A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

Buy-and-Hold Goon to Rob: “The Rate You Are Looking for (I Believe) Is What Rate Is Going to Survive in the Future. Those Are Two Different Things.”

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

“Do you believe that it is possible to calculate the safe withdrawal rate accurately without taking valuations into consideration?”

It depends on what you mean by “safe withdrawal rate”.

The Greaney study (and other similar studies) were very clear in what they were calculating. They calculated the inflation adjusted withdrawal rate that survived 30 year periods in the past.

The rate you are looking for (I believe) is what rate is going to survive in the future. Those are two different things.

I agree that the Greaney study and other similar studies calculated (properly, in my assessment) the Historical Surviving Withdrawal Rate (HSWR).

I agree that that is different from the Safe Withdrawal Rate (SWR). I generally agree with your description of what the safe withdrawal rate is. People want to put together retirement plans and they want to know what withdrawal rate will work even in a worst-case scenario in order to do so. Many of the people who posted at the Retire Early board were planning on leaving high-paying corporate jobs. They did not want to hang on too long because they were anxious to get on with their plans. But they also did not want to leave their jobs before they had saved enough to be virtually certain that their plan would survive for 30 years.

One small change that I would make in your language is to note that the safe withdrawal rate is not necessarily the withdrawal rate that will work in the future. There is no way to identify that number since no one knows the future. The purpose of safe withdrawal rate analysis is to identify the withdrawal rate that will work in the future in a worst-case scenario <b>presuming that the market continues to operate in the future at least somewhat as it has always worked in the past. </b> Since the valuation level that applies on the day the retirement begins has in the past always affected what withdrawal rate would work, valuations have to be taken into consideration to identify the withdrawal rate that is virtually certain to work in the future. </b> A calculation that does not consider valuations is not a safe withdrawal rate calculation. You are saying there that you agree with that. But then I can’t help but wonder what all the fuss has been about.

Please recall that my famous post from the morning of May 13, 2002, did not say that the Greaney study was in error (I did say that later but not in the first post). That first post asked a question — Should we be taking valuations into consideration when calculating the safe withdrawal rate? I believe that we should be and hundreds of our fellow community members said that I started the most interesting and helpful discussion in the history of that board community by putting that question on the table. That’s the discussion that we need to have today at every discussion board and blog on the internet — Should investors be taking valuations into consideration when forming their stock investment strategies?

I say that they should. There is only one difference between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Holders never take valuations into consideration (because it was believed at the time that Buy-and-Hold was developed that the market was efficient and thus that valuations did not matter) and Valuation-Informed Indexers always take valuations into consideration (because valuations are always a critically important factor).

If you are okay with me saying that valuations must be considered to calculate the SAFE withdrawal rate accurately, we have no dispute. I of course agree with you that Greaney calculated the SURVIVING withdrawal rate properly. But I do not feel even a tiny bit comfortable saying that the SAFE withdrawal rate is always 4 percent. I believe that the safe withdrawal rate is a number than changes with changes in valuation levels. It can drop to as low as 1.6 percent and it can rise to as high as 9,0 percent. If I were to say that the safe withdrawal rate is always the same number, I would be engaging in fraud. I do not believe that. So I am not willing to say that I believe that.

Rob

Buy-and-Hold Goon to Rob: “No-One Believes That Greaney’s Study Contains Valuation Adjustments. The Other Similar Studies (Trinity, Etc.) Also Do Not Contain Valuation Adjustments. Again, No One Believes They Do.”

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

“There was a comment here a few weeks back in which Evidence-Based Investing acknowledged that he does not believe that the retirement study posted at John Greaney’s web site contains an adjustment for the valuation level that applies on the day the retirement begins. Evidence has been a general in Greaney’s Goon army going back to the early days. So he has no bias against Greaney. The one possible reason he would have for saying that the study lacks a valuation adjustment is that that is what he truly believes.”

This is correct. No-one believes that Greaney’s study contains valuation adjustments. The other similar studies (Trinity etc.) also do not contain valuation adjustments. Again, no-one believes they do.

We are in agreement re all that, Evidence.

Do you believe that it is possible to calculate the safe withdrawal rate accurately without taking valuations into consideration? I do not. I believe that the idea that that was possible came about because there was a time when people believed that the market was efficient. If the market were efficient, the Greaney study would be accurate. But Shiller’s Nobel-prize-winning research shows that the market is NOT efficient. So a valuation adjustment is required.

