CTVR80 versus Earnings Yield

Research on Safe Withdrawal Rates

Moderator: hocus2004

JWR1945
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Post by JWR1945 »

Benoit Mandelbrot has done an excellent job of simulating markets in a way that looks realistic. All of his cautions apply. I reject the notion that the underlying statistics are as well behaved as standard, Gaussian (bell shaped) statistics would imply.

I like his suggestion that, from a theoretical standpoint, all markets are the same. The key has to do with human behavior and human interactions. There is a certain amount of consistency with some of Wolfram's findings in A New Kind of Science. Even very simple machines that are entirely deterministic can produce behavior that is exceedingly complex. This includes fractal behavior and also true randomness. Many simple machines continue to behave in the same general, overall manner even when subjected to external inputs that differ greatly. A very simple list of human interactions might be able to capture much of the statistical behavior of markets.

I use the standard, normal (i.e., Gaussian, bell shaped) approximation when I calculate confidence levels. I do not have much faith in its accuracy.

I do not use confidence levels higher than 90% (two sided) because I consider claims of higher confidence to be misleading. I doubt that we can accurately describe the actual statistics any better than that even when a nonparametric statistical test (such as one using the binomial distribution) indicates otherwise.

The problem has to do with the underlying assumptions that are needed for any statistical test to be applicable.

There is a high probability that the future will differ from the past in a manner that we do not take into consideration.

I have observed that every generation of investors is blindsided in some way. Looking backwards, everything seems obvious. Looking forward at the time, the future came as a surprise. My own assessment of this time is that many people are going to be blindsided by lower than expected stock market returns in the next decade or two. Lots of voices are urging caution. Few people are listening.

Have fun.

John R.
Mike
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Post by Mike »

My own assessment of this time is that many people are going to be blindsided by lower than expected stock market returns in the next decade or two.
That could make the new Social Security private accounts a disaster for anyone middle aged or above. They will lose part of their government guaranteed, inflation adjusted pension in return for a small piece of the dangerously over valued S&P. If they are behind the curve on their 401k contributions, which are mostly S&P also, they will not have the safety net that past generations had.
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Post by JWR1945 »

Mike
..That could make the new Social Security private accounts a disaster for anyone middle aged or above. They will lose part of their government guaranteed, inflation adjusted pension in return for a small piece of the dangerously over valued S&P.
We will have to see the details. In past proposals, there has been an upper age limit in place during the transition years. IIRC, it was around 40. In addition, owning a private account has been voluntary. [The system would be public, but the accounts would be privately owned, similar to the Federal Employees' Thrift Savings Plan.] The default option at all ages would be to stay with the current system.

Projections of Social Security benefits are bleak. There will be too few workers supporting recipients in ten to twenty years. Increases in today's benefits exacerbate problems in the future (including the most recent changes to Medicare). Even if the Social Security system remains in place, the annualized return for people now in their thirties is estimated to be about 1%. [I do not know whether this includes an adjustment for inflation. I assume so since most economic data are reported in real dollars.]

The details are exceedingly important. It is generally accepted, however, that new money from the General Fund will be needed during the transition regardless of the details.

Have fun.

John R.
hocus2004
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Post by hocus2004 »

"Lots of voices are urging caution. Few people are listening. "

It's true that there are some not listening. It is also true that there are some who are listening intently. My sense of things is that the largest group is the group in the middle--those who are listening up to a point but who are not yet able to make enough sense of the words of those urging caution to join in the discussion too much themselves.

If you look only at the surface of the SWR discussions, you could easily be led to believe that it is a minority view that there is something terribly wrong with the REHP study. That is not at all my sense of things. We have seen the same pattern play out at three different board communities. When the SWR topic comes up for the first time in a new community, there is great interest. When ugliness enters the picture, the interest diminishes. The lack of participation we experience at this board is not the result of a lack of interest in the subject matter. It is the result of an intense dislike for the ugliness that has been injected into these discussions by the DCMs.

Ataloss once had a signature line that summed things up well. It said "How can you win a debate if there is no one paying attention?" The DCM strategy from the early days was not to win a reasoned argument. It was to poison the discussions so that those in the middle--those not convinced of the case for the data-based SWR but open to hearing out the argument--would opt out of participation.

The majority of the community does not favor the DCMs I know this because there are so many posts in the archives in which requests are made for an end to the ugliness obtained 40 or 50 or 60 or 70 recs. Those sorts of rec counts are impressive. And we didn't get those sorts of rec counts once or twice. We got them repeatedly.

Where we lose is on the question of intensity. The DCMs are ten times as intense as these middle-ground community members. The middle-ground posters would like to be able to hear both sides of the story, but they are not going to fight very hard to make it happen. The DCMs are willing to run over their grandmothers to block reasoned debate from moving forward. The DCMs don't have the numbers. They have the intensity, though, and, so far, that's been enough.

The middle-ground posters are not intense because as of today they don't have anything to be intense about. They have never made use of the data-based SWR tool. How can they be expected to fight for something that they have never made use of? The data-based tool is a new tool. To appreciate what it can do for them, people need to be able to ask questions about it, to share in a give-and-take discussion. That is exactly what the DCMs have been sure not to permit them to do.

My point here is that I do not think that most people are being obstinate in failing to learn about the data-based tool. My sense is that most want to be able to learn about it, but do not think that they should be required to walk through fire to do so. People do not get paid to post here. People do not think that they should subject themselves to death threats and other such nonsense just because they want to engage in discussions of what the historical data says re SWRs. They have a point.

It is our job to reassure people. It is our job to create an environment in which people feel free to make whatever comments they wish and to ask whatever questions they wish without having to worry that the powers that be are going to crush them for doing so. We need a few leaders to speak up in defense of the wishes of the posters in the middle. That's what leadership is all about, doing the hard thing when the hard thing very much needs to be done.

