What Scott Burns Says About Safe Withdrawal Rates

Dallas Morning News Columnist Scott Burns reported in a recent column on some of the most important findings of our community’s Great Safe Withdrawal Rate (SWR) Debate.

“A Growing School of Thought”

Burns says:

“The established safe-withdrawal-rate rules of thumb are based on long periods of time in which yields were higher than they are today and stock valuations were lower. A growing school of thought believes future withdrawal rates should be reduced to reflect expected lower future returns. This would knock another 1.5 to 2 percentage points off the safe withdrawal rate.”

Stock Probabilities

Here’s the text of an e-mail I sent to Scott Burns the following day:


“I applaud you for taking the courageous stand you took re the safe withdrawal rate (SWR) topic in your column of June 3, 2005. I am in complete agreement with you that the reason why there have been only a smattering of reports in the general press about what the best-informed experts have long known about safe withdrawal rates is that, as you put it, “it is information most people don’t want to hear.”

“I am writing a book on the Safe Withdrawal Rate Investing Tool that I co-developed with John Russell, and the focus of the book will be the implications of this observation. There are many who have come to believe that investment analysis is primarily a numbers game, that it is all about studying historical stock-return data and summarizing it into impressive-looking tables. My three years of participation in The Great SWR Debate has convinced me that it is the emotional state of the human beings preparing and reading the tables that is of the greatest import.

Bull Market Psychology

“When Bull Market psychology prevails, even very smart people can be taken in by methodologies like those used in the study published at the RetireEarlyHomePage.com site and in the FIREcalc retirement calculator. My guess is that, when stock prices return to moderate levels or drop to even lower levels, there will be all sorts of analysts coming out with “research” that is equally slanted in the opposite direction and that purports to show why stocks are ALWAYS a bad investment choice for the middle-class investor. My take is that an investor who keeps his wits about him can invest successfully with the aid of just a normal endowment of common sense, while the best educated experts in the world will go astray if they permit fear and greed too great an influence in their investment decision-making process.

“If you would at some point like to write a column about the experiences I went through trying to argue for a reasoned approach to safe withdrawal rate analysis at the various Passion Saving/Retire Early discussion boards, please let me know. I think that that there is a lot to be learned from what happened during The Great Safe Withdrawal Rate Debate about how the negative emotions of fear and greed ruin the investing dreams of millions. My hope is that the story of the ordeal I was put through in trying to steer my discussion board community in a positive direction can in coming days be put to use helping middle-class investors come to a better understanding of what it really takes to invest successfully for the long term.

“Since my last e-mail to you, John Russell and I have both put up web sites. Russell’s site reports on his safe withdrawal rate research. It is at Early-Retirement-Planning-Insights.com. My site is focused on the saving side, which is also the focus of my first book, “Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.” My site only went live on June 1, so there is not much there at the moment. But I will be adding lots of material in the next few months on the new approach to money management that I call “Passion Saving.” The address for my site is PassionSaving.com. If you ever have an interest in writing about this new approach to saving, please be sure to let me know about that as well. It is a subject a lot dearer to my heart than the safe withdrawal rate matter (I am very much a words guy, and very much NOT a numbers guy!).

“Thanks again for your breakthrough column pointing to the “growing school of thought” that a new and more realistic approach to safe withdrawal rate analysis is much needed. There are times when I come close to losing hope that word will get out to middle-class investors re what the true experts already know about the message contained in the historical stock-return data. It seems that every time that I am coming close to giving up, a ray of sunshine arrives to break through the fog and confusion threatening to do so much financial harm to so many. I’ve seen it happen before with words that were put forward by William Bernstein, and with words put forward by Rob Arnott, and with words put forward by Andrew Smithers, and with words put forward by Peter Bernstein, and with words put forward by Robert Shiller. Now I’ve seen it happen with words put forward by Scott Burns, my favorite personal finance columnist on Planet Earth.

“If I weren’t so in love with words, I might have reduced the length of this e-mail to the five of them that I knew on first reading your brave and bold column absolutely needed to be said–Thanks, man, I needed that!”

Scott Burns is a Hero of the First Order in the Passion Saving/Retire Early movement for the words he wrote in the column reported on above. He will probably be taking on a good bit of heat for telling the truth about safe withdrawal rates, but he went ahead and did it anyway. It takes not just brains, but guts too to be one of the best personal finance columnists in the business. Burns has both. He is a columnist with the right stuff.

Scott Burns on the Old School Safe Withdrawal Rate Studies

Still, no one’s perfect, even Scott Burns. You also need to know about an important part of the safe withdrawal rate story that Scott Burns missed in his column of June 3, 2005, reporting that “the established safe-withdrawal-rate rules of thumb are based on long periods of time in which yields were higher than they are today and stock valuations were lower.”

Is the SWR a Rule of Thumb?

That phrase “rules of thumb” should set off warning bells for veterans of the Great Safe Withdrawal Rate Debate that dominated discussions at six Passion Saving/Retire Early boards in the wake of my fateful May 13, 2002, post to the Motley Fool board. A poster going by the screen-name “Ataloss” based much of his defense of the REHP study (the study published by John Greaney at the RetireEarlyHomePage.com site) on the claim that the SWR is nothing more than a rule of thumb, that there is no right or wrong with rules of thumb, and that therefore it is not possible for Greaney to have gotten the number wrong in his study.

It Is Information Most People Don't Want to Hear

I disagree. The safe withdrawal rate is used as a rule of thumb. That much is certainly so. Pessimists adopt as their Personal Withdrawal Rate (PWR) a number a bit lower than the safe withdrawal rate on grounds that we may see a returns sequence in the future worse than any we have seen in the past. Optimists adopt as their Personal Withdrawal Rate (PWR) a number a bit greater than the safe withdrawal rate on grounds that it is not too likely that a worst-case scenario will pop up in their retirement. There is no rule that says that those making use of safe withdrawal rate analysis in putting together their retirement plans must incorporate without adjustment the number identified as the safe withdrawal rate in an analytically valid study. The SWR is not each SWR study user’s PWR.

That said, the SWR is not itself a rule of thumb. The SWR is a mathematical construct. It is the highest withdrawal rate that works in the event that a worst-case returns sequence (the worst that we have seen in history but nothing worse than that) pops up in a particular retirement. There is no one right answer when one is selecting a PWR. There are right and wrong answers when one is calculating the SWR. Greaney got the number wrong in his SWR study and Bill Sholar got it wrong in his FIREcalc retirement calculator, and their failure to correct the errors they made has put thousands of retirements at risk of going bust. So this aspect of the question is a matter of no small consequence.

Scott Burns Corrects Peter Lynch

It is surprising to see Scott Burns make the mistake of speaking of the calculation of the SWR as if it were a matter of subjective guesswork (a mere decision to settle on one “rule of thumb” rather than another). Scott Burns is the one who identified the error made by Peter Lynch when Lynch said that a take-out number of 7 percent is safe because that is the real long-term return for stocks. If the SWR is a mere rule-of-thumb, couldn’t it be said that Lynch was every bit as right in saying that the SWR was 7 percent as Scott Burns was in saying (at the time) that the SWR is 4 percent? I don’t believe that Scott Burns viewed the SWR concept as being so fuzzy a concept then as he appears to view it as being today. I’ve many times posted to the same discussion boards as Greaney and Sholar, and there is a lot of evidence in the Post Archives of those boards showing that those two in earlier days also understood that the SWR is the product of a mathematical calculation.
It is the fact that the SWR is the product of a mathematical calculation that provides SWR analysis its great value as a tool for helping investors plan their retirements. There are all sorts of viewpoints expressed in all sorts of forums that provide investors with guesswork as to what they should do with their money. An analytically valid SWR study provides something unique–solid, hard, objective numbers. Transform SWR calculation into a subjective exercise and you take away from it the very thing that makes SWR analysis an analytical tool of unique power.

The other thing lacking in the recent Scott Burns’ column is a statement of whether he agrees with “the growing school of thought” asserting that the SWR for retirements beginning today is about 1.5 percentage points less than the 4 percent take-out number identified in the REHP study and FIREcalc as “100 percent safe.” Based on things that Scott Burns has said both in earlier columns and in private correspondence with me, I believe that he agrees with the school of thought arguing that a validly calculated SWR must include an adjustment for changes in valuation levels for stocks. It would be a positive step for him to say that in clear and unmistakable terms.

Mental Gymnastics

There seems to be no limit to the mental gymnastics that defenders of the REHP study and FIREcalc will go to in an effort to avoid acknowledging their grave flaws. Given the consequences likely to be experienced by aspiring retirees placing their confidence in the analytic validity of these tools, a clear statement by Scott Burns that Greaney and Sholar got the number wrong would do our movement a world of good. It should be remembered here that Scott Burns’ citing of the REHP study in earlier days provided Greaney a good bit of the credibility that he has won (unfortunately so, in my view) for his investing views in recent years.

Scott Burns wrote a great column. He has advanced the ball in a significant way. We all owe him our gratitude for a job well done on our behalf. But I do not believe that it is a good idea for us to declare The Great Safe Withdrawal Rate Debate over at this stage of the proceedings. There have been many twists and turns over the course of the past 37 months of discussions and my guess is that there are many more twists and turns yet to come for at least another 37 months into the future. We’ve got a tiger by the tail with this one. That’s my take.

The Future of Investing

Thanks, Scott Burns. Next time, though, please be sure to let us know what you personally think of this “growing school of thought” that the true SWR is 1.5 to 2 percentage points lower than the 4 percent number that Greaney and Sholar have been telling us for so long now is “100 percent safe” for aspiring early retirees with high stock allocations planning to hand in their resignations at times of the sorts of high stock valuations that prevail today. Do those in the growing school of thought (hey, that includes me and John Russell!) have it right or do those in the Greaney/Sholar camp have it right?

They can’t possibly both have it right, can they?

Well, can they?

Rise of the New School of Safe Withdrawal Rate Analysis

Rise of the New School of Safe Withdrawal Rate Analysis, Update #1 — Bill Sholar’s Failing Confidence in FIRECalc

The July 15, 2005, issue of Robert Powell’s Retirement Weekly endorses the Early Retirement Forum (Early-Retirement.org), quoting Brent Gindleberg as saying: “It’s my favorite (early) retirement site.” I agree with Gindleberg. The Early Retirement Forum is an awesome resource for those seeking financial freedom early in life. The site is owned by Bill Sholar, who posts in the Financial Freedom Discussion-Board Community as “Dory36.” I know Bill from my Motley Fool days (when our small but quickly growing movement was just getting off the ground). He’s an insightful poster and an all-around good guy. His discussion board is today by far the best financial freedom board on Planet Internet.

What makes the endorsement of the Early Retirement Forum ironic is that the write-up notes that “the site also features a link to the Financial Independence/Retire Early calculator.” The SWR claims put forward in FIRECalc are based on the findings of the safe withdrawal rate (SWR) study authored by John Greaney and published at RetireEarlyHomePage.com (the REHP study). That study was discredited during The Great SWR Debate, which I kicked off with a post to the Motley Fool board in May 2002 and which generated tens of thousands of response posts at half a dozen boards over the following three years. Ultimately, it was determined beyond any reasonable doubt that I was right in what I said in my May 2002 post–changes in valuation levels do indeed affect the SWR for stocks, and, since it includes no adjustment for changes in valuation levels, the REHP study got the SWR number wrong (what Greaney actually calculated was the Historical Surviving Withdrawal Rate, not the Safe Withdrawal Rate).

It pains me to see a connection drawn between Greaney’s study and the Early Retirement Forum in a reference to the latter in a respected retirement publication. Greaney’s abusive posting destroyed the Motley Fool board as a resource for learning about how to retire early. All of our effective on-topic posters left the board during the Campaign of Terror that Greaney and his supporters employed to block reasoned discussion of the flaws in the methodology of his SWR study. I now see the potential for a repeat performance at the Early Retirement Forum.

It is clear from Sholar’s posting that he no longer has confidence that the REHP study reports the SWR accurately. He once did. Back in his Motley Fool days, Sholar was a big advocate of the Greaney study. But in Early Retirement Forum threads in which both Sholar and I participated, he said that be believes that anyone using FIRECalc to plan his or her retirement today needs to include lots of slack to cover the possibility that stocks might perform in the future somewhat in the way in which they have always performed in the past. Sholar is of course correct. The Greaney study is off the mark on its SWR calculation by two full percentage points, according to William Bernstein’s book The Four Pillars of Investing. Anyone using the REHP study to plan a retirement beginning at today’s valuation levels is engaging in high-risk retirement planning.

