A Rich Life

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

“Wade Pfau Over and Over and Over Makes Clear That He Views Me as the Teacher and Himself as the Student in the 16 Months of E-Mail Correspondence in Which We Developed Together Our Breakthrough Research Showing Millions of Middle-Class Investors How to Reduce the Risk of Stock Investing by 70 Percent”

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Set forth below is the text of a comment that I recently put to this site’s blog:

At about nine minutes into this video you made, Rob, you claim credit for “at least 50% of the work that Wade Pfau put into his published research.” Do you suppose he agreed with your assessment?”

Do you suppose he agrees with your assessment?

Nothing could be more clear, Banned.

Here is the article at which I provide links to the blog entries reporting on the 16 months of e-mail correspondence in which we developed together our breakthrough research showing millions of middle-class investors how to reduce the risk of stock investing by 70 percent:

http://arichlife.passionsaving.com/the-buy-and-hold-crisis/corruption-in-the-investing-advice-field-the-wade-pfau-story/

Wade over and over and over makes clear that he views me as the teacher and himself as the student.

I obviously do not intend any dig at Wade with those words. Wade made a huge contribution and I have said publicly that his contribution merits a Nobel prize in Economics. I just happened to be placed in circumstances that permitted me to gain a jump of several years over him and that of course came through in the work we did together.

When Wade felt safe posting honestly, he had no problem saying such things. It was only after you Goons (with the implicit support of my good friend Jack Bogle) made clear that you would destroy his career if he continued to post honestly that Wade ever came forward with any comments 100 percent the opposite of the viewpoints he expressed over and over and over again during the 16 months in which he believed that there would be no penalties imposed on him for the “crime” of saying what he truly believed about safe withdrawal rates and many other critically important investment-related topics.

Rob

Valuation-Informed Indexing #146 — What’s Missing from the Wall Street Journal Article Saying “Goodbye” to the 4% Rule

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I’ve posted Entry #146 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called What’s Missing from the Wall Street Journal Article Saying “Goodbye” to the 4% Rule?

Juicy Excerpt: Making mistakes need not be such a terrible thing. It is often by making mistakes that we learn new things. But the learning process is short-circuited if we never ask the “Why?” question. The error in these studies are not hard to uncover. I saw it the first time I looked at one of them (the error is that the studies do not adjust for the valuation level that applies on the day the retirement begins). Should the author of the article not be interviewing people in this field to learn whether they have learned from the mistake and are taking steps to see that it is not repeated?

“The Buy-and-Hold Mafia Used Its Power and Money and Influence to Cover Up The Errors in Those Retirement Studies. If You Are Capable of Imagining a Scenario in Which the People Who Led the Cover-Up Don’t Go to Prison for a Long Time, You Are Capable of Imagining Something that I am not Capable of Imagining.”

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

We are all responsible for our own financial decisions.

There are millions of people who were in the process of planning retirements during the years 2002 through 2013. We “knew” as a society at that time that the Old School safe withdrawal rate studies got the numbers wildly wrong. Yet the millions of people who were planning retirements did not “know” this. Why? Because the Buy-and-Hold Mafia was employing death threats, board bannings, tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs to stop those millions of people from learning what they need to know.

Who is responsible for the losses, Pink? Who pays the bill?

The millions of middle-class people did the right thing. They didn’t act foolishly. They went on the internet to see what the peer-reviewed academic research says. They did all they possibly could do, no?

So why were they taken? Because the Buy-and-Hold Mafia did not use its power and money and influence to get those studies corrected as soon as possible. It instead used its power and money and influence to COVER UP the errors in those studies.

Now –

They can’t pay the bill. There is not enough money to pay the bill. So those people are going to suffer in horrible, horrible ways. They will be left destitute. In their old age. With no resources. After lifetimes of productive work. Because they did the right thing. Because they listened to the Wall Street Con Men who are promoted 24/7 on television and radio and newspapers and on the internet.

If you are capable of imagining a scenario in which the people who led the cover-up don’t go to prison for a long. long time, then you are capable of imagining something that I am not capable of imagining, Pink.

I certainly wish you all the best that this life has to offer a person, in any event.

Rob

“I Cannot Commit Perjury Myself. So I Cannot Make the Past 11 Years Go Away. I am 100% Sincere About Doing All That I Can (Short of Committing Perjury) to Help You Out.”

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

Such silly, impotent threats are all you have left in your empty life.

Time will tell the tale, GW.

That’s the drama of the thing.