People are not participating to the extent that we would like to see them do so. It's important that we keep in mind that many, many posters have made clear that they would like to be able to participate a whole bunch more than they have been able to in the past. We need to take care of the things that we are responsible for taking care of, and the rest will follow. People love the issue. People hate the ugliness. So we need to do what we can to rein in the ugliness and to allow discussions of the issues to take center stage.

Everyone won't buy in to the new tool regardless, of course. It is not reasonable to expect that. What matters is that people should be given the chance to ask the questions they need to ask to decide for themselves what sorts of investment strategies they want to pursue.
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Post by JWR1945 »

hocus2004 wrote:Everyone won't buy in to the new tool regardless, of course. It is not reasonable to expect that. What matters is that people should be given the chance to ask the questions they need to ask to decide for themselves what sorts of investment strategies they want to pursue.
Here is a subtle but important point. They need to be able to do more than to ask questions. They need to be allowed to contribute without fear of embarrassment.

I believe that many people have misinterpreted our actions against those who engage in word-game posts. We have seen enough word-game posts to be able to recognize them. Others have not.

My desire is to treat new ideas seriously and to build upon them. I offer as an example my research into dividend-based strategies. Not only was my research successful, it improved the reputations of some successful investors who had been treated poorly.

Have fun.

John R.
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Post by hocus2004 »

"Here is a subtle but important point....They need to be allowed to contribute without fear of embarrassment. I believe that many people have misinterpreted our actions against those who engage in word-game posts."

That's a great point, JWR1945. The absolute last thing that we want to do is to make anyone who is sincere feel that he or she needs to watch what he or she says here. If there is anyone out there reading these words who has ever had concerns along these lines, I would much appreciate it if you would come forward and let us know. If we are sending out a vibe that is making people feel uneasy about posting here, we need to change that vibe in a big way.

The important distinction is one of motivation. Someone who is expressing a sincerely held viewpoint is not engaging in word games. A word game post is a post that is insincere, a post put up solely to disrupt.

It's not easy to determine motivation, of course. It is generally only when a poster has a long track record that this can be done. For example, I know that intercst is being insincere when he says that TIPS are a fixed-income investment because he describes properly how TIPS work at his web site. When he says that the income paid on a TIPS is not adjusted for inflation, he is not making an innocent error. He is engaging in deliberate deception. I think we should have zero tolerance for that sort of thing. We of course want not only to tolerate but to encourage those who are offering sincere comments, whether they are in agreement or in disagreement with our own.

I will give you an example of a thread that has long troubled me that lends some support to what you are saying above. There is a thread from the days when this site's Index Funds board was at the MSN site in which Wanderer and Ataloss were talking about The Great SWR Debate, which was then going on at the Motley Fool board. Wanderer was highly supportive of my efforts in those days. He once told me that he tried to visit the Motley Fool board daily just so that he could give a rec to each SWR post that I put up. He made an observation in this MSN site thread that struck me as very strange.

His comments were generally supportive of me. But he had one line where he said something about a "mistake" that I had made and then sort of dismissed it as not being that important in the grand scheme of things. He didn't say what he thought the mistake was. I've always wished that he would tell me so that I could determine whether it really was a mistake or not. This seems important to me because he clearly was not aiming to engage in unfair criticism of me at the time. He was a big supporter. Yet he thought that I had made a mistake. I of course very much want to know about any genuine mistakes that I have made.

A big problem in these discussions is that, once they turned ugly, it became very hard to know when people were shooting straight and when they were not. If someone puts up six deceptive posts in a row and then says something genuine in the seventh, the tendency is to dismiss it as more nonsense because you have no way of knowing whether it is just more deception or not. I very much wish that people would try to speak more frankly. The airing of genuinely felt criticisms can be very healthy. In contrast, using deception as a tactic to smear someone is not ever cosntructive.

There's an idea I have wondered about from time to time that might possibly help a little, JWR1945. Please feel free to reject this idea out of hand if you do not think it is a good one. I am not sure myself.

You have come to be a big-time supporter of the ideas on SWRs that I first put forward in my May 13, 2002, post at the Motley Fool board. You were supportive in important ways from the beginning (I believe it was Day Four when you did your first analysis of the data and saw that it lent support to what I was saying). But there were also some significant points on which you started out thinking that I was making a "mistake" and then over time came around to my view. Would it be possible for you to describe a bit what made you so skeptical about some of my ideas in the days when you did not buy into them? Perhaps some others who are skeptical for simular reasons today would be able to relate to something you could put forward along those lines.

For example, I remember an e-mail exchange with you in which you said that you thought that I was offering something of value but that you did not think that it was appropriate for me to use the phrase "safe withdrawal rate" to describe what I was doing. That was early on. Later on, there was the poll that Ataloss put up asking whether people thought that the REHP study was "analytically invalid." You did not say at the time that you thought it was, so you either though at the time that it was valid or at least had doubts as to whether it was invalid or not. Perhaps a description of how you came around would help people to grow more comfortable with the idea of coming around themselves.

I don't at all want people to feel uneasy about offering dissenting views. That is the last thing that I want to do. One problem I have is that I developed the data-based tool back in 1996. I have been working with this tool for a long time, so it has become second nature to me to examine SWR issues through the data-based lense. I get the sense that others have a hard time shifting from the conventional methodology way of looking at things to the data-based way of looking at things. I want to help, but I wonder if it has been too long since I had any confidence in the conventional methodology for me to be able to fully appreciate the concerns that people have in making the shift in thought processes.

You raise an important point with this post. I say again that I do not ever want to do anything to make any sincere poster feel embarassment about expressing his or her views here. I do want those engaging in word games (those who are not trying to advance the discussions) to keep their distance. But all sincere comments--whether supportive or critical--are warmly welcomed.
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Post by JWR1945 »


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Post by JWR1945 »

This is why definitions are important.

There has been an erroneous belief that questioning the Retire Early Safe Withdrawal Rate study is the same as questioning the Historical Sequence method for determining Safe Withdrawal Rates.