Are we in agreement re that part as well?

If you do not agree that a valuation adjustment is required to calculate the safe withdrawal rate accurately, can you please explain why not?

Do you agree that valuations affect long-term returns? If valuations affect returns, then valuations must affect the safe withdrawal rate. Is that not so?

Rob

Valuation-Informed Indexing #569: Nothing But Flexibility in Stock Allocations Can Stabilize the Economy

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I’ve posted Entry #569 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Nothing But Flexibility in Stock Allocations Can Stabilize the Economy.

Juicy Excerpt: My view is that all of those considerations are secondary ones. The biggest influence on the economy is the amount of irrational exuberance present in the stock market. I don’t recall ever hearing anyone else say that. So I feel that I have to doubt myself. But the case seems so clear and strong that I cannot dismiss the thought from my mind.

Valuation-Informed Indexing #568: Why the Reluctance to Use CAPE to Manage Risk?

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I have posted Entry #568 to my weekly Valuation-Informed Indexing column at the Value Walk site. It is called Why the Reluctance to Use CAPE to Manage Risk?

Juicy Excerpt: I have come over time to believe that the most effective way to challenge the emotionalism of investors is to challenge it head on. I like to make direct statements that market timing always works and that market timing is always required for those seeking to keep their risk profile constant over time. No, most investors don’t bite the first time they hear those sorts of words. But the thing that is going to change attitudes is the next price crash and all the pain that it will cause in the event that Shiller’s Nobel-prize-winning research turns out to be saying something useful and important. At that time investors will want to know what happened to the larger half of their retirement money and clear statements of the realities will be more persuasive than efforts to state things in gentle and indirect and less clear ways.

“Do You Think It Would Have Been Better If I Had Just Kept Quiet About the Error in the Greaney Retirement Study?”

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

Obviously you are prepared to blither incoherently forever. However this is my final comment.

A. You could be working a real job.
B. You definitely need the income, to support yourself and your family.
C. You choose not to work.
D. You have made that same choice every day for over twenty years.

There is no one on earth who respects such a person.

Do you think it would have been better if I had just kept quiet about the error in the Greaney retirement study?

Rob

“Every Expert Both Agrees With Me and Disagrees With Me at the Same Time. We Have Universal Acknowledgment That the Greaney Retirement Study Is in Error and Only One Person (Me!) Regularly and Consistently Urging Correction of the Study. That’s the State of Play in the Year 2021.”

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

Wade’s new book is out.  Just like previous books, he never talks about you, never mentions Greaney and he does not recommend any timing schemes (including VII).  Wade is not alone.  None of the experts agree with you.  I guess in your world, they are all wrong/corrupt and you stand alone as the only person that is right/ethical.  Do I have that right?

Every expert both agrees with me and disagrees with me at the same time. I am not aware of one expert who has said that he believes that Greaney included a valuation adjustment in the retirement study posted at his web site. Even Evidence-Based Investing, who is one of the generals in Greaney’s army of internet goons, acknowledged not too long ago that he does not believe that the Greaney study contains a valuation adjustment. I think it would be fair to say that, when you’ve lost Evidence….

That said, Evidence did not say that he believes that the Greaney study should be immediately corrected and none of the other experts say that either. Wade said it for a time and contacted the authors of the Trinity study seeking a correction. But, when his career was threatened, he pulled back. So we have universal acknowledgment that the study is in error and only one person (me!) regularly and consistently urging correction of the study. That’s the state of play in the year 2021. For the first time in history, we know how stock investing works. But there has been a 40-year cover-up of what we have learned. So we are all very, very, very afraid to talk about what we now know. It would make the Buy-and-Holders look bad for people to learn about this massive cover-up.

The only thing that I could see that would break the logjam is the next price crash. In the event that stocks continue to perform in the future as they always have in the past, we will be seeing millions of failed retirements, hundreds of thousands of business failures, millions of people being thrown out of their jobs and a dramatic increase in political frictions. I believe that this new Buy-and-Hold Crisis will provide the push we need to get a number of people (including Wade) speaking out. It’s all downhill sledding from there. It will be a horrible event to live through. It could bring on the Second Great Depression. But if we make it in one piece to the other side, we will all be able to work together to bury the Get Rich Quick/Buy-and-Hold stuff 30 feet in the ground, where it can do no further harm to humans and other living things.

