A Rich Life

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

“I Have Publicly Declared My Intent To Have the Bogleheads Forum Added to My Site As a Sub-Domain. It’s the Top Investing Board on the Internet Today.”

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Set forth below are the texts of two related comments that I recently put to the Goon Central board:

How much he values the board from which he is banned and how envious he is of the people that can post there.

I value the board immensely, GW. There is no dispute re that one.

I have publicly declared my intent to have the board added to my site as a sub-domain. I wouldn’t do that if I didn’t see great value in the board. It’s the top investing board on the internet today.

With me or someone I appoint making board administration decisions, we will be able to attract more people of integrity to the board and those who are there now and who possess integrity will feel free to post their honestzzz views.

Buy-and-Holders will of course be welcome to participate in all discussions.

Whether I am “envious” or not depends on how you use the word. I see the board as a very valuable resource. So I am certainly “envious” of those who are able to make use of that resource. That is obviously so.

But am I willing to sacrifice my personal integrity to obtain access to that learning experience? No way, no how. It’s not even a close call.

And I am not “envious” of those who have made the other call. I think they have made a huge mistake.

Will you be envious of me when I am handed the $500 million settlement check? I wouldn’t be gaining that check if I had agreed to post dishonestly, you know.

Rob

That the Bogleheads freely discuss exactly those topics which Bennet claims are banned.   

The fact that my friend Brian’s post was taken down because it contained a link to the Risk Evaluator shows us precisely how “free” the discussions are there, GW.

Community members are permitted to say anything about safe withdrawal rates except what the last 32 years of peer-reviewed academic research shows to be the case.

That’s not what Buy-and-Hold was about in its early days.

That’s not what it will be about once we open every board and blog on the internet to honestzzz posting on SWRs and many other critically important investment-related topics.

You can help. May I put you down for 20 e-mails per day?

Rob

Guru: “Well, in 1995 We Thought 7 Percent Would Work Under All Conditions. But That Was Then, This Is Now.”

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A poster named “Nisiprius” recently advanced the following wonderful post to the Bogleheads Forum:

1995:

Sucker looking for certainty where there is no certainty: So, how much can I safely withdraw?

Guru: Well, right now things look great. This year you could certainly–

Sucker: No, no, no. Tell me more than “this year.” I want to plan ahead. I want to know a nice, safe rate, with a good safety margin built on. One that will be sustainable into the future under varying market conditions.

Guru: OK, here’s a Worth magazine article by Peter Lynch who had a colleague run numbers, and he says a portfolio of 100% stocks–preferably individual selections from among Moody’s Dividend Achievers but an S&P 500 index fund will do–has safely sustained 7% withdrawals under all market conditions that have ever occurred.

1998:

Sucker: So, 7%, right?

Guru: Oh, no, no, no. Things do not look so good any more. This study by three Trinity University professors says that the sustainable withdrawal rate is only 4%.

Sucker: But, but, but… I specifically asked for a number that would work under all future market conditions.

Guru: Well, in 1995 we thought 7% would work under all market conditions. But, that was then, this is now.

Sucker: So 4% is the right number? A good planning number? One that doesn’t make any false optimistic assumptions but allows for the full range of things that typically occur? A number that will work even if the markets runs its normal cycles of good and bad times?

Guru: Yes. Some experts think a bit more, but, yes, 4% is a good number.

Sucker: So, this is not some false-optimism 7%. This has the safety margin built in, right? This has the allowance for normal wear and tear. This is a number good for the next three decades, right?

Guru: That is what every expert and every sophisticated computer analysis is telling us. Yes.

2013:

Sucker: So, I can withdraw 4%, eh?

Guru: Oh, no, no, no. It seems things are not turning out as well as we expected. Gordon equation… interest rates… Try 3%….

Precisely so. How much do you want to bet that, following the next crash, our friends among the Wall Street Con Men will be telling us that the new word is that no withdrawal rate above 2 percent could ever possibly be safe and that we all better get about the business of lowering our stock allocations dramatically if we know what is good for us?

