I have never engaged in deliberate deception in my writings. There was a time, though, when I was afraid to be fully honest about what I knew about stocks.
I founded the Financial Freedom Community in December 1999 with a series of posts about the Passion Saving concept that for a time made the Retire Early discussion board at the Motley Fool site the most exciting board on the face of Planet Internet. John Greaney was the founder of that board, and I knew from the first time that I looked at his web site that the methodology he used to calculate the safe withdrawal rate (SWR) was analytically invalid. I had done my own study of SWRs in the mid-90s in preparation for my own early retirement, and I had learned from reading John Bogle’s work that changes in valuations always affect long-term stock returns (and, thus, SWRs).
Early on in my posting career at Motley Fool, I tried to warn my fellow community members of the danger of going with too high a stock allocation when valuations are at extremely high levels. I held back, though, from posting the full truth about SWRs. One reason was that I did not want to suffer the “punishments” that Greaney made clear would be imposed on any community member who asked hard questions about the numbers in his study. Another was that we were just getting the Retire Early movement off the ground, and the last thing we needed was the sort of flame war that posters like Greaney use to block questioning of their claims.
I never told untruths. But I didn’t tell complete truths either. I held back.
Was it all Greaney’s fault? It was not. Greaney took advantage of a situation. But the reality is that Greaney could never have hoped to have had any success banning honest posting unless a good number of other community members were willing either to post in support of his attacks on honest posters or at a minimum to tolerate his attacks on honest posters. The ban on honest SWR posting that applies at that board to this day was a community effort.
Why the heck did our community go along with a ban on honest SWR posting? Don’t aspiring early retirees need accurate information on what the historical data says re SWRs?
Of course we do. And of course we know that we do.
The problem is that we sense that permitting honest posting on SWRs opens a Pandora’s box. Permit honest posting on SWRs, and the obvious next step is to permit honest posting on the question of how valuations affect long-term stock returns in general. Permit honest posting on the question of how valuations affect long-term returns in general, and the obvious next step is —
— the end of the Bull Market.
I’m not kidding.
Bull Markets are times when stocks become wildly overpriced. It is not rational to invest heavily in stocks when they are wildly overpriced. Bull Markets are irrational. All Bull Markets are fueled by some sort of deception or another. Without at least a good bit of self-deception, how could middle-class investors be persuaded to invest in ways contrary to their own self-interest?
The Great SWR Debate was never just a debate about a number. It was always also a debate about the nature of stocks as an asset class and about how to invest successfully for the long run. If Greaney had been found to have been right about SWRs, it would have meant that stocks had become a different sort of asset class than what they have been throughout the last 135 years of U.S. stock-market history. If Greaney had been found to have been right about SWRs, it would have meant that the Stocks-for-the-Long-Run Investing Paradigm had been a paradigm built on solid ground.
It’s not just the conventional methodology SWR studies that have been discredited as the result of our discussions. The dominant investing paradigm of the past 25 years has been discredited too.
That’s why it is so hard for so many to tell the complete and plain truth about SWRs. Telling the truth about SWRs sends you over a cliff. You land in a new and better world than the world you were in before you fell. Still, the fall is a long and scary one.
I knew back on May 13, 2002 (the day that I put forward “The Post Heard Around the World,” the one that kicked off The Great SWR Debate), that SWRs mattered. I didn’t know at the time how much.