“Wade Pfau Felt (Quite Understandably) That His Career Was at Risk If He Continued Down the Road That He Was Travelling When He Worked With Me, So He Got Off of That Road. He Was Proud of the Work That We Were Doing and He Admired My Work. He Said So Scores and Scores of Times. But He Did Not Want to See His Career Damaged and So He Chose a Different Course. I Think That He Made a Tragic Choice. I Don’t Think That Any Researcher Should Ever Have to Worry About Such Things. I See It As a Serious Imbalance in Our System That Needs to Be Corrected.”

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

He is doing what he wants to do. Stop making things up.

I’m not making things up, Sammy.

I exchanged scores and scores of e-mails with Wade during the 16 months in which we were working together. I have posted the texts of most of them at my web site. He was like a kid in a candy store in the days when he was learning about Valuation-Informed Indexing and getting increasingly excited about it while he researched the subject deeper and deeper and found that it all checks out. And then he was threatened. And then he wrote to me that he was afraid of what would happen to his career if he continued down the road he was on and told me that he was going to pull back. And then he took down from his web site all of the articles that he has posted there about the work that we had done together.

That doesn’t just hurt me. It hurts every investor alive. We all need to know about the far-reaching implications of Shiller’s work. And the way we learn is by having researchers like Wade put their energies into helping us all out. If we threaten them into not doing that, we are only hurting ourselves in the end. We are better of learning the realities.

It is not only Wade that this has happened to. I have seen dozens of similar situations play out. Rob Arnott wrote to me to tell me that he knows of researchers who were doing work on his ideas who were taken aside and told that they would be doing harm to their careers to publish that research. That’s the same thing. Shiller says in his book that he was told by a television producer just before an interview went on the air that he had better be careful what he said or he could cause stock prices to fall. That’s not an effort to get him to say precisely what he believes about the subject, is it? It’s an effort to keep stock prices high, which is something very different.

This sort of thing is going on all the time to all sorts of people. Everyone cheers increases in stock prices and few cheer those who warn of the dangers of unjustified price increases. So the market cannot work in the way that markets are supposed to work. For the market to get the price right, there needs to be a battle between the side arguing for higher prices (the sellers) and the side arguing for lower prices (the buyers). The job of the market is to resolve the tensions between sellers and buyers and thereby to set the price properly. There is little such tension in the stock market. 90 percent of the population wants higher prices and those arguing that prices should be lower (those who believe that Shiller’s research is legitimate) are silenced. The price gets so far out of whack that eventually we see a price crash that hurts everybody.

I believe that we need to see more discussion of Shiller’s ideas. I believe that permitting more discussion of his ideas would provide more balance to the market and thereby benefit us all. But that obviously means criticizing Buy-and-Hold. Buy-and-Holders deny that there is ever a reason to lower one’s stock allocation They believe in complete price indifference. It is my view that that approach defies common sense (as well as 38 years of peer-reviewed research).

Your hostility to me and to Wade during the time that he was working with me is rooted in your hostility to Shiller’s ideas. Wade felt (quite understandably) that his career was at risk if he continued down the road that he was travelling when he worked with me, so he got off of that road. He was proud of the work that we were doing and he admired my work. He said so scores and scores of times. But he did not want to see his career damaged and so he chose a different course. I think that he made a tragic choice. I don’t think that any researcher should ever have to worry about such things. I see it as a serious imbalance in our system that needs to be corrected.

The research that Wade and I did is scary to Buy-and-Holders. I get that loud and clear. It is SUPPOSED to be scary to Buy-and-Holders. We didn’t publish that research to support Buy-and-Hold, we published it is show the dangers of Buy-and-Hold. As a Buy-and-Holder, that’s good for you. You need to know the weaknesses of your strategy. If you choose to stick with Buy-and-Hold despite what Wade and I said, that’s fine. But you should let each investor make that choice for himself or herself. It is only by seeing the research that people can make informed decisions.

It’s the things that you don’t know that hurt you as an investor, Sammy. You should want to know as much as you can possibly know. People who publish research that shakes you up are your friends, not your enemies.

I am your friend. I know that you do not see it that way. But it is 100 percent my intent to help you (as well as many others, to be sure) out.

Rob