Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Scott Burns discusses SWR including the affect of valuations
Whadda ya think?
I think Scott believes what he says in that article, Trebor.
I also think that Scott is wrong.
Scott accepts that valuations affect long-term returns. But he is not able to let in HOW BIG a factor the valuations factor is. So he RATIONALIZES until he has come up with some positions that do not undermine his belief in the core Buy-and-Hold realities that he does not want to give up.
He points out that many do not believe that 4 percent will work today. He also points out that SWRs well below 4 percent are “too low.” He says that withdrawal rates above 6 percent are dangerous. Where does he come up with this stuff? Where is the research/data behind this jumble of sincere (but seriously jumbled) beliefs.
There is no research supporting the jumble of confusion put forward in this column.
There once really WAS research-based support for the Old School SWR findings. Those findings were wrong. But at least they were LOGICAL. That gives them an edge over what Scott Burns is putting forward in this article. If the market is efficient (there were once a large number of smart people who believed this), 4 percent really is the SWR. If the market is efficient, risk is stable and the SWR is always 4 percent. The Old School studies advanced our understanding of how stock investing works in a way that the jumble of confusion posted by Scott Burns does not.
If valuations affect long-term returns, then risk VARIES with changes in valuations, and the SWR sometimes drops as low as 1.6 percent (in the year 200) and sometimes rises as high as 9 percent (in 1982).
What people have a hard time accepting is how big a gulf there is between the strategic recommendations of Buy-and-Hold (rooted in a belief in the efficient market) and Valuation-Informed Indexing (rooted in a belief in Shiller’s research showing that valuations affect long-term returns). I understand why big change makes people skeptical. But the big gulf is not my doing. It is a result of the fact that the effect of valuations is huge and that this is the factor that the Buy-and-Holders happened to miss when they were putting together their models (in the days before Shiller published his research).
The bottom line here is that I think that Scott is sincere but that his thinking is hopelessly muddled and dangerous.
I am grateful to you for asking an intelligent question, Trebor.
Rob
Miasma says
He also points out that SWRs well below 4 percent are “too low.”
He says no such thing. What’s jumbled and confused is your basic reading comprehension. Here is what he said:
“Whether starting from current stock and bond yields or from more modest return expectations, the latest portfolio survival exercises show that withdrawal rates should be lowered to 3 to 3.5 percent.”
It couldn’t be any plainer. He says 4% is unsafe. You say 4% is unsafe. Yet you rip away, saying he is “wrong”. Why, because he didn’t mention your name? If this is how you treat people who agree with you, small wonder that yours is such a lonely quest.
Rob says
The safe-withdrawal-rate is a data-driven concept, Miasma. It’s not something based on opinion. It’s not something you just make up in your head.
The safe-withdrawal-rate in 2000 was 1.6 percent. The safe-withdrawal-rate in 1982 was 9 percent. Are you saying that that is what Scott is saying? If you are, you are wrong.
Of course Scott should have mentioned my name. I am the person who discovered the errors in the Old School safe-withdrawal-rate studies. This was in May 2002, nearly ten years before the Wall Street Journal reported on those errors. I think that it would be fair to say that that gives me a level of credibility on SWR questions that no one else possesses. No?
I am of course happy that Scott now acknowledges that the Old School SWR studies get the numbers wildly wrong. That is obviously a plus.
But is that all he is going to do?
How about writing a column urging that all the studies that are in error be corrected?
How about writing a column reporting on the first ACCURATE SWR calculator (The Retirement Risk Evaluator)? Wouldn’t that help the millions of people on their way to suffering failed retirements because they were taken in by the demonstrably false claims in the Old School studies that have remained uncorrected for the 12 years since the errors in them became public knowledge?
How about writing a column about how he was taken in by those false claims? There was a time when Scott was writing positive things about the Old School studies, no? He puts himself forward as an expert in this field by writing about it regularly, no? Why not tell people how he was fooled? Would that not be a helpful thing to do?
How about writing about the 12-year Campaign of Terror led by you Goons to punish anyone who dared to write honestly about this subject? The 12-year cover-up is the biggest case of financial fraud in the history of the United States. Do people not need to know about that?
