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

Hey Rob, I saw a pretty good segment on PBS about early retirement. Check it out!

https://www.youtube.com/watch?v=RyF40JydVNU&feature=youtu.be

I’m not sure what your motive is in putting the link here. The Retire Early movement is of course dear to my heart. Seeing this stuff discussed in mainstream places (I saw articles on Mr. Money Mustache in the New York Times and in the New Yorker not too long ago) brings to mind those exciting days at the Motley Fool board where there were fewer people who knew about this stuff. It’s very exciting stuff. You certainly won’t hear different from me.

We need to be honest about it. You can’t get away from that, Sensible. There’s no way. If you are not honest, you are not helping people, you are hurting them. If you are dishonest, you will ultimately make the entire Retire Early movement look bad. The whole thing falls apart if it is rooted in dishonesty.

I was kinda, sorta dishonest for a long time — three years. I loved helping people on the saving side and people loved me in turn because all of this Retire Early stuff is very exciting and I was helping them with that. I never talked about investing in those days. Greaney would push his safe withdrawal rate study every day and people loved it and I would keep my mouth shut about the errors that I knew were in it. I was a snake, no? That’s pretty darn low behavior. I am making friends with these people and encouraging them to hand in resignations from high-paying jobs long before they were in circumstances that would permit them to do so safely and I didn’t say anything. Huh? What the f?

I had to rationalize my behavior, of course. I wouldn’t have been able to live with myself if I didn’t do that. That rationalization that I came up with was a pretty darn good one. Before Greaney’s study came along, lots of people were using the 7 percent withdrawal rate that was recommended by Peter Lynch. Greaney’s study was a CONSERVATIVE study in the eyes of most stock investors of the time. He was not telling people that the safe withdrawal rate was higher than other people were saying, he was telling people that it was LOWER. That’s a fact. I don’t think that Greaney would deny that one. The true safe withdrawal rate was somewhere between 2 percent and 3 percent during most of this time-period. So the number in Greaney’s study was a lot closer to reality than most other information sources available to people at the time. I told myself that the net effect of the study was a positive. I persuaded myself that it was okay to keep my mouth shut.

Was I right? Today, I don’t think so. It is a betrayal of the Retire Early movement to know that the numbers that people are using to plan their retirements are wrong and to not say anything about it. Mr. Money Mustache is a leader of the movement today. I had dinner with him at one of the Financial Blogger Conferences and we talked about all this stuff. He doesn’t disagree with me re safe withdrawal rates. His response to all that I told him was to say something along the lines of “no good deed goes unpunished” (that’s a paraphrase, I don’t have certain recall of the precise words he used).

If Mr. Money Mustache thought that he could get away with telling people the truth about safe withdrawal rates, he would do it. He’s like Wade Pfau and Bill Bernstein and Scott Burns and Michael Kitces and Jack Bogle and lots and lots and lots of others. He knows that as a general rule it is better to be honest when talking about financial matters. But he also knows that telling the truth about what the last 37 years of peer-reviewed research teaches us about stock investing is very, very, very dicey stuff at a time when prices are where they are today. So he keeps his mouth shut for now.

How about after the next crash? There are going to be lots of early retirees facing very dire financial futures in the days after the next price crash. Will that mean that the idea of early retirement was always fantasy stuff, as its critics have always maintained? It won’t mean that, in my view. It will just mean that we should have permitted honest posting at all of our boards. Turning our boards into corrupt enterprises was a mistake. If you are going to permit discussion of safe withdrawal rates, you should permit HONEST discussion of safe withdrawal rates. Otherwise, the entire thing becomes a scam.

The Retire Early movement is a scam today. Not by intention. But I am 100 percent confident that, after large numners of the people who have retired early in recent years suffer failed retirements because of the lies that they were told re safe withdrawal rates, there will be many people saying that the entire movement was a scam from the first day. And most people who hear about it and don’t bother to study the matter in depth will be inclined to agree with them. If it weren’t a scam, you wouldn’t have seen the death threats and the threats of career destruction and all the rest.

I believe in the Retire Early movement. I would like to see everyone alive exposed to the ideas that drive the movement. Financial freedom is a wonderful thing. It is great to live at a time when the prospect of financial freedom is available to most middle-class people. It’s an amazing movement and it thrills me that more people are discovering it.

