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 believe that it is possible to calculate the safe withdrawal rate accurately without taking valuations into consideration?”
It depends on what you mean by “safe withdrawal rate”.
The Greaney study (and other similar studies) were very clear in what they were calculating. They calculated the inflation adjusted withdrawal rate that survived 30 year periods in the past.
The rate you are looking for (I believe) is what rate is going to survive in the future. Those are two different things.
I agree that the Greaney study and other similar studies calculated (properly, in my assessment) the Historical Surviving Withdrawal Rate (HSWR).
I agree that that is different from the Safe Withdrawal Rate (SWR). I generally agree with your description of what the safe withdrawal rate is. People want to put together retirement plans and they want to know what withdrawal rate will work even in a worst-case scenario in order to do so. Many of the people who posted at the Retire Early board were planning on leaving high-paying corporate jobs. They did not want to hang on too long because they were anxious to get on with their plans. But they also did not want to leave their jobs before they had saved enough to be virtually certain that their plan would survive for 30 years.
One small change that I would make in your language is to note that the safe withdrawal rate is not necessarily the withdrawal rate that will work in the future. There is no way to identify that number since no one knows the future. The purpose of safe withdrawal rate analysis is to identify the withdrawal rate that will work in the future in a worst-case scenario <b>presuming that the market continues to operate in the future at least somewhat as it has always worked in the past. </b> Since the valuation level that applies on the day the retirement begins has in the past always affected what withdrawal rate would work, valuations have to be taken into consideration to identify the withdrawal rate that is virtually certain to work in the future. </b> A calculation that does not consider valuations is not a safe withdrawal rate calculation. You are saying there that you agree with that. But then I can’t help but wonder what all the fuss has been about.
Please recall that my famous post from the morning of May 13, 2002, did not say that the Greaney study was in error (I did say that later but not in the first post). That first post asked a question — Should we be taking valuations into consideration when calculating the safe withdrawal rate? I believe that we should be and hundreds of our fellow community members said that I started the most interesting and helpful discussion in the history of that board community by putting that question on the table. That’s the discussion that we need to have today at every discussion board and blog on the internet — Should investors be taking valuations into consideration when forming their stock investment strategies?
I say that they should. There is only one difference between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Holders never take valuations into consideration (because it was believed at the time that Buy-and-Hold was developed that the market was efficient and thus that valuations did not matter) and Valuation-Informed Indexers always take valuations into consideration (because valuations are always a critically important factor).
If you are okay with me saying that valuations must be considered to calculate the SAFE withdrawal rate accurately, we have no dispute. I of course agree with you that Greaney calculated the SURVIVING withdrawal rate properly. But I do not feel even a tiny bit comfortable saying that the SAFE withdrawal rate is always 4 percent. I believe that the safe withdrawal rate is a number than changes with changes in valuation levels. It can drop to as low as 1.6 percent and it can rise to as high as 9,0 percent. If I were to say that the safe withdrawal rate is always the same number, I would be engaging in fraud. I do not believe that. So I am not willing to say that I believe that.
Rob
What makes Evidence a “goon”?
Someone who says that Greaney got the number wrong in his retirement study but that there is no need for him to correct the error is a Goon, Anonymous. That’s not the way it is played in any field of human endeavor other than the investment advice field. In all other fields of human endeavor, a person who made an error would thank the person who brought the error to his attention so that he could correct it sooner than would otherwise be the case.
If Evidence said that he personally believes that a 4 percent withdrawal would be likely to work out even starting from the valuation level that applied in 2000, that would not be goonish. Everyone is entitled to his or her personal opinion. That’s not what Greaney was saying. He was saying that he calculated the safe withdrawal rate. The word “safe” has a meaning and thousands of comments by our fellow community members showed that they believed that Greaney has calculated the safe withdrawal rate, which he obviously had not (there’s 40 years of peer-reviewed research showing that it is not possible to calculate what is safe without taking valuations into consideration).
A person becomes a Goon when he twists himself into all sorts of ugly positions because he cannot bear to hear human reason given voice in his presence. Human reason tells us that it is not possible for the safe withdrawal rate to be the same number at all times in a world in which valuations affect long-term returns. I am not God. I am capable of making mistakes. I say that the safe withdrawal rate in January 2000 was 1.6. Perhaps someone can come up with a case that it was really 1.7 or 1.5. Fine. That’s all part of the wonderful game. But there is no reasonable case that the safe withdrawal rate is the same number at all valuation levels. Those who say that it is are engaging in Goon thinking.