Safe Withdrawal Rates, when defined properly, are predictions, looking forward. They are different from the outputs of the Historical Sequence method, Historical Surviving Withdrawal Rates, which look backward. Once this distinction is made, it is possible to identify the problems of the Retire Early Safe Withdrawal Rate study without challenging the usefulness of the Historical Sequence method.

The Retire Early Safe Withdrawal Rate study asserts that the lower bound of Historical Surviving Withdrawal Rates is the same as the Safe Withdrawal Rate, looking forward. This assertion is based on the plausibility argument that the historical record, because of its wide range of economic conditions, contains conditions that are representative of today's market.

Although the study does not include confidence limits, this is not a serious limitation. One can add confidence limits by fitting a normal (Gaussian, bell-shaped) distribution or possibly something more sophisticated. In any event, the confidence level associated with the lower bound turn out to be in the neighborhood of 97% or 98%. This level is more than adequate given the general level of uncertainty regarding the future.

This is entirely reasonable until one is able to discern the effects of valuations. As soon as we can relate valuations and Historical Surviving Withdrawal Rates, we can immediately make better predictions. We can establish confidence limits related to valuations and the effects of valuations. We can calculate Safe Withdrawal Rates more accurately and more precisely.

Another result is immediately apparent. The historical record does not include conditions that are representative of today's market. Today's market is well outside of the range valuations found in the historical record. This is certainly true in terms of P/E10 and dividend yields. This is likely to be true with other measures of valuation such as Tobin's q.

We have separated the Historical Sequence method from the Retire Early Safe Withdrawal Rate study. In addition, we have proved that the critical assumption in the study, that the lower bound of Historical Surviving Withdrawal Rates equals the Safe Withdrawal Rate, is false. But what people feared, that rejecting the study would be the equivalent to rejecting the Historical Sequence method, has turned out to be the exact opposite of what has happened. The Historical Sequence method, instead of being discredited, has gained an even more prominent role. It is the central element for calculating accurate Safe Withdrawal Rates.

There were two critical advances necessary to reach this stage. It was necessary to identify a suitable measure of valuation and it was necessary to distinguish between the historical record (the Historical Surviving Withdrawal Rates) and predictions of the future (Safe Withdrawal Rates).

Finding a suitable measure of valuation was the first objective of the research. Once identified, we have been able to use it in numerous ways.

To distinguish between Historical Surviving Withdrawal Rates and Safe Withdrawal Rates has required carefully thought out, precise definitions.

Have fun.

John R.
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Post by hocus2004 »

"I had accepted the common wisdom that the market cannot be timed successfully over long periods of time. What I had missed was that this is a new kind of timing. It is long-term timing. "

I too bought into the conventional ideas prior to the time when I began putting together a plan for early retirement (or early financial independence, or whatever you want to call it). One naturally develops an interest in assessing the long-term value of income streams once one starts down the road of counting on those income streams to pay one's bills starting at an early stage of life.

I think that one of the things that people have a hard time accepting is that we have come up with such amazing breakthrough insights on a discussion board. People think of discussion boards as places where people talk over the findings of experts rather than as places where the experts themselves meet to do their research. What people are missing is that, when it comes to early retirement (or early financial independence) WE are the experts. We are pioneers. Not many have done this before us, so there are not many experts to look to for guidance. We are writing the rule book at the various boards as we proceed day by day with our discussions.

If you retire at 65, you are in a winding-down stage of life. You don't need to focus so much on preserving ongoing income streams. Your concern is just that your portfolio last x number of years. Having a portfolio last x number of years is not the same thing as having a permanent income stream of y guaranteed value. If you "retire" at age 40, it is too early in life to be winding things down and it is too early to be satisfied with investments that can only cover your bills for two or three decades. You need solid income streams that you can count on for a long period of time.

SWR analysis is well-suited to assessing the long-term value of income streams. This is its real power. I regret that many people seem to have gotten the wrong impression about what it is that SWR analysis DOES. People who have learned about SWR analysis from descriptions of the conventional methodology tool have come to view SWR analysis as a far more limited tool than it really is.

I didn't make my discoveries of the flaws of the conventional methodology because I am smarter than all who came before me. I made these discoveries because I was using SWR analysis for a different purpose than the one for which most of those who came before were using it. Most who made use of the conventional methodology were not using it to retire early, so they were not as focused on income streams. I was. So I was checking things out from a different perspective. It was this difference in perspective that led me to the insights that caused me to develop the data-based SWR tool.
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Post by hocus2004 »

"I had no idea early-on that we would ever be as successful in determining the effects of valuations as we have been. I did not even know how to characterize valuations back then. "

Again, I was in the same boat when I started out. I had some vague sense that valuations probably mattered somewhat, but that is as far as it went. I had most of my money in stocks, just like everybody else. The idea that there was some valuation reason not to do what everyone else was doing never occured to me until the days when I started doing the research needed to craft my Retire Early plan.

This goes to the point that is sometimes put forward that all I have done with my SWR work is to say that valuation matters, and that I am obviously not the first to have said that. In a surface sense, that is true. I am certainly not the first person to say that valuation matters. What I am is the first person to say that valuation matters IN THE SWR CONTEXT. No one had ever applied a valuation adjustment to an historical-sequence SWR analysis before. It is the COMBINATION of valuation assessments and SWR analysis that makes the data-based SWR tool so powerful.

Knowing that valuation matters is nice, but the "valuation matters" insight is often not an actionable one. Say thar you accept that valuation matters. What are you supposed to do about it? I'll tell you what most people do. Most people really do accept that valuation matters, you know. We had a poll on the FIRE board once on this question and about 80 percent said that valuation matters. Getting people to accept that proposition is not the real problem. People know that valuation matters but THEY DON'T KNOW HOW MUCH. The "valuation matters" insight does not answer this question. So most people file away the "valuation matters" insight without doing much of anything with it.

The data-based SWR tool answers the "how much?" question. The data-based tool provides actionable insights. It translates this "valuation matters" insight into numbers, and that is what you need to craft informed investment strategies. Words are good, but ultimately you have to have numbers when you are dealing with money, which is measured in dollars, which are counted through the use of numbers.