But I very much think that it has to be rooted in honesty. I think that we are hurting people in very, very, very serious ways with the dishonest, fraudulent side of the project. I don’t think there’s a place for that. If we were all thinking clearly about these matters, I think we would have universal agreement re that one. I think that one of the reasons why we see such violent reactions from the Buy-and-Holders when we try to talk about the last 37 years of peer-reviewed research is that they appreciate themselves how important is it to be honest when calculating the numbers used to plan a retirement.

I went crazy on the day when I discovered Greaney’s web site. It was one of the best days of my life. i had been hoping to find such a resource for a long time. One of the things that excited me about it was that he put a lot of focus on the calculation of the safe withdrawal rate. I think he did that because he knew how important it was to be rational rather than emotional when planning an early retirement. Greaney and I have a lot more common ground than most people (including Greaney himself, to be sure) realize.

Those are my thoughts, Sensible. I couldn’t love the movement more. If I were to agree to post dishonestly re safe withdrawal rates, that would ruin it for me. I would feel that I was destroying people’s lives rather than helping them. That changes it, you know? That changes things in a fundamental way. I wish everybody in the movement the best of luck. I hope they make it through. But for me to put up posts, I would need to be permitted to do so honestly. I think that has to be a bottom-line condition. Again, I think that every single person in the movement would agree with that if he or she were capable of thinking clearly re these matters. The Get Rich Quick impulse messes with our brains. The Get Rich Quick impulse is the enemy of Retire Early dreams, in my assessment.

My best wishes to you, in any event.

Retire Early Advocate (From Way, Way Back!) Rob

I’ll add one more thought. I don’t recall Greaney criticizing Lynch for getting the numbers wrong. It may be that he did so, I just don’t recall it. But I do remember him criticizing community members who tried to argue for withdrawal rates a lot higher than 4 percent. I remember that happening on several occasions. So I think it would be fair to say that there is at least a piece of Greaney’s brain that accepts the idea that prudence is called for when putting together a Retire Early plan. He warned people of the dangers when OTHERS got the numbers wrong, he just wasn’t able to turn that critical eye to his own study. His pride of authorship blinded him to the human misery he was causing by relentlessly pushing numbers that are wildly off the mark according to the last 37 years of peer-reviewed research in this field.

So Greaney is not all bad. He is a mix of good and bad, like most of us, His focus on safe withdrawal rates was right on and his methodology was a big improvement over the one used by Peter Lynch just a few years before. But his Campaign of Terror against the thousands of us who expressed a desire to post honestly re these matters was truly bad stuff. I don’t think that anyone has ever done more long-term harm to the Retire Early movement than John Greaney. We all played a role in what happened because we all tolerated his behavior to some degree or another (that includes me). But I think it would be fair to say that there is no human being who ever walked Planet Earth who caused even a tiny fraction of the number of failed retirements as did our friend John Greaney. And I think that that’s a very, very, very sad reality that we all need to come to terms with, I am ashamed of the role that I played in making that reality a reality. If I had it to do over, I would have begun posting honestly on the first day.

Brings back memories!

Ashamed (But Committed to Doing Better in the Future) Rob

 

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 reason why I changed the date is that we do not know the date.”

So you finally admit that you can’t time the market. Can you change the subject now?

I write this already knowing your mealy-mouthed response. You can’t time it SHORT TERM. Short term meaning within any time frame at all. Or in Shiller’s case, a whole decade. I would be simply thrilled if you would come back with something you haven’t written a hundred times before.

I cannot come back with anything different because the same story still applies, Anonymous. Short-term timing never works. That’s been true for 150 years of stock market history. Long-term timing always works. That’s also been true for 150 years of stock market history. That’s just the way it is. I didn’t create the stock market, you know. It’s not my doing that it is the way it is. I just report on what the peer-reviewed research says and the peer-reviewed research just reveals the realities.

Say that you were trying to figure out how many cans of beer a person can drink before he caused a car accident. And you accumulated data showing that drinking one can of beer has virtually no correlation with car accidents. Two cans has a slightly higher correlation but the odds are still strong that a person drinking two cans of beer is not going to get into an accident. And a person drinking ten cans of beer gets in an accident in the vast majority of cases. What conclusions would you draw from this data?

The way that the Buy-and-Holders analyze things, they would conclude: “You cannot tell whether a person is going to get in an accident by looking at whether he has consumed beer or not — there are many cases in which people consume beer and don’t get in accidents.” Is that true?

