Yesterday’s blog entry set forth the text of a comment I made in a recent discussion about safe withdrawal rates with researcher Wade Pfau (Wade says that he does not believe that the authors of the Trinity study meant to identify the safe withdrawal rate (SWR) in their safe withdrawal rate study and that the thousands of financial planners who for many years now have been saying that they did were mistaken to think that and that it’s just tough cookies for the millions of middle-class people who will likely be suffering failed retirements because of the errors made in the Old School SWR studies but not corrected to this day). Set forth below is the text of Wade’s comment in response to mine:
Rob, DRiP Guy kind of won me over with his discussion of scope vs. error at Bogleheads. Well, I think no one really knows the precise scope that the Trinity authors had in mind when they first formulated their study. But if their scope was only to look at how things worked out in the historical data, then there is no error. I mean, I’ve replicated their study and didn’t find errors in their calculations. So there is no error in that regard.
The error comes if people apply those success rates incorrectly to future retirements. I don’t know how the Trinity authors feel about the points you make regarding valuations. Perhaps they agree with DRiP Guy that valuations do not make an important difference, or at least that they do not provide a clear difference that can be correctly acted upon. But I still think there are other reasons to be worried about 4% (fees, international perspective, …) besides just the valuations issue.
This is where I wish the Trinity authors would be more vocal. But even so, the 4% rule is so ingrained into the national consciousness that even if they said something now it would have very little effect.
The duty is for others to come along and explain why they believe that the Trinity study does not provide the whole story about retirement planning in a forward looking manner.
That’s what you are doing. But in doing that, you don’t need to convince the Trinity authors to fix any errors. Just build on their earlier work. Which you did with your retirement evaluator.
As well, as the discussion at Bogleheads is now heading: the whole SWR debate is built on a rather artificial premise that people use a portfolio of risky assets to finance a clearly defined set of planned expenditures. In real life this isn’t how things work,
Rob,
Have you ever contacted the authors of the Trinity study? If you have, would it be possible to share with the community the details of that interaction?
I’ve never contacted them, Evidence.
I recall seeing one of them put some comments to a Bogleheads thread not too long ago. So they have been in contact with other community members.
Rob
You have been working to get these studies corrected for nine years and not once in that time have you presented the evidence that you have accumulated over the years to the authors of the study. That seems very odd.
If you are serious about having these studies corrected you should contact them by close of business today. It would be a win/win/win/win/win for all concerned.
It’s not odd at all, Evidence. The board that I built was called the Retire Early Home Page board at Motley Fool. It wasn’t the authors of the Trinity study who were disrupting conversations at that board. It was John Greaney. He used their methodology in a retirement study he posted at his web site.
I haven’t had any dealings with the authors of the Trinity study. I certainly would like to see them correct their study. It is likely going to cause millions of failed retirements. But I am not the only one affected by that. You are affected by that. Why don’t you ask them to correct their study?
The root problem here is that the authors of the Trinity Study and millions of others (including you!) are suffering from cognitive dissonance. Everyone knows that valuations affect long-term returns and everyone knows that Buy-and-Hold studies of all types do not contain valuation adjustments. We all understand on some level of consciousness that our failure to deal with this problem is the primary cause of the economic crisis. Yet we all in great pain. We don’t want to acknowledge how many human lives we have destroyed by failing to speak up for all this time.
There is no one alive who has pushed this issue as hard I have, Evidence.You are not even in the same ballpark. I urged Greaany’s removal from the Motley Fool board on November 23, 2002. When did you do so? I have written three e-mails to John Bogle asking him to deal with the Lindauer matter. How many have you written?
When you have done 1/1000th of what I have done, I will take your criticism more seriously than I take it today.
If you do write to the Trinity authors, I would be grateful if you would let us all know what they say. That would be a constructive step for you to take. Complaining about what others have done when they have done tens of thousands of times what you have done is not so constructive, in my sincere assessment.
I am not even a tiny bit impressed by your comments on this particular matter. Boo, baby!
Rob
There is no one alive who has pushed this issue as hard I have, Evidence.
And this hard pushing, over almost nine years, has included not a single attempt to discuss the matter with the authors of the most well known study in the field.