The data-based tool, like a Reese's peanut butter cup, is the marriage of two wonderful things that never tasted quite so good by themselves as they do when combined. Chocolate is nice and peanut butter is nice. But the combination--Wow! The "valuation matters" insight is nice, and the idea of making a quantified assessment of the probabilities of various long-term investment return possibilities (that's what SWR analysis is) is nice. But again, the wow factor comes into play only when you mix these two. Put them together and you have a tool of a power far greater than the combination of the powers possessed by each of the tools standing alone. One plus one in this case equals eight.

At today's valuations the SWR for an 80 percent stock portfolio is 2.5 percent. That means that, if stocks perform in the future as they have in the past, a withdrawal rate of anywhere from 2.5 percent to 5.7 might work. Say that we were at far lower valuation levels, valuation levels where the SWR was 5.7. In BOTH cases, someone could say that "it is possible that a 5.7 take-out will work for a retirement starting today." Do you see how incredibly confusing that makes things? Do you see why it is ordinarily so hard to get a fix on the effect that changes in valuations have on one's long-term investment return? You have two valuation scenarios miles apart and each shows a possibility of having the same take-out number working out. If the same number can work out in such wildly different scenarios,how useful is this "valuation matters" insight afterall?

SWR analysis solves the problem. When you are determining an SWR, you are not looking at the entire spectrum of return possibilities. You are focused like a laser beam on one particular possible outcome--the worst-case scenario, presuming that stocks perform in the future as they have in the past. Calculate that number for each of the two scenarios described above, and you come up with dramatically different results. By focusing your analysis, you produce powerful insights.

What you are really doing with SWR analysis is determining the intrinsic value of your stock investment. It is maddening that William Bernstein devotes an entire chapter of "The Four Pillars of Investing" to the valuation questions that drive the data-based tool and then puts forward the statement that it is impossible to determine the intrinsic value of a stock purchase. Of course it is possible! The same guy who tells us it is impossible devoted an entire chapter of his book to telling us how it is done!

Bernstein gets it haflway and misses it halfway. Why? Because Bernstein is not aiming to retire early. He is looking at this stuff from the conventional perspective, so a good number of the implications just didn't click for him, He is smart enough to see that it is not possible to calculate the SWR without taking valuation into account.. But he is not coming at this from the perspective required for him to see that calculating SWRs properly reveals the intrinsic value of a stock purchase.

Again, we discovered these things because we are doing something different than what people like William Bernstein are doing. We are the leaders in this field. It is perfectly natural that we would be the ones to break new ground. The rest of the world will catch up to us in time. None of us should be troubled that we have gone places where no one has gone before. That is what those with an intense interest in winning financial freedom early in life are SUPPOSED to do.
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Post by hocus2004 »

"It seemed likely that any changes to the Retire Early Safe Withdrawal Rate study would be no more than minor refinements. I had greatly underestimated the magnitude of its errors."

You had a post last week where you provided a listing of the SWRs that applied for all of the various years. My recollection is that the highest SWR for recent years was about 9 percent in 1982. The lowest SWR for recent years was the 1.6 percent for 2000. There is an immense difference between those two numbers.

These numbers show as clearly as it can possibly be shown how absurd it is for anyone to argue that the conventional methodology studies provide a reasonable rule of thumb number. Is 4 percent somewhere between 1.6 percent and 9 percent? Yes. Is 4 percent close enough to either 1.6 percent or 9 percent to serve as a reasonable approximation of either one of them? It is not.

People who do not like SWR analysis should not employ SWR analysis in their plans. People who do employ SWR analysis in their plans should make use of correct calculations of the SWR when doing so. The conventional methodology numbers are wrong. No serious person should be using these numbers in the crafting of his or her plan, given how far off they are from the numbers obtained by taking an informed look at the historical data.
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Post by hocus2004 »

"When the phrase Safe Withdrawal Rate is left undefined, people can cause all sorts of confusion. "

The root problem is that many people DESIRE confusion. They shouldn't, but they do.

Investing is an emotional experience. There is no getting around it. Intercst did not research SWRs because he wanted to know what sorts of investment choices would work best for him. He decided first what his investment choices were going to be. THEN he did his SWR analysis. Why did be bother, given that he had already decided how he was going to invest? He wanted to RATIONALIZE his decisions.

People who are over-invested in stocks are worried about the choices they have made. There is a voice in their heads that tells them that valuations must make some difference and that voice gives them pause. But the stronger voice is the one saying "look at the killing that some people made during the 90s, don't you want a piece of that?" The conventional studies are designed as they are so as to quiet the first voice. They were created to serve the second voice. Conventional methodology studies are used by investors who want to invest in stocks REGARDLESS of what the data says and who feel a need for some rationalization of this obviously dubious investment philosophy.

I don't say that this was true of all of the people who produced earlier conventional methodology studies. Those studies did a lot of good. The 4 percent number is lower than the numbers that some others were throwing around in the 90s. It's not right to be critical of people who were trying to urge caution and who used the conventional methodolgy for a good purpose.

But those who urge use of conventional methodology studies on these boards are not doing so to advocate caution re stock investing. They are using them to crush discuussions of investment strategies other than The One True Way Invented By the Great and Powerful Intercst. That's dangerous stuff. There are always going to be some people who invest imprudently regardless of warnings that they are given. To outright urge people to invest imprudently and to claim that there is some sort of historical data favoring choices that are obviously imprudent is so far over the line that I shouldn't need even to make the point. That sort of nonsense should be brought to a complete stop.

Anyway, I of course agree with you on the definitional issue. But I don't for a second believe that putting forward more precise definitions is going to do any good. The people who are trying to rationalize imprudent investment choices were perfectly happy to use precise definitions when they thought that precise definitions served their cause. it is only when it became clear that precise definitions led to conclusions other than those they were seeking that their understanding of what is conveyed by the phrase "safe withdrawal rate" became so terribly fuzzy.

