Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Your forecast has been way off.just admit you were wrong.
The forecast has been off. In recent years, stocks have performed in ways that they have never performed before.
But those who follow the research include a caveat in every forecast noting that “we do not know enough to get things precisely right.” So to miss a forecast is not to wrong, it is just to be early. The Buy-and-Holders don’t make forecasts. That’s the most serious way in which an investment adviser can get it wrong. To fail to make forecasts is to be indifferent to price changes. And to be indifferent to price changes is to encourage irrational exuberance, the cancer of the personal finance realm.
I would rather be mostly but not entirely right than to be completely and dangerously wrong.
Rob
Uh oh. You are even wrong on the SWR with CAPE. But as you said, you really aren’t a math guy and given there is a lot of math involved, just using your fingers and toes won’t cut it.
https://earlyretirementnow.com/2022/10/12/dynamic-withdrawal-rates-based-on-the-shiller-cape-swr-series-part-54/
Thanks for the link.
There’a lot going on in that article. I am going to have to take some time with it before I feel that I can comment on it in any depth. I keep a file of ideas for my column at the Value Walk site. I have added to the list the idea of writing a column on the approach set forth in that article.
The article appears to me to be reasonable and intelligent and serious. I think it’s great that people are starting to look at different ways to calculate the safe withdrawal rate.That’s how we learn, by exploring new possibilities and by talking things over. I don’t see in that article any of the dogmatism that is characteristc of the Greaney Goons and the Lindaurheads. I may or may not agree with all of the points that this guy makes. But I feel confident that I will learn more about the subject by grappling with them. He is helping people.
The key point of my famous May 13, 2002, post was to reject Greaney’s dogmatism. Greaney said that a 4 percent withdrawal rate is “100 percent safe” regardless of the valuation level that applies at the time of the retirement. Thus guy does not agree with that. He says that it is possible even for a retitrement beginning at today’s valuation levels to get the withdrawal rate up to 4 percent (or higher) by being willing to spend the portfolio value down over time or by adding some other sources of capital (pensions, etc.) to the mix. The calculator (“The Retirement Risk Evaluator”) that I co-authored with John Walter Russell makes the same general point. We show that higher withdrawal rates are possible for those who are willing to see their portfolio depleted by 20 percent or 50 percent or 100 percent at the end of the 30-year time-period being examined). It’s very valuable for aspiring retirees to make the sorts of comparisons that become possible when this sort of analysis is done. So I applaud this aspect of what this fellow has done.
I haven’t studied this article. So I cannot offer a detailed assessment of it. But I find it very encouraging. My first impression is that this work has considerable value and can lead us to some very good places down the line. Please recall that my May 13, 2002, did not even make a statement that the Greaney retirement study was in error. I asked a question. The question was: Should we be taking valuations into consideration when calculating safe withdrawal rates? This guy is responding with an emphatic “yes” to that question. He is offering a very non-dogmatic take. The primary aim of my work was to lead us all away from the dogmatism of the 4 percent rule. It’s the “rule” part of that term that has done the real damage.
Please also recall that even the 4 percent rule was an important advance at one time. There was a day when Peter Lynch was saying that it was safe to take a 7 percent withdrawal from a stock portfolio because stocks produce average returns of nearly 7 percent. The Trinity tusy (the study on which Greaney’s study is based) showed the error on Lynch’s thinking. That was a very, very big advance. My suggestion that valuations be taken into consideration was just another advance on top of that one and this guy is suggesting possible futher advances for the future. People going through the kind of thought exercise I see in evidence here is exactly what we need to learn more and more about how stock investing works and about how to effectively construct retirement plans.
A catch-phrase that I have often used is: Let a thousand flowers bloom! That’s what it’s all about. We should be discussing this guy’s work at every discussion board and blog on the internet, as we should be discussing the Retirement Risk Evaluator at every discussion board and blog on the internet, as we should be discussing the 4 percent rule and the Trinity study and the Greaney study at evert discussion board and blog on the internet. My intitial reaction (I will give more of a reaction in my Value Walk piece somewhere down the line — I have a lot of items on my future columns list at the moment) is that this is very good stuff.
My best and warmest wishes to you.
Rob
Why didnt you do this work? It shows you don’t really know your subject matter.
I don’t possess any expertise on any of the technical stuff, that is certainly fair to say.
Please recall that, when I came to the Retire Early board at the Motley Fool site, I NEVER posted on investing. I only posted on how to save money. I saw that as being more up my alley because overcoming the resistance to saving money that holds most people back is an emotional thing. That’s my area of expertise — how emotions affect personal finance decsions.
I got into investing reluctantly. I tried for a long time to avoid it. But in the end you can’t do that. Once you save a lot of money for the purpose of achieving a higher level of fianncial freedom, you have to do something with it. So I was forced to look at these issues whether they possessed immediate appeal to me or not.
What I learned is that stock investing is a super, super, super emotional project. I love what the Buy-and-Holders did. They developed a model for stock investing that is rooted in research. I believe that’s the answer. People need to be able to think clearly and using research asa guide permts you to do that. The other thing that the Buy-and-Holders did that I absolutely love is that they kept things simple. I have no problem with people who enjoy researching companies picking individual stocks. But that sort of thing is not right for the average person, in my assessment. I like Bogle’s stuff. It is research-based and it is super simple. I criticize Buy-and-Hold in strong terms all the time. But I am a Buy-and-Holder at heart.