It’s true in some hyper-technical sense. There is no number of cans of beer that you can identify as the number that certainly causes an accident. You might look at someone who has drunk six cans of beer and say: “This guy is going to get in an accident for sure! He can barely stand up!” Still, there are cases in which someone drinks six cans of beer and does not get in an accident. So those who follow the Buy-and-Hold approach to data analysis say: “You cannot look at the number of cans of beer consumed to know if there is going to be an accident or not! The data doesn’t tell you the precise number of cans of beer it takes to cause an accident in each and every case! So we cannot draw any conclusions from this data!”

I just don’t buy it, Anonymous. You CAN draw conclusions. Drinking beer increases the risk of car accidents. The more cans you drink, the more risk there is. It’s the same with stock investing. Overvaluation causes price crashes. The higher the P/E10 level, the greater the risk.

Shiller looked at where things stood in 1996 and saw that we were in a situation where investors had drank six cans of beer. He concluded from the data that we would see a crash because the odds were strongly in favor of one. We didn’t have one within the time-frame of his prediction. The six-beer car driver got lucky. The Buy-and-Holders concluded: “Hey! We never need to worry about drinking beer again! Six cans won’t cause a crash! Neither will twelve cans! Neither will fifty cans! Beer-drinking doesn’t cause car crashes ! Shiller’s failed prediction proves it!”

It doesn’t. Shiller’s failed prediction shows that it is very hard to make precise predictions of WHEN overvaluation is going to cause a price crash. But it always does. There has never been one exception in the historical record. Overvaluation increases the risk of a price crash in each and every case. In some cases, the bad outcome pops up relatively quickly and in other cases it take more time than you would expect for the bad outcome to pop up. But it is not as if it makes much difference. The bad outcome still wipes you out. You still would be better off not drinking so much beer before driving. You still would be better off permitting investors to have access to the information they need to have access to to avoid letting valuations get so out of hand.

Stocks are risky for one reason. Buy-and-Hold strategies become popular from time to time and then valuations inevitably get out of hand. It’s not like there’s nothing we can do about it. We today have 37 years of peer-reviewed research showing us the dangers of Buy-and-Hold/Get Rich Quick. Why not tell people about it? Why not permit honest and accurate reports on safe withdrawal rates and lots of other critically important investment-related topics? Permit honest posting on the peer-reviewed research and stock prices become self-regulating. It seems to me that we will all live in a better world when stock prices will never again be able to go to these extreme highs or these extreme lows.

You absolutely can time the market. Not with precision. Buy you can time it. That’s been true for the entire history of the market. Just as it has been true that drinking beer has been causing accidents since the beginning of car-driving even though we cannot say with precision how many beers will cause an accident in a particular case. Overvaluation is risky. So we should all avoid it. And we should do everything we can to help others avoid it. Just because we cannot say with precision what day a crash will come in a particular case is not reason not to warn people on a daily basis of the dangers of buying overvalued stocks. The crashes caused by overvaluation hurt all of us in very, very, very serious ways. Those of us who love stocks as an asset class want to see Buy-and-Hold buried 30 feet in the ground where it can do no further harm to humans and other living things.

My sincere take.

Sober Driving Rob

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 good stuff that we have seen is 50 times more good than the bad stuff we have seen is bad.”

You keep saying that. The bad stuff is obvious. Bans from every major finance board. The one and only lifetime ban from the Bogleheads conference. Personal finances – utter disaster. Writing career – nonstarter. The only expert who ever acknowledged your existence disowned you years ago. To the few people who are aware of you at all, you are universally reviled as a passive-aggressive narcissist and pathological liar.

Where’s the good stuff? What could possibly top that steaming dung heap, 50 times over?

I would have to write seven books to cover all the good stuff, Anonymous. Review the site. Start anywhere and then just go from there. You’ll get the idea if you can open your mind even a tiny bit to the possibility that the Buy-and-Holders are just as capable as any other humans of making a mistake.

To keep it simple, let’s look at one thing. I put a post forward on the morning of May 13, 2002, saying that the retirement study posted at John Greaney’s site lacks a valuation adjustment. That’s huge. If that’s true (and it is — thousands of people have looked at the Greaney study over the past 16 years and not one has been able to identify a valuation adjustment in it), that one post has the potential of saving millions of people from suffering the effects of a failed retirement. It’s not just Greaney who made that mistake. Lots of people did. There were thousands of articles on retirement planning that advised people to employ the infamous 4 percent rule that Greaney advocates in his study. Once we open the entire internet to honest posting re the last 37 years of peer-reviewed research in this field, we will be making honest and accurate retirement planning studies and calculators available at every site on the internet.

