Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“Do you think that the risk of investing in stocks is static or variable, Anonymous? That’s the entire dispute.”
No, that’s your dispute. It has nothing to do with the comment. As always, you insist on ignoring the point raised and babbling on about something else.
That pisses people off. It’s annoying, and eventually it gets you banned. You think it’s perfectly acceptable behavior. And THAT’S the entire dispute.
Okay.
I do think it is perfectly acceptable behavior. I think it is admirable behavior.
You are 100 percent right that it annoys people, that people get pissed off in response to me saying what I say. But I feel very strongly that someone needs to say it. I wish that someone other than me had been selected for the job. But the circumstances played out in the way that the circumstances played put. I love my country. That runs deep. And here we are.
It is my view that, if more people spoke out about the far-reaching implications of the last 36 years of peer-reviewed research in this field, people would get less pissed off when they heard about them. At some point, the principles of Valuation-Informed Indexing would become old hat to people and mentions of what the last 36 years of peer-reviewed research says would not be so controversial. So I think that we need to take things in just the opposite direction from where you want to take them. I want to see everyone who has doubts about Buy-and-Hold to speak up about them in clear and firm and bold terms so that hearing such doubts would become just another thing, nothing to get hot and bothered about. You want those of us who think Buy-and-Hold is a big pile of smelly garbage to keep it to ourselves so as not to piss off the 90 percent of the population who believes in Buy-and-Hold.
We are working at cross purposes, Anonymous. Can we agree on that much?
It does not appear that there is any compromise possible. I am 100 percent unwilling to consider saying that I believe that Greaney’s study contains a valuation adjustment and you are 100 percent unwilling to consider coming clean re the 15-year cover-up of the errors in that study. It does not appear to me that we are going to hold hands and sing “Kumbaya” together anything real soon. Fair enough?
I still think that it is possible that there will come a day when we will hold hands and sing “Kumbaya” together. I believe that that day will come following the next price crash because then the behavior of the people listening in to our interactions will change. People will be pissed off about the money that they have lost and they will work up the courage to stand up to you Goons and to insist that you be put in prison cells. That’s going to be a big development. That will change everything. From that point forward, we will have bloggers and researchers and advisors and economists and policymakers and just about everyone falling over themselves to express their excitement about what we have learned from the last 36 years of peer-reviewed research in this field and we will be seeing honest books come out and honest podcasts and honest calculators and just all sorts of good stuff. All of the pent-up honesty of the past 36 years will be released into InvestoWorld. It will be something to see. It will be the Second Independence Day for these United States.
Or not, you know?
I could be wrong. I am telling it how I see it. But I am one of those darns flawed humans. So I could be wrong. You can’t go just by what I say. But that is certainly what I expect to see happen.
Is there something that I can do for you in the interim?
I am not able to think what that something might be. Can you give me a clue?
I certainly do not want to piss you off any more than I already have pissed you off. That is the last thing on my mind. But I am 100 percent unwilling to say that the retirement study posted at John Greaney’s web site contains an adjustment for the valuation level that applies on the day the retirement begins, as always. So I feel that we are kind of in a rut here. Do you have any suggestions for how we might proceed from this point forward (short of suggesting once again that I not do the thing that pisses you off so much that I feel compelled to do because of the deep love that I feel for this wonderful country of ours)?
Peace, man.
Rob
Evidence Based Investing says
“But I am 100 percent unwilling to say that the retirement study posted at John Greaney’s web site contains an adjustment for the valuation level that applies on the day the retirement begins, as always. ”
And there is no need to, no one is asking you to.
Greaney’s study looked for the single withdrawal rate that survived all 30 year periods in the record. That included periods of low, medium and high valuations.
Rob says
If you’re not asking me to say that Greaney’s study contains a valuation adjustment, then what are you asking me to say?
I of course understand that his study looks at periods of low, medium and high valuations. The problem is that it does not factor in how the results obtained from these different sorts of time periods are so different. There are very few times in the historical record when the P/E10 value went to 25. All of those times produced poor long-term results. So the fact that a 4 percent withdrawal barely worked starting from those times does not show you that a 4 percent withdrawal is safe for retirements beginning at such times, it shows that a 4 percent withdrawal is high-risk for a retirement beginning at such times. If you drive a car drunk three times and end up in the hospital but not dead each time, you don’t conclude “hey, that’s super, I have shown that driving drunk is 100 percent safe!” Calculated accurately, the safe withdrawal rate at the top of the bubble (January 2000) was 1.6 percent, not 4 percent.
Should I keep quiet about this flaw in the study or should I tell my friends about it? I obviously think that I should tell my friends about it. I view a failed retirement as a serious life setback.
You say that Greaney “looked for the single withdrawal rate that survived all 30-year periods in the record.” That’s not what he SAYS he looked for. He SAYS he looked for the SAFE withdrawal rate. The safe withdrawal rate is often a very, very, very different number. There’s all the difference in the world between living on $16,000 per year in retirement and living on $40,000 per year in retirement.