Investor Junkie: “In Rob Bennett’s Case, He Was Banned for No Known Listed Forum Policy. Except His Viewpoint Was Different From Other Bogleheads and [He Was Perceived As] a ‘Threat'”

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Here’s a wild thread about the decision of Our Lords and Masters at the Bogleheads Forum and their decision to ban Investor Junkie for life:

Banned for Life from Bogleheads Forum

Just keep repeating to yourself: “Buy-and-Hold is science! Buy-and-Hold is science! Buy-and-Hold is science!”

Juicy Excerpt #1: Opposing viewpoints are shunned  – Perhaps this is the most damning issue. This isn’t the first time someone has been banned. In Rob Bennett’s case he was banned for no known listed forum policy. Except his viewpoint was different from other Bogleheads and a “threat”.

Juicy Excerpt #2: The Bogleheads Forum does seem worse than most.

Juicy Excerpt #3: Boards tend to foster small and often narrow-minded communities that don’t look kindly on outsiders, from my observations. Cliques dead? Nah.

Juicy Excerpt #4: Forums have huge potential. This is especially true of the Bogleheads Forum because most of the principles they discuss are solid, research-based stuff. Also, they get a number of big names to post there. People need a place where they can talk things over and learn. But the whole thing is ruined when one group silences opposing viewpoints.

Juicy Excerpt #5: There are lots of super people at Bogleheads. I made lots of good friends there and I learned a lot from a good number of kind and smart and generous people. I’ll give you one example. I met Wade Pfau as a result of my posting there.

Juicy Excerpt #6: I like the BH forum but yea I have found their are some stubborn a-holes over there. They kind of remind me of the old people at my work who are unwilling to embrace change and new ideas/ new ways of doing things. I hope I never become someone like that.

Juicy Excerpt #7: Call it ‘groupthink” over there if you like, but you might ask yourself why it is that tightly moderated forums like BH are popular and why those ‘upstart’ forums who claim they are gonna do it differently fade to obscurity.

Juicy Except #8: Their reasons for suspension is subjective, not objective. Not only shown in my case, but also Rob’s.

Juicy Excerpt #9: As to Mr. Bennett, however, that is a horse of a different color. I suggest you take a look at his long internet history, including having been banned at not one board, or two, but banned at more boards than you have fingers and toes together. It seems to me that much negative interaction is not a misunderstanding; that is a person deliberately trying to be an irritant, rather trying to get a legitimate message across.

Juicy Excerpt #10: I don’t know about that but I certainly am grateful for your kindness in saying so, Sam. I saw you at one of the sessions of the Financial Bloggers Conference in Denver but was not able to get close enough to say “hi!”. Next year I will make sure that we get a chance to talk things over in person a bit!

Juicy Except #11: He is not entirely wrong in saying that I am an irritant. Lots of people have invested their retirement money pursuant to Buy-and-Hold principles and it hurts them to learn that this was a mistake. I don’t say it to hurt them. My view is that it hurts them a lot less to learn about their mistake before they lose most of their retirement money than it does to learn about if after they are busted.

Juicy Excerpt #12: This group strikes me as a bunch of smug, self-rightous church lady sewing circle types.

Juicy Excerpt #13: I can say from what I’ve seen people often claim you are let me put it in a nice way.. abrasive. While I have no issue with your viewpoint, I think many object to the methodology of how you do it.

Juicy Excerpt #14: I think the answer is for people to accept that there are two models and not be so defensive. We all need to acknowledge that the other guy is a friend and someone why is trying his best to help. I accept that there are lots of good and smart people who really believe in Buy-and-Hold. They have a right to believe what they believe. But if I were to say that I believe in Buy-and-Hold, it would be dishonest. There never should have been even a tiny bit of pressure applied to me to persuade me to post dishonestly. My right (and the right of all Valuation-Informed Indexers) to post honestly should be respected.