If getting those accurate retirement planning numbers out to millions of people were the only thing that I did with this thing, that would justify all of the abuse that you Goons have dished out to us. But that of course is not the only thing. That was the first day. I have been building on that foundation for 16 years now. And I will continue to do so.

Has the bad stuff hurt us? obviously.

What really matters in the long run? The good stuff.

Love builds. Hate destroys. Love triumphs over hate in the end. Every time. If it didn’t, we wouldn’t be here. If it didn’t, we wouldn’t live in such a great country. You could look at a lot of things and focus on the bad stuff and talk about how terrible the world is. The trick is to overcome the bad stuff, to make something good out of it. And you can look at the slider at the top of every page of this site and see what expert after expert after expert who visited this site had to say about the amazing work that I have done with the help of thousands of fine fellow community members.

Goon garbage is Goon garbage. I am stunned that you Goons ever enjoyed a single victory. I’l give you that one. But the very fact that you have had to engage in criminal behavior tells the story of what following a pure Get Rich Quick investing strategy does to people. Not this boy, you know?

I love my country. So I am going to continue to follow the laws of my country and to advise all others to do the same. I will do anything in my power to help you Goons out because I think it would be fair to say that you got caught up in something a lot bigger than you realized you were heading into in the early days. But nothing on the wrong side of the felony line for this boy. Not in 16 years, not in 16 billion years.

Does it make me sad to reflect on how things have transpired over the first 16 years of our discussions? Sure. Without question.

Does it make me excited to look forward to the advances that we will be achieving in days to come? Sure. Without question. And the positive feelings are 50 times stronger than the negative feelings.

We’ll see how it goes, Anonymous. I am 100 percent certain that the American people are going to come out on top re this one. But you are not going to believe it just because I say it. You are going to have to see it all play out with your own eyes. You are going to become worried about what it means to cause millions of failed retirements on the day they take you away in handcuffs to your prison cell. It breaks my heart. But I can’t change it, can I? At least we have all the good stuff to look forward to. So I make an effort to focus on that.

Love is the answer. I am 100 percent sure.

And I do wish you all good things.

Rob

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

“We have never seen prices remain this high (and dangerous!) for this long. It would have taken a crystal ball to have predicted that one given that we have never seen anything like it before.”

Exactly.

Which is why attempting to time the market (either short or long term) is so dangerous.

No matter how many years of stock market history we study, the stock market still retains it’s ability to do something we have not seen before.

You may think that you know what typical valuation ranges are.

You may think that you know what how the market has reacted when it has been at this valuation before.

But the market doesn’t care.

It may behave the way it has in the past, or it may behave slightly differently, or it may behave a whole lot differently.

And then your model, built on what the market has done in the past, is no longer accurate.

I like your statement that the market “may behave the way it has in the past, or it may behave slightly differently, or it may behave a whole lot differently.” That statement expresses a healthy skepticism re dogmatic takes on how the market works. We are in agreement re the need to avoid dogmatism and re the need to retain skepticism.

Where we get on different tracks is where you say “And then your model, built on what the market has done in the past, is no longer accurate.”

If all you were claiming w iththat latter statement is that we cannot be dogmatic about Valuation-Informed Indexing, I would agree with you. I believe in Valuation-Informed Indexing. But I could be wrong. So dogmatism would be a mistake. While it certainly makes sense for me to invest my money pursuant to the dictates of Valuation-Informed Indexing, it would be a terrible mistake for us as a society to prohibit the discussion of Buy-and-Hold or of any other alternative models. I could be wrong. So we need to encourage discussion of the other options so that they are there for the people who prefer them and so that we continue to develop them in the event that they are the models that really work.

What I don’t like about your latter statement is that you apply your skepticism ONLY to Valuation-Informed Indexing. The proper conclusion to draw from the earlier statement is that NEITHER Valuation-Informed Indexers NOR Buy-and-Holders should evidence dogmatism in their discussions of how stock investing works. It is this attitude that Buy-and-Hold and Buy-and-Hold alone is above all challenge that generates all the friction that we have seen over the past 16 years.