In the time it took you to compose that reply to me you could have composed an email to the trinity authors.
But you won’t because you prefer to regurgitate the same complaints about Greaney and Lindauer that you have been making for years.
One email Rob, that’s all. By close of business today, do you think you are up to the task?
My goal is to open every investing board and blog to honest posting on safe withdrawal rates and dozens of other critically important investment-related topics. If we achieve that, I think it’s fair to say that we won’t have any problems getting the Trinity study corrected.
The key is permitting honest posting. That’s what Fama missed. He is very much on the right track in thinking that the market SHOULD be efficient. The market WOULD be efficient if only honest posting were permitted. There is not one person alive who does not want to learn what it takes to invest effectively. Open up the internet to honest posting and everyone can learn. Then the market is efficient and we are all looking at the economic crisis in the rear-view mirror.
The market cannot be efficient if the people who make up the market cannot learn the realities. We have to find some means of getting accurate information out to people. The internet serves our purposes perfectly.
You’re taking a silver lining and trying to find a cloud around it, Evidence. I’m keeping my eyes on the prize.
Rob
Rob,
As you know from my posts, I’m glad I found your board years ago and continue to enjoy talks. I think you’ve done a good job of accumulating, synthesizing, and discussing the ramifications of Shiller’s work.
But I disagree about your “honest posting” stance in that I just don’t see any profound proscriptions on any investing topics, including various valuations-informed discussions. Indeed, they are having these very discussions right now on Bogleheads.
I believe most people who are invested (certainly friends and family members I know with whom I’ve shared investing talk) do not—and will not—read the boards simply because they would not want to do so. So it is not likely the markets will change with increased participants on investing sites, no matter the topics engaged.
I also don’t think markets would automatically become “efficient” with honest posting, since I believe they already are mostly efficient; we’ve been over that one, and supposed inefficiencies just have not been exploited with any consistency even as human (emotional) behavior will always be present.
I think Fama is mostly correct about the EMH, especially regarding the lack of sustained exploitation of supposed inefficiencies. Still, the biggest enemy an investor has (DYI investors, anyway) is the one looking at himself in the mirror, and that would likely endure with any model. Of course, advisors and money managers who are not fiduciaries also share blame for those who are not DYI.
I agree with Evidence, insofar as you can submit your own peer-reviewed work, or work with someone who can, and so refute issues you may have with particular studies.
I do think the biggest barrier to successful investing lies in a failure within our education system. Yet even there, one would encounter religious wars over what should be taught. Still, something needs to be taught better than is currently being done.
I look forward to your postings on the Shiller comments.
Peace,
Arty
I’ll post at any board that permits honest posting on SWRs and other important investment-related topics, Arty. Once a board bans honest posting, I feel that I have no responsible choice but to decline. I have many friends in all of the various communities and I view a failed retirement as a serious life setback.
We will not know for certain whether or not millions of middle-class investors would invest differently if we provided some means for them to learn the realities until we begin doing so. All we can say today is that it would very much be in their self-interest to invest effectively and every board has rules permitting honest posting, suggesting that the vast majority think it is a good thing to be able to hear both sides.
There’s no purpose served in submitting any peer-reviewed research since we already have 30 years of research available to us showing how stock investing works. Why not permit posting on that research before submitting any new research?
Our education system certainly is not perfect. But the people who did the research on which the Valuation-Informed Informed Indexing model was built were the product of our educational system, no? And the thousands of our fellow community members who expressed a desire that honest posting be permitted were the product of our educational system. I see it as a sign of intelligence that they understand that they need to hear both sides when their retirement money is at stake. You can look at a lot of these things from more than one angle.
You didn’t know about the flaws in Buy-and-Hold until you discovered my web site. You’re not dumb. Why didn’t you know? If people had been talking about those flaws in every personal finance magazine, you would have known a lot sooner, no? And if Google were owned by Mel Lindauer, you still wouldn’t know today. I think it would be fair to say that, if Mel owned Google, Google would never list any sites owned by people who raised questions about any of claims put forward in his book on grounds that such people are “dangerous” (this is the adjective that Mel used to describe my idea of reporting the SWR accurately).