 

Rob Bennett to the Morningstar.com Site Administrator: “A Poster Named ‘Galeno’ [This Was Greaney’s #1 Supporter on the Board] Put Forward Four Consecutive Posts Rejecting Out of Hand the Idea of Substantive Discussion and Putting Forward Threats of Physical Violence Against Me. One Was a Threat to Come to My House with a Baseball Bat to Kill My Wife and Children”

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Yesterday’s blog entry reported on an e-mail that I sent to the Morningstar.com site administrator on April 18, 2006, relating to abusive posting by Mel Linduaer (co-author of the book “The Bogleheads Guide to Investing”). I sent a follow-up e-mail later that day. I will report tomorrow on the response that I received from Morningstar.

Mstar Casey:

This is my second response to your e-mail. The earlier response supplied the background facts. This post provides links.

Here is a link to a post put forward by Greaney (he posts as “Intercst.”):

http://boards.fool.com/Message.asp?mid=17762586&sort=postdate

Mark33 asked that the personal attacks stop and that a substantive discussion be permitted. A poster named “Galeno” (this was Greaney’s #1 supporter on the board) put forward four consecutive posts rejecting out of hand the idea of substantive discussion and putting forward threats of physical violence against me. One of these was a threat to come to my house with a baseball bat to kill my wife and children.

The posts making the threats were deleted, but there is a quote to one of the threats in the post linked above. The section quoted reads: ” No way! I, for one, am against any and all “substantive” discussions with or about brickhead (aka hocus). I want Jihad! I say let loose the dogs of personal attack. The nastier the better as far as I’m concerned.” Greaney put forward the post linked above, endorsing the threats.

Here is a link to a post in which Greaney reports that he has received an e-mail from Galeno saying that he was suspended from the board for putting up the posts that made the threats of violence. I did not report the threats. Some other community member obviously did so.

http://boards.fool.com/Message.asp?mid=17765010&sort=postdate

Greaney speaks in opposition to the suspension, implicitly endorsing the threats. This endorsement did far more harm to the board than did the actual threats, as Greaney was founder of the board and respected by a number of community members. A large number of our best posters left in the following months.

This is a link to a post by Prometheuss, another leading Greaney supporter. The post comments on a death threat put forward by Galeno and comments negatively on the fact that the death threat post was removed.

http://boards.fool.com/Message.asp?mid=18207722&sort=postdate

Prometheuss: “My comment on galeno’s post was pulled for ‘incivility’. First, I want to apologize to galeno if he took offense at my ‘rude or discourteous’ post. Saying, “You doctors should stick to your drugs and leave bullets to soldiers like me” was rude and demonstrated a lack of courtesy to galeno on my part. Anyway, I will try to cover the important points I was trying to make in a non-offensive way here. Most folks think they know a lot about guns from watching movies or TV, but things are a lot different in the real world….”

Please let me know if you have further question re this matter or need further examples of the nature of the problem that I was making reference to in the post that I put to the Morningstar board.

Rob

Rob Bennett to Morningstar Site Administrator: “The Greaney Supporters Openly Discuss Tactics for Disrupting Morningstar Threads….They Have Taken Comfort in the Posts by Mel [Lindauer]”

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Yesterday’s blog entry reported on an e-mail that I received from a Morningstar site administrator on April 17, 2006. The e-mail read: “Please direct us to the specific posting where you were threatened with violence by another Morningstar poster. ” Set forth below is my response, which was sent the following day. I will provide the text of my follow-up e-mail in tomorrow’s blog.

MStar Casey:

I’ve never been threatened by any Morningstar poster.

I have been threatened with violence by a poster from another board. This poster has made numerous threats against posters who in his view “cross” him by questioning his views on investing.

There are a group of posters at another board who support this individual. Several of them have signed up at Morningstar since I began posting there and have put forward disruptive posts as their attempt at harassment.

There have been several posts in which Mel and a number of others at Morningstar have posted links to the web site and the discussion board of the poster who threatened me. His name is John Greaney and he is the owner of the RetireEarlyHomePage.com web site. There is a discussion-board site connected with that web site at which he has several boards devoted solely to the topic of ridiculing me and any of the hundreds of posters who at earlier times supported me on a number of Retire Early boards at which I have posted. The obvious purpose is to intimidate posters who post at these boards not to offer support for me or to disagree with his views.