Is Buy-and-Hold not a model that describes how the stock market works, one based on what the market has done in the past? That’s surely what I have always understood it to be. Do you think that Buy-and-Hold was handed to us by God himself? I believe that it was developed by humans and that all humans are capable of making mistakes and that thus it is possible that there are some things wrong with the Buy-and-Hold Model and that thus we all should be trying to help our Buy-and-Hold friends out by letting them know when we run across something that appears to us to be in error.

I was a popular poster at the Retire Early board at Motley Fool. I made a lot of friends there. John Greaney had a retirement study posted at his web site that was frequently used by members of that board community to determine when they had enough saved to hand in resignations from their corporate jobs. According to this study, which is rooted in the Buy-and-Hold Model, the safe withdrawal rate is always 4 percent. If that’s so, then someone who needs $60,000 per year to live on in retirement, needs to save $1.5 million before handing in his resignation. If, on January 1, 1996, this aspiring retiree had $700,000 in his portfolio, not one responsible person would say that he should be handing in a resignation. He would be $800,000 short! He would not even be halfway to the goal-line!

Now —

The market increased in value by 126 percent over the next four years. So, even if he didn’t save another penny, the Buy-and-Holders would say on January 1, 2000, that his retirement would be “100 percent safe” if he handed in his resignation on that day. That’s not what the Valuation-Informed Indexing Model (rooted in the peer-reviewed research of Nobel-prize-winning economist Robert Shiller) says. The VII Model says that most of those gains were cotton-candy nothingness and that that aspiring retiree has a ways to go before he could enter a retirement that the historical return data indicates is safe.

You are right that we are all still learning how this stuff works. You are right that we don’t today know all the answers. You are right that dogmatism is a bad idea. I will sign a statement to that effect in blood.

But I will not sign a statement saying that the safe withdrawal rate is always the same number. I don’t believe it. It is a LOGICAL IMPOSSIBILITY if Shiller’s “revolutionary” (his word) 1981 finding that valuations affect long-term returns is legitimate. I care about the people who posted to that board. And I care about all the others who posted to all the other boards. I cannot lie to them about a matter of such great importance. A failed retirement is a serious life setback. I am 100 percent sure re that one.

So I am not going to lie about it.

If you want me to say that Shiller COULD be wrong, then, yes, I will say that. I am 100 percent certain that Shiller would say that himself. I have zero problem going there.

The issue for 16 years now has been that you need to be able to say that Bogle COULD be wrong too. It could be so, Evidence. And, it it turns out that it is Bogle who is wrong, then millions of people will have been hurt by the mistakes that he has made. So we all should be working together to be sure that any mistakes that he has made are corrected as quickly as possible. Those of us who feel gratitude to Bogle for all of the wonderful things that we have learned from him over the years should be ESPECIALLY determined to get any mistakes corrected as quickly as possible. When you love someone, you don’t like to see that person embarrassed by a failure to correct his mistakes promptly. Yes?

Valuation-Informed Indexing is a model for understanding how stock investing works that is built on what the market has done in the past and Buy-and-Hold is a model for understanding how stock investing works that is built on what the market has done in the past. Both models are rooted in peer-reviewed research published by Nobel-prize-winning economists. We all should be in agreement that this is an exciting time to be studying how stock investing works. We all should be in agreement that every single person contributing to the discussions held at our boards and blogs should feel 100 percent free to post with complete honesty. Never should any acts of intimidation be tolerated by any of us.

That’s my sincere take re these terribly important matters, in any event.

I naturally wish you the best of luck in all your future life endeavors, old friend.

Non-Dogmatic Rob

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 Trinity study should never have passed peer review. ”

Who says it was ever peer reviewed? If your answer is anything more specific than “everyone knows it was peer reviewed”, I’ll be utterly astonished.

Anyway, they were too conservative. The actual father of the 4% SWR, Bill Bengen, now says the SWR is 4.5%:http://www.aaii.com/journal/article/insights-on-using-the-withdrawal-rule-from-its-creator

So Greaney and the Trinity guys are villains for saying 4%. Never seen you say anything about Bengen’s 4.5%. Just another example of what it’s like to be Rob.

Thanks for providing the link, Anonymous.

Do you actually believe that the SWR is 4.5 percent or are you just being argumentative?

