evidence. So please hang in there, my Goon friend. Please know that I extend all good wishes in your direction despite your gooniness.
Because love is the answer, man. Just like they said in that Beatles song. The hippies did lots of dumb stuff. LSD was a loser idea from the get-go, in my assessment. But the hippies weren’t wrong about everything. They were right about that “there’s nothing you can do that can’t be done” business.
That’s what is going to save us from this economic crisis in the end. My sincere take.
Rob
The more people were exposed to Bogle’s ideas, the more popular they became.
Ten years after he the S&P500 index fund was launched it was becoming much more successful, other companies were launching index funds and Vanguard were expanding their range of index funds.
The more people are exposed to your ideas the less popular you become.
Ten years after your “Post Heard Around the World” the most common response to your blog posts, here or elsewhere is “No comments”.
The more people were exposed to Bogle’s ideas, the more popular they became.
So let’s expose the entire internet to my idea and see what happens, Evidence.
In the days before the death threats, Valuation-Informed Indexing was hugely popular. There were lots of people posting to the Motley Fool board that the discussion I started on May 13, 2002, was the most exciting discussion ever held in the history of that board.
Then Greaney threatened to kill family members of any community member who posted honestly on what the historical data says re SWRs and all people of honestly and intelligence left the board community. From that point forward, Greaney was able to “win” every debate. What a surprise that a board comprised solely of Goons would support the King Goon!
Can Buy-and-Hold survive civil and reasoned discussion of the 30 years of academic research showing that it is the purest and most dangerous Get RIch Quick scheme ever concocted by the human mind? I think it would be fair to say that in the 10 years of our discussions the Buy-and-Holders have never been able to come up with a sliver of an argument that convinced even themselves that it can. Otherwise, why the death threats?
The more people are exposed to Valuation-Informed Indexing, the more people will abandon Buy-and-Hold and move on to the far superior strategy.
I can’t wait!
Rob
Ten years after your “Post Heard Around the World” the most common response to your blog posts, here or elsewhere is “No comments”.
Let’s change that!
Let’s disrupt!
Let’s get that nasty, smelly Ban on Honest Posting lifted at every board and blog on the internet that has adopted it by the close of business today!
Are you with me, Evidence?
Rob
The more people are exposed to your ideas the less popular you become.
The right way to say it is that, as the case that valuations really do affect long-term returns has grown stronger and stronger, the Buy-and-Holders have become increasingly desperate in their efforts to “defend” their favored investment strategy.
If you had told the Buy-and-Holders on the morning of May 13, 2002, that they would eventually be reduced to resorting to death threats to block the desire of the Motley Fool board to hear honest posting on SWRs, they would have said you were crazy. A few months later, they signed on the the death threats.
If you had told the Buy-and-Holders after the death threats that 10 years later they would be reduced even farther to threatening to send defamatory e-mails to the employer of an academic researcher to get him fired from his job for the “crime” of publishing honest investment research, they again would have said you were crazy. Yet here we are.
If Buy-and-Hold were a legitimate strategy, there never would have been a single death threat. Does it upset lots of people to see how the Buy-and-Holders have destroyed themselves? Of course! It upsets me greatly. It makes me want to cry.
I think it would be fair to say that we don’t help our Buy-and-Hold friends by extending the Campaign of Terror another week or another month or another year. The SWR is the product of a numerical calculation. Get the number wrong in a study and you have to correct it. That’s the way it was on May 13, 2002, and that’s the way it is today and that’s the way it will be ten years from today.
All we do by pretending that the terrible flaws in the Buy-and-Hold Model don’t matter is make things worse for our Buy-and-Hold friends in the long run. We owe a lot of respect and affection and gratitude to our Buy-and-Hold friends. They laid the groundwork for the best investing strategy ever concocted by the mind of mortal man. We need to begin showing our Buy-and-Hold friends the affection and respect and gratitude they merit. We need to lift the Ban on Honest posting by the close of business today.
That’s my sincere take re this important matter, in any event.
Please take good care.
Rob
and have been mystified that others don’t see it the same way.
And that is one of the major reasons for your lack of success. You have no ability to see things from someone else’s point of view. You have no empathy with anyone else.
When you see that your way is not working you don’t try something else, you double down on the way that isn’t working.
It is, as one wise writer once put it, catastrophically unproductive.
You have no ability to see things from someone else’s point of view. You have no empathy with anyone else.
I have all the empathy in the world for the Buy-and-Holders. I evidence this empathy all the time.
Full truth be told, I have more than just empathy for the Buy-and-Holders. I have respect for the Buy-and-Holders. I have affection for the Buy-and-Holders. I have admiration for the Buy-and-Holders. I have gratitude for the Buy-and-Holders.
And I DO understand why they see things the way they do. If the market really were efficient, Buy-and-Hold would be the ideal strategy. I have said that many times. I believe it.
What I don’t buy into is the idea that, since I have so much respect for the Buy-and-Holders, I should refrain from pointing out their mistakes. I follow the Golden Rule — Do Unto Others as You Would Have Them Do Unto You. If I got a number wrong in a retirement study, I would want my friends to point it out so that I would not incur even larger financial liabilities. I do for my Buy-and-Hold friends what I would want them to do for me.
Rob
When you see that your way is not working you don’t try something else, you double down on the way that isn’t working.
What alternative do I have available to me, Evidence?
The only “deal” that I have ever been offered by the Buy-and-Holders is that they will get off my back if I agree to post dishonestly on the numbers my friends use to plan their retirements.
That sounds like a good idea to you?
I think it would be fair to say that, if I agree to post dishonestly, I will be held liable in coming days for hundreds of millions in financial liabilities as a result. Are you going to pay that bill for me, Evidence?
There’s a saying that, if you can’t do the time, don’t do the crime. That makes sense to me. I will continue posting honestly on SWRs and on many other critically important investment-related topics.
Don’t let the bad guys get you down, my old friend.
Rob
It is, as one wise writer once put it, catastrophically unproductive.
My view is that it is the Campaign of Terror that has been catastrophically unproductive.
There’s not one person alive who doesn’t benefit from learning the realities of stock investing. Why not get about the business of learning them and teaching them instead of twisting yourself into a pretzel to “defend” death threats and defamation and board bannings and threats to get academic researchers fired from their jobs?
It’s the Campaign of Terror that runs counter to our most fundamental cultural norms, not my idea of posting honestly on SWRs.
I agree with Wade (the pre-Goon version). There should be nothing even remotely “controversial” about any of this. If we didn’t all agree on at least some level of consciousness that honest posting should be permitted, we wouldn’t have all clicked the “I Accept” button that we had to click to gain access to our boards and blogs. If the Goon tactics are so great, why have we banned them at every investing board and blog we have set up?
Rob