Set forth below is the text of a comment that I put to the Value Walk site as part of the discussion thread for a post titled Investing Experts Need to Distinguish Opinion from Truth.
That’s basic CFA requirement — analysts must distinguish between facts and opinions in their reports.
I’ll give you an example of a place in which this entirely sensible rule does not seem to me to apply in the investing context.
When academics publish studies in journals, they are required to submit them for Peer Review. The idea is to insure that the work done is quality work. A good thing.
I am the person who discovered the analytical errors in the Old School safe withdrawal rate studies. This was back in May 2002. At the time, there were lots of people who questioned whether what I said was so. But numerous big-name experts have since looked at it and concluded that I indeed was right: It’s not possible to calculate the safe withdrawal rate that applies for a retirement without taking into consideration the valuation level that applies on the day the retirement begins. So all the old studies (which millions of people have used to plan their retirements) got all the numbers wildly wrong.
I think we should be correcting those studies. The studies are still available on the internet. So new people are pulling them up every day and being taken in by the demonstrably false claims contained in them. I also think we should be trying to assess why the errors were made in the first place. My experience is that the great thing about making mistakes is that you can learn from mistakes. Why did so many smart people get retirement planning so wrong? I think we could all learn a lot by exploring that question.
There are now perhaps a dozen big-name publications (The Economist, Business Week. The Journal of FInancial Planning, etc.) that have reported on the errors. But not one of the studies has yet been corrected!
If we are going to have a Peer Review process to protect us from bad studies getting published in the first place, shouldn’t we have a Peer Review process to help us get bad studies corrected after errors are discovered in them?
Apparently, we don’t have such a thing.
It seems to me that you must be right, that there is language stating that people in this field should be distinguishing fact from opinion. My strong sense, though, is that many today are interpreting these rules very loosely. It is my sense that there is a lot of stuff being said in this field that is being put forward as fact but that in reality is nothing more than opinion.
InvestoWorld is in a strange place in the Year 2012, in my assessment. Things are sort-of upside-down.