I believe that the SWR is a number that varies with valuations, that it can drop as low as 1.6 percent or rise as high as 9.0 percent. Is that okay by you?

If it is okay by you that Bengen says it is higher than 4 percent, is it okay by you that I say that it is sometimes a lot lower than 4 percent and sometimes a lot higher than 4 percent? Or is everyone who suggests that it might be something other than what Greaney says it is truly a villain in your eyes?

I don’t think that Bengen is a villain for saying that it is 4.5 percent and I don’t think that Greaney is a villain for saying that it is 4 percent and I don’t think that I am a villain for saying that it is sometimes 1.6 percent and sometimes 9 percent. But I do think that Greaney is wrong to engage in criminally abusive behavior to stomp out the discussions that thousands of our fellow community members have indicated that they would like to have re the 36 years of peer-reviewed research showing that it is sometimes 1.6 percent and sometimes 9.0 percent. I consider Greaney a friend and I don’t like to see my friends going to prison. So I worked up the courage on the morning of May 13, 2002, to let him know that I thought he had wandered onto a very, very, very negative and self-destructive and other-destructive path. Good for me, right? Or do you not agree?

My best wishes to you, old friend.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

There has never been a 30 year period in which a 4% withdrawal rate has not worked. To focus on this issue, however, is wrong if we are trying to determine the primary reason retirement plans fail. The primary cause is lack of sufficient savings. Given that this is your biggest mistake, it is not surprising that you attempt to avoid this topic and look to blame someone or something else.

You are correct that there has never been a 30-year period in which a 4 percent withdrawal rate has not worked, Sammy But that reality doesn’t tell us that a 4 percent withdrawal is safe for retirements beginning at any possible valuation level. In a world in which valuations affect long-term returns, you need to take valuations into consideration when identifying the safe withdrawal rate. Take valuations into consideration and the number you get for people who retired at the top of the bubble is 1.6 percent real. That’s nothing close to 4 percent.

Say that you had a friend who was an alcoholic and you were trying to persuade him to take a cab home from a party where he got drunk. Say that he told you that he had driven home drunk on three prior occasions and had been hospitalized in each case but was still alive and that, thus, it was safe to drive drunk. Would that persuade you? Huh? The fact that he was hospitalized each time he drove drunk tells us that driving drunk is a high-risk activity, not a safe one.

So it is with retiring at a time of high valuations and using a 4 percent withdrawal rate. There have been three occasions prior to the current era in which people could have done this. In each of the three cases, retirees who used a 4 percent withdrawal would have seen a wipe-out of most of their retirement portfolios but would have had a few dollars remaining in their portfolios at the end of 30 years. How is it safe to have a retirement portfolio reduced to a few dollars? It’s not. It’s high-risk. The phrases “high-risk” and “safe” are not synonyms.

4 percent is of course safe at moderate or low valuation levels, just as it is safe to drive when one is not drunk. But driving drunk is never safe. And retiring at a time of high valuations with a 4 percent withdrawal rate is never safe. It is possible that such a retirement will survive. That has happened. But the retiree doesn’t know in advance what sort of return sequence is going to come up. Since he doesn’t know, he should be choosing a withdrawal rate that is at least reasonably safe, not one that is extremely high risk. We certainly should not be encouraging him to use the extremely risky withdrawal rate by assuring him that it is safe. Again — Huh?

This is my sincere take re these terribly important matters, in any event. I naturally wish you the best of luck in all your future life endeavors, my long-time Buy-and-Hold friend.

Rob

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

Isn’t it fraud to say 4% won’t work? After all, you have admitted that predictions fail.

No predictions are made in the calculation of the safe withdrawal rate. The return scenarios that have applied in the historical record are considered and the withdrawal rate that barely works in the event that the worst-case return scenario happens to pop up starting from the valuation level that applies on the day the retirement begins is identified as the safe withdrawal rate.

The mistake that the Buy-and-Holders made was to consider only the one particular return scenario that happened to pop up in the historical record. For example, the highest valuation level we experienced prior to the late 1990s was the “33” that applied just prior to the onset of the crash of 1929. In that case, we saw a lucky return scenario pop up and a 4 percent withdrawal barely survived. However, the 4 percent withdrawal survived at that valuation level only in 50 percent of the return scenarios that we have seen in the historical record. There was a 50 percent chance that a retirement beginning in 1929 that used a 4 percent withdrawal rate would fail. A retirement with a 50 percent chance of failing is obviously not safe.

