Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
During the last two decades of waiting to see “how things turn out”, what has come out positive for you that would compel you to wait another couple decades to once again see how things turn out?
I have my name on the most important piece of peer-reviewed research published in this field in 30 years. That ain’t nothing.
I obviously have the greatest possible respect for Jack Bogle. Bogle has said on numerous occasions that the problem that he has with making use of the insights of Behavioral Finance in the development of investment strategies is that he wants to see concrete evidence that these insights will add something. Well, the Bennett/Pfau research shows in a clear and powerful way how much long-term timing adds. We showed that investors can reduce the risk of stock investing by 70 percent just by giving up their reliance on Buy-and-Hold and going with a research-based strategy.
That’s huge. If I had showed investors how to reduce risk by 10 percent, my face would be on the cover of Time Magazine’s Man of the Year issue. My only problem is that showing investors that they can reduce risk by 70 percent is so good that people find it unbelievable. Valuation-Informed Indexing is a stock investing strategy that is just too darn powerfully good!
But people will believe it once we open every discussion board and blog on the internet to honest posting. Then we will be able to answer people’s questions and bring them around gradually to what works. That’s what I did with Wade. He wasn’t a true believer when he contacted me. He was intrigued by my writings in this field, that’s all. He BECAME a true believer only in time as he explored one question after another and learned again and again and again that engaging in price discipline when buying stocks always gives the investor a huge edge (just as common sense would lead you to believe it should).
And we have laws in place in the United States to protect us all from the sorts of tactics employed by Goons like you, Anonymous. What do you think is going to happen when your prison sentence is announced? That is going to go viral. We are going to have site owners all over the internet writing up that development and trying to disassociate themselves from Buy-and-Hold in every possible way and trying to make the case that they have been secret believers in Valuation-Informed Indexers all along.
Wade would never have contacted me to become his co-author re that research had I not worked up the courage to post honestly re safe withdrawal rates on the morning of May 13, 2002. There can be huge benefits to posting honestly down the line! I didn’t know precisely what those benefits would be on the morning of May 13, 2002. But I knew that it did not feel good to sell out my fellow community members by failing to speak up about the errors in Greaney’s study. And, sure enough, I have seen victory after victory after victory (I am obviously not counting the setbacks caused by the criminally abusive stuff here) in the 16 years since. I have a funny feeling that I won’t be retracing my steps any time super soon.
My best and warmest wishes to you, dear Goon friend.
Triumphant (Not Counting the Criminally Abusive Goon Stuff!) Rob
In reading Wade’s comments I present day as well as the fact that he no longer speaks with you, I would not call him a true believer.
The comments below show that Wade is a true believer. Things he said because you Goons threatened to destroy his career if he continued doing honest work in this field obviously count for nothing. Our laws against financial fraud are good and necessary laws.
A) Academic Researcher Wade Pfau’s Statements Showing Interest In and Confidence in Rob Bennett’s Work
1) “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach [New School safe-withdrawal-rate research].
2) “Are you aware of Shiller offering asset allocation advice based on PE10? …. If you read Rob Bennett’s stuff carefully, I think he did provide an important contribution in terms of describing a way for PE10 to guide asset allocation for long-term conservative investors. I also think he was right on the issue of safe withdrawal rates.” — Posted at the Bogleheads Forum discussion board.
3) “I am also extremely grateful to Rob Bennett for motivating this topic and contributing his experience and encouragement.” — Written in Acknowledgments section of Wade’s breakthrough research paper.
4)”You deserve much of the credit as the whole idea of Valuation-Informed Indexing belongs to you.”
5) “I definitely need to cite some of your work as the founder of Valuation-Informed Indexing, as I have not found anyone else who can lay claim to that. Shiller pointed out the predictive power of PE10 but never discussed how to incorporate it into asset allocation, as far as I know.”
B) Academic Researcher Wade Pfau’s Statements on the Superiority of Valuation-Informed Indexing Over Buy-and-Hold
1) “What you see in the top part of the graph for each year is the amount of wealth accumulated after 30 years for someone following Buy-and-Hold against someone following Valuation-Informed Indexing….Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, while Buy-and-Hold did better in 8 of the periods.”
2) “I will take steps in my final paper to test a wide variety of assumptions about asset allocation, valuation-based decision rules, whether the period is 10, 20, 30, or 40 years, lump-sum vs. dollar-cost averaging, and so on, and to show that the results are quite robust to changes in any of these assumptions.”
3) “Any data mining that I am doing is in favor of buy-and-hold, not in favor of market timing.”
4) “The findings for “market timing” are so robust anyway, that it hardly matters how we do it.”