I don’t do any of the work I do solely for my own benefit, Arty. It has always been my intent to share what I learn with my fellow community members. Are you able to explain why it so inflames the Buy-and-Holders when I try to tell people what the historical data and the academic research say? Would you say that it’s a sign of confidence when they freak out and threaten to kill my wife and children and all this sort of thing? Or would you say they evidence inner doubts about Buy-and-Hold and other Get RIch Quick approaches when they do this sort of thing?
You know what I think.
We do the Buy-and-Holders no favors when we fail to point out to them the mistakes they have made. We hold back from correcting them not out of charity but out of cowardice. The charitable thing would be to help them out. It is far better than they get their feelings hurt to learn they were taken in by a Get Rich Quick scheme from some friend on the internet than it is for them to learn by seeing their retirement accounts wiped out.
That’s my sincere take on these important matters, in any event. I am grateful to you for taking time out of your day to share your thoughts with us all. We need more people doing that. That’s how we bring on the healing process that deep down inside we would all (including our Buy-and-Holder friends) like to see take place.
I have the hand of friendship extended, Arty. The only “demand” I have made is that I and all of my fellow community members be permitted to post honestly on what the historical data says re safe withdrawal rates. That one is non-negotiable for reasons that I like to think are obvious to all.
Rob
Rob,
I just don’t see the ban on honest posting as you do. In fact, I see evidence for all sorts of views being expressed, even as I type this. But we’ll just disagree on that.
—
Many get riled up on the web site boards for all sorts of reasons and they use the boards to make their life work for them in the same way they use other means. The nature of the beast. So, many responses come from places of emotions/fear, in my opinion, and the actual specifics of the argument (any argument, any subject) are actually secondary. (I see the same thing in Exercise Science.) Many are just using the vehicle as a tool for their emotional baggage.
That people have threatened you or your family is a different matter, of course, and needs to be addressed for that. I’ve zero tolerance for that.
There are also many good discussions on the boards.
As I’ve said before in the talks here with (Dripguy?), I thought you could be more effective in how you communicate things, but that is a long subject and best done elsewhere if at all. I’ve certainly no right to teach and have my own flaws. I will say, though, that some who take the time to correspond with you do have some portion of the truth regarding this topic, even if they express them roughly. Just my opinion.
It was only that I became motivated to read investing research or boards that I came to discover what I now know on the topic. Years ago, I found you linked to indexing and Bogle (on Google searches) when I wanted to see if there were contrary views to indexing really (learned about Shiller in particular). The rest is history, as they say. But I too was not particularly interested in the investing subject PRIOR to that, even as I was involved in peer-reviewed subjects ion other fields. My bad, as it would have helped me years before the internet.
And many will never do as I did because they are not motivated to do so and won’t become motivated. They just won’t do it in this field (possibly letting some “expert” handle it for them as many do). I’ve had people tell me this even after I pointed it out to them in personal discussion that it may be in their best interest to at least read a book.
I respect that you don’t want to submit research but disagree that it would be of no purpose served or that just because other research exists, you should leave it at that. All science is decidedly cumulative in nature. I’d like to see you throw-in and potentially make the cumulative weight of topic better.
Arty
Why don’t you put up a post at Bogleheads saying that you would like to see the Greaney SWR study corrected, Arty? Then you’ll see it.
I’ll bet you $5 you won’t be able to post tomorrow morning.
Or you can put up a post saying you think people there should be able to post about Valuation-Informed Indexing. In one of the recent threads in which Wade Pfau participated, there were several posters who put up posts thanking me for telling them about Valuation-Informed Indexing, and Alex Frakt said that he sent them e-mails letting them know they would be banned if they did it again.
So that’s what you should so if you want to see about the Ban on Honest Posting. There’s nothing like seeing it with your own eyes.
Rob
Many are just using the vehicle as a tool for their emotional baggage.
Of course.
But in this case there are millions of people who will likely be suffering failed retirements in days to come because of it. How many lawsuits do you think are going to be filed against the Internet Sewer Rats in days to come because of the millions of failed retirements they caused with their “emotional baggage”?