There are always going to be people on investment boards trying to rationalize poorly thought-out choices. I don't see the presence of these people in our community as representing any sort of problem at all. Such people exist in the outside world, so we should expect them to exist on the boards as well. They give us things to talk about, so they serve a good purpose. There is nothing "wrong" with people making poor choices or with people trying to rationalize their poor choices. That is all part of the wonderful game.

What is wrong is the failure of the many community members who understand that the choices being rationalized are poor ones to take steps to rein in the abusive posting practices that have been used to shut down productive discussons. The people we should be worried about are the people who have made it clear that they want to be able to learn more about this stuff and who have been denied that opportunity because of a feeling that it would hurt intercst's feelings for people to talk in honest and informed ways about SWRs. The boards were created to serve the interests of those people, and that is what they should be doing, intercst's hurt feelings be damned.

There is genuine confusion about the power of the data-based tool. That is real, not pretend. It is a perfectly understandable confusion. Out findings are new and shocking. And this field of study is a bit complex. It's not reasonable to expect people to grasp it all without having a chance to think things through and ask questions and so forth.

People should be permitted to ask whatever questions they want to ask. Those who feel uncomfortable with the idea of people asking questions about what the historical data really says re SWRs should either get over it or find some new board communities at which to direct their posting energies.
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Post by hocus2004 »

"I had never before run across misbehavior of the kind that has taken place. I had always worked with quality people throughout my career. "

One point that should be brought out just so that no one misunderstands is that it is one person we are talking about when we express concerns re the lack of "quality" in posting on these boards. There are other posters with rough edges, of course, as there are in all board communties. There is no other poster who has so consistently put his own ego-gratification desires above the clearly expressed desires of the community as a whole.

The real problem with intercst has nothing to do with his views on SWRs. The real problem is that HE NO LONGER HOLDS ANY INTEREST IN THE SUBJECT MATTTER OF EARLY RETIREMENT.

FoolMeOnce had a post on Saturday where he pointed out that some writer of an article on intercst had said that he had taken on a "second career" of advising others how to retire early. Anyone else would take this as a compliment. Intercst took exception to the idea that he had taken on a second career, pointing out that he rarely bothers to update his web site anymore and that, given the attitude he takes toward posting, it would not be fair to chatacterize his contributions to the boards as "work" either.

What can be said in response to something like this? His attackers are always trying to build him up and intercst is always trying to smash down their efforts to build him up. The truth of the matter is that the author of the article is right that ONCE UPON A TIME intercst had made a second career of helping people achieve early retirement. But intercst is right that his attitude toward the project has soured and that today it would not be fair to characterize his efforts along these lines as "work." He does not take his web site or his posting seriously enough for the efforts he puts forward in regard to them to be properly referred to as work. It's all a joke to him. He has even suggested that the name of the Motley Fool board be changed to the "Screw You--I'm Retired!" board. It better communicates what the board is about, does it not?

Still, I don't support the name change. That board was built by a hundred fine posters who intercst positively cannot tolerate and who rarely or never post there today as a result. FoolMeOnce is a giant in the history of the REHP board. To intercst, he is a "dimwit." JWR1945 is another giant and another dimwit. BenSolar is another giant and another dimwit. Wanderer is another giant. He's not a dimwit, but a "meatball." Raddr is another giant meatball. And so on and so on.

What connects all these posters? The common theme is that all of them made great contributions after the time that intercst lost interest in the subject matter (in late 2000, when stock prices fell). So all of them had to go. Given that intercst is no longer capable of making postiive contributions (he has not put forward a significant post in years now), these others represented a threat to his view of himself as the person who "invented" the concept of early retirement.

He invented something. What he invented was the intercst vision of early retirement. Had he posted about this on his own board (the one connected with the RetireEarlyHomePage.com web site) and had he explained in the rules of that board that he would not permit discussions of any alternate visions, there would be no problem. People who wanted to hear about the intercst way would go there and people who wanted to hear about other ways would refrain. But that is not what he did. He came to a public board to discuss his ideas, and the public participated, and after he lost interest in the subject matter the board community showed a whole bunch more interest in the ideas being put forward by FoolMeOnce and JWR1945 and Wanderer and Raddr and BenSolar than they did in the nonsense about reality TV shows being put forward by intercst and so intercst's fragile ego came into direct conflict with the wishes of the board community. Something had to be done! The meatballs and the dimwits had to go. And so they did.

There are always new meatballs and new dimwits, though, aren't there? There always will be. So long as the board title has the words "Retire Early" in it, people are going to go there thinking that perhaps discussions will be permitted not just on television shows and on politics but on--retiring early! The outside world hasn't quite gotten the news that there is nothing new to be said re early retirement, as intercst claims when asked why it is that "his" board can no longer generate an on-topic thread of any consequence. The outside world is always going to cause trouble for intercst. You know why? Because the outside world knows that it is nonsense to say that everything that could ever be said about early retirement has already been said. The outside world has seen how boards like the Early Retirement Forum generate new on-topic threads ON A DAILY BASIS. So the outside world is never going to buy into intercst's explanation of why the Motley Fool board has been reduced to rubble under his leadership. We don't get many posters coming to visit us at this place, but we generate more useful information on how to retire early here ALMOST EVERY WEEK than the Motley Fool board usually does in six months.

I see nothing charitable in the idea of stretching this out as long as possible. That doesn't help the Retire Early community and it doesn't help intercst. What intercst's friends should do, in my view, is just go send an e-mail to Motley Fool asking that a new board called the "Intercst Political Chat Forum" be opened up, and then JUST START POSTING THERE. Some of his other friends will get the point in time and they will move there too and eventually he will join them. Then he won't have that misleading board title enticing in the wrong sort of poster anymore. He won't have people pestering him with questions as to why there is never any discussions of early retirement at the early retirement board.

Intercst himself endorsed this idea once upon a time. A guy named GritsGuru suggested that intercst just set up a new board and intercst pronouned the idea an "Excellent!" one. The next morning a few of his hothead supporters nixed the thing for no constructive purpose than I can discern.