New School Safe Withdrawal Rate Research Unfortunately, Sholar has not corrected FIRECalc to reflect what we have learned about how to calculate SWRs during the Great Debate. Thus, the errors in the numbers reported as safe by FIRECalc are every bit as serious as the errors in the numbers reported as safe in the REHP study. Sholar made an effort at permitting honest and informed SWR posting at his site. He opened a separate board there just for discussion of the Data-Based Methodology for SWR calculations developed by John Walter Russell (see Early-Retirement-Planning-Insights.com). Greaney supporters threatened to destroy the Forum if Sholar allowed the new board to remain, and a few days after setting it up Sholar capitulated to the Greaney Goon Squad and took the entire board down.

I think it is fair to say that Greaney is bad news for the Financial Freedom movement. There are tens of thousands of middle-class workers who have made use of our various boards to learn what it takes to win financial freedom early in life. We all should be very proud of the work we have done over the course of the past six years. We have done nothing less than revolutionize our community’s understanding of what works in personal financial planning. We owe something to the tens of thousands of middle-class workers who have put their confidence in us. We should always be sure to shoot straight with them.

Sholar is a straight-shooter by nature. That’s clear to me. But I think he is playing a dangerous game indeed in permitting Greaney and his supporters to continue to post at his Forum, and in holding off on correcting the errors he made (unintentionally at the time they were made, to be sure) in FIRECalc. No one knows how long it will be before we see the sorts of adjustments in stock prices that are sure to come if you believe William Bernstein’s statement that the connection between changes in valuation levels and SWRs will always apply as a matter of “mathematical certainty.” But when they do come, I don’t think it takes a genius to see that it will not reflect well on our movement that we permitted the REHP study and FIRECalc to remain uncorrected while they continued to offer discredited SWR findings to tens of thousands of aspiring early retirees.

If you are reading this, Bill, please give what I am saying here your serious consideration. You saw what Greaney’s abusive posting tactics did to the Motley Fool board. Please don’t let the same happen to the wonderful forum you have built at Early-Retirement.org. Make the necessary corrections to FIRECalc or take it down from the site altogether. Stand up to the Greaney supporters. Do what’s right.

Will you lose a few posters in the short-term? For sure. Will you gain ten times that many in the long-run? I’m just as sure of that. You have the power to get our movement back to where it once belonged, Bill. Don’t let us down.

Rise of the New School of Safe Withdrawal Rate Analysis, Update #2 — Bill Sholar Defends the FIRECalc Safe Withdrawal Rate Calculator

Bill Sholar came to the defense of his FIRECalc retirement calculator in a recent thread at the Early Retirement Forum.

The background is that I said in a blog entry from last week that the methodology employed in FIRECalc is analytically invalid for purposes of determining safe withdrawal rates. Sholar says in response that: “If someone were to claim an ability to predict the temperature in St. Louis for August 13, 2007, he would universally be recognized as a charlatan. But if someone were to say that, based on recorded history, you could be safe leaving your heavy winter clothing at home that day–everyone would see that as a blinding flash of the obvious. Could there be a new ice age? Sure. But not too likely.”

The Path to Retirement

Sholar and I are in agreement that it is not possible to predict the exact temperature that will apply on a specified future day, and that it is not possible to predict precisely what withdrawal rate will be the highest that will work for retirements beginning today. Where we part company is on his claim that it is safe for those retiring today with high stock allocations to plan to take a 4 percent inflation-adjusted withdrawal from their portfolios for 30 years. With valuations where they are today, the historical stock-return data reveals this as a risky plan, not a safe one.

Say that someone looked at what the high temperature was on two dates in August in the past–August 10, 1934, and August 22, 1957. Say that on August 10, 1934, the high temperature was 98 degrees and that, on August 22, 1957, the high temperature was 97 degrees. Would it be reasonable to conclude from these two data points that it is 100 percent safe to count on the temperature on August 13, 2007, to be at least 97 degrees?

It would not be reasonable. It would be reasonable to believe that the high temperature might be 97 degrees on August 13, 2007, or perhaps even something higher than that. But it would by no means be safe to stake too much on things turning out that way. Nor is it safe to stake your retirement on a 4 percent withdrawal from a high-stock portfolio at today’s valuation levels. FIRECalc’s conclusions do not follow from its findings regarding the historical data.

There are two cases in the history of the U.S. stock market in which we reached valuation levels somewhat in the neighborhood of those that have applied in recent years–the late 1920s and the mid-1960s. In both of those cases, retirees with high stock allocations who took 4 percent withdrawals were crushed.

Yes, they had more than $1 remaining in their portfolios at the end of 30 years. FIRECalc counts it as a retirement success if the hypothetical retiree started with $2 million in his portfolio and ended up 30 years later with only $1 remaining. I do not. I view a loss of $1,999,999 over a 30-year holding period to be an almost unmitigated disaster. I would not dream of arguing that those sorts of investing results are the sort that people aspiring to financial freedom early in life should be aiming for.

Still, a portfolio of more than $1 at the end of 30 years is a portfolio that did indeed survive the 30-year period. I have no objection if Sholar refers to the 4 percent figure as the Historical Surviving Withdrawal Rate (HSWR). It is indeed that.

But is it safe for a retiree today to stake his retirement on a hope that the third time a 4 percent withdrawal is tried from such high valuation levels the retirement will barely squeak by yet again? It is not. The historical data is screaming out a message to us. The message is: “Taking a 4 percent withdrawal from a high-stock portfolio for a retirement beginning at today’s valuations is a high-risk strategy. Please don’t be fooled by those doing gymnastics with the numbers in support of a claim that this is a safe thing to do!”

We should listen to what the historical data is telling us. We should advise aspiring early retirees to make use of the analytically valid SWR analyses described in William Bernstein’s The Four Pillars of Investing and at John Walter Russell’s Early-Retirement-Planning-Insights.com web site.

Russell’s research shows that the SWR for an 80 percent S&P Index portfolio in January 2000 was 1.6 percent. In more recent times, the SWR for that portfolio has generally been a number between 2.5 percent and 3.0 percent, and the odds of that portfolio surviving 30 years with a 4 percent take-out have been about 50 percent, at times a bit higher. So it’s essentially a coin flip as to whether the portfolio identified in FIRECalc as 100 percent safe will survive 30 years or not, presuming that stocks perform in the future much as they always have in the past.

It won’t take an ice age for retirements constructed pursuant to FIREcalc to fail. All it will take is for stocks to perform much as they always have in the past. Even a small change in the order of returns (not a change in the returns themselves, just a change in the order in which they play out) would have caused the 1929 and 1965 retirements to have gone bust rather than to have left the retiree with something in his portfolio at the end of 30 years.

Sholar has termed an extreme negative event (the loss of up to $1,999,999 in portfolio value over 30 years) a success, and then jumped to the inappropriate conclusion that because the results of using this dangerous withdrawal rate (at today’s valuation levels) was only a 90 percent disaster in the two prior times it was tried and not a 100 percent disaster that it is fair to term this strategy a 100 percent safe one to employ today.

Retirement Planning Secrets It’s not so. Bernstein and Russell got it right. Sholar and John Greaney (author of the SWR study published at RetireEarlyHomePage.com, on which FIRECalc is based) got it wrong. The conventional SWR methodology is the SWR methodology of the past. The data-based SWR methodology is the SWR methodology of the future.

We all should begin making it a practice to shoot straight with fellow aspiring early retirees as to what the historical data really says re SWRs. The possible consequences of playing it any other way are too horrible to contemplate. That’s my take.

Rise of the New School of Safe Withdrawal Rate Analysis, Update #3 — Peter Ponzo (“Gummy”) Rejects the Conventional-Methodology SWR Claims

“I draw a very different conclusion.” So says a poster to the Vanguard Diehards board in a discussion of our community’s exciting safe withdrawal rate (SWR) findings of recent years. The poster is referring to the advice you often hear (rooted in the findings of conventional methodology SWR studies and similar statistical analyses of how stocks have performed in the past) that it is safe to retire with a high-stock-allocation portfolio, even when stocks are at the valuation levels they are at today. Nothing could be further from the truth, according to the historical stock-return data.

As the poster observes: “Since large negative returns early in retirement are so devastating, then a more conservative, less risky asset allocation should be used. More bonds, conservative stocks and maybe even significant cash or cash equivalents.” Precisely so. The findings of conventional methodology SWR studies are nonsense. Highly dangerous nonsense.

The Stocks-for-the-Long-Run Paradigm is dying. Our community’s SWR findings are going to play a big role in killing it, I hope. It very much needs to be killed. The old paradigm has put the financial freedom hopes of millions at great peril. It is time for the development of a new paradigm, a paradigm rooted in an understanding of what the historical stock-return data really says about what works. I will be reporting in days and weeks and months to come on developments in the building of this new investing paradigm, both in this space and at other sections of this web site.

I would need to write a book-length manuscript to explain fully the background and implications of the claims put forward in that last paragraph. So I am writing one. My second book will be entitled I Get a Kick Out of Cash: What You Know About Investing That Just Ain’t So. I expect to publish it in late 2007.

For now, I ask you to focus on one small thing that I hope is clear to most readers of the statement that kicks off this blog entry. The poster quoted above is saying that he has changed his viewpoint on how to invest because of what he learned from The Great SWR Debate. The purpose of our explorations of what the historical data says is to encourage and facilitate such changes. We do not study the historical data because we enjoy studying historical data. We do it because we have learned that we must change how we invest if we hope to win financial freedom early in life, and the record of how stocks have performed in the past provides the best guidance available to us as to the sorts of changes that we need to be making.

You should be changing how you invest too. You too should be drawing a very different conclusion from the one you have held in recent years about how to invest. The conventional way of examining the historical stock-return data has been proven beyond any reasonable doubt to be an analytically invalid approach. When an analytical tool in widespread use (conventional methodology studies have been cited in The New York Times, The Wall Street Journal, and Money, and both the SWR study published at RetireEarlyHomePage.com and the one published at Early-Retirement.org employ the conventional methodology) is found to be invalid, it must be replaced by one that is valid.

We have torn down something big in our past 41 months of SWR discussions. We now must get about the business of replacing what we have torn down with something more useful and valuable and accurate and reliable. We don’t want people to stop making use of the historical stock-return data to craft their investing strategies. We want to change how they do it so that the guidance they obtain from the exercise is helpful rather than dangerous.

There is a saying that it’s not what you don’t know that hurts you, it’s what you know for certain that just ain’t so. That’s a warning that very much applies to the stock investors of today. We know all sorts of things that in fact are simply not so.

Retirement Secrets

We need to get about the business of finding out what really is so. The first step is giving up the dogmatism that causes many discussions of how to invest to become wrapped in endless displays of pointless verbal gymnastics. That stuff is a waste of everyone’s time. Passion Savers are practical people. We need to keep our eye on the ball. Our focus should be the focus evidenced in the words of the poster quoted above–What sorts of changes do we need to make to our investing strategies if we are to hold realistic hopes of attaining our long-term financial goals?

It is bad not to know stuff. But it is often far worse to believe you know stuff that is in fact not so. Middle-class investors have been placed in an extremely dangerous position because they have been misled in very serious ways about what the historical stock-return data says about how stocks perform in the long term. We need to change that. We need to get the word out about what the historical data really says. I view getting the word out on this issue to be one of the most important aims of this blog and this web site.

Peter Ponzo provided us a big assist in that effort in recent days. Ponzo is a retired mathematics professor who publishes a fine web site in which he employs his numbers skills to develop all sorts of investing insights. He is also a regular participant at several Financial Freedom Discussion-Board Community boards (he posts as “gummy”).

Ponzo recently published an article at his site confirming once again our core SWR finding that the SWR is not a constant number but a number that varies with changes in the valuation level that applies at the start-date of a retirement. Ponzo thereby added his name to the ever-growing list of experts acknowledging the critical role of valuations in determining long-term stock performance. There are now ten names on the list: (1) William Bernstein; (2) Scott Burns; (3) John Walter Russell; (4) raddr (the screen-name for an SWR researcher who posts to our boards); (5) Peter Ponzo; (6) BenSolar (another screen-name for a community researcher) (7) Robert Shiller; (8) Rob Arnott; (9) Andrew Smithers; and (10) Peter Bernstein.

