i *do* like the trinity study--it's groundbreaking work, it's just that the embedded return is all wrong going forward .
Bernstein makes both of the two most critical points in this one sentence.
The first critical point is that SWR analysis is a powerful tool, "groundbreaking" in inpact. Why is it so powerful? Because it is determined by making reference to
data. Thus, it does not tell you the same old thing that you can get from listening to talking heads. It tells you what
is, it identifies for you the factors that really matter in investing.
There was a day when most people did not understand how much volatility mattered. Scott Burns has material on his web site where he shows that Peter Lynch once argued that it was safe to take a 7 percent withdrawal from stocks because 7 percent is the real long-term return. The data didn't support that argument. The data said that volatility requires that you bring the withdrawal down a few points to be safe. Peter Lynch was wrong about this, and the data was right.
We learned what the data said about this through SWR analysis. It is a groundbreaking tool because it tells us these sorts of things. But the volatility question was not the last question that the data wanted to help us with. Today, the data is saying something different and new and exciting. The data is saying that changes in valuation levels matter too.
That's the second point that Bernstein makes in the sentence above. As much as he likes the conventional methodology, he would not trust it to tell him what is safe. Why not? The conventional methodology makes an implicit "prediction" that the return going forward will be about 7 percent. Bernstein knows this is crazy. He's looked at the data, and he knows this.
Raddr has looked at the data too. He says that the chances of this "prediction" coming true are about 1 in 740.
It's not a reasonable prediction. But this prediction influences the results generated by the conventional methodology. It throws them out of whack. You cannot come up with a reaosonable assessment of the SWR using this methodology.
I hope that there is no one on this board who would argue today that a SWR study not counting for the effect of volatility is valid. It is not reasonable not to count something that you know darn well has a big effect. It's the same way with valuation. It affects the result to the question being asked. So it should be considered in analyses of that question.
Bernstein is not going to sign a statement this week saying that the conventional methodology is invalid. It is not reasonable to expect that he would. He has not even participated in our discussions! We need to make the case to him. That's one matter of pressing business for next year.
Once we make the case, there is no reason to think he would not sign such a statement. He clearly has a great appreciation for the value of the SWR tool, as do I. He clearly sees that the conventional methodology fails to account for changes in valuation, and that that is an important factor, as do I. Why wouldn't he want to make the tool better? Why wouldn't he want to make the results of the analysis accurate? I think he will sign on, not in a week, perhaps in a year.
We are far ahead of the curve here. We are not using this board to learn what the rest of the world thinks about how to retire early. We are developing the insights needed to tell the rest of the world how to do it. We are at the center. We are what's happening. This place is where the action is right now.
There's a responsibility that goes with that. There's a responsibility to try to get it right.
Those who are interested in this debate and who have not yet seen
JWR1945's post on PE/10 and SWRs (posted at the SWR Research Group board) need to look at it now. here is a link.
http://www.nofeeboards.com/boards/viewtopic.php?t=1173
The key words in the thread were spoken by
JWR1945. He says:
"What is new is that we have a reliable indicator to convert current prices to intrinsic value." Think for a moment about
what that means for the FIRE community. In my assessment, it means more than what has been said in all the other posts on all the other questions that have been examined at the two boards all added together.
Some others may not see the matter as quite that important, but it's hard for me to imagine that anyone can not see that it is incredibly important. We should be celebrating, not attacking each other. I did not do this alone. I had
a lot of help. I couldn't have done it without
JWR1945 obviously. But I also couldn't have done it without
raddr or without
BenSolar. Datasnooper added something significant at one point,
Biggaloot added something significant at one point. There were lots of others who made important contributions.
This sort of thing was not possible in the days before internet technology made the formation of discussion board communities possible. We have used this new technology to change the world in a not insignificant way.
Can we take a one-day break from tearing each other to pieces to celebrate the extraordinary work we have accomplished here? A lot of work remains, but what we have done thus far is staggering in its potential impact. Can we give a little recognition to ourselves for what we have done?
Can we begin putting what we have learned thus far to good use? Please?