Yesterday’s blog entry reported on an e-mail that I sent to academic researcher Wade Pfau on January 17, 2011. Wade responded on January 20, 2011.
He described a thread that he started at the Bogleheads Forum:
http://www.bogleheads.org/forum/viewtopic.php?t=67093
He said that it was not his intent to start a debate on the merits of Valuation-Informed Indexing since he hadn’t yet finished his research paper. However, he wanted to know if anyone was aware of studies concluding that Valuation-Informed Indexing does not work. He explained that: “Once I finish my study, I would like to refer to the concept as Valuation-Informed Indexing, but I called it long-term market timing in this post since I really was trying to avoid controversy and just uncover more background reading materials.” He reported that: “Two papers by Fisher and Statman are still all I can find that provide evidence against long-term market timing.”
Diversified Investor says
Wade must not have gotten the goons’ message regarding safe withdrawal rates.
http://wpfau.blogspot.com/2012/05/rise-and-fall-of-4-withdrawal-rate-rule.html
Rob says
I’d say it the other way around, Diversified. I’d say that it is the Goons who haven’t gotten Wade’s message re safe withdrawal rates.
If we all agree that the Old School studies are in error, can you kindly tell us why we are not all in agreement that they need to be corrected?
Rob
what says
I am pretty sure everyone is in agreement on the following things:
1) 4% is a rule of thumb, not a guarantee
2) Rob Bennett is an extremely irritating and pathetic little man
What people don’t agree with is the utility of ‘correcting’ studies that are perfectly fine the way they are. You can feel free to make new studies that look at the data in a different way. Folks have written more than a few.
However, since your cognitive state seems to limit you to writing drivel on the Internet I suppose we shouldn’t hold our breath waiting for your studies. BTW, where is that second book of yours?
Rob says
4% is a rule of thumb, not a guarantee
Those are not the only possibilities, What.
No one ever claimed that 4 percent was a guarantee. So that is obviously not in question.
The claim that was made was that there is legitimate research supporting the 4 percent rule.
That is a demonstrably false claim. There is of course no such research. Shiller showed in 1981 that valuations affect long-term returns. There is no valuations adjustment in the Old School SWR studies. Anyone who cares to determine the reality of this for himself or herself can check the studies for himself or herself. They are available on the internet.
We learned that the studies were analytically invalid in May 2002, as a result of my post to the Motley Fool’s Retire Early board and the research done by John Walter Russell in response to that post. The studies should have been immediately corrected. They have not been corrected to this day.
Why? Because the reason those studies were designed the way they were is that the people who performed the studies believed in (or at least pretended to believe in) the Buy-and-Hold Model. To acknowledge the errors in the studies is to acknowledge that Buy-and-Hold was discredited by the academic research 30 years ago and to move on to Valuation-Informed Indexing.
Lots of Buy-and-Hold advocates don’t want to do that because they have built careers promoting Buy-and-Hold and they worry about the lawsuits that will be filed against them when millions of middle-class investors learn about the cover-up that has been going on in this field for 30 years now (I have personally witnessed only 10 years of the cover-up but it obviously must have been in place for years before I came on the scene).
We should permit honest posting on SWRs and many other critically important investment-related topics at every board and blog on the internet.
This is my sincere take re this important matter.
I wish you well in all your future life endeavors, my old friend.
Rob
Rob says
Rob Bennett is an extremely irritating and pathetic little man
I’m irritating and pathetic because I am the person who discovered the errors in the Old School SWR studies. The discovery of those errors led over time to the development of the Valuation-Informed Indexing strategy, a strategy that reduces investing risk by 80 percent while dramatically increasing returns.
That makes a lot of sense, What. Truly outstanding!
Rob
Rob says
What people don’t agree with is the utility of ‘correcting’ studies that are perfectly fine the way they are.
Studies that have caused millions of middle-class people to suffer failed retirements are “perfectly fine.”
Makes sense.
Rob
Rob says
You can feel free to make new studies that look at the data in a different way.
And a large number of Buy-and-Holders “feel free” to engage in death threats and defamation and board bannings to block the people who want to learn about the legitimate studies from hearing about them.
There cannot be two research-based strategies that produce wildly different recommendations on every investing topic, What. If Buy-and-Hold were legitimate, there never would have been a single death threat or a single act of defamation or a single board banning. If we are going to spread the word about Valuation-Informed Indexing to the millions of middle-class investors who need to learn about it for us to be able to bring this economic crisis to an end, we are first going to have to reach a consensus to do everything we can to bury Buy-and-Hold 30 feet deep in the ground, where it can do no further harm to humans and other living things.
The safe withdrawal rate cannot be 1.6 percent and 4.0 percent at the same time. The analytically valid studies say that the SWR was 1.6 percent at the top of the bubble. TheGet Rich Quick/ Buy-and-Hold studies say it was 4.0 percent. Millions of middle-class investors need to know which it is and every person of integrity who works in this field needs to be doing his or her level best on a daily basis to get the word out.
Here’s a hint. There is zero support anywhere in the 140 years of historical data available to us for the pure Get RIch Quick approach. The entire historical record supports Valuation-Informed Indexing and shows that widespread promotion of Buy-and-Hold has caused an economic crisis on each and every occasion on which it has become popular.
