Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on August 12, 2011. I next heard from Wade on December 2, 2011.
He said that “Bill Bengen seems to be slowly moving toward something vaguely similar to Valuation-Informed Indexing” and supplied the following link:
http://www.fpanet.org/docs/assets/A92E35B9-9351-1596-3767A57CD8BB29A1/10Q.pdf
He also said that “Michael Kitces has an article about Valuation-Informed Indexing issues and supplied the following link:
http://www.fpanet.org/journal/CurrentIssue/TableofContents/ImprovingRiskAdjustedReturns/
And he said that “I finally got around to finishing the revising for my Fisher and Statman paper.” He said that he aded in the rolling periods analysis and provided the following link:
http://mpra.ub.uni-muenchen.de/35006/2/MPRA_paper_35006.pdf
Wade observed: “It took me a long time to get to it. There is a pretty good chance that it will be accepted at Applied Financial Economics, which is a decent academic finance journal.”
The text of my response, sent the same day, is set forth below.
Wade:
What a treat to hear from you! Super e-mail! Thanks much for the kindness of thinking of me.
I have mixed feelings about the Bengen interview. I found his discussion of SWRs confusing. His positive references to you and to Michael Kitces are certainly encouraging. But I have a hard time understanding where he is really going with the SWR concept.
I saw your comment at your blog where you expressed the thought that it is okay for him to explore his own path. I agree to a point. But getting the numbers right in retirement studies is just too important for people to be so unclear and up in the air about it. My view is that, if leaders in the field do not feel comfortable putting forward clear and informed takes (this is obviously the case), that itself is news.
If Bengen is not sure what makes sense (and he clearly is not), he needs to make public statements to this effect. That’s how we get a national discussion started. I get the sense that people in this field experience some sort of shame in saying the words “I” and “Don’t” and “Know.” Such a terrible mistake and misfortune! If there is one thing I could change, this would be it. People MUST get in the habit of saying they don’t know because that is how those with new ideas will work up the courage to speak up and help us all out.
Michael Kitces recently wrote a blog entry that was so fine that I put it in the “Links That Matter” section on the home page of my site:
That was a gutsy article. He talked about the real stuff that people rarely dare mention. He earned big points with me for that one.
Re your article — I am thrilled to hear that it is on its way to publication. I have enough knowledge of the history in this field to be able to say that that will be the most important article yet published in the field of investing analysis. I won’t even put “I think” before that sentence. This is a case where it is “I know.” So congratulations on moving that one a few steps onward.
That said, it makes me sad to hear you describe its possible home as only a “decent academic finance journal.” You of course know all the ins and outs of the politics of publication 50 times better than I do. Perhaps you were hinting that it might not be headed for a top journal when you shared the earlier comments with me and I did not pick up on the hints. Perhaps frustration with that experience is behind your announcement that you will not be focusing so much on valuations in days to come. [Wade had announced at his blog that he would no longer be performing research on the valuations questions that had so excited him in earlier days but would focus on the retirement topics that were winning him a good measure of applause.]
There are four things I feel I can say about the political side of all this.
One, going up against it is going up against a brick wall. 90 percent of my work has been on the politics side and only 10 percent on the content side. There is no way to overstate how difficult and emotionally exhausting it is to direct one’s energies to the political side of this battle.
Two, the political side is the place where the real action is. Once political gains are made, there are going to be thousands rushing forward to join the cause.Then we will be making more progress in a week that we have been able to make in 10 years.
Three, it is a metaphysical certainty that the political resistance is going to fall. I know this by looking at the numbers. The numbers are so big that there are only two logical possibilities: (1) the resistance falls; or (2) the global economy falls. As economic and general political pressures grow, those holding the wall will feel more and more imperiled and less and less confident and one day they will just let go. It is going to take something scary as all get-out to make that happen, so it would be sick to wish for it. The reality, though, is that it is coming whether we wish for it or not and we need to be as prepared as possible for The Scary Stage (to be followed by The Fruitful Stage).
Four, the only way that sense can be made of all this is with an appreciation of the power of the cognitive dissonance phenomenon. I don’t know if you have given any thought to that aspect of things. If you haven’t, you need to do so. Massive cognitive dissonance is the #1 reality here. It is not possible to pull all the threads together (or even to retain one’s sanity and good cheer) without coming to appreciate the role being played by cognitive dissonance. Studying cognitive dissonance reveals both why the good guys have been so long frustrated and why it will soon (let us pray!) become possible to make huge gains in amazingly short amounts of time.
Please let me know if there is ever any way in which I can help you with any of your endeavors. I think you are the tops!
Rob
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