I’ve posted Entry #371 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Biggest Problem With Buy-and-Hold Is the Questions It Takes Off the Table — Part Three.
Juicy Excerpt: The full reality here is that the 1.1 percent withdrawal rate that applies for retirees who insist on retention of the full starting-point portfolio value is not that much less than the 2.0 percent number that applies for retirees who are okay with seeing the portfolio balance reduced to $1 over the course of 30 years. That’s not much of a price to be paid for the benefit attained by paying it. Say that the investor began retirement with a portfolio of $1 million. The difference here is that the investor taking an annual withdrawal of $11,000 is assured of being able to pass along at least $1 million to heirs or charities while the investor taking an annual withdrawal of $20,000 is assured of being able to pass along nothing. The retiree who wants to pass along $1 million instead of zero needs to reduce his annual withdrawal by $9,000. That’s not a bad deal!
Can you believe this stock market, Rob? The only question this buy and holder has is how to spend all the money.
It is my strongly held view that any stock market gains that take prices above fair-value levels hurt every investor who has money in the market. I believe that you are making a mistake to think that you will be able to spend Pretend Money. Pretend Money disappears into nothingness in the long run.
All that said, we have as a nation survived worse. There were people who said we wouldn’t survive the Civil War but we did. There were people who said that we wouldn’t survive the Great Depression but we did. There were people who said that we wouldn’t survive 911 but we did. A great nation overcomes big mistakes and finds it way to better days.
It’s a process. As John Walter Russell observed many years ago, I have a funny feeling that this is all going to turn out better than any of us could today possibly imagine.
I do wish you all good things, in any event.
Rob
I am having fun driving around in my new cotton candy car, living in my cotton candy, and enjoying cotton candy vacations.
I obviously think you are making a mistake. But I am happy that you are enjoying yourself.
And I could be wrong, you know? That’s always the killer. If I were wrong, I probably would be the last to see it.
My best wishes to you and yours, in any event.
Rob
“I obviously think you are making a mistake.”
Ouch! I’ll be crying all the way to the bank.
Fair enough.
Rob
“Ouch! I’ll be crying all the way to the bank.”
Me too. I will be drying my tears with $100 bills!
Life is hard.
Rob
“Life is hard.”
It is for those that missed out on one of the biggest bull markets we have ever seen!
Oh, noes!
Rob the Sad
“Pretend Money disappears into nothingness in the long run.”
No, it gets rebalanced to bonds as 1) our stock percentage gets higher than our target allocation. 2) we get older, and our bond % increases, 3) we take risk off the table as we become wealthy we can hold a mostly bond portfolio.
I am going to continue posting honestly re the numbers that my friends use to plan their retirements.
If you really thought that getting the calculation of the safe withdrawal rate right doesn’t matter, you wouldn’t have reacted the way you did. Getting the number right matters.
Rob
You told me my investments would be cut in half, but they doubled. Your crystal ball is broken.
My crystal ball doesn’t do the parlor trick that you want it to be able to do, Anonymous. It just doesn’t. I don’t claim that it does. It never has been any good at doing that trick. And I very much doubt that it will ever be any good at it.
I wish that we could just agree amongst ourselves that that one is settled. Those who are looking for a short-term timing mechanism should stay as far away from Valuation-Informed Indexing as they can get. Even the biggest advocate of Valuation-Informed Indexing alive on the planet today says that it sucks when it comes to short-term timing. So can we just let that one go?
I also say that P/E10 is an absolute dream when it comes to long-term timing. I say that it changes everything. I say that VII is the future of investing analysis. I say that millions of investors can earn long-term returns that they never before thought possible and that they can do so while enjoying a diminishment of risk that they never though possible. I think that the last 36 years of peer-reviewed research is on the threshold of bringing about the biggest advance in our understanding of how stock investing works in the history of our planet. I am as strong as strong can be in saying that P/E10 never permits short-term timing and always, always, always both permits and REQUIRES long-term timing for those who seek to invest effectively for the long run.
That’s the dispute, Anonymous. There’s no dispute re me crystal ball because I do not have a crystal ball or claim to have a crystal ball. What I have is 36 years of peer-reviewed research showing that the market is NOT efficient and that there is thus precisely zero chance that a pure Buy-and-Hold strategy could ever work for even a single long-term investor. That’s something very, very, very different and in 15 years now there’s not one Buy-and-Holder who has ever been able to put forward a single sliver of evidence of any kind going the other way. 100 percent of the evidence available to us supports Valuation-Informed Indexing and 0 percent of the evidence available to us supports Buy-and-Hold. That’s why the discussions between us have been so contentious. The Buy-and-Holders are at an unfair disadvantage. It’s hard to make a reasoned case when 100 percent of the evidence is against you. Hence, the sort of stuff we have seen put forward by you Goons for 15 years now.
No one would have even thought to suggest that a Buy-and-Hold strategy might work if we knew in 1965 what we learned in 1981. Buy-and-Hold was an historical anomaly. It was a a MISTAKE. Bogle hadn’t formed Vanguard in 1965 and so there were no broad index funds to invest in. So no one though to check long-term timing when timing was being checked. The only sort of timing that was checked was short-term timing and short-term timing of course failed the test. Then Bogle founded Vanguard and long-term timing became possible and then someone (Shiller) thought to test it and then it passed the test. And for the 36 years now we have as a society been trying to work up the courage to stand up to wealthy and powerful people who made the mistake and who have elected to cover it up because we love our country and we want it to survive and we understand that that will not be possibly indefinitely unless we come up with some means to overcome you Goons and get honest and accurate and research-based reports on how stock investing works out to the millions of middle-class people who need those reports to become able invest effectively to secure their futures.
I think we are going to make it, Anonymous. I think the people of the United States are going to win this one. In a trounce. I am 100 percent confident in that belief. We are going to have to wait for the next crash to find out for certain since I am one of those darned humans who sometimes gets it wrong. But that is certainly what I believe. I do wish you the best of luck with it all. But that’s as far as it goes for this boy. No felony garbage on this end. No prison sentences on this end. I don’t go there. I don’t consider going there. I don’t discuss going there. I don’t make compromises re going there. It doesn’t happen. Not in 15 years, not in 15 billion years.
I hope that helps a small bit, my long-time abusive-posting friend.
Rob