There’s one exception. If the market were efficient, the safe withdrawal rate would always be the same number (and that number would be 4). If someone wanted to make that argument, that would be on the right side of the line. But to make that argument in a non-Goonish way, one would have to acknowledge that one was rejecting Shiller’s research and putting one’s confidence in Fama’s research. There would then be no death threats or demands for unjustified board bannings or acts of extortion. If one were making that claim in a reasonable manner, one would point out that there are today two schools of thought re how stock investing works and that advocates of both schools have a perfect right to express their honest beliefs at every discussion board and blog on the internet.
That ain’t Evidence. Evidence has never spoken out in opposition to Greaney’s criminal behavior or even against his non-criminal-but-highly-abusive behavior. Evidence is a Goon. Evidence is right that Greaney calculated the Historical Surviving Withdrawal Rate accurately and that Greaney’s study is in error because it lacks a valuation adjustment. He is a Goon because he has not demanded that Greaney correct the study promptly, before it does even more harm to even more people.
My sincere take.
Rob
“Someone who says that Greaney got the number wrong in his retirement study but that there is no need for him to correct the error is a Goon, Anonymous.”
You are the only one that has said Greaney got the number wrong. That means you would be the only non-goon by definition. It also means that everyone else is a goon because they do not agree with you.
As to your reference to criminal behavior, you have never provided evidence of any criminal behavior. That also means that the US legal system does not agree with you. People will not tolerate accusations of criminal acts without any proof. You have been creating your own “cancel culture” long before it was a trend.
We all have goonishness within us. There should be no “controversy” over whether someone who gets an important number wrong in a retirement study should correct the error within 24 hours. But the Greaney study remains uncorrected today, 19 years after I pointed out the error in my famous post from the morning of May 13, 2002. We are all responsible for that, it a greater or lesser degree. Greaney is responsible for the error in a direct sense. Everyone who lives in the United States is responsible for it in an indirect sense in that we have tolerated Greaney’s failure to correct the error for 19 years now. I tolerated it from May 1999 through May 2002. But I worked up the courage to post honestly on the morning of May 13, 2002, and I have never looked back.
Does that mean that I am the only non-Goon? Not really. Lots of people are trying. Bill Bernstein wrote in a book published in 2002 that the Greaney number was off by two full percentage points at the top of the bubble. That’s pretty darn non-Goonish. But when dicussions raged at the Bogleheads forum as to whether honest posting on safe withdrawal rates should be permitted, Bernstein kept it zipped. That gave you Goons cover, that empowered you. So is Bernstein a Goon or a non-Goon? He is both. That’s the reality. that’s true of just about all of us.
There is no one who has been as open as me in saying that we need to leave our goonishness behind if we are to advance in our understanding of how stock investing works in the real world, that much is certainly fair to say. I offer no apologies. I believe that the same laws that apply in every other field of human endeavor should apply in the investing advice field as well. I believe that the 19-year cover-up is killing us as a people. I believe that it will become clear how much damage the cover-up has done to us in the days following the next price crash. We’ll see.
My best and warmest wishes to you and yours.
Rob
“We all have goonishness within us.”
Then why call someone a goon? It is like starting out a post referring to people as breathing human-beings. Instead, what you are doing is immediately denigrating someone with a label. Same thing with the allegations of criminal acts. You are immediately attacking someone without offering up one bit of proof. There is no place for this kind of bad behavior.
Financial fraud is a crime. Advancing threats of physical violence is a crime. Engaging in acts of extortion is a crime. Buy-and-Hold would have passed from the scene many years ago is it were not for our collective tolerance of these crimes. The reason why we tolerate these crimes is that we all have a soft spot in our hearts for Get Rich Quick/Buy-and-Hold investment strategies. We all want something for nothing. We all want to believe that our irrational exuberance gains are real and can be counted when we are determining whether we have accumulated enough assets to be able to retire safely.
It is not possible to speak intelligently about stock investing in the year 2021 without making reference to these matters. When the Buy-and-Holders prohibit discussion of the last 40 years of peer-reviewed research, what they are really doing is prohibiting rational discussion of this critically important subject. The ordinary thing would have been that, as soon as Shiller published his Nobel-prize-winning research, we would have engaged in extensive discussion of its many far-reaching implications at every site on the internet.
If you don’t explain why that hasn’t happened, you are not being helpful. It is the criminal behavior of you Goons that has stopped that from happening. Many people have expressed a desire to hear the true story on safe withdrawal rates and on scores of other critically important investment-related topics. But the death threats and the acts of extortion scare people and so you Goons have been able to suppress rational discussion for 19 years now. Leave out that part of the story and you are not telling the real story.
Rob
“We all have goonishness within us.”
