“There Never Was Any Rational Case for the 4 Percent Rule or for Buy-and-Hold in General. The Value Proposition of Stocks CHANGES With Changes in the Price That Is Paid for Them, Just as the Value of Anything Else We Purchase Changes With the Price Being Paid. The 4 Percent Rule and Buy-and-Hold in General Defy Everything That We Know About Every Market That Exists.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

All we need to do is read that last post:

Author: hocus Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won’t see their posts anymore)
Number: 66804 of 888931
Subject: Re: Price-Adjusted Safe Withdrawal Rates
Date: 5/15/2002 11:45 PM
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If you retired on January 1st 1929 or 1966 or 1969, a 4% inflation-adjusted withdrawal rate would allow your money to last for 30 years. You’d be broke in year 31.

I was wrong and intercst was right. Please read my apology to him and to the board in general at this link:

http://boards.fool.com/Message.asp?mid=17225279

If you want to get the full story, you need to combine my apology post with the recent posts by Evidence acknowledging that the Greaney study really does lack a valuations adjustment. If the study really was in error, what the heck was I apologizing for?

I was apologizing because I didn’t want to see the board torn apart. There never was any rational case for the 4 percent rule or for Buy-and-Hold in general. The value proposition of stocks CHANGES with changes in the price that is paid for them, just as the value of anything else we purchase changes with the price being paid. The 4 percent rule and Buy-and-Hold in general defy everything that we know about every market that exists.

So why are there millions of smart people who believe that Buy-and-Hold is a real thing? All humans are born with a desire to get something for nothing. And stocks offer us a huge opportunity to do just that. All we need to do is to pump prices up to crazy levels and to silence anyone who points out the craziness and we have what we want — Pretend Money! We can have a much of it as we want! Irrational exuberance is an amazing deal.

Except that it disappears when the bull market ends and millions of people suffer an ocean of human misery. Will people continue to believe in the crazy stuff when that happens? I don’t think so. But we’ll see, you know?

We are talking two different languages, Anonymous. I keep citing the peer-reviewed research because I am talking the language of rationality. You keep talking what people are willing to say on public discussion boards because you are talking the language of emotion. Get Rich Quick/Buy-and-Hold is POPULAR for the length of a bull market. You need to suppress rationality for emotion to rule and I want the emotional stuff to be reined in enough for people to connect with the rationality.

The key is going to be what happens when the CAPE is 8 instead of 32. Will that change open people up to hearing what the last 41 years of peer-reviewed research says? I believe that it will. But we are just going to have to wait to see how things play put to find out for sure.

My best wishes.

Rob