Special Release: Introduction

Research on Safe Withdrawal Rates

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Special Release: Introduction

Post by JWR1945 » Wed Jul 23, 2003 6:13 am

Special Release: Introduction

I am pleased to release two special reports about Price-Adjusted Safe Withdrawal Rates. I have had them on file since late September and early October of last year. I have been waiting for a suitable time and a suitable posting environment. This is the time and this is the place.

I draw attention to two signature events:
1. Mr. Ed Easterling has agreed to join us for our first Night with the NFB Group special event. It is time to celebrate.
2. Peteyperson's innovative withdrawal strategy based upon intrinsic values.

Up until this time, I have withheld these posts from everybody except hocus (initially) and BenSolar (later on).

I am sure that these two posts have had much to do with hocus's firm position regarding valuations. He has known all along and with absolute certainty that there really is such a thing as Price-Adjusted Safe Withdrawal Rates. Yet, it was simply by his asking for someone to make such a calculation that the posting environment elsewhere degenerated and became unsuitable for any kind of reasoned discussion.

I have been willing to withhold these posts so long as their absence has not caused any harm. I did release them to BenSolar, along with a request for confidentiality which he has honored, to help him avoid some dead ends as he looked into the effects of valuations on Safe Withdrawal Rates. As for those close to retirement, however, they have been living in times of exceedingly high valuations. It has not been important for them to know what they can do in times of typical and low valuations. They have had sufficient information available to them to make the right decisions.

Things are different now. Peteyperson is developing a strategy based upon intrinsic value. Intrinsic value does require us to know what happens when valuations are typical and when they are low. As I have mentioned at other times, you cannot simply scale the results for a high level of safety (e.g., 95% to 100%) to a middle level of safety (e.g., 50%). You do not take something like the 4% take out number and work from there. You need to address intrinsic value directly. The methodology that I developed to calculate Price-Adjusted Safe Withdrawal Rates applies to peteyperson's situation. It provides an approach suitable for intrinsic valuations. Better methods may be developed in the future. This one exists now.

In addition, my investigation into big swings in market prices has divided history into two groups, roughly associated with 1920. The market behaved differently before and after 1920 in several respects. The most obvious was that there was a prolonged period between a time of high valuations (with P/E10 equal to 20 or more) and a pronounced market downswing. After 1920, portfolio problems were visible by the eleventh year. The Price-Adjusted Safe Withdrawal Rate methodology may give us better insight as to the extent that qualitative differences before and after 1920 dominate subsequent portfolio safety results.

I cannot offer enough praise to El Supremo for maintaining a pleasant and constructive posting environment.

Have fun.

John R.

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