Yesterday’s blog entry set forth some words put forward by researcher Wade Pfau in which he argued that there is no need for the Trinity authors to correct the errors made in their safe withdrawal rate study. Set forth below are the words that I put forward in response to Wade’s argument:
The error that was made was an analytical error.
It was not an analytical error that was made only by the Trinity authors. It was an analytical error that was made by John Bogle. And Bill Bernstein. And the editors of Money magazine. And by thousands and thousands of other good and smart people. It was an analytical error that caused the second worst economic crisis in U.S. history (one that is very much in its early days and likely to become far, far worse in the event that stocks perform in the future anything at all as they always have in the past).
Certainly we want to hear the Trinity authors themselves explain what was going through their minds when they set up the methodology of their study. I have suggested that Money magazine start a new feature where each month someone steps forward and writes an article titled “I Was Wrong” in which he explains what was going through his mind during the Buy-and-Hold days. Bogle should do it the first month. Then we would move on to people like the Trinity authors. I would like to see Shiller do one. Shiller is not perfect. He has made mistakes. I am happy to do one if there are people who want that. I did not understand this all on the first day. I have had to move forward one step at a time just like all the other humans. I think it would be a good thing if you did one, Wade. I think you would acknowledge that you do not today know it all. You would help people if you wrote an article working through the process by which you went from holding a Buy-and-Hold mindset to holding a Valuation-Informed Indexing mindset (or whatever you want to call the new mindset — the terminology is of course not what is important here, the important thing is the attitude).
We all need to become more HUMBLE re the extent of our understanding of how stock investing works.
That is our single most important finding of the past nine years.
The Trinity authors need to become humble enough to be able to say the words “I” and “Was” and “Wrong.” If they are able to do that, there is no limit to the good they can do by doing so. If they are not able to do that, we need to say prayers for them and move on without them. There are many millions of people who have been hurt in very serious ways by the same analytical error that caused the Trinity authors to get the numbers so wildly wrong in their retirement study. Those people matter too.
To the extent that your point is that we should be charitable to the Trinity authors, I am of course with you 100 percent. It was not their intent to make any errors. As you pointed out, their intent was to improve our understanding of retirement planning. And, when you look at this in sweeping historical terms, they did indeed do that. We should of course be grateful for the work they did. But we cannot ignore the harm that was done to millions of aspiring retirees by the mistakes they made. Ignoring that is going to down the road cause a political explosion that may well tear our society apart.
I read an article just this morning about the Donald Trump phenomenon. The guy was saying that Trump is popular because middle-class people are becoming angry about what has happened to them and about the failure of their political leaders to handle matters more effectively. What do you think is going to happen when large numbers of them come to learn that we have had research for 30 years now showing that Buy-and-Hold is the most dangerous Get Rich Quick scheme ever concocted by the mind of mortal man and yet The Stock-Selling Industry continued spending hundreds of millions of dollars promoting it day and night in every possible venue? You don’t see a problem here bigger than the hurt pride of the Trinity authors?
You get it exactly right when you say that the goal should be teaching people what works. That is indeed what I need to be doing and what you need to be doing and what every person involved in this field needs to be doing. How do you propose we go about it?
You have been participating in an SWR thread that has been going around in circles for hundreds of posts. I have participated over the course of nine years in HUNDREDS of such threads. Why do they always go around in circles, Wade?
It’s because the Buy-and-Holders are in great emotional pain. They believed. And they are hurt to find out that they were wrong to believe.
That’s a reality of all this. The intense human pain that the promotion of Buy-and-Hold brought on is every bit as real as the numbers in the historical data. Anyone who is unwilling to deal with that pain lacks the ability to do good work in this field. I say that not as any sort of dig at you or anyone else. I say it because I know it is so. I have learned this through my interactions with tens of thousands of Buy-and-Holders over the past nine years.
I can go this morning to any web site on the internet (except for the ones where I am banned) and report the realities of stock investing. That’s nice. But I can tell you in advance the questions I am going to be asked when I report those realities.
The #1 question I am going to be asked is: “But, Rob, timing doesn’t work, does it?” To say that timing doesn’t work is to say that looking at the price of the stocks you are buying doesn’t work. It’s pure 100 percent foolishness. Yet some of the smartest people in the world believe this. I mean no offense, but I think it would be fair to say that there are certain ways in which you kinda, sorta still believe it. Heaven help us all, but I believe that there may be certain ways in which I kinda, sorta still believe it.
We’re not going to be able to move on until we deal with that question. People believe that timing doesn’t work because they have heard this claim 10 millions times and they have never heard it corrected. Their emotions are telling them that anything said that many times by that many smart people MUST be true. We need to explain how it came to be that they heard this complete nonsense claim millions of times and yet never heard it corrected.
There are a number of elements to the explanation but the biggest factor is cognitive dissonance. The Trinity authors didn’t sit down at their desks one day and say: “You know what might be fun, what if we got the numbers wildly wrong in a retirement study and caused millions of failed retirements?” They believed in Buy-and-Hold. They believed in the Efficient Market Theory. They believed in Modern Portfolio Theory. That’s why the numbers are wrong in the study. That’s why we are living through a global economic crisis today.
The next stop is another 65 percent drop in stock prices. That’s almost certainly going to put us in the Second Great Depression. Large numbers of people are going to become very angry. Some of those people are going to get caught up in their negative emotion and not be even a tiny bit as charitable as I am being in trying to come to a reasoned and fair explanation of why the Trinity authors (and many, many others) got so many things so wildly wrong for so many years. My take is that it is 10 millions times better to bring this to a head today and to handle it in a loving way before things get so bad that others handle it in a non-loving way and cause political frictions the likes of which we haven’t seen since the Civil War.
Of course, I only get one vote, Wade. That’s my vote. I will always reach out the hand of kindness to all Buy-and-Holders. I will always express my gratitude for the wonderful work they have done helping us get to this place where we are today able to invest in ways so much more effective than anyone has ever been able to invest before. If my voice is not strong enough to persuade other good and smart people to join the effort to bring this to a good place, then that’s what the Fates decided re this matter and I just need to accept it.
I’ll keep trying. And I know you will too. I personally believe that we will all get to the other side in one piece. I don’t say that I am 100 percent confident re that one. But that’s my (willfully?) optimistic take. I know that I want to have my name written down as one of those who was on the side saying that it was well worth saying the words “I” and “Was” and “Wrong” to bring on such wonderful breakthroughs and to avoid the human suffering that I believe will follow from continuing to duck these questions.
I sincerely thank you for sharing your thoughts and for thereby prompting me to organize mine a bit for their presentation here. Keep fighting the good fight however you see best to fight it, my good friend!