The posters at Greaney’s board have interpreted Mel’s linking to Greaney’s site and discussion board as support for Greaney’s tactics. I have seen the tactics used by Greaney supporters destroy a number of boards. These are not your ordinary discussion-board tactics.

The post that I put to the Morningstar board was in response to a post in which a poster complained about posters following me around from thread to thread and harassing me. My post was an attempt to explain the background. The Greaney supporters openly discuss tactics for disrupting Morningstar threads (and threads at other boards at which issues relating in some way to what the historical data says re long-term stock returns). They have taken comfort in the posts by Mel and a few others to the Greaney web site and the Greaney discussion board.

The root issue is that Greaney got an important number wrong in a study of safe withdrawal rates that he posted to his web site. There is no reasonable dispute about the fact that he got the number wrong. This has been confirmed by numerous experts, including William Bernstein and Scott Burns. It has also been confirmed by extensive examinations of the historical data on which the study is based. Greaney does not want to acknowledge getting the number wrong, and he understands that permitting honest posting on the safe withdrawal rate topic makes him look bad for failing to acknowledge the error. Honest posting at Morningstar embarrasses him because there are a good number of posters who participate at the various Retire Early boards who also participate at the Morningstar board.

It may take me an hour or two to find the post at Motley Fool at which the threats of physical violence were made against me. I will provide links in a follow-up e-mail. There were numerous threats made (the threats and the fallout from them caused just about all effective on-topic posters to leave the board). The posts in which the threats were made were deleted from the board, but there were several cases in which the threats were quoted in later posts. The last time I checked, the posts quoting the threats were still at the board. I will get back with links in a little bit.

Rob

Bogleheads Forum Poster in Thread Discussing Academic Researcher Wade Pfau’s Finding that Valuation-Informed Indexing Strategies Have Provided Higher Returns Than Buy-and-Hold at Lower Risk Throughout the Entire Historical Record: “The Paper Refutes a Central Tenet of the Boglehead Investing Philosophy. It’s a Big Deal.”

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Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on May 18, 2011. My next e-mail from Wade arrived on May 31, 2011.

Jacob Irwin, publisher of the My Personal Finance Journey blog, posted an analysis comparing Valuation-Informed Indexing with what he calls “Passive Investing” (what I call “Buy-and-Hold” — sticking with a single stock allocation in the face of big changes in the price being charged for stocks):

http://www.mypersonalfinancejourney.com/2011/05/valuation-informed-indexing-vs-passive.html

Jacob sent a link to me and Wade and Wade copied me on his reply to Jacob.

Wade said: “VII tends to work as long as there is mean reversion in PE10, which there usually is.  The unprecedented run-up of PE10 in the 1990s makes it hard for VII to compete then.  I think there is not much else that can be done about that.  But I don’t think this means that VII has permanently stopped working. Trying to find a specific strategy for VII to have worked in this 1990-2011 period sounds too much like data mining.  Though in other time periods, it hardly matters which strategy you choose as it is hard to find a period in which VII does not work.”

He also linked to a discussion at the Bogleheads Forum that he said he thought might be of interest to us:

http://www.bogleheads.org/forum/viewtopic.php?t=75585&postdays=0&postorder=asc&start=0

In the Bogleheads discussion, a poster using the name “Fred Flintstone” said that Wade’s research showing the superiority of Valuation-Informed Indexing over Buy-and-Hold “refutes a central tenet of the Boglehead investing philosophy. It’s a big deal.”

“I Was Thinking About Taking Taylor [Larimore] to Task for This [Mischaracterizing Bogle’s Position]…. Other People Have Already Pointed It Out to Him and He Doesn’t Seem to Care.”

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Yesterday’s blog entry reported on an e-mail that I sent to academic researcher Wade Pfau on January 20, 2011. Wade responded the next day.

