A Rich Life

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

Rob Bennett to Academic Researcher Wade Pfau, After the Greaney Goons Threatened to Get Him Fired From His Job: “The Site Is Owned by Greaney. It Was Set Up Solely for the Purpose of Intimidating People Like You”

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Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on May 1, 2011. In the e-mail, I tried to offer words of comfort to my friend, who was living in fear that the Greaney Goons would follow through on their efforts to get him fired from his job because he had posted honestly on safe withdrawal rates. I knew from our earlier correspondence that Wade is married and has at least one small child (this came up during the time there was a concern over a possible nuclear meltdown in Japan because Wade had particular concerns about what might happen to his wife, who was pregnant at the time). I sent  a follow-up e-mail the next day. The text is set forth below.

Wade:

I reread your e-mail this morning and noticed something that might suggest a misperception that needs to be cleared up. You ask that I not delete the thread at the Hocomania site. I have no ability to delete threads there. That site is owned by Greaney. It was set up solely for the purpose of intimidating people like you, people who have expressed some interest in uncovering the realities of what the historical data says.

For example, there was a time when we had many people participating at Bogleheads who thought that valuations should be considered in calculations of the SWR. They would analyze each thread at the Hocomania board and discuss strategies for destroying people who had expressed the view that valuations should be considered. They would talk about defamatory things they could all agree to say over at Bogleheads to get people not to like that poster or things that they could say the poster had said that would help to get the poster banned or organize campaigns to send e-mails to Morningstar to demand a ban. If  a reporter wrote an article, they would send e-mails to the reporter’s boss to try to get him or her fired. There was a time when they called a poster’s place of work to try to get that poster fired. Mel Lindauer would then put a link up at Bogleheads so that everyone knew that the person who had said that valuations should be considered was being “punished”  and understood what would be in store for them if they elected to “cross” Lindauer or Greaney by posting honestly on investing topics.

This is why I often note that there is a Ban on Honest Posting on SWRs in effect at Bogleheads and many other sites today. This group uses Google searches to find out each day if there is anyone posting honestly about SWRs or other important investment-related topics and then sends their Goon Squads in to deal with the matter. As I said in the earlier  e-mail, this has been going on for nine years now. Given the huge legal liabilities they have run up, there is precisely zero chance that they will stop of their own accord, in my assessment.

I have no way of knowing precisely how much of the background of all this you know about. I have been presuming that, since you have seen Drip Guy’s behavior and Lindauer’s behavior, you had the general idea. Your comment about me
deleting a thread led me to believe that you might be thinking that I have some sort of ownership interest in that board. I have opposed the Campaign of Terror against our board communities going back to May 13, 2002. I put a post to Motley Fool demanding Greaney’s removal on November 23, 2002 (this was after he put up a post threatening to kill family members of any community members who posted honestly on the SWR matter). I post at that board only to correct the record to the extent I can and to answer questions that the Goons have (even the Goons would benefit from understanding the realities of stock investing and there have been rare cases where they have asked sincere questions). I have zero authority to delete threads at the Hocomania board.

The Bogleheads board at one time had a reputation for not encouraging lots of abusive posting. When the Goons showed up, a number of long-timers there asked where the Goon posters were coming from. I put up a post describing Greaney’s tactics and Lindauer’s role of linking to Greaney’s board each time a new poster dared to post honestly. I also contacted Morningstar about the matter and offered to send them e-mails each time Lindauer linked to the Greaney board. The Morningstar admins did not respond to the e-mail. Lindauer has said that “higher-ups” at Vanguard follow the board closely and know what goes on at it. The threatening threads were a daily occurrence during the years when I posted there. It was my May 13, 2002, post at Motley Fool that first noted the analytical errors in the Old School studies. So the Goons knew from my first post at Bogleheads that I would be posting honestly and started a smear campaign on the first day.

The Bogleheads board was launched for the purpose of blocking any possibility of honest posting. There had been numerous posters arguing that honest posting should be permitted back when the board was located at Morningstar.com. The smear campaigns caused many good people to leave but some soldiered on. The idea of moving to Bogleheads.org was to no longer have to operate under the Morningstar admins, who had not taken action in response to the smear campaigns but who had also not been wiling to ban those posting honestly, as the Lindauer and Greaney Goons demanded. Today they can of course ban anyone who comes to represent any sort of threat. So you no longer see discussions of whether honest posting on SWRs should be permitted or not.