I don’t need to make any predictions to say that. I just look at the historical record. No predictions are needed because I choose the worst-case scenario. It is usually the case that a withdrawal rate not identified as “safe” has some chance of working out. I could predict that a lucky return scenario would pop up and that an unsafe withdrawal rate would in fact work out. But that’s not safe withdrawal rate analysis. The literature defines the concept as calling for examination of what happens in a worst-case scenario. It is because the investor is finding out what happens in a worst-case scenario that he views the withdrawal rate identified as a safe one.

I hope that helps a bit, Anonymous.

Rob

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

It matters when it comes. If it takes 60 years and stocks only use 50% of their value there is no way you will ever catch up due to lose compounding.

145 backwards looking years are irrelevant. The next 40 years is what matters for the current generation.

The basic point that you are making here is legitimate, Laugh.

It obviously is true that what you care about is the next 40 years, not the past 145 years. The problem, of course, is that none of us knows what the next 40 years will bring. We look to the last 145 years of returns for guidance re that question. There have been lots of different types of scenarios that have played out over the past 145 years. The most realistic assumption is that something at least generally along the lines of one of the scenarios that we have seen play out in the past is what we will play out in the future.

If you are confident that we will see something different in the future than what we ever seen in the past, it’s fine to go with that belief. But if you are offering advice to others that is rooted in that belief, you need to let them know that that’s the case. The Buy-and-Hold retirement studies said that a 4 percent withdrawal was safe for retirements in which the historical return data showed that no withdrawal greater than 1.6 percent was safe. That’s fraud when it is done knowingly and it is error even when it is done as the result of cognitive dissonance. If you say “presuming that stocks perform in the future in a way in which they never have in the past have performed, then 4 percent is safe,” that’s on the right side of the line. The Buy-and-Holders don’t do that. They claim that there is data supporting their crazy claim that the safe withdrawal rate is always the same number. That’s fraud (not knowing fraud in cases where cognitive dissonance rules, but still).

There ARE scenarios where the Valuation-Informed Indexer fails behind because overvaluation remains in place longer than anticipated and then cannot catch up because he has missed out on compounding returns. These cases are rare. They constitute about 10 percent of the scenarios that can be generated using the 145 years of historical return data available to us. Investors do need to know about this possibility. It would be wrong to hide this reality from them.

Still, we are talking about a 10 percent possibility. There is a 90 percent possibility that the VII investor will end up ahead in the long run. And, in the 90 percent of cases in which the VII investors ends up ahead, he usually ends up FAR ahead while, in the 10 percent of cases in which he ends up behind, he is usually behind by just a little. Investors have no way of knowing in advance whether one of these rare scenarios is going to play out or not. So I think it is fair to say that VII always offer the better risk-adjusted long-term return. The Buy-and-Hold investor occasionally will end up ahead but he takes on far more risk in gaining that slight chance of ending up ahead.

Does that help?

Rob

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

Vanguard publishes article on 4% retirement rule. What ban?

http://vanguardblog.com/2014/11/07/the-4-spending-rule-20-years-later/

Where’s the discussion of the effect of the valuation level that applies on the day the retirement begins? That’s the error that caused the problem. She doesn’t even discuss that issue.

She says that the problem is that we are in a low-return environment today. The Old School studies took that into account. Greaney’s study too that into account. It is an insult to him and to all the authors of Old School SWR studies to say that they didn’t consider the possible that we might enter a time-period when returns would be lower. The entire point of all SWR studies is to identify the withdrawal rate that works in worst-case scenarios. Entering a bad return environment is obviously a bad-case scenario. So that is not the mistake that was made.

And she says that the studies failed to take the possibility of bad return sequences into account. Again, the Old School studies do that! It was the Old School SWR studies that taught us all the importance of considering return sequences. That was the gold in them. Before the Old School studies came out, people like Peter Lynch were saying that the SWR is 7 percent. The Old School studies put an end to that. It is a grossly unfair insult to the authors of the Old School studies to say that they did not consider the effect of returns sequences when they were the ones who achieved that huge breakthrough that advanced our knowledge of how retirement planning works in a very big way.

