Set forth below is the text of a comment that I recently posted to another blog entry at this site:
People simply point out the facts – that valuations affect around 40% of the variability in out of sample returns in historical data sets, but that the future is a very unknown place. You can’t go beyond the facts – that would just be making up stories.
I am not in full agreement with what you are saying here, Anonymous. But I like it that you are talking in a real way. You are doing a decent job with these words of articulating the beliefs of many smart and good people. That’s obviously a positive thing to do.
The 40 percent number comes from the Vanguard study. I am not willing to sign on to it without giving the matter more study. But I don’t have a big problem with it. I am fine with accepting that number as a reasonable number. So we can call ourselves being close to agreement re that one.
I agree that the future is an unknown place. I wouldn’t go quite so far as to say “very unknown.” I think we know important things about how stocks are likely to perform in the future. But there certainly are big gaps in our knowledge and it certainly is better to be modest in one’s claims than it is to be dogmatic in them. So, again, I think it is fair to say that we are close to agreement.
Where I see a significant difference emerging is when you say: “You can’t go beyond the facts — that would just be making up stories.”
The problem we BOTH face is that we MUST go beyond facts.
We don’t have the option of putting off making decisions on investing questions until the scientific community achieves a consensus on all these matters. We have money that must be invested TODAY. Each and every one of us must choose Path A or Path B regardless of any doubts we entertain as to the ultimate merit of the choice. This is the biggest reason why discussions of these issues are so sensitive. People on both sides have a great deal riding on being right. And they MUST make a call based on limited information. We live in the present and we won’t know all the answers until sometime in the future.
You say: “You can’t go beyond the facts — That would just be making up stories.”
The Old School safe-withdrawal-rate studies go beyond the facts. They organize and interpret the facts in a manner that leads readers of those studies to the conclusion that a 4 percent withdrawal rate is safe at all times.
I organized and interpreted the same facts (the historical return data) in a very different manner and came to a very different conclusion when I built The Retirement Risk Evaluator.
Was John Greaney making up stories when he published his SWR study at his web site?
Was I making up stories when I published The Retirement Risk Evaluator at my web site?
Were we BOTH making up stories?
Were we both just reporting facts?
That’s the question you need to answer for the point you are advancing here to convey any message of significance in the real world.
If I say that the numbers in the Old School SWR studies are right, I am saying that the numbers in my SWR calculator are wrong. It obviously would be dishonest of me to say that. I believe that the numbers in my SWR calculator are accurate.
If Greaney says that the numbers in my SWR calculator are right, he is saying that the numbers in his SWR study are wrong. Perhaps he feels that it would be dishonest of him to say that.
So what do we do?
You say that going beyond the facts is “making up stories.” But one must go beyond the facts to offer investing advice. How the facts are organized makes a huge difference. Greaney and I organize the facts in very different ways.
Do I have the right to organize the facts in the manner in which I believe they should be organized and report on the conclusions that follow from that method of organization at every discussion board and blog on the internet or do I not possess that right, in your assessment?
I say that I possess that right. I’ll go further. I say that I possess a DUTY to INSIST on recognition of that right.
What say you?