I hope that background helps you make a little bit better sense of this. If ever there is a time when you have questions about the history, please don’t hesitate to ask. For good or for ill, I’ve had a front-row seat going back to the first day.

Rob

Rob Bennett to Academic Researcher Wade Pfau on Hearing of His Fears that the Greaney Goons Will Carry Through on Their Threats to Get Him Fired From His Job: “Please Don’t Delude Yourself Into Thinking That There Is Anything More Than a Zero Chance That ‘This Stuff Will Blow Over Soon’….This Has Been Going on for Nine Years.”

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Yesterday’s blog entry reported on an e-mail sent to me by Academic Researcher Wade Pfau on May 1, 2011, in which he described his fears of getting fired because of the threats made by the Greaney Goons to contact his employer with defamatory comments as their way of “punishing” Wade for having posted his honest views on the need for the Old School safe withdrawal rate studies to be corrected now that there is a consensus in the field that they get the numbers that millions of middle-class people have used to plan their retirements wildly wrong. I sent my response later the same day. The text is set forth below.

Wade:

Thanks for your kind (and troubling) note.

I will of course honor your wishes re the matters you refer to below.

The concern you are expressing is so insane that I am tempted not to take it seriously. The other side of the story, of course, is that I have had similar things done to me on scores of occasions and I have seen similar  things done to many others. So the full reality is that the concern you evidence is only in an objective sense insane and in the context in which it is being raised here entirely real.

Please don’t delude yourself into thinking that there is  anything more than a zero chance that “this stuff will blow over soon and those guys will forget about it and move on to the next thing.” This has been going on for nine years.

It would have been far, far easier to let it go when it all could have been easily characterized as a well-intentioned mistake. We now have s situation where hundreds of reputations are at jeopardy and where tens of thousands of lawsuits are likely to be filed once middle-class investors hear the story. I obviously wish that I could wave a magic wand and take us back to the morning of May 13, 2002. But none of us possess that power. All responsible people caught up in this (I think
it is fair to say that that includes all responsible people living in free-market economies today) need to accept the cards we have  been dealt and take whatever steps we can to bring things to a good and positive and life-affirming resolution for every single person (including those on “the other side”) as possible.

I believe that our hope lies in the fact that everyone deep down inside wants the same thing. There are of course some who  tell themselves that they do not want a resolution. But deep down  inside they do. They have painted themselves into a corner and are not capable of letting in the full horror of what they have done. We have to extend the hand of kindness while also insisting on the right to do honest and positive work and not to degrade ourselves or participate in the degradation of others. We need to combine love and honesty in the proper proportions.

I’ll always do anything I can to take things to a positive place. I don’t know if you believe in God or not, but, if you do, this is  a time to call on that belief for comfort that a positive resolution of this matter really is possible. I (somewhat stubbornly) believe that it is. John Walter Russell used to tell me “I’ve put it in God’s hands and i know it will eventually work out better than anyone can today imagine.” John had a stronger faith than I did. But I have just enough to see that there might be something to what he said.

I am horrified to think that I have even in the most indirect way caused you to feel anxiety over how things might proceed. I apologize for that. I hope that you possess at least some understanding of the huge importance of the research you have already done (to say nothing of what you are obviously capable of doing in the future). My dream is that there will be a day when the pain you have been put through here pays huge dividends (I of course dream that the same will someday be true for me and my family).

Please keep your chin up and stay optimistic. The potential good here is 500 times bigger than the small-minded stuff. There’s got to be a way to make the good stuff happen and make the ugly stuff go away. We will find it together (I don’t mean just you and me but the entire community of investors and people living in free-market economies in general).

Please let me know if there are any promising avenues that you discover or any questions or concerns that you would like to direct to me. If you ever think I am walking an ill-chosen path, I would be grateful if you would let me know. I obviously don’t always get it all right. I need to count on my friends to steer me back to a better path when I take wrong steps.

Please take care.

Rob

Academic Researcher Wade Pfau: “I Would Not Be Surprised If the Market Timer Had to Go All the Way to 200/0 to Get a Strategy With the Same Risk as 100 Percent Stocks”

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Yesterday’s blog entry reported on two e-mails that I sent to Academic Researcher Wade Pfau on March 1, 2011. Wade sent his response the same day.

He said: “I think having that debate with Mel helped me to clarify some stuff in my mind, which I can more or less copy and paste into my paper after making some adjustments so that it sounds more “academic.”

