Yesterday’s blog entry reported on an e-mail sent to me by Academic Researcher Wade Pfau on December 2, 2011. My response, sent the same day, is set forth below.
Wade:
Your research IS Nobel Prize stuff.
It could be that you are just being humble or that you are pulling my leg. But in the event that you are serious in thinking that you are not in Nobel Prize territory, I want to disabuse you of that notion. That is where this is leading.
You note that many articles that led to Nobel Prizes were first rejected. The obvious question is — Why? Why was the merit not seen on first presentation? It is that knowledge generally advances gradually over many years and then there are occasional giant leaps forward. The giant leaps are hard to follow and appreciate. This is a giant leap. So people are going to misunderstand it for a time.
The opportunity is to put everything in place during a time when few are able to appreciate the accomplishment. And, then, when large numbers of people come around, the work is done and all you need to do is to point to it. If, at the time people become interested in a new path, you have already cut through the path, you are there. That’s how it is done.
Shiller certainly merits a Noble Prize. He was asking the right annoying questions at a time when few saw the need to ask them. But Shiller (somewhat inexplicably) does NOT tell the full story. You can read 300 pages of Shiller’s fine book and not come across one paragraph telling you how to invest. People need that. People need to hear the how-to that follows from Shiller’s theory. That’s the Nobel Prize waiting to be won.
You say that “I was discouraged when I first received the desk reject…I realized that I didn’t have a chance with one of the top journals.” I don’t understand the background here. The suggestion here is that, if this lower journal rejected you, the higher ones would too. I have no knowledge base to know if that is so or not. I know the importance of the article. I am not able to say what considerations would come into play when editors decide whether to publish it or not.
Can you describe the general reaction you have seen to your work on valuations questions? Mel Lindauer obviously has been hostile. There is a sense in which that can be taken as a GOOD sign. Have others been hostile? Or intrigued? Or excited? Or indifferent?
I’ll tell you one story from the blogger’s conference just to give you a sense of both what you are up against and how huge the opportunity is that presents itself. I had breakfast one morning with a fellow blogger. We spent two hours talking warmly about a dozen different subjects. He indicated that he wants to move into the investing realm. I made my pitch for working with him. As soon as I started talking to him about it, his eyes glazed over. He did not want to hear this. It was
like looking at a cartoon illustration of a point.
Now, that is very hard to overcome. If the journal editors have that attitude, you are not going to change their minds by writing a great article. That’s the bad news. The good news is that that attitude has been keeping competitors out of these waters for three decades. We are 30 years behind in the research we should have been doing in this field. When the eyes stop glazing over, there is going to be a huge boom. Some will be positioned for it and some will not be positioned for it.
I can point you to many questions that merit study. The problem is that, to go deep, you need to consider methodologies that will be viewed as unconventional. I’ll give one example. People ask me all the time what it means that the P/E10
is now 21. A P/E10 of 21 does not mean the same thing on the way down as it does on the way up. This particular 21 is a very dangerous 21. People don’t want to hear that. They want to hear that 21 means x and that same rule always holds.
The market has a memory. That’s one of the new ideas. With Buy-and-Hold, the market is being created fresh each day. With VII, what happened yesterday has an influence on where we are today, which is connected with where things will
be tomorrow. It’s an entirely different mindset to think of each day being a separate event vs. understanding that each time-period arises out of and influences those surrounding it.
The question that should be on every policymaker’s mind is — What will we do after the next crash? The next crash will be putting us in the Second Great Depression. We will desperately need to win back the confidence of investors. If they continue to believe that each day’s market is a separate event, there will be no effective means to counter their fears available to us. If we effectively make the case that the market has a memory, we will be able to make a convincing case that investing in stocks will at that time be a smart move. It is going to be critical that big names be able to make this case effectively and quickly. Too slow a response and the entire global economy could collapse.
Your work could make the difference.
Yes, I lay it on thick. But honestly. This is my sincere take.
Anyway, that’s enough for one e-mail. But I do think you have a Nobel Prize in your future if you care to reach for it and do battle with the dragons that will try to stop you from having it. There will be frustrations and disappointments and hostile reactions. But we are getting to the point where the wall is beginning to break down, so those negatives are becoming less of a factor.
