I’ve posted Entry #675 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Only Those Who Engage in Market Timing Are Truly Following a “Strategy.”
Juicy Excerpt: Do you know how a Buy-and-Holder would solve this sort of problem? He would reason that: “Even cars that get stuck in massive traffic jams on Route A always make it to their destination eventually. So Route A is the only route that should be considered. It would be mistake even to look at the pros and cons of Routes B or C. It must always, always, always be Route A, regardless of how bad the traffic is or how much money you have or how much you are in need of extra sleep. There’s nothing to think about – it’s Route A!”
Buy-and-Hold is the absence of strategy. It is the strategy for investors who don’t want to follow a strategy.
Here is a link to the article
https://www.valuewalk.com/only-those-who-engage-in-market-timing-are-truly-following-a-strategy/
In your most recent article at Value Walk https://www.valuewalk.com/using-historical-surviving-withdrawal-rate-planning/ you state “But the number that Buy-and-Hold studies identify is not a random number. It is the Historical Surviving Withdrawal Rate (HSWR). That’s essentially the average of all the possible safe withdrawal rates.”
It is not the average of anything. It is the single lowest withdrawal rate that survived the periods examined.
Here is a link to the article
Thanks for the assist, Evidence.
Rob
It is not the average of anything. It is the single lowest withdrawal rate that survived the periods examined.
It’s two ways of stating the same thing.
If the market were efficient, the lowest withdrawal rate that survided the periods exaimed would indeed be the safe withdrawal rate. if the market were efficient, overvaluation would be a logial impossibility and mrket timing would not be needed to correct for overvaluation. Shiller showed with his Nobel-prize-winning research that the market is NOT efficient. So overvaluation IS possible and market timing IS required and you can’t identifty the safe withdrawal rate without taking valuations into consideration.
When you do the math correctly, you learn that the safe withdrawal rate is a number between 1.6 percent and 9.0 percent, depending on the valuation level that applies on the day the retirement begins. 4.0 is a number between those two extremes. If we had thoudsands of years of data rather than just 150 years of data, the numbers would be more precise and the historical surviving withdrwal rate would come closer to being the average of all the safe withdrawal rates that apply.
When you take valuations (the most important consideration in determining what is safe) out of the story, the number you come up with could be just about anything. In some cases, it is a wildly high number. In other cases, it is a wildly low number. In still other cases, it is not too terribly off the mark. It is essentially a random number. It is the number that would apply in a world in which valuations did not affect long-term returns, a world that those who follow the peer-reviewed research should have stopped worrying too much about in 1981. The 4.0 percent number is the safe withdrawal rate for the dark ages of the investing advice field, the safe withdrawal rate for a time-period in which Shiller’s amazing research did not yet exist.
My sincere take.
Rob
Wrong again, Tob. It looked what ACTUALLY SURVIVED”. 4% NEVER failed.
Good point, Anonymous.
I wish you all good things.
Rob
We are looking at the historical market, Rob. You are talking about your opinion of the future. Those are two different things.
Valuations have always mattered in the past. If you ignore the valuation level that applies on the day the retirement begins, you are not looking at what was safe historically. You are looking at what is safe in some made-up world in which the market is efficient, On good old planet Earth, the valuation level has always affected the result. So it must be taken into consideration.
My sincere take.
Rob
When did 4% fail in the past, Rob?
It failed as a safe withdrawal rate on every occasion on which it was used by an investor in his retirement plan because he wasn’t able to learn what the actual safe withdrawal rare was due to the Ban on Honest Posting. Every investor should be able to hear what the laat 42 years of peer-reviewed research says re these questions. There shouldn’t be a ban on honest posting re the peer-reviewed research at even a single site.
My sincere take.
Rob
Wrong again. Look at any 30 year period. When, specifically did a 4% withdrawal rate fail (depleted the account). Show the time period and specific numbers.
When was 4 percent safe?
I put forward my famous post pointing out the error in the Greaney retirement study on May 13, 2002. It’s been 21 years. The only time in that 21 years when a 4 percent withdrawal was safe was in the days immediately following the onset of the 2008 Buy-and-Hold Crisis. Not good.
We should be permitting honest posting re the last 42 years of peer-reviewed research at every site.
Rob
So 4% has never failed. Just admit you were wrong. Do you think people can’t look at history?
4 percent has never failed. But there have been many times when it was a high-risk withdrawal rate.
BenSolar suggested in June 2002 that Greaney change the wording in his study to say that he had calculaed the Historical Surviving Withdrawal Rate (HSWR). That obviously would have solved the problem. Why do you think that Greaney did not jump at that suggestion?