And how about the site owners who failed to act after promising to protect us from that sort of thing?
And how about the experts who sat on their hands? I’ve sent John Bogle three e-maiils asking for his help re the Lindauer matter. Bogle has himself publicly acknowledged that valuations affect long-term returns. How do you think people are going to react when learning that after the next crash puts us in the Second Great Depression?
You want to be involved in that? I do not. I do this stuff to help people, not to destroy their lives and not to make myself liable for legal damages. Not interested, Arty.
I’ll continue to post honestly on the SWR matter and on all other matters of critical importance to investors and I’ll continue to urge all my fellow community members to help out the people with the “emotional baggage” by asking that they be removed from our boards until they gain some minimal control over their emotions.
There’s a reason why the published rules of every board permit honest posting and prohibit the tactics that have been employed to block it, Arty. Civilized, responsible people insist on this before they are willing to participate in discussions of investing.
It’s degrading to post honestly and it’s degrading to encourage others to post dishonestly. I want no part of it. I am willing to help those with emotional baggage. I am not willing to enable them to destroy themselves and others. It’s not my particular cup of tea. It’s not a close call.
Rob
I’ve zero tolerance for that.
But the site owners don’t, Arty.
There’s still a buck to be made promoting Get Rich Quick strategies.
The problem comes when the Get Rich Quick strategies get promoted for so long that we experience a deepening of the economic crisis. Then we end up killing the goose that lays the golden eggs.
Permit honest posting, and all this stuff is no longer possible. Permit honest posting, and Fama’s dream of an efficient market becomes a reality. That’s the direction in which I intend to take things. The Get Rich Quick garbage is not my thing.
Rob
I thought you could be more effective in how you communicate things
The entire problem is that I am too effective, Arty.
There are thousands of people who have expressed a desire that honest posting be permitted. Alex Frakt has acknowledged that the only reason I was banned is that I represent a “threat” to Buy-and-Hold. If I weren’t effective in helping to make people aware of the dangers of Get RIch Quick,why would he feel a need to ban me?
You don’t ban people who don’t represent a threat, Arty. Why would you?
Rob
some who take the time to correspond with you do have some portion of the truth regarding this topic, even if they express them roughly.
That’s a good thing, isn’t it?
So why ban honest posting?
If people are making good points, we are all learning, Why not permit honest posting? Why not encourage it?
Rob
And many will never do as I did because they are not motivated to do so and won’t become motivated.
A whole big bunch more will do it if we don’t threaten to kill those who post honestly, Arty. I mean, come on.
I have had hundreds of people write me e-mails and thank me for being the first person ever to tell them the truth about how stock investing works. The Stock-Selling Industry has spent hundreds of millions of dollars promoting what I think can fairly be characterized as the purest and most dangerous Get Rich Quick approach ever concocted by the human mind. You seriously don’t think it would make any difference if we spent those hundreds of millions of dollars promoting Valuation-Informed Indexing?
I don’t buy it.
The more people who learn about the realities of stock investing, the better it will be for all of us. There certainly is no possibility of any downside. Are you able to imagine any?
Rob
they are not motivated to do so and won’t become motivated.
How motivated are people to buy cars, Arty? Millions of people consider price when buying cars.
How motivated are people to buy sweaters? Millions of people consider price when buying sweaters.
How motivated are people to buy bananas? Millions of people consider price when buying bananas.
I think it’s fair to say that, if The Stock-Selling Industry didn’t spend hundreds of millions promoting Get Rich Quick, lots of people would be sufficiently “motivated” to consider price when buying stocks too. How much effort does it take to do what it takes to be able to retire five to ten years sooner?
You’re blaming the victim, Arty. The experts are supposed to read the literature in the field. The research showing that valuations affect long-term returns was published in 1981. We should be permitted to tell people about it.
Rob
All science is decidedly cumulative in nature.
Science has precisely zero value until we gain the right to tell people about it, Arty.
Rob
Rob, I thought that at some point you had contacted the Trinity authors about valuations and SWRs.