Here’s another thing you might want to look at. Under Shiller’s model, it is not the economy that causes stock price changes but stock price changes that cause economic busts and booms. Would you have an interest in exploring an angle that has nothing to do with investor choices but with how Shiller’s work points us to a different understanding of what caused the four economic crises we have seen this Century (every one followed from a P/E10 level of 25 or above)? Why is it that
economists blame protectionism for the Great Depression? Doesn’t it make more sense to say that it was high stock prices, which caused a painful crash, which caused widespread panic, which caused the protectionism? We wouldn’t have had the problem with the protectionism if we had stopped the bull market from developing in the first place. Why didn’t we try? Can we afford to continue not trying in today’s environment?
I hope I have perhaps sparked a few new thoughts that will save you from the boring business of sitting around with too much time on your hands in 2012.
Rob
As soon as I started talking to him about it, his eyes glazed over.
I can picture Wade’s eyes glazing over as he reads this email from you.
My guess is that Wade’s eyes glazed over PARTS of my e-mails to him, Evidence.
Wade was obviously very excited about a lot of the things he learned from me. You can see that in SCORES of comments he made during our e-mall correspondence.
But he must be missing out on a big part of the story or he wouldn’t have been able to have done what he has done. There are indeed things he is not letting in.
And of course he is not alone in this. This is true of lots of Buy-and-Holders. This is true of you.
What are we to do?
We need to talk about these topics.
Without the threat of intimidation causing us to be wary of what we say.
We need to talk honestly and openly and frankly and boldly.
It is the only way out of the dark place where we reside today to the far better place where we all deep in our hearts want to reside tomorrow.
I wish you all good things, my long-time abusive posting friend.
Rob
Conversation is a two way street.
You are very good at talking.
You still need to work on listening.
I don’t think that’s so, Evidence.
We all have an inclination to fall in love with our own ideas. That’s true of you and that’s true of Bogle and that’s true of Shiller and that’s true of me. That’s true of each and every one of us. To the extent that I am guilty of that inclination, there’s something to what you are saying here. But it is a crime of which we are all guilty, not just me.
Now —
I make efforts to avoid falling too deeply into that trap.
I don’t like Buy-and-Hold, right? I think Buy-and-Hold caused the economic crisis. That’s my sincere view.
But I make an effort to reach out to the Buy-and-Holders. I don’t say that the Buy-and-Holders woke up one morning with an INTENT to cause the economic crisis. I don’t believe that and I don’t say that.
And I acknowledge the huge contributions that the Buy-and-Holders have made. I rate Bogle as the second most important investment analyst in history (second only to Shiller). For someone who hates Buy-and-Hold so much, I think it would be fair to say that that shows some intent on my end to be fair to the other side.
Can you acknowledge that?
How often do the Buy-and-Holders acknowledge MY influence?
I posted about the errors in the Old School SWR studies in May 2002. The Economist wrote about them only in the past year or so. So I was nine years ahead of most of the “experts” re that one. Can you acknowledge that? Can you LISTEN enough to what the other side is saying to give me credit for that one?
No one listens perfectly, Evidence. If you want to add a line to every post I put forward saying “Rob might be wrong re this,” I have no problem with that. I think it’s a good idea because I don’t want anyone putting excessive confidence in anything I say. It’s true I could be wrong. It’s good if people know that.
We need to hear some people on the other “side” saying similar things. Can Bogle get things wrong? Can he acknowledge it? Can he say in a speech that he thinks there is a possibility that he has gotten some things wrong?
It would be a huge advance if he did that. If Bogle could acknowledge even the POSSIBILITY that he has gotten some things wrong, the Bogleheads could turn down the arrogance meter a few notches and we could all start enjoying a lot of great learning experiences.
I LOVE Bogle. I LOVE what Buy-and-Hold once was (when I call it “smelly garbage” I am referring to what it has BECOME in recent years, based on what I have seen its “supporters” do and say on discussion boards and blogs). You shouldn’t be driving away people who love what you once stood for and who are trying to help steer you back to where you once belonged. You should be trying to let it in that perhaps there is some room for improvement and perhaps this guy has something to say that might help you out in the long run.
You call me a “troll,” Evidence. Is someone who points out mistakes you made a troll? Is that what the word means? That’s not what I thought it meant.
I have been proven right about safe withdrawal rates, Evidence. We both know that. That should count for something. If you were intellectually honest, that would count for something with you.
Does it? Can YOU listen to what the other guy has to say? Or is it all about “defending” what you once thought to be so regardless of whether it is possible to do so with legitimate tactics or not?
I listen to you and I care about you. I care enough about you to demand better behavior than what I have seen over the course of the past 10 years.