Rob

Does endlessly repeating them help you distract yourself from the reality of your plight and help you get through the day? 

I repeat them because your behavior shows that they are the aspect of the matter that most concerns you.

If I could wave a magic wand in the air, I would do it in exchange for bringing the economic crisis to an end. I think it would be worth it 50 times over.

But I don’t have a magic wand. So my job is to come up with something else. The best that I have been able to come up with is to offer to do all I can to get the prison sentences reduced.

I understand that that may not be a good enough deal to get your support. I wouldn’t want to go to prison either. I get it, GW.

But I don’t have any other cards. I can’t commit perjury myself. So I cannot make the last 11 years go away.

I am 100 percent sincere about doing all that I can (short of committing perjury myself) to help. I think there is a good bit that I can do.

The other side of the story is that I cannot in honesty promise no prison terms. That’s not a call that is mine to make.

My view is that the best that I can do given the circumstances that apply is to offer to do everything in my power, to note that I believe that there is a good bit that I can do, and to be honest in saying that I personally do not believe that it is in my power to make everything A-OK for your Goons. I also honestly believe that the deal you would get prior to the next crash will be far, far better than the deal you will get after the next crash.

I’m your friend, GW. But I’m not an idiot. I do not want to go to prison myself. So you are going to have to recognize that there are limits to what a person in my circumstances can do.

If you can’t do that, then we wait until the crash and see how things play out. I don’t want that. But it’s not in my power to force it to play out otherwise. So I have to accept that that’s where things stand.

The reason I mention the prison sentences is that talking about the prison sentences is real and practical and positive and constructive and life-affirming. It’s an important piece of this puzzle that needs to be worked out. I will of course be happy when we are all dealing with a very different sort of puzzle pieces. I didn’t cause it to be played out this way, that was you and your Goon friends. I try to help out with the prison sentences because that is the best thing available to me to do today.

You’re always a few years behind the curve, GW. There would have been no financial liabilities or prison sentences in 2002. In the years immediately preceding the 2008 crash, my guess is that there would have been financial liabilities but not prison sentences. Now some sort of prison sentences are unavoidable and you are not willing to sign on to that. After the next crash, you will be wishing that shorter prison sentences were a possibility but I will at that time no longer be able to arrange for the reduced prison sentences that I believe I probably could arrange for today. By always being behind the curve, you always push your best options off the table.

But pay no attention to my strategy tips. I’m the dummy who discovered the errors in the Old School SWR studies 10 years before any of the Big Shots in this field. I’m the really, really dumb and really, really lucky guy.

I’ll continue to extend the hand of kindness to you as many times as I am able to do so. Because that’s what I would want a friend to do for me if the tables were turned. If you want to stop me from extending the hand of kindness to you, tell your pal John Greaney to shut down the board and I won’t be able to engage in such efforts any longer. You hear about my efforts to get the prison sentences reduced because he provides a forum for me to engage in such efforts. Blame yourself. Or blame Greaney. Or blame Bogle. Or blame whoever you want. I want to be able to sleep at night after the deed is done. So intend to continue to extend the hand of kindness to you regardless of how slight I believe the odds are that you will ever work up the sense and courage to extend your hand in return.

I wish you all good things, in any event.

Rob

Such silly, impotent threats

It’s common for those making impotent threats to have 140 endorsements of their work on the home page of their blog, some from the biggest names in the field. It’s common for those making impotent threats to have an academic researcher spend 16 months working with them to develop research that in the researcher’s assessment is the most important investing research produced in three decades. it’s common for those making impotent threats to have the Wall Street Journal write about findings they talked about on public discussion boards nearly 11 years earlier as if they were the new discoveries of the top experts in the field.

I forgot.

Rob

“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

“There’s Another Story Here — The Story of Why This [The Errors in the Old School Safe Withdrawal Rate Studies] Is Only Coming Out Now”

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The Wall Street Journal on March 1 published an article titled Say Goodbye to the 4% Rule for Retirement.

Juicy Excerpt: Conventional wisdom says you can take 4% from your savings the first year of retirement, and then that amount plus more to account for inflation each year, without running out of money for at least three decades….In recent years, the 4% rule has been thrown into doubt.

Set forth below is the text of an e-mail that I sent to Kelly Greene, the author of the article. The subject box for the e-mail reads: “It’s More Than Just the SWR Studies That Need to Be Corrected.”

Kelly:

My name is Rob Bennett. My bio is here.

Congratulations on your article “Say Goodbye to the 4% Rule for Retirement.” This is important stuff.