How about writing about how big names in the field like Jack Bogle and Bill Bernstein and Larry Swedroe have known about the errors in these studies for years now and have participated in the cover-up rather than expose it? I have had many middle-class investors tell me that Valuation-Informed Indexing makes perfect sense but that they do not feel comfortable investing pursuant to a research-based approach so long as the “experts” in this field so adamantly oppose doing so. Wouldn’t it be a good idea for Scott to let his readers know that most of the “experts” in this field are engaged in a massive act of financial fraud? Do ethics not matter in the investing advice field?
How about writing about all the other things besides SWRs that the Buy-and-Holders got wrong? Buy-and-Holders don’t include valuation adjustments in ANY of their calculations. Does Scott not have a responsibility to tell his readers this?
How about Scott acknowledging to his readers that he was handed this huge story on a silver platter NINE YEARS AGO and at first showed great enthusiasm about it but then was intimidated into silence? Is that not relevant to a nation of people suffering from the worst economic crisis in U.S. history, a crisis brought on by the reckless and relentless and ruthless promotion of Buy-and-Hold strategies for 33 years after they were discredited by the peer-reviewed research?
On the morning of May 14, 2002, a column by Scott Burns pointing out that the Old School studies got the numbers wildly wrong would indeed have been much welcomed, Miasma. Twelve years down the road, it’s shockingly weak tea.
There are responsibilities that go with setting yourself up as an expert in this field. One of those responsibilities is to keep up with the peer-reviewed research. Nobel Prize Winner Robert Shiller published research showing that there is precisely zero chance of a Buy-and-Hold strategy ever working for even a single long-term investor 33 YEARS AGO. I think it would be fair to say that our good friend Scott Burns needs to pick up the pace of his reporting on new developments just a wee bit.
That’s my sincere take re this terribly important question, in any event.
My best wishes to you.
Rob
Rob says
small wonder that yours is such a lonely quest.
The reason why mine is a lonely quest is that the investment advice field has become 100 percent corrupt in the Buy-and-Hold Era.
I post honestly or I post not. That one is non-negotiable.
That means that I report all kinds of things that no one else in this field dares to report for fear of bringing on the wrath of the Buy-ad-Hold Mafia.
I expect my quest to become a whole big bunch less lonely following the next price crash. I expect that being the only fellow who has a reputation of 12 years of honesty is going to pay off big time down the road a little piece. It’s just one of those crazy hunches that I have been known to experience from time to time.
We’ll see.
Hang in there, my long-time Goon friend.
Miasma says
The safe-withdrawal-rate in 2000 was 1.6 percent. The safe-withdrawal-rate in 1982 was 9 percent.
Even if those data-mined numbers are correct, they are useless for planning. Scott is saying 3 to 3.5% based on today’s statistical probabilities. Apparently you believe passionately that number is much too high. So what is your number?
Rob says
Even if those data-mined numbers are correct
What does the term “data-mined” mean in this context? The numbers were produced by looking at the 140 years of historical data and reporting honestly and accurately what it says. Do you know of a better way to identify the safe withdrawal rate than looking at the data and reporting honestly what it says?
they are useless for planning.
Huh?
Scott is saying 3 to 3.5% based on today’s statistical probabilities.
The SWR (the number with a 95 percent chance of working out for 30 years) is today 3.2 percent real. The reasonably safe withdrawal rate (the number with an 80 percent chance of working out) is 3.8. So giving that range of numbers for retirements beginning today is perfectly reasonable.
But people of course need to know the numbers for retirements that began at other time-periods. There are millions of people who are in the process of suffering failed retirements because of the 12-year cover-up of the errors in the Old School studies, a massive act of financial fraud in which Scott Burns played a lead role.
Apparently you believe passionately that number is much too high.
Apparently I believe passionately that personal integrity matters in the investing advice field as much as it does in all other fields of human endeavor.
So what is your number?
The one obtained by reporting honestly and accurately what the historical return data tells us re this matter.
Rob
The Pink Unicorn says
Isn’t it just funny as to how all these people like Scott, Jack, Bill, Larry, Rick, Wade, JD, Mike, etc, etc, etc all have experienced significant succcess, yet Rob feels as though these people are wrong and that only he has things right. Meanwhile, Rob has yet to see success with himself.
