I Gave Investing Advice When
I Didn’t Know What I Was Talking About

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.


  1. says

    It is amazing how good our guesses turned out to be.

    You first suggested cutting back on stocks to 50% or so.

    My research originally ended up with a 0% allocation at times. You favored 30% to handle human emotions.

    Now I have adjusted my minimum allocation to 20% based on Scenario Surfer results. That is, we might still see a super bubble.

    Have fun.

    John Walter Russell

  2. Rob says

    It is amazing how good our guesses turned out to be.

    My hope is that as time goes on there will be less and less guessing re this sort of thing.

    There are always going to be some areas where guessing is required. There’s no getting around that.

    But we shouldn’t be guessing about the fundamentals. When offering advice on the fundamentals, I think we (I don’t mean just you and me, John, I mean everyone in this field) need to move beyond guessing. I am hoping that in time it will become standard practice to take into account what the historical stock-return data says, at least on the most basic questions.

    As it becomes common practice for the “experts” to take into consideration what the historical data says, I don’t believe it will come as such a shock to ordinary investors for them to hear what it says. I sure hope that that turns out to be so!


  3. Anonymous says

    Fortunately, I didn’t read your advice and take it when you were simply guessing and stating your guesses as authoritative. Wonder how many people were hurt by relying upon you in the past?

  4. Toona says

    Hmm. My post seems to have worked, so now I’ll add meaningful comment.

    Don’t you think you owe a big apology to those who followed your advice in the past, which you now admit was mere guesses? Given that, why should be pay any attention to you now?

  5. Rob says

    Fortunately, I didn’t read your advice and take it when you were simply guessing and stating your guesses as authoritative.

    It’s not true that I stated my guesses as authoritative, Anonymous.

    The way it worked is that I did research into safe withdrawal rates (SWRs) back in the mid-1990s when I was putting togeher my own plan. I began posting at the Motley Fool board in May 1999 but held back from sharing what I knew about SWRs for some time because it was clear that there were a number of abusive posters in that community who were going to cause trouble for all of us if people began talking straight about this topic. In May 2002, I came forward with the post that kicked off The Great Safe Withdrawal Rate. That post generated hundreds of thousands of responses as part of the “controversy” that continues to this day.

    The focus was Greaney’s study, in which he gets the SWR number wrong (he fails to include an adjustment for the effect of valuations at the start-date of the retirement). His study also makes a claim about the “optimal” stock allocation, which he says is always 74 percent. There were discussions going on that, if the SWR was wrong, this number also had to be wrong since the same error applies in both calculations. I agreed that that was right and the Goons who were “defending” Greaney insisted that I say what number was right for the optimal allocation.

    I was highly reluctant to answer this question. I said that we needed to do research first. But the Goons were not willing to take “no” for an answer. They kept at this and kept at it and kept at it. At some point, I said that it seemed to me that an allocation of about 50 percent seemed about right for most people. I noted that that wasn’t based on much more than impressions (as noted in the blog entry, John Walter Russell’s research was not available to me at the time). And I think even today that 50 percent makes sense for an investor who knows how to pick stocks effectively. For the indexer, though, I think it is clear today that 50 percent is too high at these price levels. So I don’t think that was good advice.

    I am glad that I did not state that answer authoritatively, that I noted that we should be doing research to learn more before we all began shooting off our opinions. But I think I was wrong to give in to the pressure that the Goons applied to me and to say that 50 percent sounded about right. It would have been better to have stuck with my initial position that we should do the research first and offer views as to the best stock allocation only after we had made some effort to learn about the realities.

    Wonder how many people were hurt by relying upon you in the past

    I don’t know what the number is. If it’s one community member, that’s one too many so far as I am concerned. This is one of the reasons why I take a firm stand today against endorsing claims that are known to be false. There are many people who have said to me “Can’t you just go along with the false SWR claims, do you really have to insist that honest posting on this topic be permitted?” I think I do.

    I think everyone should insist that honest posting on SWRs (and on all other topics) be permitted. When we ban honest posting re even a single topic, it encourages the Goons. It creates an atmosphere dominated by intimidation. Too many people in our community say not what they truly believe but only what they think they can get away with given how strong the Goon element is at any given time. Yucko! I oppose that stuff. I see it as an ugly business. I want nothing to do with it.