In response to my suggestion that he consider looking at hypothetical portfolios that employed stock allocations of greater than 100 percent at times of low valuations, he said that this would not be difficult to do and that he would plan to do it in a future paper but not in the one he was preparing at the time. Wade told me that, based on the analysis of the historical data that he had been doing, “I would not be surprised if the market timer had to go all the way to 200/0 to get a strategy  with the same risk as 100% stocks.”

He added that: “The fact that you should only compare risk-adjusted returns is very basic in finance.  Academically, it is clear in Markowitz’s work from the 1950s.  But no one was acknowledging that they agree about this.”

I sent my response the next day. The text is set forth below.

Wade:

In the main paper, will you be able to use some of the tools you referred to in the Bogleheads post? I am referring to the risk-oriented ones (for example, the one that said the highest drop experienced for 100 percent stocks was x and the highest
drop experienced for 100/0 stocks was y)?

If you are able to do that, it would make me very happy. The discussion over whether that matters or not goes back to the very first day — May 13, 2002. I have been saying that VII must bring better numbers (I said this long before anyone knew what the numbers were — I’ve never viewed the numbers as being anything more than CONFIRMATION of what common sense tells us must be so) but I also have made a totally separate argument — that the numbers shown for VII are realistic while the numbers shown for Buy/Hold are not  because there are probably only a tiny number of investors in history who have stuck to Buy/Hold through an entire Bull/Bear cycle (at the moment of biggest loss from 1929 forward, the real loss was 80 percent real — it’s a rare individual who could stick with a high stock allocation through that).

John Walter Russell provided huge help in showing that the numbers for VII are better than for Buy/Hold (although I think your rolling 30-year period showing is more compelling). But I was either never able to explain the other point successfully to John or he was not familiar enough with the tools needed to make the point effectively (he was a systems engineer). He tried a few things but our efforts on this second point never produced much usable material. My focus has always been on the emotions side rather than the numbers side. So in my mind this is actually the bigger point (I have generally given up putting it forward largely because I have not been able to find statistical support for it and in this field that often seems to be the only sort of evidence that “counts”).

I would love to see more support for that point (I am certainly not trying to push here, I am just saying that I would be grateful to see it if there comes a day when it is something that can be provided).

There was an amazing conversation I once had with John Greaney, the Supreme Leader of the Goons, back at the Motley Fool board. The largest real loss in the record is 80 percent. John retired at age 41 and used his Old School SWR study to plan his early retirement. He retired with about $500,000 (that went to about $3 million during the bull years). I asked him what he would have done if, in the first three years of his retirement, the value of his portfolio had fallen to something not much above $100,000 (he goes with a 90 percent stock allocation). He said that he would have just stick with his 90 percent stock allocation because his SWR study proves that his plan cannot fail (that stocks would turn around and he would make all the money back plus a lot more).

My response (this was early 2003) was: “I’m going to take a brief Screaming Break now, everyone. I’ll be back in a little while.” I am certain that there were others in the room who agreed with me. But no one else dared to speak up.

Rob

Associate Professor Wade Pfau Has Contacted Trinity Study Authors re Analytical Errors in Their Safe Withdrawal Rate Study

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Wafe Pfau, Associate Professor of Economics at the National Graduate Institute for Policy Studies in Tokyo, Japan, has sent an e-mail to the authors of the famous (infamous?) Trinity study of safe withdrawal rates for retirees asking the authors whether it was their intent when preparing the study to identify the safe withdrawal rate for retirees. Here are his words:

“Okay, I took care of it. I was a little timid about contacting them, as I was publicly critical of their study in the past. But first I apologized to them for that. Then I explained my concerns about 4% for retirees since the mid-1990s. Valuations was a part of my list. I’ve even invited Prof. Walz to give a seminar at my university, as he is in Hong Kong during the spring term. This matter is settled.”

There’s been a debate raging on the internet re this question for nine years now. The debate is referred to as “The Great Safe Withdrawal Rate Debate.”

Numerous discussion boards and blogs have banned honest posting on the safe withdrawal rate matter after seeing the rage (which has at times evidenced itself in death threats, defamation and long-ongoing internet harassment campaigns) evidenced by those who believe in the Buy-and-Hold investing strategy when accurate reports of the safe withdrawal rate are posted. Buy-and-Holders view accurate reporting of the safe withdrawal rate as a threat to the dominant model for understanding how stock investing works.

