I take dips into the Post Archives of The Great Safe Withdrawal Rate Debate from time to time, just to see. It can be a weird experience. I’ve learned a lot during the past six years. Going through the archives often puts me face to face with an earlier version of me. Sometimes I am impressed. Sometimes not so much.
One time I came across a thread in which people were hitting me with a stick, demanding that I tell them what stock allocation I recommended given that I didn’t think that Greaney’s claim that 74 percent stocks is always right held water. I knew that the right number had to be something less than that because Greaney’s study didn’t include an adjustment for valuations and valuations were sky-high at the time. But I didn’t want to suggest anything that sounded too extreme. So I went with 50 percent.
John Walter Russell was only beginning his research at the time. So we didn’t know what the historical data said on this question when examined using an analytically valid methodology. In other words, I didn’t know what I was talking about.
I didn’t know what I was talking about! We hadn’t even done the research yet. Why did I feel a need to answer the question when doing so required me to give investing advice at a time when I didn’t know what I was talking about?
Today we have research. Today I say that, when stocks are at the valuation levels that now apply, the typical investor should probably be going with a stock allocation of about 30 percent. There are still lots of things we do not know. We are still very much in the early stages of learning what the data says and what strategies make sense given what the data says. At least today I can say that I am basing that number on something solid. At least today I can say that I am not just pulling it out of the air.
The 50 percent number was just pulled out of the air. It’s disgraceful, you know? No one who does not have any idea what he is talking about should be offering investing advice.
How many others do you think are doing that? My guess is that it’s a whole big bunch.
How many of the people offering investing advice today know even as much as I did when I put forward that 50 percent number? At least I knew at that point that studies not including an adjustment for valuations are analytically invalid. I didn’t know much, but I knew a little bit. Most of those giving investing advice today don’t know that much. Most of those giving investing advice today do not know what they are talking about. I think that’s fair to say.
Our understanding of how stock investing works is at a primitive stage of its development. There is not a consensus on even the most basic issues. People disagree about what risk is, for heaven’s sake. Risk is the whole story. If we don’t know for sure what risk is, we really do not know much of anything. We’re guessing. Some of the guesses are probably in the right neighborhood. Some of the guesses are without a doubt wildly off the mark. Hoo boy!
I believe that I am doing a little bit better than guessing today. But not all that much. The ideas put forward at this site need to be examined by lots of smart people before I would consider it safe for you to put your full confidence in them. We’re just not there yet.
But don’t let the other guys fool you. They are not there yet either. It is the ones who pretend that they know more than they do who you need to be particularly cautious of. I shouldn’t have to mention names. You know the sorts of characters to whom I am making reference here. Those guys (and witches) can get you into some big trouble.
We’re babies. We’re learning to crawl. We should not pretend otherwise. Yes, it’s scary to admit this reality. The only thing more dangerous is to put your retirement money on the line while living in denial of it.
Today’s Passion: The article entitled Why Is Today’s Investing Advice So Poor? argues that today’s conventional wisdom about stocks is the end result of events we saw transpire in Invasion of the Body Snatchers.
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