It just is not a long-term viable idea to have concerns about how what we say makes intercst feel to forever and ever influence the scope of permissible discussions on our boards. We do important work. We have a community full of bright and generous and creative people. There are hundreds or perhaps thousands of people out in the world who want to know more about the subject of early retirement (or financial freedom, or whatver you want to call it). There has to come a time when we cut this guy loose and just go on with our business. It just does not seem possible to me that the current state of affairs can continue indefinitely.

Intercst has lost interest in the subject matter of our boards, OK people? He says there is nothing more to be said, and, for him, that really is true. When you lose interest in a topic, it is real real hard to come up with useful things to say about it. So how about if we let this intercst guy off the hook? He likes the shock jock stuff. He likes to argue about politics. There is a not-small group that likes to talk over that stuff with him. How about we let that group do just that in peace?

How about we all start pushing for what GritsGuru so wisely suggested over two years ago now, that intercst post on the stuff that he wants to post about and that those of us interested in early retirement post on the stuff that we want to post about? Does that make sense to everyone?

People are allowed to lose interest in the subject matter of our boards, you know. Let the guy go where he wants to go. The sooner he goes, the better our memories of him will be. I think we have all experienced enough poison and enough ugliness. It is time to move on.
hocus2004
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Post by hocus2004 »

"In addition, hocus2004 had a concept that was both specific and vague."

This is correct. When I was doing my SWR work in the mid-90s, it was not with the idea of posting my findings to a discussion board or writing up a Research Report or a book or anything else along those lines. I was just trying to craft a workable Retire Early plan for myself, one that addressed my needs and my family's needs responsibly. I did the work needed to achieve my personal goals, and then I stopped and turned to other things.

I saw through the holes in the conventional methodology studies back in the mid-90s. But my understanding of the realities of SWRs was indeed an unsure one in those days. I possess a sharper but still far from complete understanding today.
hocus2004
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Post by hocus2004 »

Both of the two statements that I will quote here are true. But I view this one

"the critical assumption in the study, that the lower bound of Historical Surviving Withdrawal Rates equals the Safe Withdrawal Rate, is false."

as being more important than this one

"The historical record does not include conditions that are representative of today's market."

The 4 percent number is not wrong because we are at such high valuations today. The 4 percent number is wrong because the methodology used to calculate it is analytically invalid for purposes of determining SWRs. The 4 percent number is wrong AT ALL VALUATION LEVELS except for the moderate valuation level that just happens to yield a 4 percent SWR when the number is calculated using an analytically valid methodology.

You ALWAYS must take valuations into account when determining SWRs. There are no exceptions to this rule. Understand this, and the rest follows.

All that has happened with the move to extremely high valuation levels is that the difference between the data-based SWR and the conventional methodology SWR became so great that it became truly dangerous for people to cite the results of conventional methodology studies as if they accurately reflected the message being told by the historical data. There were earlier times when the conventional studies produced numbers that were not all that far off the mark. But those numbers were the product of an analytically invalid methodology all the same. Those numbers were wrong too.
JWR1945
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Post by JWR1945 »

hocus2004 wrote:"In addition, hocus2004 had a concept that was both specific and vague."

This is correct. When I was doing my SWR work in the mid-90s, it was not with the idea of posting my findings to a discussion board or writing up a Research Report or a book or anything else along those lines. I was just trying to craft a workable Retire Early plan for myself, one that addressed my needs and my family's needs responsibly. I did the work needed to achieve my personal goals, and then I stopped and turned to other things.

I saw through the holes in the conventional methodology studies back in the mid-90s. But my understanding of the realities of SWRs was indeed an unsure one in those days. I possess a sharper but still far from complete understanding today.
I have found this to be the case with most retirees who have looked into their own finances. Almost always, they make good decisions. They do the right thing.

Many are unsure of themselves. Sometimes, they have to stand their ground in spite of the reactions of others. It is only later that someone else comes along and shows that they have made a series of sound decisions.

Have fun.

John R.
JWR1945
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Post by JWR1945 »

hocus2004 wrote:"When the phrase Safe Withdrawal Rate is left undefined, people can cause all sorts of confusion. "

The root problem is that many people DESIRE confusion. They shouldn't, but they do.
I agree.
Anyway, I of course agree with you on the definitional issue. But I don't for a second believe that putting forward more precise definitions is going to do any good. The people who are trying to rationalize imprudent investment choices were perfectly happy to use precise definitions when they thought that precise definitions served their cause. it is only when it became clear that precise definitions led to conclusions other than those they were seeking that their understanding of what is conveyed by the phrase "safe withdrawal rate" became so terribly fuzzy.
I disagree, but from a different perspective.

I agree that having precise definitions does not solve the problem caused by those who insist on reaching conclusions different from what the data show.

Where I disagree is that precise definitions help me. It clarifies my own thinking.

Have fun.

John R.
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Post by JWR1945 »

hocus2004 wrote:What you are really doing with SWR analysis is determining the intrinsic value of your stock investment. It is maddening that William Bernstein..and then puts forward the statement that it is impossible to determine the intrinsic value of a stock purchase. Of course it is possible! The same guy who tells us it is impossible devoted an entire chapter of his book to telling us how it is done!

Bernstein gets it haflway and misses it halfway. Why? Because Bernstein is not aiming to retire early..He is smart enough to see that it is not possible to calculate the SWR without taking valuation into account..But he is not coming at this from the perspective required for him to see that calculating SWRs properly reveals the intrinsic value of a stock purchase.
This is a very interesting way of stating it.

Calculating Safe Withdrawal Rates reveals the intrinsic value of investment choices.

Have fun.

John R.
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Post by unclemick »

????? Intrinsic value can also suck - hence I like Warren Buffett's and Bogle's take on the matter - the difficulty of nailing down the 'value' does not make it any less important - it fact it is 'the important value' or more properly range of values as approached by Buffett's (single stock) or Bogle's whole market method.