Ponzo made an effort to make sure that his article could not possibly be misinterpreted by those even to this day defending the conventional methodology claim that a 4 percent withdrawal is safe for high-stock investors at the valuation levels that now apply. He offered to answer questions about his analysis at one of our boards and admonished defenders of the SWR study published at RetireEarlyHomePage.com (a conventional methodology study) to “forget the 4 percent rule.”

Ponzo quickly lost patience with the nonsense gibberish word games that this plain-speaking comment inspired, stating as clear as can be stated the bottom line for recent retirees with high stock allocations — “Do not expect to withdrawal 4 percent after retirement, except by accident.” Good words.

Rise of the New School of SWR Analysis, Update #4 — William Bernstein Reiterates SWR Concerns

William Bernstein made four important points in his comments on the Vanguard Diehards forum yesterday.

First, he reiterated his belief that an aspiring early retiree going with a high stock allocation needs to go down to a withdrawal rate of somewhere in the neighborhood of 2 percent to have a safe plan for a long-term retirement beginning at today’s valuations (The last time I checked, the 30-year SWR for an 80 percent S&P allocation was somewhere between 2.5 percent and 3 percent);

Two, he said that those who don’t like the idea of going with such low withdrawal rates probably could do better shifting out of stocks a bit when stocks are at high valuations;

Three, he added a wrinkle that I do not recall having been discussed before in our community. Bernstein pointed out that those who leave the workforce altogether will be missing out on productivity gains enjoyed by those who do not. This might be an argument in favor of the new-fangled definition of retirement often discussed at this site and often advocated at our various discussion boards, the kind of retirement in which the worker lets go of those aspects of the work experience that he does not enjoy, but hangs on to those he does enjoy; and

Four, he pointed out that even an analytically valid SWR study is based on historical stock-return data and we have no assurance that U.S. stocks will perform as well in the future as they have in the past. That’s so, but my personal view is that an analytically valid SWR is a conservative enough number to provide a decent bit of cover against the possibility that U.S. stock performance will not be as good in the future as it has been in the past.

Rise of the New School of SWR Analysis, Update #5 — The Wall Street Journal Endorses Valuation-Adjusted SWRs

Retirement Probabilities “Some planners say 3% is a safer figure these days, given that market returns in coming years are expected to hover in the single digit range.”

That’s a quote not from a poster at the Motley Fool board or a poster at the Early Retirement Forum or a poster at the Safe Withdrawal Rate Research Group. It’s a quote from–The Wall Street Journal!

The scores of Financial Freedom Community members who helped us develop our safe withdrawal rate findings of recent years should all take a bow. The investing insights that we have been talking about since May 2002 are going mainstream.

One of the questions that we used to hear from defenders of conventional methodology studies was–How did we get to be so smart, how is it that our community came to know more than such experts as the reporters for the Wall Street Journal and other fine publications that in the past have often endorsed the myth of the always-and-forever 4 percent safe withdrawal rate (the recent article suggests that some investors may want to use 4 percent as their personal withdrawal rate, but makes clear that 4 percent is not the number defined in the literature as the safe withdrawal rate, the number that works for those with high stock allocations if a worst-case returns sequence comes up)? The answer is that those sorts of experts are best at what they specialize in and our community is best at what our community specializes in.

There are lots of things that Wall Street Journal reporters know that our community does not. But the safe withdrawal rate issue is one of critical importance for those seeking financial freedom early in life. We cannot afford to get that one wrong. So we worked hard enough at it to get it right long before many other sorts of experts even knew that there were serious problems with the old way of calculating safe withdrawal rates.

What’s next, a New York Times feature on how middle-class investors can profit from long-term timing?

I don’t know what the future holds, of course. But I feel that I do know one thing for sure after six years of work in this fine community. Don’t ever count us out!

When it comes to questions relating in a core way to the question of how to win financial freedom early in life, we are the true experts. We all need to let that reality in and accept both the exciting challenge that comes with acknowledging the reality and the responsibility to exercise care in doing the important work we do that comes with acceptance of the challenge.

Financial Freedom Community, I think a little self-back-patting is in order for today. We deserve it. We worked hard. We done good.

And there are many signs that I have been seeing in recent days that the best is very much yet to come!

Rise of the New School of Safe WSithdrawal Rate Analysis, Update #6 — Focus Shifting from Accumulation Phase to Distribution Phase of Investing Life Cycle

An article recently published at the BoomerMarketAdvisor.com site argues that the aging of the Baby Boomers is causing a shift in focus from the Accumulation Phase to the Distribution Phase of the Investing Life-Cycle.

Here is the text of the section of the article that quotes me:

” ‘Unfortunately, many of the retirement planning tools now in use suffer from a grave flaw,’ says Rob Bennett, the author of the Financial Freedom Blog, a daily column on PassionSaving.com. ‘They fail to adjust for the valuation level that applies on the start date of retirement. Most existing tools provide one safe withdrawal rate for all possible retirement start-date valuation levels.’

“It’s common knowledge that shifts in valuation level influence long-term returns. As such, Bennett insists that any retirement calculations take this into account.

Retirement Worries ” ‘That means the safe withdrawal rate that applies for a retirement starting at a time of high valuation cannot be the same as the safe withdrawal rate that applies for a retirement starting at a time of low valuation,’ he explains. ‘The number you get for the 30-year safe withdrawal rate for a portfolio of 80 percent S&P stocks for a retirement beginning in January 2000 is 1.6 percent. The conventional tools say a 4 percent withdrawal is safe. For a retiree with a $1 million portfolio, that’s the difference between living on $16,000 of spending per year and living on $40,000 per year.’ ”

Interesting points made in the article include:

1) Investing analysts of the past have rarely provided effective guidance on the Distribution Phase of the Investing Life-Cycle. The article asserts that “financial advisors appropriately (my emphasis) concentrated on asset accumulation….” I question how appropriate the focus on the Accumulation Phase has been. Much of the conventional investing advice virtually ignores the Distribution Phase. This slant is entirely inappropriate and even dangerous, in my view. Still, I am happy to see an article point out this grave flaw in the conventional investing advice (a flaw identified early in Financial Freedom Community discussions because those seeking to rely on income generated by their investments to cover at least some of their daily living costs must give serious thought to the realities of the Distribution Phase);

2) Second-generation distribution planning software is “already hitting the shelves.” It is certainly fair to say both that there is great value in using simulations of possible future investment outcomes to test the real-world viability of an investment strategy, and that the first-generation retirement planning software has failed to do the job that investors need done. So the development of new software is probably a good thing. I hope to provide an analytically valid safe-withdrawal-rate calculator at this site in days to come (my guess is that it will be some time before I am able to find time to arrange for that); and

3) Many boomers are seeking to “Retire Different!” rather than to pursue the old and moldy idea of handing in a resignation at age sixty-five and then leaving the workplace altogether. Many financial advisors are finding that their clients see value in being able to run “What if?” scenarios to guide them in the construction of investing plans to serve this more complex (but perhaps more sensible and more fulfilling too!) approach to the retirement project.

Rise of the New School of SWR Analysis #7 –Disclaimer Language to Fix Retirement Planning Tools

I would not put my name to a retirement planning tool reporting the findings of a conventional-methodology safe withdrawal rate study as if those findings accurately portrayed what the historical stock-return data says about what is needed to make a retirement plan safe. But let’s say that the author of one of today’s retirement planning tools cannot bring himself to acknowledge that he got the number wrong. What should he do?

The best course of action in that circumstance is for the author of the flawed study or calculator to add Disclaimer Language letting his readers know that many smart people have concluded that changes in valuation levels do indeed affect long-term stock returns. The Disclaimer Language should also point users of the study or calculator to materials providing more information about the flaws of the conventional tools and about the findings of analytically valid tools.

Here’s my suggested wording for the Disclaimer Language:

“This study was prepared using the conventional methodology for determining safe withdrawal rates. That means that no adjustment was made for the effects of changes in valuation levels. This study reports the same safe withdrawal rate for retirements beginning at times of low valuation as it does for retirements beginning at times of high valuation.

Retirement Dreams “There are a good number of investing experts who dispute the assumption that changes in valuations have zero effect on safe withdrawal rates. This group includes: (1) William Bernstein; (2) Scott Burns; (3) John Walter Russell; (4) Robert Shiller; (5) Peter Bernstein; (6) Rob Arnott; (7) Ed Easterling; (8) John Mauldin; (9) Peter Ponzo; (10) Andrew Smithers; (11) Ben Stein; and (12) “Raddr” (owner of the Raddr-Pages.com web site). In the event that these experts are right, the portfolio withdrawal percentages identified as safe in this study are at times of high valuation wildly off the mark from the safe withdrawal rates that would be identified by an analytically valid study of the question.

“I encourage you to think hard about the valuations question before using this study to plan your retirement or to decide on your stock allocation in your pre-retirement years. Failure to do so may cause you to suffer the severe life consequences that follow from having your retirement go bust when you are too old to seek reemployment or in the loss of a large percentage of your life savings in your pre-retirement years.

Here are links to materials that you should look at before using this study to plan your retirement:

(1) Link to the Scott Burns column reporting that there is a “growing school of thought” holding that safe withdrawal rates should be adjusted downward at times of high valuation by 1.5 to 2.0 percentage points;

(2) Link to the Amazon.com page at which William Bernstein’s The Four Pillars of Investing is offered for sale; and

3) Link to the Early-Retirement-Planning-Insights.com web site.

Rise of the New School of Safe Withdrawal Rate Analysis, Update #8 — Scott Burns Again Endorses New School Safe Withdrawal Rate Analysis

Bill Bernstein and I went public about the grave flaws in the conventional-methodology safe withdrawal rate (SWR) studies at roughly the same time. I had discovered the flaws back in the mid-1990s (after reading what Jack Bogle said about the effect of valuations on long-term returns in his book Common Sense on Mutual Funds). But I did not go public until my famous May 13, 2002, post to the Motley Fool board (“The Post Heard ‘Round the World”). Bernstein went public in his book The Four Pillars of Investing, which was published a few weeks earlier.

After my tentative SWR findings were confirmed at the various Retire Early boards (lots of people helped, but John Walter Russell’s service to our community on this matter goes beyond anything that anyone else has ever done for any discussion-board community–I intend to dedicate my investing book to him in an attempt at a small community payback), I initiated an effort to publicize our findings. That led to correspondence with Dallas Morning News Columnist Scott Burns asking him to publish a column announcing the New School approach to determining SWRs and warning aspiring retirees of the dangers of putting their confidence in the findings of the conventional studies.

Online Retirement Planning Tools

Burns published his column in July 2005. He explained that the New School (that’s Rob Bennett [me!], John Walter Russell, Bill Bernstein, Peter Ponzo [“Gummy”], Rob Arnott, and so on) argues that, at times of high valuations, 1.5 to 2.0 percentage points need to be subtracted from the 4 percent number put forward as the SWR in the old studies to get the “safe withdrawal rate” as that term is defined in the literature. He also explained why many media accounts continue to report the results of the old studies even after they have been discredited — “It is information most people don’t want to hear.”

Since that time, Burns has made reference to the discredited studies in a number of columns. This has led some to believe that he has reversed his position and once again has confidence in the conventional-methodology studies.

Burns has now published a column reiterating his support of the New School studies (he only reported on the New School of SWR Analysis in his old column, without offering his personal view as to which analytical school is right, but he did tell me in an e-mail that he agrees with my views).

Scott Burns: “Let’s review the latest thinking on safe withdrawal rates.

“While most of the research says any retiree can safely start with a withdrawal rate of 4 percent to 5 percent a year, a newer school of thought believes the safe withdrawal rate depends on how stocks are priced at the time you start making withdrawals.

“If stocks were cheap and selling around eight times trailing earnings and offering high dividend yields, for instance, history shows that you could easily withdraw more than 5 percent a year. That would have made 1980 or 1981 good years to retire.

“But if stocks were expensive and selling at a high multiple of earnings and offering low dividend yields, history shows that a higher withdrawal rate can be fatal to your nest egg. That would have made 2000 or 2001 bad years to retire.”

Retirement Planning Research The old SWR methodology is dead, as dead as the Bull Market Illusions that some of us capitulated to during the Summer of 1999. The Summer of 1999 ain’t coming back, and the discredited SWR methodology that became popular during the longest and strongest bull market in U.S. history ain’t coming back either.

That’s not to say that Scott Burns and a whole big bunch of others will never again make reference to the discredited studies. As the man said in his column from July 2005: “It is information a lot of people don’t want to hear.”

Rational? By no means.

All Too Human? You betcha.