There’s another story here — the story of why this is only coming out now (I have been writing about the errors in the Old School safe withdrawal rate studies going back to May 2002). The problem with the old studies is that they do not adjust the safe withdrawal rate for valuations. That same error is made in all other areas of investing analysis.

The error carries over from the days when there was a widespread belief in the Efficient Market Theory (EMT). If the EMT were legitimate, the Old School SWR studies would work. Yale Economics Professor Robert Shiller discredited the EMT with his 1981 research showing that valuations affect long-term returns. If valuations matter (there is now 32 years of peer-reviewed academic research confirming Shiller’s 1981 finding), it is not possible to make ANY investment decision without taking the valuation level that applies at the time the choice is being made into account.

For example, a regression analysis of the historical return data shows that the most likely 10-year annualized return in 1982 was 15 percent real. In 2000, the number was a negative 1 percent real. There is no one stock allocation that makes sense in both sets of circumstances. Those who follow Buy-and-Hold strategies (strategies in which the investor keeps his stock allocation stable at all times) are thereby permitting their risk profile to get wildly out of whack. Investors must CHANGE their stock allocations in response to big shifts in valuations to have any realistic hope of long-term investing success.

I have a calculator at my web site (“The Retirement Risk Evaluator”) that identifies the SWR that applies at all possible P/E10 levels.

I also have a calculator (“The Stock-Return Predictor”) that performs the regression analysis needed to identify the most likely annualized 10-year return starting from any possible P/E10 level.

I have done research with Wade Pfau showing that investors who take valuations into consideration when setting their stock allocations thereby reduce the risk of stock investing by 70 percent (Please see the graphic on Page 11 which shows that the Maximum Portfolio Drawdown drops from 60 percent to 20 percent for investors who take valuations into consideration). The reason why we have as a society not yet moved away from promotion of Buy-and-Hold strategies is not that the research-supported case is not strong. It is that this change is so big that it is hard for those who are schooled in the conventional thinking to accept the far-reaching (and very exciting) implications of the change.

Please let me know if you have questions.

I wish you the best of luck in all your future endeavors.

Rob

Economics Professor Valeriy Zakamulin: “If the Bubble Occurs, It Is Rational to Participate In It”

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I’ve been e-mailing lots of people to let them know about my article reporting on The Silencing of Academic Researcher Wade Pfau by the Buy-and-Hold Mafia.

Yesterday’s blog entry reported on my correspondence with Economics Professor Valeriy Zakamulin. Set forth below is the text of an e-mail sent by Valeriy in response to the e-mail of mine detailed in the earlier blog entry:

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Rob:

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First of all I would like to comment the following:

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The right way to think about this (in my view!) is that P/E10 tells you the extent of risk in the market. It never identifies the precise return that will apply in 10 years. It always identifies the range of possible returns (the range is 6 points in either direction — when prices are at fair-value levels, the range is from an annualized 10-year return of 0 on the down side to an annualized return of 12 percent real on the up side) and assigns rough probabilities to an actual outcome falling at any point on the range of possibilities (the most likely 10-year outcome starting from a time of fair-value prices is an annualized return of 6 percent real).
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What I am telling in this context is that if the PE10 ratio is way too high or way too low, then the precision of your forecast (the range of possible outcomes as measured for example by plus minus one standard deviation) is rather good. If the PE10 ratio is close to its long-run mean, then the range of possible outcomes is too wide to be useful for forecasting.

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My comment on the following: If we tell people how stock investing works, we will never see such extreme P/E10 values again. Once we get the word out, stock prices become self-regulating. If people understand that they MUST change their stock allocations in response to big price swings, each swing upward will bring on sales and those sales will pull prices back to fair-value levels again. There can never be another bull market or another bear market once we permit open discussion of Shiller’s findings. 

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First of all, it seems to me that we agree that people are not fully rational. Second, it will not be correct to say that it is rational that the PE10 ratio should always be about 15. In a rational expectation model the value of PE (hence PE10) depends on some, sometimes unobservable, parameters. For example, the investor’s risk aversion, the derivative of which is the market price of risk. Third, I do believe that the Shiller’s work did its job, now many people understand that it is not rational to have a PE10 value of 44. Forth, despite this, even in a rational expectation framework if the bubble occurs, it is rational to participate in it. As an example, image that you are in 1993 and you see a bubble in the stock market, yet the economic outlook is very bright, the investors’ optimism is high, and it looks like the bull market will continue for a long time. Will you get out of the stocks and miss the bull market till 2001? I doubt.