The reason why the Old School safe withdrawal rate studies do not include an adjustment for valuations is that they are rooted in a belief in the Efficient Market Theory (developed by University of Chicago Economics Professor Eugene Fama), an academic construct that posits that the community of investors always considers all factors bearing on stock prices when setting stock prices and that overvaluation and undervaluation are thus logical impossibilities. Yale University Economics Professor Robert Shiller discredited the Efficient Market Theory (and the Buy-and-Hold strategy rooted in a belief in its principles) with research done in 1981 (and replicated many times in the three decades since) showing that valuations affect long-term returns. If valuations affect long-term returns, both overvaluation and undervaluation are obviously real phenomena.

Pfau has expressed numerous concerns about the Trinity study but does not share my view that the study needs to be corrected.

My view is that the study needs to be corrected because the safe withdrawal rate is the product of a mathematical calculation and it looks very bad when investors hear two wildly different reports as to the results of that mathematical calculation. Common sense tells us that something fishy is going on when different people make such wildly different claims for the result of the same mathematical calculation.

Thus, the friction generated by this “controversy” (there of course is no genuine controversy over what the numbers say — the historical stock-return data is public information and anyone who has ever gone to the trouble to check the data has found that Shiller is right that valuations affect long-term returns, at least in the 140 years of historical data available to us today) cannot go away without a resolution of the question of whether valuations really do affect long-term returns or not. I think it would be wonderful if as a society we could explore all of the amazing breakthrough insights that follow from Shiller’s research (I write weekly about these insights in my “Valuation-Informed Indexing” column at the www.ValueWalk.com site) and that only becomes possible when we open investing boards and blogs to honest posting on safe withdrawal rates and other critically important investment-related topics.

Pfau’s view is that it is possible that the Trinity authors did not intend to identify the safe withdrawal rate. He points out that the study uses the phrase “sustainable withdrawal rate” rather than “safe withdrawal rate.” I do not see the significance of this point given that the two phrases signify the same thing. A sustainable withdrawal rate is a safe withdrawal rate and a safe withdrawal rate is a sustainable withdrawal rate. I presume that “safe withdrawal rate” became the popular term because it is shorter.

Pfau also notes that the Trinity authors properly identify the withdrawal rate that has always survived historically. The problem with this argument is that the thousands of us who have expressed a desire that honest posting be permitted have been saying since May 2002 that the entire “controversy” could be put to rest in seconds if the Buy-and-Holders would be willing to refer to the number generated by the Trinity study (4 percent) as the Historical Surviving Withdrawal Rate (HSWR) rather than the Safe Withdrawal Rate (SWR). The Buy-and-Holders have been unwilling to consider this idea. If it were to become widely known that the Trinity study and the other Old School SWR studies report the HSWR rather than the SWR, the millions of investors who need to know the SWR to plan their retirements would lose interest in those studies. The SWR has great value as a planning tool. The HSWR does not.

John Greaney, the author of the Old School SWR study that appears at the www.RetireEarlyHomePage.com web site, has started a thread at the Motley Fool Retire Early board (honest posting on the subject of early retirement is no longer permitted at the board) suggesting that Pfau may be denied tenure because he has crossed Greaney by asking the authors of the Trinity study a question about their intent in preparing the study. The intimidation tactic is typical of Greaney’s behavior going back to the morning of May 13, 2002, when I put a post to that same board (at a time when honest posting on early retirement was not only permitted but encouraged) pointing out the analytical errors in the Old School studies.

The encouraging news is that, while in the old days, there would within a few hours have been scores of posts put forward by Buy-and-Holders endorsing Greaney’s intimidation tactics, in this case Greaney’s post has gone unanswered. This is how change happens. There’s a famous post by Ghandi in which he observes something to the effect (I am paraphrasing) that “first they ignore you, then they ridicule you, then they attack you, then they say that everyone knew you were right all along.”

I think it would be fair to say that Pfau’s suggestion that perhaps the Trinity authors had never intended to identify the safe withdrawal rate brings us to the “then they say that everyone knew that you were right all along” stage of this particular “battle.” Let’s all pray that the Trinity authors are able to work up the grace and courage to say something in response that pushes the ball even a little bit farther ahead.

Heaven help us all!

Financial Samurai “Can’t Understand the Rift” Behind Lindauer/Greaney Smear Campaign

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The Lindauer/Greaney Goons took their Smear Campaign to a thread put up last week at the Financial Samurai blog entitled “The Dark Side of Early Retirement.”

I objected with these words (Post #47):

“Of course I have never spammed your site or any other site one time in my entire life, Sam.