Why Knowing the True Safe Withdrawal Rate Matters

The Financial Freedom Community has for four years studied the safe withdrawal rate and how to make use of our findings to develop insights into how to invest more successfully for the long term. The purpose of this article is to explain to newcomers to our movement why so many of us view it as so important to calculate this number accurately.

Reason #1 — Knowing the safe withdrawal rate advances one’s understanding of the rarely discussed Distribution Stage of the Investing Life Cycle.

Big Scary Numbers

There are two stages to the Investing Life Cycle. During the Accumulation Stage, you accumulate assets by spending less than you earn and adding the difference to your investment portfolio. During the Distribution Stage, you make withdrawals from the wealth accumulated in earlier years to finance the costs of day-to-day life.

Most of the investing literature focuses on what happens during the Accumulation Phase. But investors need to develop an understanding of Distribution Phase issues as well.

The reason why the conventional focus has been the Accumulation Phase is that most investors do not personally experience Distribution Phase issues (or at least are not aware that they do so) until they retire. For many, this is not until age 65 or perhaps even later. Most investment analysts seek to provide guidance to the larger group of investors that has not yet reached age 65. So the Distribution Phase realities are today “the secret realities” of investing. These realities are of great importance, but are generally unknown.

The reason why Financial Freedom Community members care so much more about the Distribution Phase is that we aim to enter the Distribution Phase sooner. Those who retire at age 50 begin depending on their investments to finance their costs of living 15 years sooner than do those who retire at the conventional retirement age.

The reality is that all investors should be concerned about Distribution Phase issues. Even investors who are not currently taking money out of their investment portfolios to cover their costs of living want to see their portfolios grow gradually larger over time. If they instead see their portfolios shrink, they will be tempted to abandon their buy-and-hold strategies at the worst possible time for doing so. So even these investors are in an indirect (but significant) way affected by Distribution Phase realities. Any investor concerned about the current value of his portfolio as well as its expected long-term value (and that’s all of us) possesses in part the short-term investing perspective that usually is deemed applicable only to Distribution Phase investors.

Safe withdrawal rate analysis reveals the secrets of the Distribution Phase of the Investing Life Cycle both to those who are directly affected because they are in retirement or approaching retirement and to those who are indirectly affected because they are influenced by the universal human desire to see their portfolios grow over time rather than diminish.

Reason #2 — Knowing the safe withdrawal rate makes it possible to formulate a plan to make use of one’s investment assets to cover one’s costs of living.

Even those who find SWRs boring make use of SWR analyses in their financial planning. It is possible to rely on improperly calculated SWRs. It is possible to rely on SWR analyses without knowing you are doing so. It is not possible to develop a financial plan without giving consideration at least in an indirect sense to the SWR issue.

It is not possible to craft a financial plan without reducing your thoughts about how your investments will do to numbers. To be sure, many investors are not conscious of the process by which they translate their investing expectations into numbers. But all do so. It is an unavoidable part of the planning process.

Why Safe Withdrawal Rates Matter Say that an investor decides that he will withdraw 10 percent from his portfolio each year. Is this investor making use of safe withdrawal rate analysis? He is. The 10 percent number is the average annual return of stocks, not adjusted for inflation. The investor is using an analytically invalid approach to safe withdrawal rate analysis to put together his plan. But he is making use of the concept that drives safe withdrawal rate analysis (the translation of subjective expectations of how stocks will perform into numbers that can be used in a financial plan) all the same.

We measure our financial worth through the use of numbers. So all of our thoughts about what will happen in our money lives must be reduced to numbers before they are incorporated into a financial plan.

Say that an investor decides that he will withdraw 20 percent from his portfolio each year. Is that investor making use of safe withdrawal rate analysis too? He is. In this case, the assumptions are even more far-fetched. The investor is not only ignoring the effects of inflation. He is assuming that he possesses a power to invest far more effectively than most. Still, the concept that he is employing to arrive at the 20 percent number is the safe withdrawal rate concept. He is translating his (wildly optimistic) beliefs about his investing abilities into numbers for use in a financial plan.

When you hear people talking about how to determine safe withdrawal rates, what they are really talking about is how to make the shift from the subjective to the objective, a shift that must be made as part of the process of creating any financial plan.

Reason #3 — Knowing the safe withdrawal rate methodology used by an investment advisor reveals to you the level of sophistication of that advisor’s understanding of investment issues.

Since it is not possible to engage in financial planning without making use of some form of safe withdrawal rate analysis, all investment advisors make use of some form of this analytical tool. Not all advisors offer equally sound advice, of course. That’s because different advisors apply different levels of sophistication to their use of the tool.

There are four levels of sophistication (and a number of variations to several of them) that apply to most safe withdrawal rate analyses available today:

(1) The Caveman Approach: The most uninformed approach is the approach noted above, looking at the average percentage earnings of stocks without making an inflation adjustment. This obviously flawed approach indicates that it is safe to withdrawal 10 percent of assets from a high-stock-allocation portfolio each year because the average earnings percentage on stocks is about 10 percent;

(2) The Old Peter Lynch Approach: A better approach is to use the real annualized return on stocks as the withdrawal rate for your financial plan. This number is often quoted as 7 percent (6.8 percent is probably a more accurate number). It wasn’t too many years ago that Fidelity Legend Peter Lynch used this approach in an article he wrote. He was corrected by Dallas Morning News columnist Scott Burns, who pointed to the findings of conventional-methodology safe withdrawal rate studies (see below) to explain Lynch’s analytical error. Lynch acknowledged the error when it was brought to his attention. However, there are still many smart people today who are not sufficiently familiar with how the Distribution Stage works to see the not-so-obvious flaw to this approach;

Today's Understanding of How Stock Investing Works Is Primitive

(3) The Conventional Methodology Approach: The third approach is the conventional-methodology approach pointed to in Burns’ criticism of the Lynch approach. The Trinity study, a conventional methodology study, was “breakthrough research” (this is William Bernstein’s phrase, but I share his view on this point) because it revealed the flaws of the Lynch approach. The flaw is that, while stocks provide a 6.8 percent annualized return over long periods of time, there are many returns sequences in the historical record that would cause big losses in the early years of a retirement if they were to pop up again. Retirees with high stock allocations who suffer big drops in portfolio value in the early years of their retirements need to sell shares to cover their costs of living. Investors who sell stocks when prices are down never realize the 6.8 percent annualized returns obtained by those who hold their shares through upward and downward price movements. These studies report a 4 percent safe withdrawal rate for high-stock-allocation portfolios. The conventional methodology studies represented a big step forward in sophistication from The Old Peter Lynch Approach. However, this approach also suffers from grave flaws;

(4) The Data-Based Methodology Approach: The flaw with the conventional methodology studies is that they report the safe withdrawal rate as a fixed number, one that does not change with changes in valuation levels. The historical data shows that changes in valuation are the biggest factor affecting the long-term survival of a portfolio employing a particular withdrawal rate. So analytically valid studies must include an adjustment for changes in valuation levels. This approach shows that, at times of moderate valuations, the safe withdrawal rate for an 80 percent S&P portfolio is indeed about 4 percent (the number given in conventional methodology studies for retirements beginning at all possible valuation levels). At times of high valuation, it can drop to 2 percent or less (the number was 1.6 in January 2000). And, at times of low valuation, it can rise to 6 percent or higher.

Each advance in the sophistication of the safe withdrawal rate methodology being used represents an advance in the investing analyst community’s understanding of how stocks work. There are some who today still use one of the first two methodologies. There are many who still use the third methodology. But the state-of-the-art methodology today is the data-based methodology, as this is the only one of the four approaches that aims to report accurately the safe withdrawal rate as indicated by the historical stock-return data rather than to “spin” (either consciously or unconsciously) the report on what the data reveals in deference to some personal bias or misperception of the researcher.

There are only a small number of investment writers who today are aware of the breakthrough insights unearthed by the Financial Freedom Community during its Great Safe Withdrawal Rate Debate. These include the following names: (1) John Walter Russell; (2) Rob Arnott; (3) Robert Shiller; (4) William Bernstein; (5) Peter Bernstein; (6) Scott Burns; (7) Peter Ponzo; (8) Ed Easterling; (9) the poster using the screen-name “Raddr;” and (10) the poster using the screen-name “BenSolar.” Each of these individuals possesses a more sophisticated understanding of what the historical stock-return data says about how to invest successfully for the long run than do most other investing advisors. That does not mean that they always offer sound advice, of course. But I think it is fair to say that this is a factor that should be taken into consideration when assessing the advice they offer and comparing it to the advice offered by advisors who are not today aware (or who pretend not to be today aware) of the important safe withdrawal rate findings of recent years.

Reason #4 — Knowing the safe withdrawal rate provides valuable insights for use in deciding on an asset allocation strategy.

The Four Percent Rule Some conventional methodology studies include asset allocation advice. High stock allocations are generally identified as “optimal.” That’s so regardless of the valuation level that applies on the start-date of the retirement. Since the conventional methodology studies fail to adjust for valuation changes, they are essentially reporting what the safe withdrawal rate would be in a world in which valuations always remained at moderate levels. At times of high valuations (like today–this article was written in January 2006), the asset allocation advice being given is dangerous because stocks do not offer nearly so powerful a value proposition at times of high valuation as they do at times of moderate valuation.

Some have concluded from this failing of the conventional methodology studies that safe withdrawal rate analysis should not be used to inform one’s asset allocation strategy. I disagree. I believe that knowing the safe withdrawal rate can be a big help in the formation of a sound long-term asset allocation strategy. The conventional methodology studies are “highly misleading” (William Bernstein’s phrase). But the idea of using safe withdrawal rate analysis to determine asset allocations is a very good one indeed.

The message that the historical data is trying to tell us is that asset allocations should change as valuation levels change. Consider the statement a few paragraphs up, that the safe withdrawal rate for an 80 percent stock allocation moves below 2 percent in some circumstances and moves above 6 percent in some circumstances. With the value proposition of stocks changing that dramatically, keeping a steady allocation percentage just does not make sense.

Stocks are like any other asset you purchase, according to the historical stock-return data. Sometimes they are priced right, sometimes they are not. Just as you can achieve financial freedom years earlier by buying clothes and toys and groceries when they are on sale, so you can move up the day when you overcome paycheck dependence by concentrating your stock purchases in years in which stocks are being sold at a 20 percent or 30 percent or 40 percent discount from their usual price.

To take advantage of the great prices at which stocks are sometimes made available, you need to have some money invested in asset classes other than stocks at times when stocks are being offered only at high prices. So the “optimal” stock allocation, like the safe withdrawal rate, is an ever-changing number. Analytically valid safe withdrawal rate studies provide you with valuable insights as to what stock allocation percentage is best for you at all of the various possible valuation levels.

Reason #5 — Knowing the safe withdrawal rate diminishes the influence of fear and greed on your investing decisions.

Safe Investing Tools Investing is a highly emotional endeavor. The pull of fear and greed has tripped up millions of well-informed investors. Much investing advice informs us on all sorts of issues that matter, but that matter not as much as gaining an ability to rein in our negative emotions. Many money advisors know how damaging fear and greed can be to your hopes of achieving your financial freedom dreams. The trouble is that not too many know of tools to help you overcome the influence of these two dark emotions.

The best protection against the negative influence of fear and greed is — safe withdrawal rate analysis!

The beauty of an accurate safe withdrawal rate analysis is that it tells you how stocks really have performed in the past, not how you wish they had performed. The safe withdrawal rate is a number. It is something that is calculated. It is objective. It is real.

That means that a properly done safe withdrawal rate analysis can help you overcome the emotions that otherwise undermine your hopes of winning financial freedom early in life. Fear and greed cause us to make the wrong investing decisions at the wrong time. We are pulled to want to buy stocks when prices are high and to sell stocks when prices are low.

Safe withdrawal rate analysis provides a counter to those destructive emotional pulls by letting us see in an objective way how much the value proposition of stocks drops as stock prices rise and how much the value proposition of stocks rises as stock prices drop.

Reason #6 — The safe withdrawal rate combines lots of information bits into a single number.

The safe withdrawal rate is a single number. Sometimes it’s 2 percent, sometimes it’s 6 percent., sometimes it’s 4 percent. Whatever it is, it’s a single number.

It takes an analysis of thousands of numbers to generate that single number, however. What you are getting when you look up the safe withdrawal rate is a number that summarizes the information bits contained in thousands of others. The safe withdrawal rate is like the title of a book — it is a succinct statement of all that is contained inside.