Please make me down as being 100 percent in agreement with Evidence that the Greaney study is in error but 100 percent in disagreement with Evidence that the error does not need to be promptly corrected. I believe that the error should have been corrected within 24 hours of the moment at which Greaney became aware of it (the morning of May 13, 2002).

My best wishes to you and yours.

Rob

Buy-and-Hold Goon: “Nothing Needed Correcting, As Wade Pfau Pointed Out.” Rob: “Wade Pointed Out (After Being Threatened By You Goons) That Greaney Had Advanced a Comment on the First Day of the Discussions Saying That Anyone Who Cared to Was Free to Take a Withdrawal Rate of Less Than 4 Percent. Of Course They Were. That Was Never in Question.”

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

Nothing needed correcting, as Wade Pfau pointed out.

Wade pointed out (after being threatened by you Goons) that Greaney had advanced a comment on the first day of the discussions saying that anyone who cared to was free to take a withdrawal rate of less than 4 percent. Of course they were. That was never in question.

What we need is to permit all community members to post their honest views. When we all feel free to post our honest views, those of us who believe that Shiller’s Nobel-prize-winning research is legitimate research will be saying that. Whenever a Buy-and-Holder says that the safe withdrawal rate is always 4 percent, we will be explaining why that is not so. That way, the percentage of the population following Valuation-Informed Indexing will increase over time and we will never again see the sort of CAPE value that applies today.

We all need to learn about the last 40 years of peer-reviewed research and to incorporate the lessons of that wonderful body of research into our understanding of how stock investing works. The intimidation tactics of the Buy-and-Holders have been holding us back for a long time.. We need to bring the intimidation tactics to a full and complete stop by the close of business today and begin enjoying the benefits of an amazing learning experience.

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

My best and warmest wishes to you and yours.

Rob

Buy-and-Hold Goon to Rob: “I Think Everyone Agrees with You. Greaney Has Certainly Never Claimed That His Retirement Study Contains a Valuation Adjustment.”

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Set forth below is the text of an interaction that I had with one of the Greaney Goons in the discussion thread for another blog entry at this site:

“I agree with you that it doesn’t contain a valuation adjustment.”

I think everyone agrees with you. Greaney has certainly never claimed that it contains a valuation adjustment.

Can you specify the date on which you believe he corrected the study?

Rob

I don’t believe any such thing

I see

Rob

Valuation-Informed Indexing #567: Shiller’s Research Doesn’t Permit Us to Predict the Future, It Permits Us to See the Present More Clearly

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I’ve posted Entry #567 to my weekly Valuation-Informed Indexing column at the Value Walk site, It’s called Shiller’s Research Doesn’t Permit Us to Predict the Future, It Permits Us to See the Present More Clearly.

Juicy Excerpt: The reality is that Shiller’s research does not permit us to predict the future, it permits us to see the present more clearly. Shiller showed us the need to make a distinction between stock gains rooted in economic realities (such as increased productivity) and stock gains rooted in nothing more than irrational exuberance. Stock gains rooted in economic realities last forever and can be counted on when one is planning one’s financial future. Irrational exuberance gains are fake and temporary. They disappear into the mist when investor emotions swing in a new direction. 

“I Write a Weekly Column on Valuation-Informed Indexing at the Value Walk Site. In 10 Years, That’s Over 500 Columns. I Have Learned at Lot Over the Past 10 Years.”

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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 retirement is not “fully funded” if more than half of the money in your account consists of irrational exuberance, Anonymous,”

That’s what you said 10 years ago and look at how that worked out for you. Meanwhile, you are banking on a windfall with odds that are worse than playing the lottery.

I say the same thing today that I said 10 years ago, Anonymous. I think it has worked out very well. I abandoned Buy-and-Hold and started working on Valuation-Informed Indexing on the evening of August 27, 2002, when Greaney advanced his first death threat and over 200 of my Buy-and-Hold friends at the old Motley Fool board endorsed it. I write a weekly column on Valuation-Informed Indexing at the Value Walk site. In 10 years, that’s over 500 columns. I have learned at lot over the past 10 years. I would be 10 years behind where I am today if I spent those 10 years pretending to believe that there might be some mystical, magical alternate universe where a pure Get Rich Quick/Buy-and-Hold “strategy” might work f0r one or two long-term investors.

Somehow, I think that the odds of me collecting a $500 million settlement payment are a lot better than your odds of avoiding a long-term prison term. I’ll take those odds!

Rob