He said: “If you do have any suggestions about how I explained why long-term market timing works, but not short-term market timing, I would love to hear it.” He added, though, that he did not want me to have to retype points I had already made in materials at my web site. He explained that: “I think this is something you’ve addressed in your various articles, and I will read everything before finalizing my paper.”

Re Larimore’s mischaracterization of Bogle’s position, Wade said: “I was thinking about taking Taylor to task for this, but in the end I’ve decided not to. That guy is over 80 years old and he seems to be a bit of a follower. I don’t really feel a need to argue with him at this point. Especially since other people have already pointed it out to him and he doesn’t seem to care.”

Wade told me that he had “big news.” He had posted preliminary results of his research:

http://www.bogleheads.org/forum/viewtopic.php?t=67093

He noted that “Richard disappeared after I took him to task about being full of it with regards to ‘standard statistics.’ ” He explained that: “I think on those message boards that all those guys repeat that mantra so much that they do not think it is standard statistics, when in fact the issue of rolling periods is a rather advanced topic well beyond the reaches of Statistics 101, and their assumptions are not necessarily right.”

Academic Researcher Wade Pfau: “Two Papers by FIsher and Statman Are Still All I Can Find That Provide Evidence Against Long-Term Market Timing”

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Yesterday’s blog entry reported on an e-mail that I sent to academic researcher Wade Pfau on January 17, 2011. Wade responded on January 20, 2011.

He described a thread that he started at the Bogleheads Forum:

http://www.bogleheads.org/forum/viewtopic.php?t=67093

He said that it was not his intent to start a debate on the merits of Valuation-Informed Indexing since he hadn’t yet finished his research paper. However, he wanted to know if anyone was aware of studies concluding that Valuation-Informed Indexing does not work. He explained that: “Once I finish my study, I would like to refer to the concept as Valuation-Informed Indexing, but I called it long-term market timing in this post since I really was trying to avoid controversy and just uncover more background reading materials.” He reported that: “Two papers by Fisher and Statman are still all I can find that provide evidence against long-term market timing.”

Rob Bennett to Wade Pfau: “It is 100 Percent Wrong That People Posting at Bogleheads Feel Intimdated re Posting My Name…. By Using My Name, You Help Others Get Over Their Feelings of Intimidation”

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Yesterday’s blog entry described two emails that researcher Wade Pfau sent me on December 18, 2010. It also set forth the text of my response to the first of those e-mails. The text of my response to the second of those e-mails is set forth below.

Wade:

Thanks for putting an apology in the new post. That’s fine. I think it is especially good that you mention my name in the new post. It is 100 percent wrong that people posting at that board feel intimidated re posting my name. It obviously is not only you who have felt that intimidation. Lots of good and smart people have felt it and the discussions there obviously would be much more productive if people did not feel that. By using my name, you help others to get over their feelings of intimidation.

Drip Guy is a Super-Goon. I am not saying that you should not respond to him. The points he made in his post needed to be addressed. I am just pointing out that he has a long history of posting with bad intent on numerous boards. It would be wonderful if you got somewhere with him but I don’t see the odds as being good.

The point that matters most from my perspective is where Drip Guy says: “That is, if you had chosen to blindly withdraw 4% per year from a nest egg, it would have lasted at least 30 years until depletion, with 95% conf.” It is this way of saying things that is the cause of most of the confusion, in my assessment. It is of course an objective historical fact that 4 percent always worked in the past. 4 percent is the Historical SURVIVING Withdrawal Rate. There is certainly no question in my mind re that.

What I do not get at all is how he can say that a 4 percent withdrawal could be taken “with 95% conf.” Looking back, we know that 4 percent worked. So, looking back, you could take 4 percent with 100 percent confidence. But a determination of what is safe is by definition a forward-looking concept. The entire idea of having confidence in something only makes sense if you do not know what is going to happen. So the confidence percentage must take into consideration the factors that were unknown to the retiree at the time be began his retirement.