Are we to believe that this is all an incredible coincidence? 140 years of stock-market history?
Not this boy.
I will continue to post honestly, What.
I of course wish you the best in all your future endeavors.
Rob
Rob says
BTW, where is that second book of yours?
The book on investing will be published after we have opened the internet to honest posting on stock investing topics, What.
People are scared of this economic crisis. Tens of thousands have lost their businesses. Millions have lost their jobs. A growing percentage of the population is losing confidence that our system of government is capable of fixing our problems, given the huge financial resources that The Stock-Selling Industry has to direct to continuation of the cover-up.
I am no doom and gloomer. The purpose of this book is not to scare people. Once we open the internet up to honest posting, we will be well on our way to enjoying the biggest period of economic growth in our history. I will release the second book when it is certain that the story I tell in it will have a happy ending.
Don’t let the bad guys get you down, my long-time internet friend.
Rob
what says
Man, thats too bad. I was hoping you would self publish another book.
“And a large number of Buy-and-Holders “feel free” to engage in death threats and defamation and board bannings to block the people who want to learn about the legitimate studies from hearing about them.”
Are these the same death threats that no one besides your self can see?
“The claim that was made was that there is legitimate research supporting the 4 percent rule.”
Who makes this claim and what is the ‘4 percent rule’ as per your definition?
Rob says
Are these the same death threats that no one besides your self can see?
Nobody sees nothing, What.
You’re safe.
At least until the next crash.
No promises then.
People might not find the joke so terribly funny at that point.
My best wishes to you and yours in any event.
Rob
Rob says
Who makes this claim
Nobody, What.
The authors of all the Old School studies said right up front that their research was phony and that all should be warned not to use it when planning their retirements.
Good point. I forgot to mention that part.
Rob
Rob says
what is the ’4 percent rule’ as per your definition?
The way I understand it is, when the safe withdrawal rate is 1.6 percent, you say that it is 4 percent and that you have data that proves it which you cannot show to anyone for undisclosed reasons and you threaten to kill family members of anyone who asks questions on the internet about this scientific approach to investing analysis.
Does that sound about right?
Rob
what says
First, I can’t fathom what death threats (non-existent ones at that) against you have to do with economic conditions. You are completely irrelevant.
Second, I think your crusade can be over now because no one believes that 4 percent is safe all the time. Interestingly this reinforces the ‘you are irrelevant’ statement.
Rob says
I can’t fathom what death threats (non-existent ones at that) against you have to do with economic conditions.
The academic research has been showing for 30 years that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind, What. We have a adopted a Social Taboo against speaking out clearly on this question because we are embarrassed that so many influential people promoted such dangerous ideas and because so many ordinary people were taken in by the marketing mumbo jumbo used to promote them. I am not the only one who has been smeared because he has pointed out the dangers of Buy-and-Hold. That’s standard practice.
Buy-and-Hold caused the economic crisis. To overcome the economic crisis, we need to address the problem that caused it. That means talking honestly and clearly about the dangers of Buy-and-Hold. That’s the economic connection. When we no longer have a Social Taboo against discussing the true cause of the economic crisis, we will be able to bring the economic crisis to an end.
It cannot happen soon enough for this guy!
Rob
Rob says
I think your crusade can be over now because no one believes that 4 percent is safe all the time.
No one ever believed such a thing, What. People PRETENDED to believe it. People convinced themselves they believed it. People invested their retirement money AS IF they believed. That’s not the same thing as believing it in a real and complete and genuine way.
John Greaney threatened to kill my wife and children if I continued postng honestly on what the research says re safe withdrawal rates. Does that tell you that he “believed” what he said in his study? Obviously he didn’t believe in the study. But he didn’t correct it, did he? He invested as if he believed in it, right? So he kinda, sorta believed.
The same is so today. Greaney still has not corrected the study. He still reacts defensively when asked about it. He still kinda, sorta believes. And he still does not believe in any complete and real and genuine sense.
People are acknowledging today that the studies get the numbers wildly wrong because they can no longer get away with the old stance that the studies are rooted in some mysterious “data” that can never be produced. We are in the early days of seeing millions of failed retirements, perhaps the biggest social crisis we have ever faced as a nation.
But the studies have still not been corrected. So as a society we are still playing the same old stupid games. We have a serious problem and we are not dealing with it in a serious way.
For the same reason as before. We are ashamed of our past bad behavior. And we are electing to cover up the problem rather than fix it.
I vote for fixing the problem. I think I will continue the “crusade.”
I wish you the best in all things, What.
Rob
Rob says
You are completely irrelevant.
Good point, What.
Do you know the first time one of the Buy-and-Holders said those words to me?
It was on the morning of May 13, 2002.
Oh, my!
Rob
what says
Yes, so…it seems not much has changed?
Irrelevant then – a bit crazy and irrelevant now.
Rob says
it seems not much has changed?
Something important has changed, What.
What’s changed is that we have begun paying the price for following a pure Get Rich Quick approach.
That has changed people’s willingness to consider what the academic research says.
After the next crash, things will change more. People will then be even more willing to consider what the research says.
Get Rich Quick is appealing for only so long as prices are being pumped up. People hate what it does to them on the way down.
Rob