The reason why I criticize Buy-and-Hold as it is practiced today is that they made a mistake and have refused to correct it for the 41 years since the research revealed it. You have to correct your mistakes when they are discovered! Hioly moly! All that Valuation-Informed Indexing is is Buy-and-Hold with the idea that the market is efficient removed. Had the Buy-and-Holders had Shiller’s research available to them when they were developing their model, we would all be Valuatiion-Informed Indexers today. They never would have come to believe that market timing is not always 100 percent required if all the research had been available back in the 1960s.
The market timing question is an emotions question. So that one is right up my alley. The Buy-and-Holders wanted to help investors from making emotional choices. Which is a third thing that I absolutely love about them. That’s the key thing. They were 100 percent right about the most important goal, in my assessment. Their problem was their belief (this was an assumption, not a finding) that the market is efficient/rational. If the market were efficient, market timing would serve no purpose. If the market were efficient, Buy-and-Hold would be the ideal strategy.
But it’s not. That’s what Shiller showed. Stock investing is a highly emotional endeavor. Investors have to engage in market timing to keep investor emotion from getting so out of control that it craters the entire economy. This is 70 percent of the stock investing story. So long as most investors practice market timing you can never have a bull market. Which means that you can never have a bear market. Which means that you probably will never experience an economic crisis. Shiller’s research merited the Nobel prize he was awarded. Our discovered that martet timing is always required is the most important advance ever in our understanding of how the market works. Now we just need to work up the courage to point out the error everywhere and get millions of people up to speed on how stock investing really works.
I am never going to be a technical guy. I don’t have much to contribute re technical questions. My job is to open every site on the internet to honest posting re the last 41 years of peer-reviewed research. The resistance to honest posting is EMOTIONAL. There is no rational case for a Ban on Honest Posting. The resistance is 100 percent emotional. We can all start living richer and fuller and better lives starting today is we just work up the courage to say those three magic words “I” and “Was” and “Wrong.” The leverage in doing that is off the charts.
Once every site has been opened to honest posting, I intend to back out of the discussions. Let the technical people do their thing, you know? But in order for the tehnical people to do any good work, they need to feel safe saying what they honesrtly believe. That’s the big hurdle that we all face. That’s a purely emotional thing, there’s nothing even a tiny bit technical about it. It’s the Get Rich Quick urge gone wild. People have been led to believe that the wildly inflated numbers on their portfolio statement are real and they don’t want to give up that illusion, the peer-reviewed resear be damned.
We are going to have to give up the illusion if we want to move forward (and we need to move forward if we want to save our economic and political systems from collapse). Coming to terms with the realities of what the recent research teaches us is an emotional project. I believe that I have something to contribute in that area. So that’s the work I do. I want the technical people to be able to do honest work and for us to get there as a nation of people we need to come to terms with the tsunami of emotions that the Buy-and-Holders stirred up with their mistaken belief that market timing (price discipline!) is not always 100 percent required when buyng stocks.
I hope that that helps at leaat a tiny bit.
Rob
“ I don’t possess any expertise on any of the technical stuff, that is certainly fair to say.”
And that is why your advice is a problem. You are posting SWRs less than half of that, yet you don’t have the technical ability to even comment on ANY number, making your commentary worthless.
Okay, Anonymous.
I sincerely believe that the retirement study posted at John Greaney’s web site lacks a valuation adjustment and I am not willing to lie about the matter. I made a number of friends during the time that I was posting at the Motley Fool board and I would not feel good about myself if I sold them out.
I naturally wish you all the best that this life has to offer a person.
Rob
Yet you don’t understand how flawed that last statement is based on this conversation. You don’t know how to calculate the SWR.
I know that, if Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns is legitimate research, there is zero chance that the safe withdrawal rate is the same number at all valuation levels I know that we need to open every discussion board and blog on the internet to honest posting re the last 41 years of peer-reviewed research in this field so that all viewpoints are represented in every discussion re this matter held on the internet.
That’s the way that matters of this sort are handled in every field of human endeavor other than the investment advice field. I know that we need to apply the same laws that apply in every other field in the investment advice field as well. I know that it’s madness to consider playing it any other way. I know that I do not want to be associated in any way,shape or form with anything that takes me to the wrong side of the felony line. Financial fraud is a crime in the United States. That means prison time. Thanks but no thanks, you know?
My best wishes to you regardless of what investment strategy you elect to follow.
Rob
“ I don’t possess any expertise on any of the technical stuff, that is certainly fair to say.”
If you don’t have technical information, do you know how to fix a car?
If you don’t know technical information, can you understand the drawings of an engineering drawing?
If you don’t know technical information, do you know what the investing research REALLY says?
The answer to all is no. Therefore, you shouldn’t be telling anyone what YOU THINK the research says.
If there’s 41 years of peer-reviewed research showing that driving drunk is dangerous, I don’t need a degree in engineering to come to the conclusion that it’s a bad idea.
I am not the only person who THINKS that irrational exuberance is a real thing. It’s right there in the title of his book. And he was awarded a Nobel prize for doing the research that he writes about in his book. The people who awarded him the Nobel prize possess technical expertise.
If I say that Greaney’s study contains a valuation adjustment, I am engaging in financial fraud, a felony. I believe that is is better to say what I THINK than to say the opposite of what I think. I’m going to continue doing it.
My best wishes to you regardless of what investment strategy you elect to follow.
Rob
Understanding research REQUIRES technical analysis. You must be drunk when you post.
Okay, Anonymous.
Please take good care.
Rob