It’s a good idea to study the historical data itself, not just the number generated by making reference to it. You will develop a deeper and richer understanding of the lessons of the historical stock-return data if from time to time you examine the data for yourself.

But you don’t always have time for that. There are days when all you have time for is to look up the safe withdrawal rate that applies for that day’s valuation level. That number tells you the basic information, the essential guidance that you need to make a quick assessment as to whether you should be increasing your stock allocation, decreasing it, or leaving it stable.

We all need shortcuts. The number you get from a safe withdrawal rate analysis is one very useful shortcut statement of the value proposition represented by stocks at a particular point in time.

Reason #7 — Knowing the safe withdrawal rate allows you to make effective comparisons between different investing options.

Should Financial Planners Tell Clients Whatever They Want to Hear?

Your common sense tells you that stocks offer a stronger value proposition at times of low valuation than they do at times of high valuation. But your common sense doesn’t tell you how much a difference valuation levels make. Knowing the safe withdrawal rate does.

Your common sense tells you that there are some circumstances in which it is best to put most of your money in stocks and that there are other circumstances in which it is best to make a significant investment in an alternate asset class, such as Treasury Inflation-Protected Securities (TIPS) or ibonds. But your common sense doesn’t tell you how much to lower your stock allocation in circumstances in which the relative value proposition for TIPS or ibonds is strong. Knowing the safe withdrawal rate does.

Making effective investment decisions requires making comparisons of the options before you. You need to take into consideration lots of things other than the safe withdrawal rate to make effective decisions. But knowing the safe withdrawal rate is a big help. Numbers can easily be compared to other numbers. It is easy to compare the safe withdrawal rate that applies for stocks at one time with the safe withdrawal rate that applies for stocks at another time. It is easy to compare the safe withdrawal rate that applies for stocks at one particular time with the safe withdrawal rate that applies for an alternate investment class at that time.

Reason #8 — Knowing the safe withdrawal rate helps you develop a real-world understanding of what stocks are and how they work.

Stock investing need not be as complicated as many people make it out to be. There are indeed aspects of the investing experience that are hard to understand. But it is the fundamentals that matter most, and coming to understand the fundamentals is not all so terribly difficult.

The problem for most investors is not the things that they do not know, but the things that they think they know for certain that are in fact just not so. The conventional wisdom on stock investing changes dramatically as we move from bull markets to bear markets and back again. During bull markets, the benefits of owning stocks are exaggerated. During bear markets, the drawbacks of owning stocks are exaggerated. To invest successfully for the long term, you need a compass, something that roots you in the fundamental realities so that you can tune out the nonsense noise that steers many investors in the wrong direction.

Knowing the safe withdrawal rate provides you the compass you need. Calculated properly, the safe withdrawal rate is not subject to spin. It is a number, something hard and objective and real. An improperly calculated safe withdrawal rate is really just a reflection of the opinion of the “researcher” who generated the number. That sort of safe withdrawal rate is not objective. Those sorts of numbers are not the product of science. They are the product of science fiction. But knowing the real number roots you in something real.

Advances in Investing Analysis

The Financial Freedom Community has made great progress in recent years in its effort to learn how to calculate the safe withdrawal rate properly. I do not believe that the job is yet finished. Our new methodologies represent a significant advance over the old ones, but we still have work to do in learning how to keep bias out of our calculations and how to report straight and true what the historical data is telling us re how to invest for the long term.

We need to keep working at it. Knowing the true safe withdrawal rate matters.


Investing Experts Are Politicians

For a good number of years, I earned my living as a reporter covering Capitol Hill. My friends viewed it as a glamourous job, but it became boring to me. After you’ve done it for a bit, it gets to be the same thing over and over again.

Investing Experts Are Politicians

Part of the appeal of making a shift to writing about personal finance was that it provided an escape from the aspects of politics that had become annoying. I had grown tired of all the gobbledygook and trickery used to avoid accountability. It turns out that the joke was on me re that one. Many of today’s most popular investing experts are politicians at heart!

Investing Expert / Politician Comparison #1 — They employ gobbledygook.

John Bogle warns about the dangers of overvalued stocks in just about every speech he gives. He concludes just about every speech by admonishing his listeners to “Stay the Course!”

The only practical way to take action on the warnings about overvaluation is to lower your stock allocation. That would mean not Staying the Course.

AUDIO: Rob’s Financial Freedom Insight #1 — People Who Make Money Selling Stocks Cannot Tell You the Truth About How to Invest

Is Bogle genuinely concerned about overvaluation or is he not? It’s hard to say, isn’t it? My guess is that Bogle understands that he has made it hard for us to figure out where he really stands on the overvaluation question, and that he sees that as being not an entirely bad thing.

Investing Expert / Politician Comparison #2 — They avoid accountability.

If stocks go up, Bogle looks good because he encouraged you to Stay the Course.

If stocks go down, Bogle looks good because he warned you about the risks of holding overvalued stocks.

Gobbledygook serves a purpose.

Investing Expert / Politician Comparison #3 — They divide into opposing camps.

Bogle’s greatest accomplishment was in getting many investors to understand the importance of taking a long-term perspective. Bogle started a revolution in our understanding of how to invest successfully by doing this, in my view.

The implications have not yet sunk in for many investing experts. Both the Bull perspective (stock prices are headed up) and the Bear perspective (stock prices are headed down) are short-term perspectives. Since I was persuaded by Bogle’s urging to take a long-term perspective, I have lost interest in the cosmic silliness of pitting bulls off against bears.

Investing Mumbo Jumbo

Many of today’s investing experts have followed Bogle’s lead in urging a long-term perspective. Few take this advice seriously enough to realize that pitting bulls off against bears doesn’t make sense anymore.

They can’t help themselves. For politicians, the world is divided into Republicans and Democrats. For investing experts, the world is divided into Bulls and Bears. The one dichotomy is just as dumb as the other, in my mind.

Investing Expert / Politician Comparison #4 — They identify with each other more than they do with you.

There was a day when our elected representatives only lived in Washington, D.C., for a small part of the year. Now they are more at home with their own kind than they are with their constituents.

Have you noticed how investing experts employ their own specialized lingo? They make reference to things like “the equity risk premium” and “Efficient Market Theory” and such like without bothering to explain with care what it is they are talking about to you and other investors like you. The other investing experts are able to pick up on the references. That’s what matters most. It’s a club.

Investing Expert / Politician Comparison #5 — They practice “Positioning.”

You will often hear politicians say things that appear to be contrary to their usual positions. They are positioning themselves for possible changes in the prevailing winds.

Investing experts do the same. Jeremy Siegel wrote Stocks for the Long Run, one of the most pro-stock books ever written. His more recent work evidences more caution. His skills are the skills needed to argue persuasively. Like a lawyer, he is able to argue either side of the case, if called on to do so.

I don’t mean to suggest that Siegel does not believe most of the things he says. Most lawyers believe most of the things they say. Those who believe in the merits of their case are able to argue it more effectively.

Siegel believes more than one thing about investing. He stresses different beliefs in different circumstances. He positions himself to keep his approval ratings up.

Investing Expert / Politician Comparison #6 — They are smart.

Money Lies

Most politicians are smart. Most investing experts are smart.

You’ve got to be smart to pull some of this stuff off.

The smartness is not always being employed for the benefit of the person listening to the advice being put forward.

Investing Expert / Politician Comparison #7 — They are well-paid.

Politicians earn more than most of their constituents. Investing experts earn more than most of the people listening to their advice.

I don’t say it should be different. I do say that it affects the relationship between the investing expert and the person listening to his advice. Those who earn a lot more than you cannot relate as well to your concerns.

Investing Expert / Politician Comparison #8 — They cannot afford to focus on the big picture.

Many politicians have a good appreciation of what the real problems are and have a reasonable sense of what needs to be done. They are not in a position to take the steps that need to be taken. They have committee work that has to be done. They have constituent work that needs to be done. They have reelection work that needs to be done.

Investing experts too see that the real problems are not the ones they spend most of their time talking about. At least that’s my impression. I sense this reading between the lines of their articles and speeches. They too feel caught up in minutia.

Investing Expert / Politician Comparison #9 — They want to do good.

What causes Bogle to talk about overvaluation so frequently? My guess is that it’s his conscience. He’s not clear in his advice to investors. But it is my sense that he hopes that a few are able to figure out the message all the same.

Investing Expert / Politician Comparison #10 — They are cautious.

Investing Lies
The failures of the Efficient Market Theory are painfully obvious to any reasonably informed investing expert. A few of the best have spoken frankly about them. Many hold back. My sense is that they worry that, once questioning of the dominant model for understanding investing questions is permitted, there will be no end to it. The model will collapse.

I would see it as a good thing to see the Efficient Market Theory collapse. My sense is that many investing experts are reluctant to begin a process that would leave to wholesale reform of our understanding of how investing works, just as politicians might be reluctant to take on a project as big as tax reform or health-care reform. The feeling is that, when you start down such a road, you don’t know where it is going to take you.

Investing Expert / Politician Comparison #11 — They are focused on the short-term.

Politicians are always worried about the next election. That’s always the uppermost consideration on their minds.

Investing experts are not good at telling us what we need to do to become successful long-term investors. They want their words to sound good today and what sounds good today is not what works best for the long-term.

Investing Expert / Politician Comparison #12 — They place great value on being popular.

An investing expert’s advice doesn’t persuade anyone unless people like him. Investing experts often tell us what we want to hear rather than what we need to hear.

Investing Expert / Politician Comparison #13 — They’re glib.

Investing experts have learned the power of catch phrases to permit them to avoid giving clear and complete responses to hard questions.

Stocks are always best for the long run. That’s a powerful catch phrase. How do we know? The historical stock-return data tells us so.

The same historical stock-return data tells us that stock prices are likely to fall hard from today’s levels (this article was posted in January 2007). Should we be lowering our allocations? No, no one knows the future, say the experts. That’s a second powerful catch phrase.

Honest Investing Advice

The two catch phrases contradict each other. Catch phrases don’t need to make sense. Their power comes from the fact that they have been repeated so often that people have stopped asking what it is that they mean. That’s the source of their appeal to both politicians and investing experts.

Investing Expert / Politician Comparison #14 — They like people more than ideas.

It is the people behind politicians who are the idea people. The politicians themselves are people people.

My sense is that this is often the case with investing experts too. The intellectual curiosity is often not there. They are faces. They connect well with others.

Investing Expert / Politician Comparison #15 — They’re practical.

Politicians are not theorists. They are there to get a job done.

One of the reasons why investing experts don’t want to initiate a reexamination of the Efficient Market Theory is that it would generate so much seemingly non-productive questioning. They would rather continue turning out widgets with a machine that kinda sorts works for as long as it kinda sorta does.

Investing Expert / Politician Comparison #16 — They’re part of an establishment.

The investing expert job is a plum. You pay your dues to get there. You learn to follow the rules. There are consequences attached to doing things different.

Bogle is hated by many for having proposed a different way of doing things. He bucked the establishment. That’s how he came to be referred to by many as a “saint.” Not too many do.

Investing Expert / Politician Comparison #17 — They throw mud.

You want an investing expert who belongs to one school of thought to point out the weaknesses of the alternate schools of thought. You want him to do so in a fair and reasoned way, though.

Too often, it’s not done that way. Too often, the investing expert defends his point of view by throwing mud.

The Truth About Investing

Many investing experts do not possess confidence that their investing strategy is always right any more than many politicians possess confidence that their party is always right. They reveal their lack of confidence with the way they respond to challenges from other schools of thought.

Investing Expert / Politician Comparison #18 — They are skeptical of change.

We think of politicians as change agents. They’re not, really. The political system takes demands for change and softens them so that they do not pose a threat to the overall system. Politicians implement change, but they are not the ones who create the demand for it. Politicians are followers, not leaders.

Investing experts see it as their job to make the people who are looking to them for advice happy. When investors want to hear reasons to invest in stocks, investing advisors provide them. When investors want to hear reasons not to invest in stocks, investing advisors provide them. They generally don’t see it as their job to offer challenges and to change minds.

I don’t dislike politicians. They have their good points and bad points. I don’t think it’s a good idea to place too much hope in politicians doing “the right thing.” They might not agree with you as to what the right thing is. If they do agree, they might not be able to get it done. If they get it done, they might not be around long. The lower your expectations are for politicians, the more satisfied you will be with the work they do for you.