We all should be working to achieve the same goal — to learn about investing and to help others learn. If you show holes in Valuation-Informed Indexing, you are helping me achieve that goal and I should respect you for it. If I show holes in Buy-and-Hold, I am helping you achieve that goal and you should respect me for it.
Do you respect my contributions, Evidence? If not, why not? Is it because it is you who is having more trouble truly listening to the other fellow?
That’s what I think is going on here.
Rob
I posted about the errors in the Old School SWR studies in May 2002.
No you didn’t.
Here is your legendary “Post heard around the World” http://boards.fool.com/price-adjusted-safe-withdrawal-rates-17209214.aspx
And here is the relevant juicy excerpt
“So I spent a little time playing with the numbers in the Safe Withdrawal Rate studies on RetireEarlyHomePage.com. I used the study put together by Dory36 because it did not require use of an Excel spreadsheet and I was just looking for some quick and dirty estimates of how things might turn out under different scenarios.
The assumptions I plugged in to get the calculator to run was that I was investing $800,000, with 80 percent in stocks and with the remainder in TIPS at a 3.5 percent real return, and withdrawing $32,000 per year to live on. None of these numbers are valid for my personal circumstances. I was just trying to plug in numbers to get the calculator to run.
The data that turned up for 1969 concerned me. As I read the data, it appeared to me that had I made an 80 percent stock allocation in 1969, I would now (31 years later) have lost all of my investment and be bankrupt. Is that true? It’s possible that I don’t understand how the calculator works, but that result was disturbing to me. The actual portflio figure that the calculator gave was that I would now have a negative $31,035. I don’t understand the concept of a negative portfolio value. That’s what makes me a little uncertain as to whether I am reading the results correctly.”
You didn’t post about the errors in the SWR studies. You posted about your lack of understanding of the studies and the associated calculators.
Good point, Evidence.
Please take good care.
Rob
It’s true I could be wrong.
You say that Rob, but you don’t mean it.
When people point out where you are wrong you deny it or ignore them.
When people point out where you are wrong you deny it or ignore them.
If you want me to acknowledge that I am wrong about something, you would need first to convince me, Evidence.
Death threats don’t do it. Defamation doesn’t get the job done. Smear campaigns are NoWheresVille.
If I say that I am wrong when I do not believe that, that’s dishonesty. Please try to find someone else.
But if the question is — Could Rob be wrong and not see it?, the answer is — Yes! Obviously! That sort of thing happens all the time.
I think the Buy-and-Holders are wrong. I think Buy-and-Hold caused the economic crisis. I don’t think the Buy-and-Holders believe that. I believe that they are wrong but don’t see it.
If I were wrong about all this, I would probably be the last to know it. I have spent 10 years developing and promoting the Valuation-Informed Indexing concept. I have a huge emotional investment in it. It’s when someone has a huge emotional investment in something that he is most likely to overlook something that shows that he is wrong. Others might see it. He might genuinely NOT see it because he cannot BEAR to see it.
If there is anyone reading these words who has ever given thought to following my investing ideas on my say-so, please understand that I think you are a fool. You can’t go by one guy’s say-so. Not Robert Shiller’s. Not John Bogle’s. Not Rob Bennett’s.
I think I know what is going on. But I am one of the flawed humans. So it always possible that I am making one of those flawed human mistakes.
Rob
If I were wrong about all this, I would probably be the last to know it. I have spent 10 years developing and promoting the Valuation-Informed Indexing concept. I have a huge emotional investment in it. It’s when someone has a huge emotional investment in something that he is most likely to overlook something that shows that he is wrong. Others might see it. He might genuinely NOT see it because he cannot BEAR to see it.
I think you are getting it Rob. Until you get past the emotional block that is preventing you from seeing where you are wrong we won’t be able to move this thing forward.
As Paul Simon almost sang “Rob hears what he wants to hear and disregards the rest”
we won’t be able to move this thing forward.
I’ll continue to move it forward as far as I can each and every day I am given enough life power to do so, Evidence.
I can do no more and I can do no less.
I wish you all good things.
Rob
As Paul Simon almost sang “Rob hears what he wants to hear and disregards the rest”
He didn’t sing that song just to me, my Buy-and-Hold-defending friend.
You should hear the outtakes! He mentions Lindauer by name!
Rob
I’ll continue to move it forward as far as I can
Unfortunately while your emotional issues remain that won’t be very far.
Thanks for your kind and encouraging words, my Buy-and-Hold friend.
Rob
Alfred Nobel.
not Noble.
get it right you self proclaimed journalist.
I’ll do my best, Canyon.
Thanks for the correction.
I think!
Rob