The Great Depression is part of our history. So is the stagflation of the 1970s, So is the Great Recession of 2008. Why do you think it is that the relentless promotion of the pure Get Rich QuickBuy-and-Hold strategy (n0 market timing/price discipline now!) always leads us to the same general place?
If going pure Get Rich Quick were really “100 percent safe” (Greaney’s phrase), it would be possible to publish peer-reviewed research supporting it. I mean, come on.
Rob
“ 4 percent has never failed. ”
And there you go. You keep telling people you are basing your comments on the histories, yet failed to accurately report on what REALLY happened in the past. You have to be forced to give an accurate representation of what happened because you are trying to spin a doomsday scenario to sell people on your failed timing strategy.
If someone drove sober 200 times and never experienced a single negative incident and then drove drunk three times and ended up in the hospital each of those three times but not quite dead, would you say that that proves that driving drunk is “100 percent safe”?
Driving is generally safe. Driving drunkn is extremely dangerous. Taking a withdrawal of 4 percent is super safe at some valuation levels and super risky at other valuation levels. It is not possible to say what withdrawal rate is safe without taking into consideration the valuation level that applies on the day the retirement begins, The entire historical record shows that the valuation level is the most important factor in determining safety.
That’s where I’m coming from re this one, in any event.
Rob
You change the paradigm with your drunk driving analogy. The stock market is looking at the same set of conditions. Thus, your example is a false analogy.
The conditions change when the valuation level changes.
Rob
No, it operates off of a free market. Instead, you are looking to put limitations on a free market. You are trying to change the conditions.
The market is not free for so long as honest posting re the peer-reviewed research is not permitted, Anonymous. I agree that we would have something close to an efficient market if we permitted honest posting re the research at every site. But that’s not the situation that applies. There are millions of people who today are following Buy-and-Hold strategies not because they find the case for it persuasive but because they have never heard the case for Valuation-Informed Indexing. A free market is one in which the information needed to make good decisions is easy to access.
We need to open every site to honest posting re the research, without a single exception. Or so Rob Bennett sincerely believes.
Rob
I agree we should honest posting. Why do you keep blocking it? Why do you ignore what the peer-reviewed research really says?
I sincerely believe that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins, Anonymous. That’s where I’m coming from re this matter.
Rob
And you are still broke. And you lost your home. And you are still divorced. And you still want to blame everyone else but yourself. How is all that working out for you?
It took me three years to work up the coursge to point out the error in the Greaney retirement study. I have felt better about myself as a person ever since.
The abusive stuff has caused me great pain. I have spoken out against it on thousands of occasions. But it’s worth something to know that I stood up for my fellow community members when it was not an easy thing to do so. I wouldn’t trade that feeling for anything.
I believe that all of this will pay off for me financially in the days and years following the onset of the next Buy-and-Hold Crisis. But either way I will always know that I stood up for my fellow community members when it was not an easy thing to do. You can’t but that kind of feeling for any amount of money.
That’s where I’m coming from re this matter, in any event.
Rob
You haven’t done jack squat in 23 years and no one has done anything to you, other than point out your foolishness. Get off your lazy A$$ and do something for a change.
Will do, Anonymous.
My best and warmest wishes to you and yours.
Rob
“ If someone drove sober 200 times and never experienced a single negative incident and then drove drunk three times and ended up in the hospital each of those three times but not quite dead, would you say that that proves that driving drunk is “100 percent safe”?
Driving is generally safe. Driving drunkn is extremely dangerous. Taking a withdrawal of 4 percent is super safe at some valuation levels and super risky at other valuation levels. It is not possible to say what withdrawal rate is safe without taking into consideration the valuation level that applies on the day the retirement begins, The entire historical record shows that the valuation level is the most important factor in determining safety.”
You really don’t know how an analogy works. Buy and hold has always worked. Market timing has not. So if we were to use drunk driving as an example, they buy and holders would be the sober people driving around. Suddenly, the falling down drunk market timer comes up and says that he is going to take the wheel and drive because all the other sober buy and holders don’t know how to drive their cars. Of course, the market timing drunk has a major accident and loses all his money. His wife is sick of his drunk non-sense and divorces the drunk market timer.
Okay, Anonymous.
I wish you all the best that this life has to offer a person regardless of what investment strategy you elect to follow, in any event.
Rob
“ I believe that all of this will pay off for me financially in the days and years following the onset of the next Buy-and-Hold Crisis.”
Zero chance of that happening. You don’t have a job. You don’t have anything to sell. You don’t have any savings to benefit from any stock rise. You can’t make a case for a legal settlement for lost business, since you never had an established business to start with.
It will be interesting to see how it all plays out in the days and years following the onset of the next Buy-and-Hold Crisis.
Rob