I don’t dislike investing advisors either. I think that many of us put too much confidence in their “expertise.” They really do possess a certain expertise. But it is a limited expertise, and it is often not an expertise that best serves the typical middle-class investor. Listen to the experts. Learn what you can from tem. Tune out what doesn’t make sense. Employ a b.s. detector.

That’s what you do when listening to politicians, isn’t it?

Investing Discussion Boards Ban Honest Posting on Valuations!

People without love will sometimes build a fence around
The garden up above that makes this whole world go around.
And all those people that don’t fit,
They get the only fun they get
From people putting people down.

— John Prine, “People Putting People Down”

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #1

Rob’s da man! Never in the history of the Diehards forum has one poster, always making civil and well thought-out posts, managed to irritate so many without anyone being able to articulate a good reason as to why. — Mephistopheles, Vanguard Diehards board, June 4, 2006.

Cernsorship of Investing Discussions

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #2

It looks like a bunch of new people logged in for the express purpose of antagonizing one guy…. C’mon Morningstar. Remove those users. — focus, Vanguard Diehards, April 13, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #3

That is the way the heavy fist works. You make a few examples and everyone falls into line. No need for more shocks. It’s like the invisible fence for dogs. — JackM, Vanguard Diehards board, April 1, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #4

The majority opinion rarely needs protections from a constitution, laws or rules. It is the minority opinion that needs to be protected. –JohnYaker, Vanguard Diehards, March 29, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #5

It’s always easier to be with the thinking of the larger group. When ideas are wrong but aligned together with the mass, there is a warmth and consolation to be found in the midst of everyone being wrong together. — 71220, Income and Dividend Investing board, December 21, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #6

Morningstar has lost a significant number of folks who frequent this website in a very short period of time. That’s not just a matter of prestige. It translates into dollars and cents. There is a lot of advertising here (as we all know), and Morningstar like other commercial sites receives a revenue stream for the eyeballs that visit these forums. — Maurice, Income and Dividend Investing board, March 11, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #7

I find it MUCH more disruptive that we have a whole posse of internet sheriffs that feel every time he posts that he should be attacked, criticized and so forth…These are the disruptive people, and if anyone was to be banned, they (without naming names) are the first I would suggest…Jesus, people, if you think he is a troll *IGNORE* him…Why is that so difficult to understand? Or are you all saying you don’t like what he has to say, so nobody else has a right to hear it either? Who exactly died and left you all in charge of other people’s opinions? — Farmer Ed, Early Retirement Forum, March 18, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #8

Rob Bennter First Posted About Errors in the Old School Safe Withdrawal Rate Studies on May 13, 2002

That’s incredible hocus! They put a board up just to mock you? I don’t think I’ve ever seen that one before. That’s what I call mature web site management.

You should be flattered. You really should. You’ve got that guy so messed up it’s not funny. Or is it? — ES, SWR Research Group, February 7, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #9

For whatever reason, you are leaving a turbulent wake in your path…. I used the term “turbulent wake” deliberately — it’s not what you are saying that seems disruptive, but rather all the dialog that inevitably takes place afterwards. — Bill Sholar (author of the FIRECalc calculator and former owner of the Early Retirement Forum), E-Mail to Rob, March 18, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #10

It seems to me that some on this board feel threatened by the arrival of hocus and his ideas. They feel a threat to their perceived elite status here. Two common reactions are to debate or attack. Those who choose to attack or do both are straining their credibility. — Gary1Putt, Motley Fool board, December 24, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #11

It’s unfortunate that a few posters can cause so much disruption to an otherwise excellent forum. I’m sure that 90+% of posters here would like to see an end to the disruptive posts about hocus. — JohnDCraig, Vanguard Diehards board, May 13, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #12

Folks, we have a good bit of disruption in the ranks. Some of the disruption is in the form of a Baptist running occasionally into Methodist services, and claiming that some of their beliefs are heresy. This seems to generate (a) almost zero real dialog about the merits and demerits of the beliefs, and (b) a strange combination of ad hominem attacks and defensiveness. — Bill Sholar (Dory 36), Early Retirement Forum, March 18, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #13

I will point out that roughly 90% of the “mess”, aka disruption, came from members other than hocus. I’ve actively participated here for a week. Most of the posts are “I can’t take this anymore/I’m leaving/I’m retiring”. Despite the obvious fact that this feeds the very fear expressed, at this point I’m already tired of it. Leave already. — TH, Town Center, June 16, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #14

The Campaign of Terror Against the Retire Early and Indexing Discusson Board Communities

Hocus, Glad to see you back! I greatly enjoy discussing safe withdrawal rates but it probably would not have happened anytime soon if you hadn’t shown your interest in the topic. I really hope you’ll come back here from time to time. I plan on looking at more aspects of safe withdrawal rates and would like for you to participate. — raddr, FIRE board, December 2, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #15

Life is short. too short for Motley Fool or Mr. Greaney’s incompetence/ethics shortage/whatever ailment interferes with his ability to communicate facts in a straightforward manner. I don’t really care about how or why he’s that way. I care that his illness appears incurable and that that board is not useful to me. Period. — Wanderer, FIRE board, December 20, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #16

Thank you hocus for an excellent post. I have read, enjoyed and benefited from your comments for some time. You are a true asset to this community.With Immense Respect, FMO — FoolMeOnce, Motley Fool board, September 30, 2001.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #17

Glad to see you here hocus. I posted at Motley Fool but I am not optimistic. Several of the responses to your thoughtful post were of the “I’m not reading a hocus post” variety. Reminds me of kids covering their ears and shouting to avoid hearing something. — Ataloss, FIRE Board, December 2, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #18

I want to join in saying ” Well Done, hocus! ” People like myself and BenSolar who are in the accumulation phase I’m sure are especially interested in the issue of what to do about buying in during a high P/E market. It goes to the heart of some of the difficult issues we face outside the subject of safe withdrawal rates. — PeteyPerson, FIRE board, July 14, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #19

Some of the most helpful and insightful market discussions on the web take place on these pages. Keep up the very fine work. — MacDuff, SWR Research Group, September 7, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #20

Right on, Hocus! We need lots more of this kind of thinking. I’ve long been concerned about the non-number-crunchable aspects of trying to figure out a Safe Withdrawal Rate/Personal Withdrawal Rate. — PeterV, SWR Research Group, January 20, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #21

I, for one, am against any and all “substantive” discussions with or about brickhead (aka hocus). I want Jihad! I say let loose the dogs of personal attack. The nastier the better as far as I’m concerned. — Galeno, Motley Fool board, August 30, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #22

Well, I guess that settles it. The Emperor of the Retire Early Home Page had issued his holy decree. — John Greaney (intercst), Motley Fool board, August 30, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #23

My comment on galeno’s post was pulled for ‘incivility’. First, I want to apologize to galeno if he took offense at my ‘rude or discourteous’ post. Saying, “You doctors should stick to your drugs and leave bullets to soldiers like me” was rude and demonstrated a lack of courtesy to galeno on my part….. This advice assumes that you want to deliver the round with a handgun. If you prefer a shotgun (which is probably superior for home defense, but not for close quarters combat), then there are many options there, too. A rifle is not well suited for close quarters work…. — Prometheuss, Motley Fool board, November 25, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #24

Bull Market Biases

This will be my last post here. Thanks to all who have engaged in constructive posts on this board over the years. This board has degenerated into something that I can no longer be proud to be involved with. FoolMeOnce, Motley Fool, August 30, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #25

I remember FMO saying something to that effect [that a poster who continued to contribute at a board at which deliberate deception and abusive posting were regularly practiced would sacrifice his self-respect by doing so] when he left here. I recall my first thoughts being what a shame it was that an otherwise smart guy apparently took a discussion board, as well as himself, a bit too seriously if he indeed drew such a conclusion.

This is a frickin’ internet message board, not a debate amongst scholars in a Harvard coffee shop for cryin’ out loud. Get over it. — GolfWayMore, Motley Fool board, November 23, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #26

Personally, I can tell you I came very close to leaving the board as well, essentially for the same reasons. It just wasn’t fun anymore. We had gone from a support group to a group that delighted in attacking each other. Though I believe it has much improved from those days, if it were not for the “ignore thread” option, I wouldn’t be here now.

As much as I at times take issue with Intercst’s style, he is by no means the only one. I myself could have been much more tolerant when CatherineCoy entered the fray. Yet interestingly enough, these posts in which we attack others tend to be some of the most highly recommended, indicating that the root of the problem lies with the way the board culture has evolved. It is everyone’s fault who has recommended one of these biting posts. ….So is there an answer? I had a long hard look at that question when I first decided to leave the board. Boards are really living communities and as such evolve. This is the way this board has evolved, and I honestly miss the old board. IMO, lobbying for a return to nostalgic days is an effort in futility. — InParadise, Motley Fool board, November 23, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #27

I think this board is a mess. The acceptance and encouragement of personal attacks as ‘witty repartee’ is reprehensible. I for one am going to start fool-alerting every personal attack I see from here on out. I encourage others to do the same. I am not going to give the benefit of the doubt to ‘witty repartee’ any more. This is the only way that Motley Fool will see for themselves what is going on. I trust their judgment to do what is appropriate.

The other issue of the use of distraction, misdirection, and deception as debating tactics to defend the dogma is a tougher issue. I think that can best be addressed by forcefully, succinctly and clearly rebutting the deception and misdirection, then moving on. Distraction should be ignored. Extreme examples can be fool-alerted and the fool-alert should include documentation of why the post is disruptive.

Intercst will not exercise his leadership to reign in this behavior, and he indulges in it himself, so Motley Fool will have to step in. — BenSolar, Motley Fool board, November 24, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #28

I emphatically disagree that discussion boards are “just discussion boards.” We are flesh and blood PEOPLE here with goals, aspirations and FEELINGS. If all YOU are is an anonymous poster at the end of a keyboard, why even bother coming here? I assume you seek to enhance your life by exchanging viewpoints with real live PEOPLE who, if you were to meet them face-to-face, you would probably enjoy and admire.

My participation (lurking mainly, because I’m not so afflicted) with a melanoma discussion/support board has really changed my view of discussion boards. The love that emanates from that board is inspiring and tangible. I don’t think I will ever again think of the people typing behind the messages as “just a discussion board.” — Catherine Coy, Motley Fool board, October 9, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #29

The Conventional Retirement Studies Get the Numbers Wrong

Who determines what is looney? Based on what I paid to participate on the board, I would like to have that decision mine to make and not have posters driven off. Were we all having these discussions at a cocktail party, I doubt that we would treat each other in the manner that some people do. If FMO or hocus were involved in a discussion that you became involved in and you persisted in imposing your views, it is likely that the discussion would come to an end in short order. If it were to move to another part of the room and reconvene, would you feel the need, upon seeing them, to get involved again?

Do I think it will change? I am not confident. I have an acquaintance who participates in a message board for people suffering from a terminal cancer. The participants engage in many faceted discussions about treatments, trials, side effects, etc. Recently a patient remarked about the depression she was feeling. Posters offered advice and support in a variety of ways. One even offered her prayers. To make a long story short, this was offensive to some of the more logical and reasoned posters who wanted to stick to statistics and protocols. It turned into a battle that eventually led to the board having a cooling-off period. For pete’s sake…these people are all dying and they still end up in a battle because some of the engineers didn’t want feelings or spirituality brought to the board. Some things still defy my understanding.

I don’t think the potential of a message board is achieved when ridicule is part of its charter. Critical analysis yes, but when it becomes clear that there is an unsolvable difference of opinion, responsible posters will simply agree to disagree and step away while they allow the discussion to continue. Some of you may argue that will foster or allow illogical thinking. So what? If you are so sure you are right, truth will ultimately prevail and the posters will come around to your point of view on their own. I understand that this may be a foreign concept to some of the more argumentative types, but in my experience, truth usually prevails whether I argue for it or not.

Anyway, that’s my take. I came here 3 years ago because it was an interesting, educational and informative atmosphere that also had a spirit of community. It would be nice if some of the leaders of the board could get us back in that direction. When one’s philosophy of life is “My way or the highway”, he or she usually ends up dying alone. — Nas90skog, Motley Fool board, August 11, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #30

What I saw much more of was people claiming math errors when there were none, people putting words in his mouth and repeating them enough that the casual observer believed them. Take for instance the constant repetition of the ‘fact’ that hocus recommends a 100% fixed income portfolio as a retirement vehicle. He has never ever done that, that I know of. He has instead repeatedly said that a healthy dose of stocks on the order of about 50% of the portfolio is likely good for most people, though each person has to analyze his or her own situation and risk tolerance to decide the actual portfolio…. They did not try to understand his meaning in good faith, and instead frustrated him by repeatedly putting words in his mouth that he didn’t say…. I can kind of see where he is coming from given the way he’s been treated, and the way that other good posters have abandoned the board because of the atmosphere here. But I think his tactics are likely to prove ineffective and will definitely alienate a lot of people here. If anything good comes of it, it may be that the board becomes intolerant of personal attacks and ridicule. I hope so.