We know the range of possible returns starting from any possible valuation level. What we do not know is what particular returns sequence is going to pop up. Say that the retirement began in 1929. In 1929, 50 percent of the returns sequences that we have seen in the historical record permitted a 4 percent withdrawal to work and the other 50 percent caused a 4 percent withdrawal to fail. So it seems to me that the confidence level for a retiree taking 4 percent for a retirement beginning in 1929 is 50 percent, not 95 percent.

Yes, that retirement worked. But not because it was safe. A retirement that has only a 50 percent chance of working out cannot be retroactively characterized as “safe.” It was a risky retirement plan that worked because of good luck (a good return sequence happened to pop up). I am not able to think of any other field of human endeavor in which we determine what is “safe” by seeing what worked in two or three tests.

Say that we wanted to find out whether drunk driving is safe or not. We test 100 drivers driving 20 miles. 98 of the drivers are sober. 2 are drunk. The 98 drive the 20 miles without incident. The 2 get in major accidents and live but are crippled for life. Would we conclude from this that driving drunk is “safe”?

That’s what we are doing with the Old School SWR studies. A 4 percent withdrawal usually works with lots of room to spare. But it always means trouble for retirements that begin at times of high valuations. Prior to the 1990s, there were
only two times of super-high valuations in the modern record. On both of those occasions, 4 percent barely worked (although it worked with lots of room to spare on all occasions when valuations were not super-high). No, the 4 percent withdrawal did not bring death in either of the two tests (that is, the portfolios did not go to zero). But it came awful close in both cases. Is this not telling us that 4 percent is a high-risk withdrawal rate for retirements beginning at times of super-high valuations?

It seems to me that the Old School SWR methodology is telling us the Historical Surviving Withdrawal Rate. That’s a very different concept than the SAFE withdrawal rate. To determine what is safe, we need to look at the factors that determine what is safe. The record shows that the single most important factor is the valuation level that applies on the day the retirement begins and yet the Old School studies contain no valuations adjustment whatsoever. How could they possibly tell us what is safe if they do not even look to the factors that determine what is safe? This is why I say that these studies are “analytically invalid.”

Rob

Wade Pfau (at the Bogleheads Forum): “My Comment Before [Suggesting That Rob Bennett Had Been Dogmatic in His Posting at This Forum] Was Completely Misguided and I Apologize to Him”

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Yesterday’s blog entry set forth the text of an e-mail that I sent to academic researcher Wade Pfau on December 17, 2010.

Wade sent me two responses the following day. The first contained a link to an article in Business Week which he characterized as “quite sympathetic to the point you were trying to make all along”.  In the second he reported that he had begun listening to my podcast and that he had put up a new post at the Bogleheads Forum containing an apology to me. In that post he stated that “my comment before was completely misguided and I apologize to him.”

Set forth below is the text of my response to the first of Wade’s two e-mails.

Wade:

Thanks for letting me know about the article. I certainly am glad to see some people giving more realistic and more prudent advice.

What the article is missing from my perspective is a focus on the valuations question. It is a downer to suggest that the SWR is ALWAYS 2 percent. Russell’s research indicates that it drops to 2 percent at times of super-high valuations but also
that it rises to 9 percent at times of super-low valuations (while being about 5 percent at times of moderate valuations). I view that as a more balanced and encouraging message.

The valuations-centered message has big strategic implications. If the SWR varies from 2 percent to 9 percent, then stocks obviously offer a dramatically different long-term value proposition at different times and investors need to be willing to vary their allocations to obtain good long-term results.

I do not think dogmatism is at all called for re any of the particular numbers. I think we need to have lots of people contributing lots of good thoughts on the particulars so that over time we all come to better informed takes.

My big push is for LESS dogmatism on the question of how much valuations matter. My take is that valuations matter far more than most of us today realize, perhaps so much that we react with shock even to look at the numbers. I am hoping
that we (the entire community of investors) get to a point where we are at least considering some far-out possibilities that we have not given much consideration to in the past.

I believe that, while the SWR may at times be very low, that does not need to cause any practical problem for individual investors willing to do what it takes to obtain good results regardless (by avoiding stocks when the long-term value proposition is poor and by investing heavily in stocks when the long-term value proposition is strong).

Rob