Then why call someone a goon? It is like starting out a post referring to people as breathing human-beings. Instead, what you are doing is immediately denigrating someone with a label. Same thing with the allegations of criminal acts. You are immediately attacking someone without offering up one bit of proof. There is no place for this kind of bad behavior.
I have crafted a second response to this comment.
The comment makes an important point. We all have goonishness within us. We all are drawn to Get Rich Quick/Buy-and-Hold strategies. We all want something for nothing. We all want to believe that we can create a mountain of irrational exuberance and not be made to pay a terrible price for having done so. So why single out those who have posted in “defense” of Mel Lindauer and John Greaney as “Goons”? Are they so different from the rest of us?
They are not entirely different from the rest of us. I had determined that the Greaney study was in error before I ever put a post to the Motley Fool board. I had read John Bogle’s book “Common Sense on Mutual Funds” and it has a sentence in it that “Reversion to the Mean is an Iron Law of stock investing.” If that is so, there is zero chance that the safe withdrawal rate is always the same number. If prices are always reverting to the mean, then the going-forward return is lower starting from a time of high valuations than it is starting from a time of low valuations. So the safe withdrawal rate has to be lower at times of high valuations. I was too afraid of what Greaney and his Goon Squad would do to me to share what I knew with my fellow community members from May 1999, when I first posted, to May 2002, when I put forward my famous post asking if we should consider valuations when calculating the safe withdrawal rate. That was goonish behavior. So I have a little bit of Goon in me.
The reason why I only refer to Lindaurheads and Greaney Goons as “goons” is that these are the people who are stopping us as a society from moving forward in our understanding of how stock investing works. Yes, we all have goonishness within us. We wouldn’t have a CAPE value of 39 today if that were not so. But we all have the capacity for reason (anti-goonishness) within us as well. As a society, we encouraged Shiller to write his book (Jeremy Siegel, a Buy-and-Hold advocvate, suggested the idea to Shiller). We made Shiller’s book a best-seller. We awarded him a Nobel prize (that was done directly by a small number of people but there is a sense in which they were acting on behalf of the larger society around them in making their choice). Thousands of us expressed a desire that honest posting be permitted in their contributions to The Great Safe Withdrawal Rate Debate. As a society, we support the discussion of Shiller’s work in several respects while we also take actions that cause the CAPE level to rise to 39, a level higher than the one that brought on the Great Depression. We are torn between goonishness and non-goonishness.
I believe that, if we permitted honest posting at every internet site, we would work out this conflict. We would all get to hear both sides and over time we would reach some sort of consensus view. It is the Lindauerheads and the Greaney Goons who have stopped this healthy process from taking place. They are so addicted to Get Rich Quick/Buy-and-Hold strategies that they cannot even tolerate the discussion of their dangers. They have taken away our right to discuss these matters through the use of criminal behavior that frightens people into silence. That’s more than the usual amount of goonishness that we all carry within us. That’s an intense goonishness that has made rational discussion and the learning experiences that would follow from it flat-out impossible.
That’s the distinction. I refer to the humans that tolerate goonishness but would be perfectly happy to have rational discussion take place if they were not afraid of what would be done to them if they expressed that view as “Normals.” The vast majority of Normals are Buy-and-Holders because that is what they hear most experts endorse. But they are open to hearing the case for Valuation-Informed Indexing so long as the laws of the United States are respected in those discussions. They are not opposed to Buy-and-Hold. They follow Buy-and-Hold strategies. They possess the same amount of goonishness that we all possess. But they would never engage in criminal acts to “defend” Buy-and-Hold. However, they do on occasion recommend posts in which the Lindauerheads and the Greaney Goons engage in criminal acts. They find the threats of physical violence and similar intimidation tactics highly distressing and will do just about anything to make them go away. They feel that, if the only way that they can make it stop is to permit the discussions to be silenced, they can live with that.
The answer to the question is that I reserve the designation “Goon” for those who are so intense in their goonishness that they are willing to dictate to all of us what we may discuss in the investing realm. As a society we are trying to make the transition from a Get Rich Quick approach (Buy-and-Hold) to the first true research-based approach and the Goons are stopping that process from moving forward. That’s more than your normal amount of goonishness. I think that it is important that we recognize that we all have goonishness within us (that’s what makes Buy-and-Hold so popular). But I also think that we need to make a distinction between those of us who just have a human weakness that makes Buy-and-Hold strategies appealing and those of us who have made it our number one mission in life to stop the world from moving forward in its understanding of the last 40 years of peer-reviewed research in this field. That’s a very extreme form of goonishness that has to be described for any of us to be able to come to terms with why discussion of Shiller’s amazing research findings is still banned at every large investing site on the internet 40 years after it was published.
Rob