Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
The entire history shows that a 4% SWR has always worked. The history shows that market have always recovered from drops an$ have gone on to new highs. The history shows that Buy and Hold works. Stop driving drunk, Rob.
The entire history does indeed show that a 4 percent withdrawal has always worked, That same history show that there were some valuation levels at which a 4 percent withdrawal was super safe and other valuation levels at which a 4 percent withdrawal was insanely risky. Why lie about it? Why not just tell people the straight story?
The history does indeed show that the market has always recovered and gone on to new highs. That same history also shows that adjusting one’s stock allocation in response to big valuations shifts takes away just about all of the risk of stock investing and permits you to retire many years sooner. Again, why lie about this matter? Shiller’s Nobel-prize-winning research is the biggest advance ever seen in this field? Why not tell people about it every chance we get?
Buy-and-Holders don’t engage in market timing/price discipline, Anonymous. Buy-and-Hold destroys human lives. When it becomes popular enough, it brings down entire economies. Not this boy, you know? I wish you all good things. But come on.
Rob
So you are confirming that a 4% SWR has always worked. Can you now explain why market timing has failed to work for you and everyone else.
A 4 percent withdrawal rate has always worked. That’s an objective fact. At some CAPE levels, a 4 percent withdrawal rate is super, super, super safe. At others, it is high-risk. There were a tiny number of occasions when a 4 percent withdrawal rate was high risk but worked all the same. Having a high-risk withdrawal rate work on one or two occasions doesn’t turn it into a safe withdrawal rate. That’s like saying that driving drunk and not getting killed on a tiny number of occasions transforms drunk driving into a safe way to drive. To determine whether something is safe or not, you have to look at the factors affecting safety. In stock investing, the number-one factor affecting safety is the CAPE level.
Market timing is price discipline. Price discipline always works for anything that can be purchased. It is impossible for the rational human mind to imagine any circumstances in which market timing might not work. The peer-reviewed research that I co-authored with Wade Pfau shows that market timing has been working very well for as far back as we have records of stock prices. I knew when Wade and I began that project how it was going to turn out. Because it is a logical impossoibility that it could have turned out any other way. (I did not anticipate how dramatic the results would be, however — I think that I had been brainwashed a bit by the relentless promotion of the Buy-and-Hold dogmas.)
If the market were efficient, market timing would not work. Because, if the market were efficient, there would not be mispricing (the reason why market timing works is that the market will always correct a mispricing — it is the core job of all markets to get prices properly). Shiller was awarded a Nobel prize for his amazing research because he was the one who showed that the market is not efficient. Once the foundation stone for Buy-and-Hold was discredited, we all should have begun the move to a better strategy. To make that move effectively, we need to open every discusion board and blog on the internet to honest posting re the the last 41 years of peer-reviewed research in this field, without a single exception. We all should be united in wanting to learn as much about this stuff as possible.
My sincere take.
Rob
Maybe you can help me out. I can’t find any paper with yo7 listed as an author. I can’t find a single person that can successfully time the market. I can’t find any of those death threats you talk about. Perhaps you can hel0 me by posting a link to each.
I can’t find a valuation adjustment in the retirement study posted at John Greney’s web site.
Rob
Thanks for confirming that none of what I listed exist. The adjustment doesn’t exist either because it is not needed, as Evidence pointed out.
Evidence said in a comment posted late last year that “nobody” truly believes that Greaney included a valuation adjustment in his retirement study, including Greaney himself. That statement nails it, in my assessment.
I have asked Rvidence on numerous occasions whether he believes that Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns in legitimate research. He has not been willing to response to that one.
Greaney has not even gone so far as to acknowledge that his retirement study lacks a valuation adjustment. He is like Evidence in his refusal to say whether he believes that Shiller’s Nobel prize-winning research showing that valuations affect long-term returns is legitimate research.
Whachagonnado?
Rob
As I said, Evidence explained why the adjustment wasn’t needed. Of course, you need to keep the charade going.
Forget Evidence for the time-being. You’re here now. Do YOU believe that Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns is legitimate research?
Rob
As Shiller said, you should not use CAPE to time the market and, as Bogle said, no one has proven to have successfully timed the market (including you).
Shiller issued a paper in 1996 saying that investors who failed to lower their stock allocations in response to the sky-high CAPE level of that day would likely come to regret it within 10 years. That’s advocacy of market timing. And Bogle said in a comment at the Bogleheads forum that he could see how market timing could work in some circumstances. On top of that, he said on a different occasion that he (successfully) engaged in market timing with his own portfolo in 1999. And it was a comment in Bogle’s book that helped me to see that the Greaney study was in error. Bogle said that Reversion to the Mean is an “iron law” of stock investing. If that’s so, then the safe withdrawal rate cannot possibly be the same at all valuation levels. The higher valuations are, the more Reversion to the Mean there is going to be.
We should be permitting honest posting re the peer-reviewed research in this field at very discussion board and blog on the internet, without a single exception. If valuations affect long-term returns, it is a logical impossibility that the safe withdrawal rate is the same number at every valuation level.
Rob