Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on May 17, 2011. Wade responded the next day.
He said: “It seems that the goons let the post by without too much complaint. Actually, this issue shouldn’t really even be all that controversial. It’s just common sense that the probabilities from the Trinity study shouldn’t be interpreted as forward-looking probabilities for new retirees.” My response, sent the same day, is set forth below.
I mean no personal criticism in saying this. You are in very good company. But you are missing the most important element of the story.
All overvaluation is the product of investor self-deception.
For stocks to be overvalued is for them to be mispriced. It is the market (investors) that sets the price. It can never be to our advantage to misprice stocks. So why do we do it?
When we misprice stocks, we are PRETENDING that our retirement accounts are worth more than they are.
OF COURSE it is common sense that the probabilities from the Trinity study shouldn’t be interpreted as forward-looking probabilities for new retirees. Nothing could be more obvious. A six-year old child could see this.
So why don’t these highly educated, highly paid experts see it? Why have people been citing The 4 Percent Rule for years now?
Because it doesn’t PAY to see it. There’s more money to be made in pretending that we do not see the self-deception taking place. If we can fool people (and ourselves!) into thinking we don’t see it we escape the obligation of pointing it out.
The experts are every bit as much capable of self-deception as the investors are, Wade. So the experts have elected to pretend that it doesn’t matter whether the numbers we all use to plan our retirements add up or not. The term in the psychological literature for this phenomenon is “cognitive dissonance.”
When we overcome the cognitive dissonance, we all become able to MAKE USE of the wonderful research you and many others have done. Until that step is taken, discussions like those you engage in at the Bogleheads Forum go around and
around in circles. Nothing can be brought to a constructive resolution until there is a DESIRE to get the right answers. As of this moment the desire of most is to keep the cognitive dissonance going (because most have participated in it and suffer from it).
The job is to CHANGE that. The job is to get things to a place where we can all openly ACKNOWLEDGE that the probabilities from the Trinity study shouldn’t be interpreted as forward-looking probabilities for new retirees. We have known the realities in an intellectual sense for 30 years. We need to move to a place where they can be spoken out loud and the millions of middle-class investors who don’t have time to check these things out for themselves can properly depend on the community of experts to report the realities accurately and honestly and realistically.
This is the point I am making when I say that we need to permit honest posting on safe withdrawal rates and on many other important investment-related topics at every board and blog on the internet. That’s the entire ball of wax. There is not one investor alive who does not want to know how to invest effectively. Once we gain recognition of our right to post honestly, the whole thing goes viral and we can bury Buy-and-Hold 30 feet in the ground where it can do no further harm to humans and other living things.
That’s when those fine studies of yours end up on the front page of the New York Times, where they belong!
And that’s when all the Buy-and-Holders receive the credit they merit for laying the foundation for the first data-based investing strategy that works in the real world!
The Goons didn’t do anything because the Goons grow weaker with each passing day. The problem with Get Rich Quick strategies is that they cause great human misery. As the misery of the Buy-and-Hold “strategy” spreads, the Goons run out of supporters. They don’t have arguments. So, when they run out of supporters, they are lost.
All of this has gone on in every earlier Bull/Bear cycle. What makes this one different is that this is the first time that Post Archives are being kept of each word that is said and this is the first time that we are all able to watch it all play out before our eyes on our computer screens in real time.
Yes, it’s scary.
But it’s also exciting as heck to think what we will be able to do once we do gain recognition of that right to post honestly. You need to run the numbers, Wade. They won’t be calling it “the Dismal Science” after we gain the ability to report the numbers accurately. Instead of putting it to use to destroy millions of lives, we will be putting economics to use to ENHANCE millions of lives.
I have a funny hunch that it is to be involved in that sort of project that you got into this field in the first place. You just didn’t know it was going to be so contentious. Neither did I. Neither did any of the hundreds of others who have worked up the courage to speak up. We are all on the same side and we are all facing the same obstacles and we all are feeling the same hopes that the future will be a whole big bunch better than the recent past.
The words you put to your blog are top-notch stuff. They are extremely helpful. You have put forward tons of top-notch stuff that is extremely helpful. Please just keep at it. If you do, over time more and more of this will become clear to you. I took a sneak peak at the last page of the story before I dared to put up that May 13, 2002, post. I think it would be okay to let you know that the good guys win in the end.
The bad guys win too, actually. It’s just that in their case they have to be forced to accept the win over their kicking and screaming.