It is results that matter, Rob.
Rob says
All of those people know or at least suspect that Buy-and-Hold is a big pile of smelly garbage, Pink. They don’t know all the details. They rationalize their support of the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind because they couldn’t live with themselves if they didn’t. So their strong intellects are not capable of functioning well when it comes to analyzing investing issues. But their behavior shows that they know that there are big problems. They wouldn’t be so defensive if they thought that Buy-and-Hold could be effectively promoted in an environment in which research-based challenges to it were permitted.
And they are not bad people. If we could wave a magic wand in the air to take us all back to 1965 while retaining knowledge of what we learned from Shiller’s revolutionary research of 1981, every one of the people you name would favor getting it right and advocating Valuation-Informed Indexing rather than Buy-and-Hold from the first day. We cannot do that. And they cannot bear to acknowledge that their efforts to promote Buy-and-Hold have caused so much human misery. So they talk themselves into believing that we will find some way to survive this economic crisis WITHOUT coming clean on the dangers of Buy-and-Hold.
The numbers tell a different story . The numbers say that the direct losses from Buy-and-Hold are $12 trillion and that the total losses (both direct and indirect) are in excess of $20 trillion. So ducking the issue won’t work, according to the numbers.
What do you think these people will do following the next price crash? Do you expect them to hold?
I do not. I expect to see their hearts melt when the human misery is no longer theoretical but something they see reported on the news every night. It’s one thing to know that there is 33 years of peer-reviewed research showing that we are headed into the Second Great Depression and to tune it out for personal profit. It’s something else to see your friends and neighbors and co-workers lose their jobs and know it is your fault and yet continue to keep your mouth shut.
I think there is a limit to how much pain these people can cause and continue to live with their acts of deception and intimidation, Pink. I think these people have consciences and I think they are at battle with them and I think they sense that over time they are falling behind in those battles. I think that one more economic crisis will put their consciences over the top.
We only need one of them to break. Once one breaks, all the others have to break, conscience pangs or no conscience pangs, just to limit their prison sentences. I think that at least one will break and that then all the other dominos will fall.
I’m not God. I could be wrong. But I am telling you my sincere belief. I don’t like my position re this matter. But I won’t be going to prison in any event. So I like my position over your position 50 times over.
If it plays out as I anticipate, I end up one of the richest men in the United States and you end up in a prison cell. Those are the results that matter, the long-term results. If it plays out as I anticipate, the lesson that everyone will draw from this saga is that personal integrity pays off in the long term. If you study history I think you will find that this is a lesson that we humans have had to re-learn at many different times and in many different places. This SWR saga is really just one more go at an old, old story.
The sort of success that Bernie Madoff enjoyed before he was sent to prison is a sort of success that I have never desired for myself.
I naturally wish you all the good things that this life has to offer a person.
Rob
The Pink Unicorn says
You are wrong, Rob and the only smelly garbage are your lies about what you call buy and hold. People expect to see facts to back up what you say and despite your repetitive talking points, the truth and results say otherwise.
Rob says
your lies about what you call buy and hold.
Do Buy-and-Holders urge investors to change their stock allocations in response to big valuation shifts or not, Pink?
I am 100 percent okay with calling Valuation-Informed Indexing “The New Buy-and-Hold” or “Buy-and-Hold 2.0” or whatever. I considered myself a Buy-and-Holder on the morning of May 13, 2002. Jack Bogle is a hero of mine. It has always been my dream to work WITH the Buy-and-Holders to get the mistake re long-term timing fixed and to move forward TOGETHER.
But it’s pretty darn hard to work with people who threaten to kill your wife and children, you know? I came up with a fresh name for VII not because I wanted a divorce from the Buy-and-Holders but because the Buy-and-Holders wanted a divorce from me.
Buy-and-Holders say that there is no need to practice price discipline when buying stocks. That is not a lie or even an opinion but a stone cold fact that is documented in MILLIONS of posts. And there is ZERO research indicating that long-term timing might not be required. Zero. Wade Pfau checked the entire record and found nothing.