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Valeriy

25-Year CPA Lyn Graham: “One Direction for a Person Working With Such Perceived Threats Is to Work Under the Visible Level. The Other Is to Be Very Visible and Make It Difficult for the Threats to Be Carried Out Without Notice.”

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I’ve been sending e-mails to numerous people, letting them know about my article reporting on The Silencing of Academic Researcher Wade Pfau by the Buy-and-Hold Mafia.

Yesterday’s blog entry reported on my correspondence with 25-Year CPA Lyn Graham. Set forth below is Lyn’s response:

The forthcoming market crash is foretold and purposeful, and no investment strategy I have heard or can think of is the solution. It is a sad state of affairs. Reagan warned we are only a generation away from losing our freedoms. I never took that as a prophesy but ….
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Economic success breeds freedom, and economic success is being destroyed, purposefully.
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One direction for a person working with such perceived threats is to work under the visible level. The other is to be very visible and make it difficult for the threats to be carried out without notice.
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I am not sure I have much to add. Good luck.
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I replied:
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Lyn:

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I’ve definitely chosen the “Be Very Visible” path!
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I want to end the conversation on an optimistic note. Shiller’s ideas represent a very big advance. I truly think I speak as an expert on this question because no one else has spent as much time exploring the implications of his ideas. Think where we would be had we failed to achieve any advances in electronics and computer and software technology for the past 32 years. We’ve given up a lot by closing off advances in our understanding of how stock investing works. The good news is that, when those paths open to us, we are going to see huge increases in our economy’s ability to generate wealth for us all in a very short amount of time.
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I am not saying that everything is roses. But I think that sometimes it is darkest before the dawn and I don’t think that is pure coincidence. I think it may sometimes take a spell of darkness to help the humans appreciate why it is important always to be moving ahead. I can see things getting much worse than they are today and then suddenly turning very positive indeed.
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Even if I am wrong, it’s probably better to be optimistic than not to be as it is difficult to work up the energy to work hard for good solutions once one becomes overly pessimistic. If it were just me, perhaps I would become discouraged. I have two young boys. So I feel that I have no choice but to maintain hope for the future even when my eyes see things that otherwise might push me in the other direction.
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Rob

“I Have Attended Two Years of the Financial Bloggers Conference, Letting All My Fellow Bloggers Know How Important It Is That We All Work to Bring the Campaign of Terror to a Full and Complete Stop. I Have a Funny Feeling That I Am Covered re This One.”

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Set forth below is the text of a comment that I recently put to a discussion thread at this blog:

Rob,

Take a look at this:

http://www.wisegeek.com/what-are-internet-harassment-laws.htm

It looks like this describes what you are doing.

Here’s an article where I report on the Campaign of Terror of which Wade and I and many other good people have been victims:

http://www.passionsaving.com/internet-harassment.html

I have contacted my congressman, Sparky. I have contacted the Purcellville police. They have a file re this matter. I have contacted the FBI. I have contacted numerous lawyers. I have contacted a special division of the Virginia law enforcement authorities that deals with internet crimes. I have contacted the site owners who permitted abusive posting or criminal behavior at their sites. I have sent 9600 e-mails (it will be 9700 by the end of today) to my fellow citizens letting them know of the 10-year cover-up of the errors in the Old School retirement studies and how it has been carried out through the use of actions that constitute criminal financial fraud. I have written scores of guest blog entries on this matter. I have created five unique calculators that help people learn what they need to know to overcome the effects of this fraudulent enterprise. I have posted hundreds of thousands of comments at discussion boards and blogs. I have prayed. I have written and talked this over with a good number of the biggest names in the field, including Jack Bogle and Rob Arnott and Scott Burns and William Bernstein and Larry Swedroe. I have recorded 200 hour-long podcasts. I encouraged John Walter Russell to create an entire web site featuring his amazing research. I worked with Wade Pfau for 16 months telling him what he needed to know to prepare the most important research paper published in this field in the past 30 years. I write a daily blog devoted soley to discussion of these matters. I have 200 articles at my web site relating to these matters. I have attended two years of the Financial Bloggers Conference, letting all my fellow bloggers know how important it is that we all work to bring the Campaign of Terror to a full and complete stop by the close of today’s business. I talk about this to my friends at parties and Little League games and picnics and when I bring my boys to the pool. I have prepared a first draft of a book on the subject.

I have a funny feeling that I am covered re this one, my old friend.

Just one of those crazy hunches that I experience from time to time.

I naturally wish you all the best that this life has to offer a person.

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?