5) “The maximum drawdown from market timing is much less. That is how far the portfolio drops from past highs to current lows. The Buy-and-Holder once experienced a 60.96% drop, whereas the worst drop for market timing was 24.16%.”
6) “Market timing provides signficantly higher returns at a comparable level of risk.”
7) “The market timer enjoys a far less risky strategy.”
8) “On a risk-adjusted basis, market-timing strategies provide comparable returns as a 100 percent stocks Buy-and-Hold strategy but with substantially less risk. Meanwhile, market timing provides comparable risks and the same average asset allocation as a 50/50 fixed allocation strategy, but with much higher returns.”
9) “If everyone increased exposure after a market fall and vice versa, then this would dampen out the big swings in the market aggregates, and we might get shallower boom/bust cycles.”
10) ““‘I’m excited about this, as depending on what you have already done, I think I can design a study using the Shiller data to provide historical simulations of Valuation-Informed Indexing strategies against fixed Buy-and-Hold strategies and also lifecycle strategies (declining allocation to stocks as one ages). If Valuation-Informed Indexing consistently outperforms fixed and lifecycle strategies, then the proof is in the pudding so to speak. Given how well valuations help to explain withdrawal rates, I think there is a lot of potential for this topic.”
11) “Yes, Virginia, Valuation-Informed Indexing Works!”
12) “It makes complete sense to have an equity allocation that is in some way flexible. Having a completely inelastic demand for equities is a bit bonkers; no-one acts that way with life’s other important commodities.”
13) “I wrote up the programs to test your Valuation-Informed Indexing strategies against Buy-and-Hold, and I must say that the results look very promising…. I am quite excited about the findings so far. As you say in the podcast, Valuation-Informed Indexing should beat Buy-and-Hold about 90 percent of the time, and I am getting results that support this for various strategies.”
14) “I have been toying with the idea of sending the paper to the Journal of Finance, which is the most prestigious journal in academic finance.”
15) “Now that I am accounting for risk, I am even more amazed by how well Valuation-Informed Indexing works.”
16) You shouldn’t be too excited with great wealth accumulations if they happened due to unusually high valuations, and low wealth accumulations shouldn’t be as scary if valuations are also quite low.”
17) “My idea is to show many different tables with results over the whole period for returns and risks. Valuation-Informed Indexing always provides more returns for often less risk.”
18) “No matter what I try, Valuation-Informed Indexing will still perform better in 85-95% of cases for 30 years.”
19) “I have a new figure for showing this as well. And a nice figure showing the outperformance percentages across rolling periods of lengths between 1 and 40 years. I think it is all quite persuasive.”
20) “You haven’t seen anything yet! This was just the secondary study. I’m still working on the main one!”
C) Academic Researcher Wade Pfau’s Statements of Incredulity That He Was the First Academic Researcher to Examine the Valuation-Informed Indexing Strategy
1) ” I know that there is an extensive literature about the predictability of long-term stock returns dating back to Campbell and Shiller’s work in the mid-1990s. I also know that there is an extensive literature about short-term market timing strategies…. But my question is about LONG-TERM market timing strategies. In other words, using market timing over periods of at least 10 years to obtain better returns than a Buy-and-Hold strategy. The literature seems slim.”
2) “Let me just explain a bit more why I posted about this here. Valuation-Informed Indexing has had critics for years, but until Norbert did it in 2008, nobody seemed to have provided a serious investigation of it. I just couldn’t understand why. And that bothered me.”
3) “Two papers by Fisher and Statman are still all I can find that provide evidence against long-term market timing.”
4) “I’m so confused by why Fisher and Statman didn’t consider risk in their idiot switching tests. Valuation-Informed Indexing is much less risky by pretty much any standard I consider. I must wonder… did I make a mistake somewhere? Why haven’t academics already published research about this?”
D) Academic Researcher Wade Pfau’s Statements on the Dangers of the Conventional Retirement Planning Advice
1) “The traditional approach to retirement planning (as described on pages 10 and 11 of The Bogleheads’ Guide to Retirement Planning, for example) is counterproductive and possibly damaging.”
2) “Retirees now frequently base their retirement decisions on the portfolio success rates found in research such as the Trinity study…. This is not the information that current and prospective retirees need for making their withdrawal rate decisions.”
3) “This article provides favorable evidence based on the historical record for long-term conservative investors to obtain improved retirement planning outcomes (lower savings rates, higher withdrawal rates) using valuation-based asset allocation strategies.”
4) Wade sent me a link to an article in Business Week that was published more than eight years after my post pointing out the errors in the Old School retirement studies and which he characterized as “quite sympathetic to the point you were trying to make all along”.
