Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
I will mark you down as someone that can’t deal with reality.
Today’s stock price really is a current-day reality. It is the product of the votes of millions of investors. It’s what we collectively believe today the stock price should be. We could set the stock price wherever we wanted it to be and we set it where it is. So one could say that it reflects reality.
But Shiller’s research is a reality as well. His book is a reality. Today’s CAPE value is a reality. My claim that the Greaney retirement study lacks a valuation adjustment is a reality. The Bennett/Pfau research is a reality. The laws against death threats and extortion are realities.
Those latter realities are being suppressed at this time so that the former realities can remain realities a bit longer. If as a nation of people we were to give full recognition to the latter realities, the former realities would change. We would collectively set the stock price at a very different place. I would like to see that happen. I would like to see all of the realities given recognition.
I believe that we all will begin living fuller and better and richer and freer lives once all of the realities are given recognition. I believe that our stock market will be less volatile and that are economic and political systems will be more stable once that change takes place. Recognizing more of the realities means developing a deeper understanding of how stock investing works in the real world. It’s a move away from the dark ages belief that wherever investors happen to set the price at a certain time is the most important thing and there is no need to take into consideration how emotion went into the decision to set prices at that place.
We’ll see , you know? I naturally wish you all the best that this life has to offer a person, in any event.
Rob
“I believe that our stock market will be less volatile”
Markets have been volatile since their creation. Nothing you can do will change that; it is the nature of the beast. If you can’t handle that volatility you should stay out of the stock market, understanding of course that the decision to do so will mean you miss out on the higher expected returns that go along with the volatility.
I am now close to half way through Four Pillars of Investing, 2nd edition. It really is a fantastic comprehensive book.
I agree that stock markets have been volatile since their creation. The publication of Shiller’s research changed all that. That’s why he was awarded a Nobel prize. His research represents a revolutionary change in our understanding of how the stock market works and of course there are amazing benefits that all stock investors will realize once we have opened every site to civil and reasoned discussion of all of the far-reaching implications of Shiller’s research.
This is why I am constantly repeating my recommendation that we all work together to see that every site is opened to honest posting re the research. A world in which valuations affect long-term returns (the world we live in, according to Shiller’s research) is a very different world from a world in which the market is efficient and there is no need for market timing, the world that the people who developed Buy-and-Hold believed existed in the 1960s, prior to the publication of Shiller’s research.
I only half agree with you re Bernstein’s book. I believe that the chapter on valuations is top-notch. I used to recommend that people read it as a primer on why the shift to Valuation-Informed Indexing is so critical. It does a great job of laying out all the reasons in a concise way. The flaw in the book is that the material in the valuations chapter cannot be reconciled with the material in the other chapters.
Again, opening every site to honest posting is the answer. Just as we all would benefit from hearing Shiller discuss his views on market timing without any of the abusive stuff going on, we would benefit from hearing Bernstein do the same. We are all on the same side. We all want the same things. We should all want to find out what we will all find out once every site has been opened to honest posting and there is no more abusive stuff going on.
That’s where I am coming from re this one, Evidence. My best wishes to you.
Rob
“The publication of Shiller’s research changed all that. ”
No, markets have been just as volatile since then as they always have been.
“Again, opening every site to honest posting is the answer.”
Your calls to have others sites allow you to post would be more convincing if you didn’t block so many posts on this site.
Okay, Evidence. I believe that we need to open every site to honest posting re the research. I believe that that’s the only path forward.
Greaney says that the safe withdrawal rate is always 4 percent. Bernstein says that the safe Withdrawal rate was 2 percent at the top of the bubble. Both of those claims cannot be correct. Every investor on the planet will benefit when we open every site to honest posting re the research and have everyone making helpful contributions. That’s where I’m coming from.
Rob
“Bernstein says that the safe Withdrawal rate was 2 percent at the top of the bubble.”
Do you have the actual words he used? The 2nd edition of 4PoI does not have that quote.
I have the copy of the book somewhere in the apartment, Evidence. I am not going to track it down for your benefit. I referred to it HUNDRED of times in the early days of The Great Safe Withdrawal Rate Debate. He said it and we all should have been talking about why he said it, without any abusive stuff whatever.