From Louis Bachelor(1900), Walter L. Morgan(1929) thru Ben Graham, Buffett, and Bogle - yes valuation matters - and yes sometimes timing and valuation coincide.

Stick to your guns guys and let the numbers do the taking.

I still don't like SWR. Maybe we could have a naming contest - Expected Future Results based on valuaton, or something - although like in Casablanca - Bogart never really said "play it again Sam." - SWR will continue to be misconstrued - hence my preference to fall back on divs./SEC yield.

If it gets toooo emotional - there's always kayaks. Heh,heh.
hocus2004
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Post by hocus2004 »

" I like Warren Buffett's and Bogle's take on the matter"

Bogle's book was the single biggest influence on my thinking for the work I did in the mid-90s. It was Joe Dominguez on the saving side and Bogle on the investing side.

"the difficulty of nailing down the 'value' does not make it any less important"

Well said.

"let the numbers do the taking."

Exactly.

People need to stop viewing the message in the numbers as a threat to their investing world view. Numbers just are. They are like mountains or oceans. When putting together a war strategy, it is nonsensical to deny the existence of a mountain or an ocean. The thing is there and you just have to suck it up and deal with it.

It's the same with historical data and investing strategies. There is not a thing that anyone can do to change what the numbers say. They will always say the same thing. Trying to deny that the numbers say what the numbers say causes you to start spouting nonsense gibberish. Self-respecting posters should not want to go down that road.

This most certainly does NOT mean that we have answered all the investing questions that have puzzled mankind ever since the wheel began spinning. I wish that some people on "the other side" would take a look at some of the comments made near the bottom (for now) of the "Is the raddr Methodology Analytically Valid?" thread. There is some powerful evidence put forward there (taken from the historical data) that makes a case for expecting decent returns from a stock index investment even at today's high valuations. There are circumstances in which stocks offer a very fine value proposition indeed.

That is the sort of thing that we should be talking about. We should have board bears pointing to the anti-stock data and making a case against stocks, and board bulls pointing to the pro-stock data and making a case for stocks. It is through reasoned voicing of our differences in persepctive that we learn. There are all sorts of productive paths that we could be taking, given the insights that have been developed at this board.

Instead we have spent vast quantities of time engaged in stupid word games. The data says what it says and it always will. People need to get over it and move on. There is so much good that we could do with JWR1945's research (which was of course aided at many steps along the way by contributions from dozens of other communtiy members) that it is painful for me to see us remain stuck in the mud month after month. Let's start having some fun with this stuff!

"I still don't like SWR. Maybe we could have a naming contest - Expected Future Results based on valuaton, or something "

In the long run, I see us using labels other than "SWR analysis" for what we are doing here. The SWR is one point on a spectrum of possibilities, and we have already at times ventured beyond just identifying that point. We will be using the tool that we developed to identify the SWR to do all sorts of other things down the road.

One thought that I have for a board title to use down the road is "Probability Investing." Our core task is to make use of historical stock-return data to assess probabilities of various investment outcomes.

"SWR will continue to be misconstrued"

I hear you. But it didn't have to be that way.

My first contribution to the Motley Fool board was in May 1999. For a year or two before that, I had been giving thought to opening a discussion board for consideration of the saving and investing ideas that I have come to refer to as the Passion Saving approach to money management ("Passion Saving" is the name of the book that I will publish in early 2005; early versions included a chapter on investing, but I ultimately decided to write a separate book on "Passion Investing.") My goals for what I refer to as "the Passion Saving movement" are very bold ones. I see this approach to money management not as a new twist on the conventional approach, but as a rejection of it and a replacement to it. The purpose of my Retire Early plan was to free myself to devote my full-time energies for 20 or 25 years to helping middle-class workers win financial freedom early in life through use of the Passion Saving principles. Spreading the word on how to win financial freedom early in life is my Life Project.

My plan was to achieve these bold goals in stages. You don't just walk to the front of an auditoreum and announce to those present ""I have a better way to save and invest in my pocket here, please read it and start following it today." That doesn't work. Do that, and people think you are a crazy man. A good number of people are still going to think me a crazy man even with the approach that I am following, but I am at least making an effort to keep the number in that camp down a bit.

My approach is to first present the ideas to a small group, gain their enthusiastic support, then go to a somewhat larger group, and eventually get the entire Planet Earth in on the fun. I am rolling a snowball.

Presenting my ideas to a discussion board was the first step in taking these ideas public. It was not a rash decision on my part to start at the Motley Fool site. I was well aware of the potential of intercst-like posters to destroy discussion board commnities. This was not an uncommon phenomenon in the early days of the internet. I did some research and determined that the Motley Fool site was the one place where I didn't have to worry about intercst types. The Motley Fool rules are rock solid, saying that the community will be protected by the sorts of abusive posting tactics that he specailizes in. The "Learning Togeher" page of the site says that intercst-type posters "will not be tolerated." I did the work that I did at that board (we are talking about thousands of hours of work) in reliance on a promise by Motley Fool to protect me from intercst types. I expect that promise to be honored.

If it were only me who counted on that promise, you might make a case that the loss of thousands of hours of one person's time is no big deal in the grand scheme of things. But it was not just me. There were hundreds of community members who responded in wildly enthusiastic ways to my presentation of the Passion Saving ideas. There was only a modest amount of activity at the board before I started posting there. My posts attracted the interest of scores of the best posters at the site. My posts transformed that board into one of the most popular boards in the history of the Motley Fool site. This is not an empty boast. Any community member interested in verifying what I say can check the Post Archives. You will see that, for the 30 days following my posting of the "Unwritten Rules of Wage Slavery" post, the number of posts to the board triped from what it was in the 30 days prior to that post. The numbers never returned to their earlier levels. The Unwritten Rules post was only one of eight Posts of the Day that I put up that year. There were times when I had posts on the "Best Of" board for five or ten days in succession, each one of them bringing the board to the attention of new community members, making the board bigger and stronger and better and bolder.