I definitely think conspiracy is too strong a term for it. However I do perceive some problems. I think the acceptance and encouragement of personal attacks and ridicule by board leadership is a serious problem. I have seen a lot of mild deception in the course of this debate, and I think that is a problem. I do think that hocus’s thousands of responses have contributed to the problem. I do know that those responses have worn people out and alienated them from him.

I think that if somehow we could go back to the beginning of all this and hocus could have partnered with someone who could have edited and restricted his output, then the whole tempest in a teacup could have been avoided. But I think much worse fault lies on those who teased, tormented, harassed, misquoted, and misrepresented hocus.

I think the current state of affairs is almost beyond belief, but I guess things will sort themselves out one way or another. — BenSolar, Motley Fool board, November 25, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #31

Investors in Emotional Pain

Frankly, I find threads with abusive titles and abusive content aimed at ridiculing Hocus and his supporters to be very unfortunate. It’s really a blight on this fine board and several of the very fine people who normally grace it with their genuine wit and wisdom. I wish they would reconsider this kind of abuse. — SeattlePioneer, Motley Fool board, May 6, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #32

You may not agree with hocus in part or at all, but he was right that we have lost a number of very astute posters. Losing one or two or three may just be a part of the process, but the number that have disappeared because of the trash-talking that goes on here is undeniable. A few of the vocal minority screw things up for the mostly responsible majority. – Nas90skog, Motley Fool board, May 25., 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #33

I would usually ignore these types of threads, but I had to speak my mind. I did not participate in the poll. My question, why label the poll with the term “Hocomania”? That very inclusion made the poll all about Mr. Bennett and not so much his ideas. If you wanted to discuss ideas you maybe should have called the poll something to the effect of “P/E10: Valuations and their Effects on Safe Withdrawal Rates”. When I first saw the term “hocomania” I knew without reading the thread what it would be and I was right…. This poll appears to be more of a personal attack on Mr. Bennett rather than his ideas. — Ditsteve, Vanguard Diehards, August 31, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #34

You and Mel Lindauer [co-author of the book The Bogleheads Guide to Investing] have been harassing and personally attacking Hocus ever since he arrived here. You have both become pathetic little Trolls, offering absolutely nothing to this venom-spewing site for close to half a year now. The Diehards are legendary for cowardly attacking people with Real Names who do not even post here. James Cramer {Taylor Larimore’s favorite target}, Suzy Orman, Dan Wiener, etc. But you and Mel Lindauer have taken the Diehard hatred for humanity much too far. You will both continue to try to tear the soul of Hocus into shreds until you finally succeed, in one way or another. But why? Just what it is that gives you both such extreme pleasure in trying to totally destroy the everyday life of a real human being? I don’t buy the story that the cowardly types are any different in real life than they are on the Internet, so don’t even try to go down that road. If Morningstar wasn’t joined at hip to Vanguard, then comatose Morningstsar Casey would have banned you two sick puppies a long time ago. — Miss Cleo, Vanguard Diehards board, February 6, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #35

I now have a little better insight into why Socrates was poisoned (as well as others who were vilified and killed throughout history because they challenged orthodoxy). If this forum were a real community, it would be anarchy or mob rule, complete with witch burnings and inquisitions. — daodejing, Vanguard Diehards board, April 4, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #36

I don’t recall ever seeing on this forum in the past tolerance for personal attacks of the sort that have repeatedly been launched against hocus/Rob, and the trend is disturbing. I also wonder whether multiple aliases are at work in some of the attacks against Rob. — TinaB, Vanguard Diehards board, June 11, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #37

Instead of analyzing the referenced posts from the perspective of finance and investing, I look at the posts from a social psychology, group dynamics, point of view. Key to this point of view is that membership in the group is what is most important. Looked at from this perspective, the conversation is not about investing. The conversation is really about establishing and maintaining group membership.

Social groups have certain characteristics in common. Most important is the ability to distinguish members from non-members. In the case of Diehards, membership criteria is belief, unreservedly, in certain investing theories and behavior, among them: efficient markets, portfolio diversity, the value of indexing, the inability of an investor to beat the market, the virtue of low costs, and a belief in staying the course. Concomitant with these required beliefs is a shared belief against market timing (in all its forms).

Let me re-emphasize, membership in the group is the perspective needed to understand group behavior. One aspect of groups is that groups have hierarchy: demi-gods, high priests, enforcers, and followers. Sometimes the categories overlap, e.g., a high priest may act as an enforcer. Demi-gods possess the quality of being above criticism. Indeed, for an individual to criticize a demi-god, is to risk membership standing in the group. High priests are keepers of the faith. They explain to followers the catechism of group membership. They are repetitious and watchful of new members, lest they stray and develop heretical opinions. Enforcers keep members in line. On a forum, no physical force is possible, but sharp criticism, belittling posters when they stray from dogma, and out and out insults, are their forte. All groups need followers or the group will wither, but not so obviously, every group needs outsiders. If you think about it, without outsiders, the group loses a common enemy and may even lose its identity. Sometimes group identity is defined by what the group is against more than what it is for.

If you study the thread (#49557) it is not difficult to identify the demi-gods, the high priests, the enforcers, the followers, and the outsiders. I’ll not name names, but they are fairly obvious. Rob, you are an outsider. Well, I named one. Rob, don’t be offended, group membership virtues are dubious.

Buy-and-Holders Often Become Defensive When Challenged

It was interesting to observe the response to JohnDCraig’s original post from a group dynamics point of view. By criticizing Diehard manners, John was judging some members and setting himself “outside” the group. This caused some dissidence within the group. After you posted, the group focused on you, an outsider, and John was off the hook. John vacillated at first, between keeping an open mind, and maintaining his standing among Diehards. Eventually, Diehard standing became paramount, as evidenced by his comments and by his initiating a new thread, “Hocus, detrimental to Diehards, a suggestion”. This ingratiating post is transparently an appeal to retain (regain?) Diehard status. However, from perusing John’s posts, I predict a difficult time for him. In one, he openly questioned John Bogle’s portfolio actions, which sets him apart from the group. Remember, group members are not allowed to criticize demi-gods. IMO, John is too independently minded (and smart), and will always have trouble with Diehards. But, that’s his problem.

Rob, I suspect you will always be an outsider. Your quoting from the same demi-gods, speaking highly of indexing, and otherwise adopting many Diehard beliefs, will not grant you Diehard membership, unless of course, you see the error of your ways and denounce market timing in all its forms. This I doubt will happen, because the kernel of your idea (valuation matters) seems correct….

Rob, for a long time, I wondered if you were really a psychologist studying group dynamics. — Sirschnitz, Income and Dividends board, May 26, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #38

These words are very blunt, but necessary. I am confident that I could prove all of these assertions if I were required to do so. I would prefer not to, however, since it would be tedious and time consuming.

Intercst engages in a big lie strategy. Repeated often enough and loud enough, people will eventually believe a big lie. There is no way to defend oneself against it. You have to refute it convincingly every time it comes up. Many people will believe a big lie simply because someone is so insistent upon bringing it up. They assume that there must be a basis in fact even when there isn’t. That is why intercst will prevail…at least, for another few months.

A person caught as the target of a big lie is frozen. Defending himself quickly consumes all of his time. He finds himself reacting to everything as if he were in a big lie environment. He simply does not have time to respond properly. He simply does not have enough time to discern honest comments from dishonest ones. As such, he assumes, because he has to assume, that people understand the full context and history behind a remark. They don’t and that causes problems.

Please keep the big lie off of these boards. When you import the Motley Fool into these boards, you import the big lie with it. It is OK to raise questions as a result of your visiting those boards. Just don’t bring those words into our environment. The big lie is hidden in them. You may not recognize it. I assure you that it is in them.

I find fault with hocus in this one thing and this one thing only: he has an intense love, an intense passion, for what the Motley Fool discussion boards could be. Sadly, they are something less. — John Walter Russell (JWR1945), Town Center board at NoFeeBoards.com, July 27, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #39

I think it’s absolutely ridiculous that the “founder” of a board–who, after all, is only someone who has requested that a board be opened on a particular subject–would have any say whatsoever about the content posted to said board. — CatherineCoy, Motley Fool board, July 17, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #40

I’ll go back to work before I’ll dedicate my life to harassing another poster from one end of the internet to the other. — Cute Fuzzy Bunny, Early Retirement Forum Status Board, July 5. 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #41

And then I realized, just now- that Intercst had a secret to retiring early he didn’t reveal. He freaking invested during the heights of the bull market, and we are in the middle of a bear — yttire, Motley Fool board, March 28, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #42

I’m retired, so I really don’t have to take any of this seriously. — John Greaney (intercst), Motley Fool board, August 12, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #43

Calm in an Investing Storm

I credit hocus for casting well-deserved doubt on intercest’s work. Invaluable and worth being repeated ad libitum. Ironically, I have similar doubts regarding hocus’ proposed strategy but he’s the underdog. Intercst had (has?) an army of ill-informed supporters that drove hocus off the Fool to great loss for the site. End of intelligent debate. — Datasnooper, Town Center board at NoFeeBoards.com, November 25. 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #44

When a movement splits, there are now two different groups, one doesn’t “go away.” The Catholic Church still exists, even though Martin Luther started the Protestant Reformation. Intercst is still the “Pope” of the Retire Early “Catholic” (Universal) Church, and as long as he is alive he will continue to be. Intercst is “Peter”, the rock, upon which the retire early movement was built and the forces of Hocus will not overpower it. You can think of yourself as “Martin Luther” the leader of the reformation, which is a pretty good gig too if you can get it. — Ariechert, Motley Fool board, March 1, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #45

This type of BS has been the largest contributor to the circus-like atmosphere that has surrounded hocus for the last year. Intercst, of course, isn’t the only one to make statements like this. In fact they come so fast and furious from so many different people that a casual reader would swear they are true.

From hocus’ ‘My Plan’ post:


1) TIPS at 3.5 percent in tax-protected accounts

2) ibonds at 3.4 percent in non-protected accounts (not taxed until cashed in)

3) Certificates of Deposit still held from pre-retirement days (and, thus, held at higher rates than those available today.). The CDs are being phased out as they come due into other investment classes. I expect to move a portion of the CD money into stocks. If stock prices came down, I would move it all into stocks.

Stock Allocation Goal: My goal is to get to a 50 percent stock allocation. I initially made the zero percent allocation to stocks for two reasons:

(1) I accumulated all of my retirement stash in a short amount of time. It was nine years from having zero in the bank to retirement date. So any stock purchases made in anticipation of retirement would not have been “for the long term.” My worst nightmare was that, one year short of my retirement date, stocks would go into a downturn. I was not counting the months until retirement, I was counting the weeks. There was no way I wanted to take the risk of losses that could put off the retirement date for years.

(2) Stocks were at extreme levels of overvaluation at the time I began accumulating large sums for investment. I preferred to put money ultimately to be allocated for stocks into safe investment classes until stocks could be purchased at prices closer to average valuations. That way, I can purchase many more shares for the same portion of my retirement stash. Once I find reasonable purchase points, I intend to hold the stocks for the long term (no “timing” in and out of the market).

Not listed there, but mentioned elsewhere in the post is the fact that he owns his home. So real estate can be added to the list.

So he has TIPS and I-bonds and real estate. All are inflation protected assets that do not fit under the ‘Fixed Income’ category. He also has a plan to buy stocks when valuations are closer to average. Here’s a news flash: they are still overvalued.

In my post ‘The Hocus Plan: 2% SWR?, I examined the effects of a stock switching strategy similar to the one described by hocus. My conclusion: history backs hocus up, his valuation based switching strategy from 0% stocks to 50% stocks worked in the past, and in fact beat the static ‘optimal allocation’.

Hocus is the only person I know (if only via message board) who has completely opted out of participation in the stock market bubble. And you know what? He has benefited immensely from doing so. So why can’t the 10-15 people who like to spout the cr@p like the quote above just grow up and lay off the elementary school tactics.

