Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
It’s not entirely clear to me who you are referring to when you make reference to “those folks.” Do you mean Shiller and Pfau and Arnott? Anyway, I will give the best response that I am able to provide given my uncertainty as to precisely who it is that you are making reference to here.
You are certainly right that we need to work with the data we have and draw the best conclusions we can given what we have to work with. That’s a sensible way to go. Frankly, that’s probably the only sensible way to go.
Still, the reality mentioned above is an important one. We have a limited data set. How does that reality influence this conclusion-drawing process? It means that we should draw tentative conclusions only, not dogmatic ones.
Jack Bogle is a very smart man. Eugene Fama is a very smart man. You Goons are plenty smart enough. So we are dealing with smart people.
But people who don’t know everything. People who don’t always get it all right. Bogle can make mistakes. Fama can. You can.
And we only have 145 years of return data. And we have only been studying that data in a systematic manner since the 1960s. That’s not a very long time for the development of a new field of science. We are in the very early days of this discipline of studying how to invest in a systematic and research-backed way.
So we have to be tentative in how we state things. Greaney shouldn’t have said “4 percent is safe.” He should have said “I think 4 percent is safe.” Or he could have said “there is some reason to believe that 4 percent is safe.” Or he could have said “there is one school of thought that 4 percent is safe.” Or he could have said “there is one school of thought that says that 4 percent is safe and there is another school of thought that says that 4 percent is very risky at today’s valuations — I personally belong to the former school.”
That’s how it has to be done, Laugh. That’s how it is done in every other field of human endeavor.
Buy-and-Hold is one school of thought re how stock investing works, the school that is rooted in the research of Nobel Prize Winner Eugene Fama. Valuation-Informed Indexing is another school of thought re how stock investing works, the school rooted in the research of Nobel Prize Winner Robert Shiller. Both schools are legitimate. I believe strongly in VII and you believe strongly in BH. Neither of us today can say with absolute certainly that we are right. The field is not sufficiently developed today to permit such claims. We can only express tentative conclusions, not dogmatic ones.
If you want to add language to the bottom of every post that I write saying “this guy acknowledges that it is possible that he is wrong about everything he believes about stock investing,” I have no problem with that. I think it is healthy for the people reading my stuff to be reminded of that as often as possible. But I think that in fairness we should also add that language to the posts put forward by Bogle and Lindauer and Greaney. They are flawed humans too. They are working with a limited data set too. The can get things wrong too.
That’s the answer, Laugh.
One of the guys on one of the peer-review committees that rejected the research that I co-authored with Wade Pfau said (I am paraphrasing): “It would be nice if we knew which of the two schools of thought is the right one.” Wouldn’t it indeed!
That guy was mentioning the uncertainty that every honest person in this field experiences as a reason to NOT publish the research that Wade and I prepared. His observation is a reason TO publish it, not to elect not to publish it! We get over this uncertainty by publishing stuff that addresses it, not by putting our heads in the sand.
Yes, we all need to work with the data we have and draw conclusions from it. But we all need to understand that all the others doing this are not going to draw the SAME conclusions. Different people are going to look at the same data and come to DIFFERENT conclusions. We all need to respect that. We all need to ENCOURAGE each and every person looking at this stuff to say exactly what he or she believes. No one who is not being candid is helping. We help by contributing our own perspectives and if we pretend to believe things we don’t we are not doing that.
I don’t believe what you do about stock investing. It shouldn’t follow that I cannot be your good friend. You should be able to respect what I say even while not sharing the beliefs behind what I say. And of course the same goes the other way around.
Perhaps some day we will all agree. I think that will happen. But we are not there today. That is obvious. And the way to resolve matters is not to silence those holding the minority view. We need to encourage those holding the minority view to speak up and not to censor themselves one tiny bit and to speak with full confidence that those in the majority will extend to them the same respect and affection that they extend to those on “their side.”
That’s it. That’s the answer. That’s the ONLY answer.
I am your friend and I try to show it with all my words. You need to do the same. EVERYONE needs to feel free to post their honest views. There is not one legitimate school of thought here. There are two. That’s where things stand in this field of scientific inquiry today.
Please take good care.