    People are hurt by it each and every day. There’s no question whatsoever about this. The people who hear the bad advice are hurt. The people who give the bad advice are hurt. And, yes, even the Goons themselves are hurt. It’s a lose/lose/lose. No good whatsoever is achieved with this intimidation business. Our communities work best when all feel that they can offer their sincere views on whatever questiion is it they are addressing.

    In other fields, I wouldn’t even need to put forward these words. People would just accept it as obvious that honest posting should be permitted. When it comes to topics affecting stock investing, different expectations come into play. People should be asking themselves why that is and whether it is a healthy state of play.

    I like to think that there is no one on Planet Earth today who can be counted on to say in stronger terms than I do that that is an unhealthy state of play. I like to think that I learn from my experiences and this experience I have had of being bullied into giving advice that has hurt people is one that I try to keep in mind when the Goons are bang, bang, banging on me for continuing to report the SWR accurately.

    The sort of experience described in today’s blog entry is definitely something that is always in the back of my mind when I am trying to figure out whether it makes sense to agree to some sort of “compromise” with the Goons or not. My rule is — we must permit honest posting, we must win our integrity back. If we do that, I tend to think that all the rest will work itself out. So long as we fail to win our right to post honestly back, I see no way of pushing back the dark clouds in a permanent way.

    So long as we don’t post honestly or permit others to do so, the dark clouds are within us, you know? It’s our own bad feelings about our own bad behavior that is generating the dark clouds. So we very much need to get past that, in my estimation.

    What was the question again?


  6. Rob says

    Don’t you think you owe a big apology to those who followed your advice in the past, which you now admit was mere guesses?

    I certainly think I owe them an apology. The blog entry is intended as an apology. I think that any reasonable person would hear the words “I’m sorry for getting it wrong” spoken implicitly in the words of the blog entry. This is the point.

    Given that, why should be pay any attention to you now?

    People have to make their own decisions as to who to listen to for investing advice. My that is that I think it makes my advice 50 times more vaulable that I am able to acknowledge when I have gotten something wrong.

    You’re pointing to something of great significance here, Toona. I announced several years back that I would be attending one of the Vanguard Diehards meetings where John Bogle would be speaking. There were a good number of community members who were excited about that. They knew that I would be directing my questions about SWRs and valuations to him and they wanted to hear his answers. There were others, though, who were highly alarmed. They put up these posts saying, “Oh, Rob, he’s such a nice man, why do you have to do this to him?”

    I see that as dissing him in a major way. When these people (who call themselves “Bogleheads” — they are really Lindauerheads, in my view) say that Bogle is not capable of responding effectively to questions that some guy who posts on the internet directs to him, what they are really saying is that he is incompetent at the work he does. I don’t see how you can interpret that reactiion any other way. I am absoutely amazed by that reaction.

    I say that Bogle can respond to the questions just fine. I doubt that he would agree with everything I say. I doubt that he would be able to defend Passive Investing in a reasonably coherent way. His response would be something in the middle. He would try to defend Passive Investing. He would also acknowledge the message of the historical data, that valuations matter big time (it is Bogle who taught me this!). The interaction would probably cause him to begin thinking about these questions in a more serious way than he has until now. I think that he would begin a gradual process of coming around to see that the conventional approach to indexing needs to be changed. I think we would get some wheels going in his mind that would take us all to very good place down the road a bit.

    The key is — Would he be able to admit that for a long time now he has been getting some very important things wrong?

    I think that in time he would be. Perhaps not right away. But I believe that in time Bogle would be able to give voice to those terribly important words “I” and “Was” and “Wrong.”

    It’s my belief that the ability to say those three words is the most important skill that an investing advisor needs to possess. As of today, Greaney has shown that he lacks the ability to say those three words. As of today, Sholar has shown that he lacks the ability to say those three words. As of today, Lindauer has shown that he lacks that ability to ssay those three words. The biggest thing that these three individuals need to do to win my confidence back is to develop the ability to say those three magic words.

    That’s basically it, you know. If you can admit it when you have learned that you were wrong about something, you can learn. If you can learn, mistakes don’t matter so much because you learn from them. If you cannot admit mistakes, you cannot learn. If you cannot learn, you are doomed in this field. Everybody sooner or later is going to get something wrong and those who are not able to admit mistakes are just going to keep repeating those errors over and over and over again and never moving forward from that time forward.