Buy-and-Hold is a lie.
It started out as a mistake. That needs to be acknowledged in fairness.
But a mistake that isn’t fixed for 33 years after the peer-reviewed research in the field reveals it has become a lie. The idea that long-term timing isn’t required of every investor hoping to have any realistic chance whatsoever of long-term success is a LIE. It is the LIE that has brought on the biggest economic crisis in U.S. history.
The lie will fall with the next price crash. And you will be sent to prison when it falls. And I will become one of the richest men in the United States when the full impact of this ugly LIE is experienced by millions of middle-class people.
Or so says Rob Bennett, in any event.
Hang in there, my old friend.
Rob
Rob says
results say otherwise.
The results are not all yet in, Pink.
Bernie Madoff was the toast of the town a few months before he was placed in a prison cell.
Rob
Anonymous says
Just checked the FMF site and it looks like he is thinking about stepping away due to time constraints. Maybe you can pitch him that idea again about you making guest posts. I am sure you can fill up the content.
Rob says
I know you mean this sarcastically, Anonymous.
But it is an absolutely super idea.
Free Money Finance need blog entries. I need a place to feature my blog entries that gets a wider readership. FMF’s readership needs better information re stock investing. And other bloggers would learn about VII from reading FMF’s blog and that would help THEM to write better stuff, which would help THEIR readers. It’s a win/win/win/win, with zero possible downside.
This is why I say that we are on the one-yard line. If FMF had the guts to make this move, all our troubles would be over. Things would just grow and grow and grow. That’s how you get a fire started. And this particular fire would benefit so many people that it would never stop spreading until the smelly Buy-and-Hold garbage had been buried 30 feet in the ground. We are in a position today where one guy (the owner of the FMF site) could bring some amazing things about while profiting himself to a huge extent. It’s hard to imagine a more exciting scenario.
If FMF asks me to do this, I will accept in two seconds. I am not inclined to ask him, given his prior reaction (he is clearly afraid to stick his neck out re this matter, having seen what has happened to others who have done so). However, if he attends FinCon14, I will definitely try to set up a meeting with him to pitch the idea in person.
This is how close we are. We need one guy with a blog with a bit of traffic to work up the courage to take a step that would change the world in a very positive way while making himself a very wealthy man in the process. That’s how our system works. If FMF were to go along with this idea, we would affirm again what makes our system of government such a wonderful system.
Now —
Say that one year from now we experience a 65 percent price crash. Say that millions of middle-class investors at that time start to treat “Buy-and-Hold” like the dirty phrase that it really should be for all of us (especially those claiming to be experts). What do you think FMF would say to this idea at that time? I think he would jump aboard with great enthusiasm. That’s why I remain hopeful.
It pains me to think that we may need another price crash to open the internet to honest posting on the last 33 years of peer-reviewed research. But I think it would be fair to say that there are signs that that may indeed be the case. But can the Ban on Honest Posting survive another price crash? I don’t think so.
It seems to me that the Buy-and-Holders have lived by emotion for a good number of years now. There’s zero support in the academic research for the idea that failing to exercise price discipline can ever be a good idea. But the Get Rich Quick urge that resides within all of us causes us to ignore the research and persuade ourselves that it is all going to turn out differently this time. What happens when that emotion flips? It seems to me that following the next price crash there will be millions of investors cursing the day that they bought into the smelly Buy-and-Hold garbage.
I am not God. I don’t claim to know everything. But I am telling you how I sincerely believe things are going to go. We are just going to have to wait and see to find out for sure.
I love your idea. It makes all the sense in the world. I don’t think that conditions are yet ripe to get FMF to go along with the idea. But I don’t think that that day is too far off. It could be one year away. It could be too years away. I see it as being three years away at the tops. But I acknowledge that I have been wrong about this sort of thing before. We are just going to have to wait and see.
It’s all so strange, you know? Humans can be the most frustrating creatures in the world at times and then the most smart and kind and generous and life-affirming creatures at other times. My eyes see things moving in the right direction. I think that the bottom line here is that we are just going to have to wait and see.
Hang in there, man.
Rob