A Rich Life

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

Valuation-Informed Indexing #149 — The New Consensus That the Safe Withdrawal Rate Studies Are In Error Is the First Step Toward Far Bigger Discoveries

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I’ve posted Entry #149 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The New Consensus That the Safe Withdrawal Rate Studies Are in Error Is the First Step Towards Far Bigger Discoveries.

Juicy Excerpt: The debate over whether it is necessary to take valuations into consideration when calculating the safe withdrawal rate has never been an intellectual debate. Intellectually, it was always as simple as determining the sum of two plus two to figure out that the Old School safe withdrawal rate studies were in error. Shiller showed with research produced in 1981 that valuations matter. The Old School studies don’t consider valuations. So the Old School studies get the numbers wrong. It didn’t take us 11 years to figure out that one.

What is has taken us 11 years to do is to come to begin to come to terms with what Shiller has taught us with his revolutionary research.

Knowing that valuations matter changes everything that we once thought we knew about how stock investing works. Everything. It’s not possible to overstate how big a change we are talking about here.

I talk about the implications in all my writings. I am the only one I know who does that. But all of us sense how big a deal this is.

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?

VII #85 — The Wall Street Journal Story That Didn’t Bark

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I’ve posted Entry #85 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Wall Street Journal Story That Didn’t Bark.

Juicy Excerpt: I’ve been telling people about the other half of the story for 10 years now. People often tell me that everything I say about investing makes perfect sense but that they just cannot bring themselves to go along with the ideas I put forward because the “experts” tell a very different story. So I was excited to see this article. The Wall Street Journal is of course a highly respected publication.

I was thinking that following this article we would see lots of publications publishing follow-up pieces. The New York Times would write a ten-part series on how we all were taken in by Buy-and-Hold and run it on the front page. Hundreds of blogs would start helping their readers learn about what the academic research of the past 30 years says about how to invest effectively. We would all agree to work together to bring the economic crisis to an end as soon as possible. That sort of thing.

We didn’t see any of that. Perhaps you’ve noticed.

ITNR #25 — The First Sign of Spring in our Economic Winter

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I’ve posted Entry #25 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called The First Sign of Spring In Our Economic Winter.

Juicy Excerpt #1: They’ve been trying to scare people. They’ve been using bully tactics. They are not reporting the full story. Those who know what the numbers say knew all along that they were giving dangerous advice. Hoo boy! This one article is not by itself going to bring an end to the economic crisis. But it’s a big deal. To understand why, you need to know the history that is being changed by the filing of this frank and bold report.

Juicy Excerpt #2: The Wall Street Journal column is only a first step. We are going to need to see hundreds of columns of this nature to change the minds of the millions of middle-class investors who have been bullied into believing that Get Rich Quick (it’s Get RIch Quick thinking to believe that stocks can offer good long-term returns when they are selling at three times fair value) can work. Lots of people are feeling a lot of pain as they come to the realization that they fell for the oldest trick in the book and delayed their financial freedom dreams by many years by doing so. It’s by telling the truth that we begin a healing process.

Brett Arends at the Wall Street Journal re The Market Timing Myth: “It’s Hooey”

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“It’s hooey.”

So says Brett Arends at the Wall Street Journal re the “myth” (his word) that investors do not need to be engaging in long-term market timing (while of course also avoiding short-term market timing).

The column is titled The Market Timing Myth. I’ve sent Brett an e-mail expressing my best wishes, letting him know of the work we have been doing in the Retire Early and Indexing discussion-board communities for eight years now, linking him to The Stock-Return Predictor, observing that he has a tiger by the tale, and thanking him for offering us the first clear sign of a coming Spring here in the darkness and cold of our Economic Winter.

Juicy Excerpt #1: “They leaving out more than half the story.”

Juicy Excerpt #2: “Don’t let scare stories dominate your investing approach. Don’t be bullied.”

Juicy Excerpt #3: “For years the investment industry has tried to scare clients into staying fully invested in stocks at all times.”

Juicy Excerpt #4: “It was clear as a bell that investors should have gotten out of stocks in 1929, in the mid-60s, and 10 years ago.”

Juicy Excerpt #5: “Anyone who followed the numbers would have avoided the 1929 crash, the 1970s and the past lost decade on Wall Street.”

When the Wall Street Journal starts telling the truth about Buy-and-Hold, it’s OVER  (all but some more stupid shouting by those seeking to “defend” this long-discredited “idea,” to be sure). Rave on, Brett Arends!