    I am proud of the fact that I have demonstrated that I can acknowledge an error when it is brought to my attention. I think it makes me stronger each time I do it. I think it makes the advice that follows in days afterwards that much stronger. One of the things that I like about this internet discussion-board communications medium is that there are lots of people out there able to go over your stuff and find out if you have made any mistakes. So your chances of learning about any mistakes that you have made are far higher than they would be if you were working in some other medium.

    Get your investing advice here! I’m the guy who tells you right up front that he has given advice on topics re which he had no idea what he was talking about!


  7. Schroeder says

    “I doubt that he [Bogle] would be able to defend Passive Investing in a reasonably coherent way. His response would be something in the middle. He would try to defend Passive Investing. He would also acknowledge the message of the historical data, that valuations matter big time (it is Bogle who taught me this!).”

    You paint Bogle as dogmatic on Passive Investing. This is not so. Bogle has recognized that when valuations go to extremes, investors may employ Tactical Asset Allocation.


  8. Rob says

    You paint Bogle as dogmatic on Passive Investing. This is not so. Bogle has recognized that when valuations go to extremes, investors may employ Tactical Asset Allocation.

    Bogle is as extreme as can be on both sides of this question, Schroeder. This is demonstrated in just about every speech that he gives.

    You are absolutely right that Bogle points out all the time that valuations affect long-term returns. There is no one who does a better job of this. I view Bogle as the grandfather of the Valuation-Informed Indexing approach because it was by reading his work that I was able to understand for the first time how stock investing really works.

    He is just as extreme in his support for Passive Investing, however. He has a long, long record re this. There are many who would (quite properly, I think) argue that there is no one alive today who has done more to push the Passive Investing approach than Bogle.

    You are right that he says that investors “may” employ Tactical Asset Allocation. But the words he uses when making this point give the game away. Note that you said “may,” not “must”. Why is it “may”? Doesn’t Bogle favor Staying the Course? How the heck is an investor supposed to Stay the Course if he doesn’t change his stock allocation when prices go from reasonable levels to wildly overpriced levels? If Bogle believes what he says about Reversion to the Mean being an Iron Law, he should not be saying that investors may engage in valuation-informed strategies, but that they must do so in order to Stay the Course in a meaningful way.

    And why does he describe the process of investing in a valuation-informed way as “tactical”? What the heck is tactical about it? I’ve heard him say that “Stay the Course” is the single most important principle in his investing approach. If it’s that important a principle, it would seem to me that doing what you must do to follow it is a strategic matter, not a tactical matter.

    And, if Bogle believes so strongly that valuations affect long-term returns (he is entirely right about this, to be sure), why has he not done more to bring attention to the Retire Early/Indexing Community findings that the Old School SWR studies get the numbers wildly wrong? There are millions of retirements at stake, are there not? Bogle is well positioned to getting an article on the front page of the Wall Street Journal, is he not? Can you explain why he has not taken action on this matter, Schroeder?

    Bogle is a deeply mixed-up cat when it comes to investing stuff. I think that much is more than fair to say at this point.

    I don’t mean that as a dig. There are a lot of deeply mixed-up cats about when we get to the sorts of price levels that apply today. I think we need to do what we can to steer him in the right direction. He’d done great things for middle-class investors in days gone by and I am 100 percent confident that he does not want to see all that work go down the drain by coming to be seen as having been primarily responsible for the greatest loss of middle-class wealth in the history of the United States.

    We are a community and Bogle is an important member of our community. We should all feel open to doing what we can to helping him out when the opportunity presents itself. And you know what? I believe that by helping Bogle out we would be helping ourselves out as well. I believe that, as Bogle becomes more familiar with the work we have done, he will be contributing all sorts of wonderful insights to out discussions. The way it works is that you help someone else out and they end up down the line helping you out even more. I’ve seen this sort of thing happen in our community many, many times.

    Bogle is a deeply mixed-up cat as of today. But he is an extremely smart and kind guy who has done some wonderful things for us in earlier days. We should not be shy about pointing out to him the things that he has gotten wrong. But we should do so in a spirit of charity and respect and affection. My expectation, based on what I know of him, is that he will respond in the same spirit. I believe that the Lindauerheads are very, very wrong (and deeply disrespectful to all that Bogle stands for as well) to assume otherwise.

    My sincere take.


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