5) “Though I was only trying to do an Old School safe-withdrawal-rate study, all that I ended up doing was showing in a different way what you had been saying all along: the safe withdrawal rate changes with valuations.”
6) “Valuations are the driving factor. ”
7) “This is similar to your drunk driving analogy, which I agree with.” The discredited but uncorrected retirement studies find that in most circumstances a 4 percent withdrawal rate provides a huge cushion for the retiree using it. However, in each of the three cases in history when stocks reached insanely high price levels, retirements using a 4 percent withdrawal came within a whisker of failing. To say that this shows that a 4 percent withdrawal is “100 percent safe” (these words are used in the Greaney study) for a retirement beginning at a time of insanely high price levels is like saying that driving drunk is “100 percent safe” because 97 sober drivers drove their cars 20 miles without incident while 3 drunk drivers were paralyzed for life in car accidents but did not die. The fact that 4 percent only worked by a whisker in the cases in which valuations were high at the beginning of the retirement shows that a 4 percent withdrawal is high-risk at times of high valuations, not that it is “100 percent safe.”
8) ” Actually, this issue shouldn’t really even be all that controversial. It’s just common sense that the probabilities from the Trinity study shouldn’t be interpreted as forward-looking probabilities for new retirees.”
9) Naturally, I am finding that Valuation-Informed Indexing can allow you to reach a wealth target with a lower savings rate, use a higher withdrawal rate, and also have a lower “safe” savings rate, than a fixed allocation.
E) Academic Researcher Wade Pfau’s Statements Showing His Concerns that Continuing to Report Honestly on the Investing Realities in the Face of the “Hostile Environment” for Doing So Created by Buy-and-Holders Would Harm His Career
1) “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.”
2) “Valuations and long-term investors is a somewhat controversial topic.” Wade posted these words to his blog in October 2011 as his explanation of why he was abandoning his plan of doing further research on the superiority of Valuation-Informed Indexing strategies over Buy-and-Hold strategies. He had told me in earlier days that “You ain’t see nothing yet!” when I praised his breakthrough research in this area. After his flip to the dark side, Wade removed the page containing this blog entry from his site.
3) “We have both read and met to discuss your paper. Unfortunately, we did not find the paper’s incremental contribution to the academic finance literature, assuming the analysis proved to be correct, rose to the level that we are seeking for papers in the JFR. Thus sending the paper to a reviewer would be inefficient.” These words are from an academic journal’s “desk reject” of Wade’s breakthrough research.
4) ) ““ I was discouraged when I first received the “desk reject” by the editors of the same journal that published the Fisher and Statman paper. I realized that I didn’t have a chance with one of the top journals.”
5) “I think I should stay publicly quiet for a while, as I really don’t want anyone sending messages about any topics to officials at my university.”
6) I don’t want them [the Goons] working behind the scenes to derail me.”
7) “I did warn the editor of the Journal of Financial Planning that they may receive some ‘hate mail‘ after I mentioned your name in the safe savings rate paper.”
When I search for the string “Academic Researcher Wade Pfau’s Statements Showing Interest ” I get over 50 hits
https://www.google.com/search?q=%22Academic+Researcher+Wade+Pfau%E2%80%99s+Statements+Showing+Interest%22&filter=0
Your ability to cut and paste the same stuff over and over again is an inspiration to us all.
That list of comments from Wade is super. It’s the most concise statement of what Valuation-Informed Indexing is all about that exists today.
And the fact that he stopped saying those sorts of things when you Goons threatened to destroy his career tells the process side of the story very well. It took Wade many years of schooling to obtain his Ph.D. in Economics. When he investigated Valuation-Informed Indexing, he was performing a public service. We all need to know whether it is indeed true that “Yes. Virginia, Valuation-Informed Indexing works!” So, when you Goons threatened him, you committed a crime against every investor alive on the planet today.
Not this boy, you know? Not in 17 years, not in 17 billion years. The only way in which I ever want to be associated with this massive act of financial fraud is in becoming known as the person who EXPOSED it.
I naturally wish you all good things. But there are limits, you know? I mean, come on.
Felony-Free Rob
“That list of comments from Wade is super. It’s the most concise statement of what Valuation-Informed Indexing is all about that exists today.”
It is a very selected/edited list. For example, where are the comments about where he says you are wrong? Where are the comments where he says you made up the job threats? Where are the comments where he said you are wrong on the SWR issue and John Greaney?
I answered that one in my comment above, Anonymous. The comments that matter are the ones he made when we were working together and when he was expressing his honest views. The comments that were made in response to your threats don’t count.
Rob