Do you agree that I should tell my friends or do you favor me adopting a policy of keeping quiet?
It seems to me that that is the entire dispute. Greaney wants me to keep my mouth shut. I feel that I should speak up, that I was a coward not to speak up sooner than I did. And I think that, when he threatens to kill my wife and children if I continue to speak up, every single community members, both the Valuation-Informed Indexers and the Buy-and-Holders, should object. We all are hurt when someone engages in financial fraud on our boards. None of us should want to see our friends going to prison. So we all should speak up when we see this sort of thing take place before our eyes.
That’s my sincere take re the terribly important matter, in any event.
I naturally wish you all good things.
Anti-Financial-Fraud Rob
Evidence Based Investing says
Here is what Greaney’s page says
http://www.retireearlyhomepage.com/restud1.html
“The table below assumes a $1,000 initial portfolio value and shows the maximum initial inflation adjusted annual withdrawal (as a percent of assets) that allows the portfolio to survive to the end of all pay out periods examined. Annual investment expenses were assumed to be 0.20% of assets, duplicating what an investor would pay for a low cost S&P 500 index fund. The percentage of stocks in the portfolio were varied to determine the asset allocation that maximized the “safe” withdrawal rate. Finally, the range of terminal values for the initial $1,000 portfolio for each pay out period was determined. The terminal value is the value of the portfolio after the final annual withdrawal is taken at the end of the pay out period.
Surviviability is the probability that there will be funds remaining in the portfolio at the end of the pay out period. For example, a survivability of 100% means every terminal value was positive. If we examined 100 pay out periods and found the terminal value of the portfolio was negative in 25 out of the 100 pay out periods, we would say that withdrawal rate was “75% survivable.” The maximum 100% survivable withdrawal rate is the highest annual withdrawal rate where all terminal values are positive for the pay out periods examined. “
Rob says
BenSolar advanced a proposal in the Summer of 2002 that Greaney call the product of his study the “Historical Surviving Withdrawal Rate” (HSWR) rather than the “Safe Withdrawal Rate (SWR).” I endorsed that proposal at the time and I endorse it again today. Greaney does indeed identify the highest withdrawal rate that survived in every time=period in the historical record. If he wants to add an endorsement saying that “Rob Bennett says that this study correctly identifies the Historical Surviving Withdrawal Rate,” I have zero problem with that.
The thing that I am not willing to do is to say that Greaney accurately calculated the SAFE withdrawal rate. 4 percent has always survived but there are some valuation levels from which it is not even remotely a SAFE withdrawal rate. I do not feel even a tiny bit comfortable saying that I believe that Greaney’s study identifies the SAFE withdrawal rate accurately.
People posting at the Retire Early board referred to 4 percent as the SAFE withdrawal rate on a daily basis. This happened thousands and thousands of times during the time-period during which I posted at that board. Greaney himself used that language many, many, many times. He led people to believe that he believed that his study showed 4 percent to be a SAFE withdrawal rate and many of my friends put together retirement plans believing that to be the case. Those people have been hurt in a very serious way. A failed retirement is a serious life setback.
We have no disagreement as to whether Greaney’s study identifies the Historical SURVIVING withdrawal rate. I do not believe that it comes even close to identifying the SAFE withdrawal rate and I am not willing to say that I do believe that regardless of how many death threats are directed at me as my “punishment” for refusing to do so.
Honest-and-Accurate-Posting Rob
Anonymous says
“4 percent has always survived but there are some valuation levels from which it is not even remotely a SAFE withdrawal rate. ”
Obviously safe means survived. Anyone literate enough to read that study understands that.
You say No, survived doesn’t mean safe. So what IS safe?
Of course, you have no answer, other than your evasive gobbledygook. Safe is just another vague Rob feeling, with no methodology or math behind it. Just like VII.
Rob says
The safe withdrawal rate is a number that varies with changes in valuation levels. It rises to 9 percent when valuations are where they were in 1982 and it drops to 1.6 percent when valuations are where they were in 2000.
I wish you all good things, in any event.
Valuation-Informed Rob
Anonymous says
“it drops to 1.6 percent when valuations are where they were in 2000.”
Based on your funny feelings?
Bill Bengen says year 2000 retirees are still doing just fine with 4.5%. “My conclusion for the 2000 retiree is that although he may be subject to portfolio shrinkage over the remaining 14 years of his time horizon, he need not make any adjustments to his strategy. His money should last the full 30 years, barring some cataclysm. ”
https://www.fa-mag.com/news/is-4-5—still-safe-27153.html
Now, why would anyone on earth take your word over Bengen’s? Bengen is actually capable of doing math. And documenting his conclusions. Two things at which you massively fail.
Rob says
Bengen makes it sound like a cataclysm is unlikely. In fact the very word suggests that. “Cataclysm” is defined as “a momentous and violent event marked by overwhelming upheaval and demolition.” Such events obviously do not happen every day. The reality is that, in the event that valuations affect long-term returns (there is now 37 years of peer-reviewed research showing this to be the case), we should be expecting a cataclysm in the stock market within the next year or two or three and in that event even Bengen would agree that retirements taking a 4 percent withdrawal might well not survive.