“My “reputation” is the result of the fact that I am the person who discovered the analytical errors in the Old School safe withdrawal rate studies back in May 2002. The former owner of the Early Retirement Forum (Bill Sholar) was a friend of mine in our Motley Fool days. He developed the FIRECalc retirement-planning calculator, which gets all the numbers wrong (it doesn’t include a valuations adjustment and that is the single most important factor that determines retirement success or failure). When I posted the accurate numbers at his site, Bill went nuts. Hundreds of other people expressed interest in being able to have honest discussions. Bill nixed that.

“Do you now understand why there is such a deep hatred of me among some of the people who congregate there? How would you feel if you not only had gotten the numbers wrong in a retirement study but had thereby caused lots of your friends to suffer failed retirements and had also banned honest posting on the topic at a retirement board? You would feel pretty darn bad about yourself. That’s how those people feel about themselves.

“You could be helping them out by writing about this matter. We need to get this all in the open so that people can return to sanity. I encourage you and all other personal finance bloggers to do so. Lots of people have been hurt, lots of boards and blogs have been destroyed or seriously damaged and those of us who care about the future of these communities should be doing what we can to help out.

“You’re a brave fellow, Sam. You’re perfect for this!”

Financial Samurai said in response: “Rob, I don’t fully understand the rift, hence I’m not the best one to help you debate. Good luck in fighting for what you believe in!

Greaney on Passion Saving:
“You’ll Have to Buy a Copy…Extraordinary!”

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My old friend John Greaney, owner of the RetireEarlyHomePage.com web site, has finally (I only had to remind you about 10 times, you bad boy!) gotten around to writing a review of my book Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.

I hope you won’t consider it bragging if I mention that Greaney kicks off his review by observing that “Mr. Bennett evidences an unusual skill.” That’s a kind thing to say. But we go back a long ways, fella. So what’s with this “Mr. Bennett” business? So far as I’m concerned, I’ll always be just plain old “Rob” to you and I hope that it will be okay with you if I always think of you as just plain old “John.”

I like to think that John was not too influenced by the fact that his name is the first name mentioned on the Acknowledgments page of my book. He was one of the posters who helped build up the Motley Fool board during its Golden Age. As I note in the book,”During its Golden Age (December 1999 through January 2001), the Motley Fool discussion board at which I first went public with the ideas in this book was the best resource on Planet Earth for learning how to win financial freedom early in life….That community’s ability to develop mind-bending insight after mind-bending insight showed the potential of properly administered discussion boards to do a lot of good for a lot of people.”

The gushing praise gets even more embarrassing in the next two paragraphs of the review. That’s where my old friend John describes my ideas as “extraordinary,” and flatly informs the many readers of his popular web site that “you’ll have to buy a copy.” Aw, shucks.

Perhaps John is overstating things just a wee bit. Still, it does my heart good to know that I lived up to the faith he put in me when he said in his review of my Secrets of Retiring Early report that, if I ever expanded the treatment of the Passion Saving concept put forward in that report into a book, “it’s sure to become the Bible of the Retire Early movement.” I said then that John’s assessment had special meaning to me, and that only goes double today.

I don’t feel comfortable quoting too much more from the review. Please read it for yourself.

Lest you think that John is totally lacking in objectivity when it comes to my work, though, I want you to know that he does include a few less complimentary passages to give the review at least the appearance of balance. For example, he notes that: “He’s been banned from most of them [the various Retire Early discussion boards] for posting in a demonstrably false and misleading manner.” He also observes that: “Few people bother reading or posting anything on his site.” So I don’t think it’s entirely fair to dismiss the review as a puff piece from the lead voice in my fan club.

Truth be told, though, there is a certain mash-note quality to some comments that John quotes from a poster on his discussion board who told me in one of our conversations held there that: “You give advice on budgeting…You give advice on career changes….Agree with you 100 percent.” I’m blushing.

After reading those words, I became a bit concerned that all this applause might go to my head. So I went looking for some suggestions for improvement put forward in this poster’s comments. In all honesty, these words were the closest that I could find to anything that I think it would be fair to describe as constructive criticism: “I’ve taken a look at your blog from time to time, and concluded that it is a massive heap of crap. I can’t find a bigger pile on the web.” So my friend “Disgusted in California” made at least a bit of an effort to tell both sides of the story too.

It’s really too much, guys. The only word I can think of to express my true feelings about all this is — “Extraordinary!”