If you haven’t contacted them, then there is a pretty good chance that they are not even aware of the issue. Nothing about valuations and SWRs has been formally published, and I did a rather detailed literature review about SWRs without ever seeing the valuations issue. I only learned about it after my literature review because someone mentioned Michael Kitces’s paper on the topic at Bogleheads. Michael’s paper is definitely of publishable quality, but I think he might have gotten too busy to ever submit it somewhere. The Trinity authors may simply not know about it, or about the work by you and JWR.
I don’t think the Trinity authors participate at Bogleheads. If you are referring to William Bernstein’s comment that it was nice to see them posting, I think he was confused. Or else he has inside info about the true identity of an otherwise anonymous poster.
I bet there is a good chance that the Trinity authors are simply unaware of this whole matter.
But again, it is not the case that they need to “correct” their study. Rather, the study can be expanded to account for more factors. All economic models are simplifications of reality. We just have to make sure we are making appropriate simplifications. You are convinced that ignoring valuations is an inappropriate simplification. Based on the US historical data, I tend to agree. And in a way, my paper about predicting MWRs is a variation on the theme introduced by Bengen/Trinity that also incorporates valuations. I think this is what Arty means about science being cumulative in nature.
There’s no question but that science is cumulative in nature, Wade. That’s why I added my point about valuations in my post of May 13, 2002. The idea was just to add to the work that has been done earlier. In theory, it was a very simple thing I was doing. And obviously a good thing.
You must acknowledge at this point that it has not turned out to be so simple and that there are some people who do not see it as so good. Right? The reaction we have seen for nine years running now has been INSANITY.
We have to understand why that is if we are to take this to a good place. The reason we are seeing the insanity is that the valuations issues is so fundamental to the stock investing project.
If we acknowledge that we know that valuations matter (we all obviously know this as an intellectual matter but many of us experience great emotional pain letting it in), we are compelled to change everything that has ever been said about stock investing. It scares people to take such a big step. It freaks people out. It hurts people’s pride. It causes people to feel regret over mistakes they have made during the days when they didn’t understand the realities. There are people who fear lawsuits in the event that investors come to understand the realities. As Alex Frakt said, this new knowledge represents a “threat” to people who made their names promoting the old knowledge. There are all sorts of things at work.
We’re not going to solve this problem by sending an e-mail to the authors of the Trinity study. They know intellectually as everyone else does that valuations matter. They are also suffering the same cognitive dissonance that everyone else (including you! — and including me at an earlier time) is suffering. That’s the problem we need to address.
We cannot solve the problem of cognitive dissonance in five minutes. People need to gradually get used to the implications of the new ideas. They need to be able to ask questions. They need to be able to ponder. They need to be able to talk things over. This is why I say that we need to open the entire internet to honest posting on safe withdrawal rates and all other important investment-related topics, just as we permit honest posting on sports and movies and nutrition and hundreds of other topics. There is no other way to advance.
As people see their friends one by one “getting it,” they will get it too. In the end there will not be one person alive on Planet Earth who will wish for a return to the old days. But people need to understand the benefits of the new model to fall in love with it. And people cannot understand what they will not emotionally accept. And people are not able to emotionally accept this in one take. People must be provided some means of being exposed to the new ideas gradually so that over time they can sink in and connect with them.
We have to start treating stock investing like every other subject. That’s the bottom line. We need not only to permit honest posting but to encourage it. We need to stop worrying that we might learn something and start looking forward to all the wonderful advances that are today within our reach.
This is the only thing that will work, Wade. I’ve had a front row seat to this show for nine years running now. I’m no investing expert in any conventional sense but I am certainly the world’s leading authority on how cognitive dissonance blocks people from understanding the implications of Shiller’s finding that valuations affect long-term returns. I know what I am talking about re this matter and I am telling the straight story here. The first step is opening all of our boards and blogs to honest posting.
The rest will all just follow easily once we do that. And every single person alive on Planet Earth today will be a lot better off once the number of us needed to make this happen work up the courage to demand it. Asking nicely won’t do the trick, Wade. The pain being felt here is too great. We are going to need to DEMAND honest posting (with only love in our hearts for the people feeling the pain , to be sure).
Rob