It all comes down to whether you believe that stock investing risk is constant (as it would be if the market were efficient, as Fama believes) or that stock investing risk is variable (as it is if valuations affect long-term returns, as Shiller believes). The P/E10 value is today at levels higher than the ones that brought on the Great Depression. There is only one time in U.S. history when we have seen valuation levels this high — at the top of the bubble from which we are today still trying to recover. Just a return to fair-level price levels would require a loss in market value of 50 percent. That’s a cataclysm.
It is the relentless promotion of Buy-and-Hold “strategies” that causes stock market cataclysms. Stock prices are self-regulating so long as honest posting is permitted. When prices go up, the value proposition of stocks goes down and investors sell, bringing prices back to fair-value levels. But Buy-and-Holders say that it is not necessary to practice price discipline when buying stocks! When large numbers of investors fail to practice price discipline, prices eventually rise to the insane levels where they reside today, where it takes a cataclysm to bring them back just to fair-value levels.
I don’t like cataclysms, Anonymous. Cataclysms hurt people in very serious ways. That’s why I oppose the relentless promotion of Buy-and-Hold strategies. I believe that investors should be permitted to hear what the last 37 years of peer-reviewed research teaches us about how stock investing works in the real world: valuations affect long-term returns, risk is variable and not static and forcing cataclysms is the worst possible way to bring stock prices down.
I OPPOSE cataclysms, Anonymous. Please feel free to quote me re this one all over the internet.
Slow and Steady Rob
Anonymous says
Jeez, you’re predictable. I knew your entire reply would be a quibble over “cataclysm”. That’s all you got. You can’t do math, you can’t organize or understand data. All you can do is quibble over words. Like “safe” versus “survived”.
Bengen has seen and studied crashes. Duh. If he meant a crash like 2008 he would have said “a cataclysm like 2008.” He was obviously referring to something that has never happened before. In a cataclysm nothing will be safe. Not 4.5%. Not 1.6%. Not zero percent.
Rob says
If the cataclysm brings down the entire economic system, then you are right, we will all be cooked. That’s possible and even the possibility certainly worries me.
It’s not anything close to a certainty. This is the fourth cataclysm that we have experienced (because this is the fourth time that the Buy-and-Hold “strategy” became popular). We survived the earlier three. In the event that stocks continue to perform in the future as they have in the past, a 1.6 percent withdrawal will work. 1.6 is the number that works for a retirement beginning at a P/E10 of 44 (we are only at 34 today) in the event that the worst-case returns sequence ever seen in the historical record happens to pop up. 1.6 would work with plenty to spare starting from 34, even in a worst-case scenario.
4.5 COULD work. It’s not impossible. But it’s certainly not a safe bet. For a retirement beginning when the P/E10 level is 34, a withdrawal rate of 4.6 has only a 20 percent chance of working out. A withdrawal rate of 3.7 would be a 50-50 bet. A withdrawal rate of 2.5 would be safe (95 percent chance of success, presuming that stocks continue in the future to perform at least somewhat as they always have in the past).
I OPPOSE cataclysms. I favor opening every investing board and blog on the internet to honest posting re the last 37 years of peer-reviewed research in this field.
Numbers-Guy Rob
Anonymous says
I’m so impressed by your made up numbers. You should go to Bengen’s site and point out his fatal flaws. Greaney stopped posting his errors years ago. You beat Greaney. But Bengen is repeating his errors to this day. Why are you doing nothing about Bengen?
Rob says
I’ve spoken to Bengen about his SWR claims. I have a category here at the blog titled “Bill Bengen and VII.” There are not many items in it. But there are a few.
I want to bring Bengen around. To do so, I need to open the entire internet to honest posting. Then he will be hearing from lots of different people coming at this issue from lots of different directions. That’s how you bring people around. Things that persuade one person don’t necessarily work on someone else. You need to try different things. And people need to hear a message repeated many times to become convinced by it. When I wrote to Bengen, that’s one message that he is exposed to one time. The message would be much more effective if he were being exposed to it daily. If the internet were opened to honest posting, he would be hearing this message on a daily basis and think there’s a good chance that we could bring him around in time.
Are you able to imagine any possible downside?
Smooth Persuader Rob
Anonymous says
“Are you able to imagine any possible downside?”
Sure. I have no data suggesting he’s wrong. So I have no reason to believe he’s wrong.
If you do, then it’s up to you to present it. More than once if necessary.
Rob says
I say that he’s wrong because Shiller showed in 1981 that valuations affect long-term returns and Bengen does not consider valuations when determining the safe withdrawal rate. Shiller’s peer-reviewed research contained data. He was awarded a Nobel prize because of its “revolutionary” (Shiller’s word) findings, findings that have stood the test of time.
Data-Oriented Rob