The elephant in the living room is valuations. There is 33 years of peer-reviewd research showing that the valuation level that applies on the day the retirement begins is the most important factor in determining the safe withdrawal rate. There is a Social Taboo against talking about this because 90 percent of the experts in this field have been ignoring this factor for 33 years after the peer-reviewed research showed that it is critical and in a not-small number of cases have engaged in financial fraud (a felony) to keep millions of middle-class investors from learning about the important of this factor.

I cannot change the history, Trebor. I love the Buy-and-Holders for their many positive contributions and I always will. Those contributions are real and important and are already written in the book and thus can never be negated. But the Buy-and-Holders are going to look very, very, very bad following the next crash when they try to once again explain away the realities staring millions of middle-class investors in the face.

Price matters when buying stocks just as much as it does when buying anything else. Ignore price and you get it all wrong. No matter how smart you are. No matter how much of a big shot you are.

Price matters.

That’s the future.

Either we acknowledge that as a society and stop with the death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs or we all go down together. Those are the two options before us. We can enjoy the benefits of being the luckiest generation of investors that ever lived or we can see our economic system fail.

I am telling.

Not because I have some grudge against the Buy-and-Holders. Because I love them. Jack Bogle never wanted all his wonderful work to turn out this way. The woman who wrote this article never wanted her hard work to turn out this way. Not one person wanted this. Even Mel Linduaer and John Greaney never wanted this.

But here we are.

Every time another Buy-and-Holder tells another lie he or she makes it harder for all the others to acknowledge the mistake they made in 1981. The sooner you come clean, the shorter your prison sentence will be. Because the sooner you come clean, the sooner the millions of middle-class investors will be able to learn about the first true research-based investing strategy and the sooner we will be able to bring the Buy-and-Hold Crisis to an end.

Again, that’s my sincere take re these terribly important matters in any event.

My best and warmest wishes to you and yours and to all of my many good Buy-and-Hold friends.

Rob

My good friend Wade Pfau’s conscience must be bothering him. He has recently worked up the courage to begin posting honestly again on at least some critically important investment-related topics.

It gets better.

Motley Fool, the site at which I posted my famous post of May 13, 2002, pointing out the errors in the Old School safe-withdrawal-rate studies (SWRs) and which for years now has prohibited honest posting on SWRs (after John Greaney, the author of one of the discredited retirements studies, threatened to kill family members of anyone who dared to “cross” him by posting honestly re this matter), is now permitting at least a limited amount of honest posting on the subject.

A recent article at the site titled Retiring Now? How the 4 Percent Rule Could Hurt You, states: “Recent research using current market data shows that the rule could be far from safe.” Hmmmm….

The article adds that: “In the current market environment and a 40/60 equities and bonds split, a 4% withdrawal rate has over 50% chance of failing over 30 years.” Sounds familiar somehow!

It points to research done by Wade showing that: “To get the failure rate down to 10% in the “worst case” conditions, the authors had to reduce their hypothetical withdrawal rate to 2.5%, with a portfolio mix of 45% stocks and 55% bonds.” So it turns out that retirement plans calling for a 4 percent withdrawal are NOT “100 percent safe” (as Greaney’s study — uncorrected to this day — claims) afterall!

The article explains that: “It’s just that those age-old rules about what is safe or not safe are not set in stone: the market changes, and so should your rules of thumb. Just because 4% was determined to be safe at one point doesn’t mean it will stay that way forever. ” The 4 percent rule really worked until you used it to plan your retirement. Only after you retired and stocks continued to perform as they always have in the past did the 4 percent rule become insanely dangerous. Too bad for you, you foolish middle-class investor you! You believed that the Wall Street Con Men were shooting straight! The joke’s on you!

I noticed a helpful note at the beginning of the comments section asking readers to: “Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. But please don’t feel any hesitation to threaten to kill family members of posters who post honestly re the numbers that their friends use to plan their retirements.”

Actually, that last sentence is mine, not Motley Fools’. The owners of the Motley Fool site are not any more willing to tell you how they really administer the board than they are to tell you the true safe withdrawal rate in time for it to help you plan your retirement effectively.

All that said, we should be thankful today that we are beginning to see tiny shoots of honestly burst up through the cold hard ground that has come to dominate the investing advice field in the Buy-and-Hold Era. Let’s hope that Motley Fool and Wade Pfau and lots and lots of others make it more of a habit to offer honest investing advice in days to come. I believe that we will be seeing a lot of this sort of thing following the next price crash. I am sure of it!