Rob
My vague recollection is that he might have said it on Page 218 of the old edition. I cannot swear to it. And of course it is possible that those words do not appear in the new edition. I do not know. I am positive that he said it in the earlier edition. I commented on it hundreds of times in a number of different places. And I still have my copy somewhere in the apartment.
My best wishes to you.
Rob
A little hunting around got me this
“In other words, a particularly bad returns sequence can reduce your safe withdrawal amount by as much as 2% below the long-term return of stocks. Recall from Chapter 2 that it’s likely that future real stock returns will be in the 3.5% range, which means that current retirees may not be entirely safe withdrawing more than 2% of the real starting values of their portfolios per year!”
can reduce
it’s likely
may not be
contrast this with “the safe Withdrawal rate was”
When you are quoting someone (eg. your Yes Virgina comment by Wade) you use quotation marks, with this comment from Bill Bernstein you never do. Because you know that it is not accurate. He was clearly not making the certain comment that you depict, but rather was speculating about possible future returns and withdrawal rates.
No. Bernstein was saying that Greaney’s claim that a 4 percent withdrawal is always “100 percent safe” was in error. The safe withdrawal rate is the number that works in the worst-case scenario. When the starting point valuation level is what it was in January 2000, the withdrawal rate that worked in a worst-case scenario was 2 percent, not 4 percent. 4 percent COULD POSSIBLY WORK. That is certainly so. But it was not “100 percent safe.”People using the Greaney study to construct a retirement plan or to decide when to hand in a resignation from a job need to know that.
That’s the entire point of the 22 years of discussion. People need to be able to hear both sides of the story. Could 4 percent work, even for retirements beginning at very high valuation levels?Absolutely. Is it “100 percent safe” at such times? Not even close. Valuations are the biggest factor affecting risk for stock investors. So we should be looking at the effect of valuations on risk at every site where stock investing is discussed.
Rob
“Bernstein was saying that Greaney’s claim that a 4 percent withdrawal is always “100 percent safe” was in error.”
“is”
Greaney’s study, and all the others, were very clear that they were looking at what survived in the past.
https://retireearlyhomepage.com/restud1.html
“The maximum 100% survivable withdrawal rate is the highest annual withdrawal rate where all terminal values are positive for the pay out periods examined.”
“for the pay out periods examined”
Bernsteins comment was about the future.
You are the only person I have encountered who can’t understand the difference.
“When the starting point valuation level is what it was in January 2000, the withdrawal rate that worked in a worst-case scenario was 2 percent”
Show me the numbers on that. Has a 4% withdrawal rate from 2000 portfolio run out of money?
No, a retirement plan that was initiated in 2000 and called for a 4 percent annual withdrawal did not run out of money. But it was at great risk of running out of money. The risk is not quite as great today but a retirement plan calling for a 4 percent withdrawal is far from “100 percent safe” at today’s valuation levels.
The valuation level that applies on the day the retirement begins is the most important factor affecting the risk of the retirement. Everyone needs to know that. That needs to be discussed at every site at which investment discussions are held.
The people at the Motley Fool board who were using the Greaney study to construct their retirement plans had no idea how much risk they were taking on by doing so. All of our discussions showed that. That was why there were thousands of people who expressed a desire that honest posting be permitted, that all of the abusive stuff and the criminal stuff be brought to a full and complete stop. That was why Wade Pfau said that the Greaney study is “dangerous.” People need to know the downside of the approach that Greaney used. That’s my sincere take.
Anytime someone discusses whether something is safe, he is talking about the future. All that you can say by looking only at the past is that something survived. Greaney reported the Historical Surviving Withdrawal Rate accurately. But he did not report the SAFE withdrawal rate accurately. To determine whether something is safe, you need to look at the factors affecting safety. The most important factor affecting safety is the valuation level that applies on the day the retirement begins. Greaney’s study does not contain a valuation adjustment. So he couldn’t possibly get the numbers right.
I am not the only person who had concerns about the Greaney study. LOTS of people had concerns. Not a majority. But a significant minority. Those people were silenced through the use of abusive tactics. I am saying that we should retire the abusive tactics at every site and let every community member (including the big-name experts) say what he or she truly believes re these matters. I see that as a win/win/win/win/win. We should stop having a debate about having a debate and move to the debate proper.
Rob