Then we saw the secondary and tertiary effects of my introduction of the Passion Saving concept to that board community. The posters who I had brought in (or who had been brought in by the posts of posters I had brought in, or just by their wonder at how powerful a learning resource that board community had become) began putting up amaziningly great posts of their own. These are the people who own that board, not intercst. Intercst took ten minutes out of his day to send an e-mail to Motley Fool asking that a board with the name Retire Early Home Page be set up. Wanderer taught people how to win financial freedom early in life. So did FoolMeOnce. So did Ptsurmr. So did TheBadger. So did JWR1945. So did scores and scores of others. That board is not about one person. It is about a community. The community rules, whether intercst likes the idea or not. The community which built that board is going to regain possession of it, and intercst is going to become an ugly memory of a past in which we came to lose possession of our senses for a time.

I have to check back to the top and see what it is that I am supposed to be talking about here. Something about "SWR will always be misconstrued." OK.

There is no reason why SWR ever had to be misconstrued. It was during the time when I was deciding where to post about the Passion Saving concept that I discovered the RetireEarlyHomePage.com site. I was very excited to find it. First of all, the site discusses (or at least it did at the time) Dominguez, who is my hero. Second, it uses a variation of the Multiply-by-25 rule, which is a rule that I spent a good bit of time working out when I was doing my research. Three, it emphasizes SWR analysis, which is key to my investing approach. Is there any good reason in the world why my views on SWRs should be miscontrued on a board founded by someone with that sort of background? There is not. My SWRs views have been miscontrued for one reason and one reason only. Intercst got the number wrong in his study, he is not man enough to acknowledge the error, and he is willing to drive the entire movement off a cliff if that is what it takes to block people from having discussions of the flaws of his study. I say no.

I bent over backwards giving credit to intercst when I first put forward my SWR views at the Motley Fool board. Again, this is in the Post Archives and can be verified. JWR1945 did the same. There was zero effort to disparage intercst's contributions. They are real and they should be acknolwedged. But it is nonsense to say that intercst "invented" the idea of early retirement. It is nonsense to say that he is the only human being on Planet Earth who is capable of doing research into historical data. It is nonsense to say that he is not capable of getting a number wrong, just like all the rest of us.

It is really you who is focusing too much on the SWR question rather than me, UncleMick. You need to put SWRs aside for a moment and look at the bigger picture. Can our discussion board communities achieve their potential so long as intercst is accorded the status of a "leader?" They cannot. The guy has abused the trust we have put in him. He has betrayed us. He is a fraud, a con man. He is not one of us. He is different in a fundamental way. He is different in a way that makes it impossible for the rest of us to do the important work that we need to do so long as he is around. We need to cut intercst loose.

If this were only about SWRs, Wanderer would still be posting at the Motley Fool board. If this were only about SWRs, PeteyPerson would still be posting at the Motley Fool board. If this were only about SWRs, FoolMeOnce would not be smeared each time he posts at the Motley Fool board. SWRs are the focal point of our discussions. They are the thing we use to have a way of giving voice to our concerns. But out concern is not SWRs. The rest of us can all do a perfectly fine job of talking about SWRs without having to agree on them. Our concern is the intercst problem. That is the hard one.

What do we do about intercst? We should be talking about that one directly because that one is the real problem. Solve the intercst problem and the SWR "problem" goes away. SWR discussions are wonderful when intercst and his supporters are not employing abusive posting tactics to block them. Yet again, this can be verified by making reference to the Post Archives. There is a post at the end of the "Normalization of SWR Discussions" thread in which I list 20 or so comments by REHP community members saying how much they enjoyed the SWR discussions in the days before intercst became abusive. The community loves the substance. It hates the ugliness that intercst and the other DCMs have injected into the proceedings. So that is the problem that we need to solve.

We need to decide what to do about intercst. I say "ditch him." I say that he is a bad hat and that we are well rid of him. There was a time when we could have pulled him back and no one worked harder than me to pull that off. I tried and I tired and I tried some more. Again, check the Post Archives. There comes a time when things have gone too far, when the poster involved has said and done things that cannot be forgotten by the community. The intercst name is always going to stand for ugliness and abuse and deception. It has gone on too long form him to be pulled back at this point.

That's my take. If there is some creative person out there who has some ingenious proposal for saving intercst, I am all ears. I am a community guy and I ultimately vote with the community. I personally doubt that any such proposal can be developed. If there is someone out there who thinks it can be, now is the time to put it forward. Our prospects for saving intercst do not get better with the passage of time, they get worse. If it is already too late, as I think it is, there is no point in further delay. If there is some slim chance of saving him, further delay causes us to lose it. So I see no reason why anyone should favor further delay.

Do you think that intercst can be saved, UncleMick? If yes, please say why you think this. If no, please say why you think that.

Is that putting you on the spot? Sure it is. Remember, though, it is not me who put you on the spot. My May 13, 2002, post was a substance post. I want to talk substance, not this nonsense gibberish junk. It is not my aim to put you on the spot. It is my aim to steer our various communities back into a better place than where they are now. I tried to shut this thing down back when it would have been a relatively easy thing to shut it down. I did all that I possibly could, all that you could possibly ask of a fellow community member.

We generally do not pay money to participate at discussion boards. Motley Fool is an exception, but even there the financial price for admission is not steep. That doesn't mean that the insights that you pick up at these communities come free. The price that you pay is that you have to step in and help the community when it is in trouble.

Our communties are in trouble. The trouble has a screen-name of eight letters (I hope I got the math right on that one) and the first three are an "i," an "n," and a "t." Lets stop talking nonsense gibberish and get about taking care of the business that needs to be taken care of here, shall we? It might not be fun working through it. However, I am pretty darn sure that we will all feel a lot better about ourselves when the task is done and we can begin walking towards the light once again.

We are a better people than what we have appeared to be for the past 31 months. Let's all get back to where we once belonged. Let's start having fun again.

"If it gets toooo emotional - there's always kayaks. Heh,heh."

That's not funny. That's sad.
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