Geez! — BenSolar, Motley Fool board, May 1, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #46

You guys put the fun in dysfunctional. — tmeri, Motley Fool board, December 29, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #47

Rob Bennett Writes Three Weekly Columns on Investing Topics

I am the one who fool-alerted one of Galeno’s posts. I believe that was Saturday. In addition, I asked the Powers that Censor to examine other posts (not quoted or numbered) as this board’s tone had become uncivil, abusive, and even hateful, especially towards hocus. My reasoning, including background as to why I did this, follows.

I have a very difficult job. I work in a prison for a government agency as a mental health clinician. Every day I go there, I talk to many, many different kinds of sick and abusive people. I could tell you stories that would curl your hair: like the man, my patient, who tore out the eyeballs of his cell mate in a mad, psychotic frenzy thinking he was on re-con with the navy and inspired by Stephen King, who thought he then had to eat the eyeballs. They saved one eye of the victim, who is now only partially sighted. I had to listen to the victim post-trauma in his woes, telling his story over and over and over again, in thorough and gory detail. Or like the man who tried to climb over the wire fenced perimeter in a paranoid delusion trying to escape (from no one), who cut his hands all open in the razor wire. Or the guy dragged into the hospital wearing underwear that is a dull shade of yellow brown, because he was found in his cell smearing feces and has refused to shower for two months. And believes he is totally well, and doesn’t need medication. Or the man today who has to be moved because he is so simple minded and lacking in social skill that everyone preys on him, stealing his coffee and extorting cigarettes, and threatening to punch him out in his educational class he is required to go to. Or the other man today who has been so violent and aggressive he used to carry an ouzi in his sock to “take care of business” during his dope deals. He now has nightmares because of a murder he witnessed – the guy’s head was macheteed off. My daily fare.

I think it was last Thursday when I had just seen one of these folks. I had been down at the jail interviewing a psychotic man who had assaulted someone on the street. He finally agreed with me that yes, he should take his medication, and could I please recommend to the judge that he get some treatment? I came home, tired, slightly drained, eager to have some totally different topic at hand. Money always seems to cheer me up, and so I dialed into the Retire Early discussion board. I anticipated some succulent FIRE topic, adding real estate to my portfolio, another way to allocate funds….

There, I am simply assaulted with numerous virulent messages back and forth, back and forth. It was difficult to wade through a myriad of messages to try and discover what on earth all the fuss was about. As I kept on and on, I grew more and more discouraged. It really saddened me to read abusive posts, name calling, denigration, and plain old nasty remarks. After a really tough day, I didn’t really need more stress in my life. I can get arguments and conflict at work. Or through grisly real life stories. I thought about leaving the discussion board, although I have mostly been a lurker here.

I was sad, though. And disheartened. Although fairly sociable and gregarious in my real, off-line life, most people I know: a) have no interest in FIRE; b) are freaked out about finances so don’t want to discuss them; and/or c) think YOU are a freak for wanting to be financially independent and thus have choices about working or not. As noted on this board, probably 99% of people in general do not realize that some day they WON’T be able to work and will have to be financially independent, even if that is only social security. Very, very few people seem to be actively planning for it. The Fool and this board have been of immeasurable help and resource to me on these topics. Prior to all the conflict.

They have been especially important just of late, as I was recovering from a long illness over the summer, did not have the energy to follow discussions/thoughts about FIRE, and so only recently have been reading the board with regularity. I had just finally gotten it through my head that $10K per annum = roughly $200K savings. And sold on the idea of 4% for SWR. And recalculated pension stuff/savings for myself and spouse for our longterm plan. It really sank in, once and for all the quantities of financing we would need to work with. I was really grateful. Happy, even, to finally get a grip on this stuff. Thank you, everyone who contributes constructive ideas.

And then the debacle. Mud slinging, name calling, ridicule, nincompoop comments. I mean really. It was like the inmates I deal with daily. Petulance. Childish. Silly. But destructive.

Investing Is a Highly Emotional Life Endeavor

At first I decided to let it go, especially after reading the Living Below Your Means board and seeing some similar behaviors. I thought, “gee, seems like some sort of moon pull or karmic thing everyone is going through.” By Saturday, I’d had enough.

What is with the abusive, hostile exchanges, folks? I mean, I know that it is easier by far, in the dark, nameless and obscure to criticize, ridicule and deride other people. But think about it. Things were written here that you wouldn’t say to people if you had to say it to their faces, now would you? At least if you said it to their faces, they could respond to you.

That’s why I call it hateful. I see people, inmates and staff, full of cruelty day by day, preying on people. When you hide in the darkness of your online anonymity, you partake on a dark road. It’s predatory. Whom does it benefit? Do you feel more powerful in your derision of hocus? Does it really benefit the retire early community to give psychiatric analyses of another person who was wound up and making likewise inflammatory remarks?

I think participating in the way people have has just been like a verbal sniper, darting in and out of the shadows as you make your cuts and digs. Shame on all of you, adding to the cruelty, manipulation, and horror of the world. I see so much of it every day in life; this board was a place of sanctity for me, and I am saddened at that loss.

Please keep in mind things you write as if you were speaking to someone you respect. Doesn’t anyone have a mother who would say, “If you can’t say anything nice, don’t say anything at all?” Or if you must give your searing analysis of disagreement, remember to do so with some modicum of civility.


I trust we all will be returning to our senses soon. — feawen, Motley Fool board, November 26, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #48

Enough! Enough! I can’t stand it anymore! Aaaaaaaaahhhhhhhhhhh! — Arrete, Motley Fool board, July 17, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #49

I put these discussion boards in the hands of the LORD a long time ago. I am sure that everything will work out and the result will be much better than either of us can imagine. That has been my experience. I just don’t know what HE has in mind. It will be interesting to find out. — John Walter Russell, SWR Research Group, March 23, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #50

I’m mostly a lurker around here, but just wanted to say that of all the useful posts I’ve seen on this board, I’ve found the ones from hocus to be the most valuable. I don’t understand the reasoning behind attacking someone for their ideas. Attack the ideas if you must, but why attack the individual?

There are many financial advice books on the market with differing opinions. I read the ones which look interesting and draw my own conclusions as to who had the better ideas. If I don’t like their ideas I don’t disparage them to everyone I know. I don’t make fun of their names. I bet very few of you do either. I read Your Money or Your Life (like almost everyone here) and I disagreed with the investing advice – does that mean I should write to the only surviving author and verbally attack her? I just don’t get it.

I’ll be watching for your book, hocus. — Tashina, Motley Fool board, August 29, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #51

Buy-and-Hold Is Mostly Buy-and-Hold Marketing Mumbo Jumbo

I’m very disheartened at the events of the last 24 hours. I had hoped cooler heads would prevail but that has not happened. I’ve been lenient in enforcing the site rules because the violations have been by our most valued members. Well, that time is past. I will be going through the last couple of day’s threads on every board. Any post containing violations of the site rules will be deleted. It’s possible entire threads may be deleted. Once the mess has been cleaned up there will be zero tolerance for violations of the site rules. Anyone continually repeating these violations in the future will be banned from the site….

I’m taking personal offense to all of this. I created this site so we could have all the things the site stands for. Violating the site rules is a slap in my face and degrades everything we have tried to build here. I’ve tried to cut some slack in this area but in hindsight that was a mistake. — ES, Town Center, October 29, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #52

John (JWR1945) has done nothing but been supportive of our site. He’s done nothing to deserve the treatment he’s received on those other forums. He has contributed to help with expenses and make the many hours I put in on this site worthwhile. And I will be forever grateful. He does research he believes in and whether you agree with him or not there is no overlooking that effort. I’m proud to have John as a member here. I’m proud to host his research section here at the No Fee Boards. Hocus isn’t the problem. John isn’t the problem. If there is a problem, it’s Raddr’s.

When we lost a few posters because I reinstated hocus I learned quite a lot. I learned that it feels good to do the right thing. I learned who my friends truly were. And I learned a lot about running this web site. All good stuff IMO. Ataloss when you put up a post like that one, a rational, well thought-out post, it reminds me of the old days. But then I go out and see only negative comments all over the internet by you about our site. What am I supposed to think? You tell me. — ES, Town Center, February 28, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #53

Folks I think it’s time to end this. When we started NFB our dream was to have a place where we could learn and grow together. A positive environment for us all. It’s plain to see that many don’t want that. And others won’t permit it. I have no desire to continue on with NFB in it’s current state. What we have now was not our vision when we started this some 3 years ago.

I’ve done all I could to make this work. I’ve asked in countless ways, in countless threads, to countless posters to end the off-topic bickering and personal attacks. These requests have been ignored, dismissed or just didn’t work. I don’t care to maintain this site any longer under these conditions. The No Fee Boards I created is long gone. Despite my best efforts I can’t bring it back. If the site I created for everyone as an environment abundant in learning and knowledge cannot be, then it is time to put an end to what it has become.

If banning someone is the only way to keep peace on a message board, then I want no part in running one. I banned someone on the advice of others when I knew in my heart it was wrong. I corrected that error in judgment and this is what we have. It is not acceptable.

This Saturday, March 26, 2005, will be the last day for this web site…. Thanks for the memories — ES, FIRE Board, March 23, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #54

Greetings ataloss. This is our last day here so I want to try something. Let’s assume for a moment that everything you say about hocus, SWRs, and all that stuff is 100% fact. Let us also include in this scenario the fact that you have spent an inordinate amount of time the last few years crusading against all of this. And let’s add in that before that you were one of the best posters I’ve ever seen.

The Post Heard 'Round the World

Think about that, then think about this. Why not just let it go? Why not just put all this behind you and forget about hocus and this tool thing and all this other stuff. Why not go back to the way we were? Let’s post about index funds and early retirement and expense ratios and old magazines in attics and broken crystal balls . We can’t do that here anymore but the internet is a big place. I remember the days when I was sad when I didn’t see you online wherever we were hanging out together. In those days there was a 100% chance of laughter when we got together. Is there any chance of getting the old ataloss back? We have a few mutual friends that do not think that is possible. I’m asking one more time to see if it is.

I can put all this behind me. Can you? — ES, Town Center board at NoFeeBoards.com, March 26, 2005

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #55

Hocus, YOU are one of the reasons I still read this board. Just thought you should know that. :) — JustPatrick, Motley Fool board, June 20, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #56

Hocus, thank you for so clearly articulating some things that have been in the back of my mind. — Patnbj, Motley Fool board, June 21, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #57

I don’t want to see you leave the board for another extended hiatus. You’re clearly on-topic, you present alternative ways to think about retirement and planning for it, your posts are generally a great read (lengthy without being wordy), and you spur serious discussion and disagreement about these topics. As a lurker most of the time, that’s where I see the value of this board; not as a place where we all can get together and extol the virtues of each other and one particular plan, confident and unwavering in our unshaken belief that there is ‘The Way’ and no other. Where’s the fun in that? — Dagrims, Motley Fool board, May 21, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #58

I think there’s something really important he’s trying to tell us, although I don’t think he has it fully articulated in his own mind yet. Somehow I think hocus knows a lot more about these subjects than is coming across in these threads. I think there is a lot of tripping over semantics and terminology on both sides of the fence that is causing each side to mishear the other. I get the feeling that, if any of us could sit down with hocus in person for a few days, away from this board, and have a discussion on early retirement/safe withdrawal rates, etc., we would pick up a lot more of his knowledge than we’re getting here. — Andrew61, Motley Fool board, June 21, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #59

There is one area in which Hocus and I disagree. I favor censorship on discussion boards. Hocus is willing to tolerate almost anything. I prefer heavy censorship.

In spite of what you have read, Hocus has removed only one or two posts from this board. He has relocated a few posts, but very few.

I would prefer to remove Ataloss posts with their continual baiting, misrepresentations and distortions of facts. I would prefer to remove Beachbum’s recent posts, which are no more than word games and stink bombs. I would prefer to remove Norbert Schlenker’s posts in which he pushes a poorly thought-out agenda while refusing to listen to what others have to say.

In spite of what you may have read, it is Hocus who allows a variety of thought, not the complainers such as Ataloss, Beachbumz and Norbert Schlenker. Regardless of what these people may assert, it is Hocus who talks straight. It is Hocus who accurately describes what has happened in the past. — John Walter Russell, SWR Research Group, March 25, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #60

Without censorship, Gresham’s Law takes over, and careful reasoned, polite discourse is driven out by bombast, over-simplification, and hostility. Anonymity on these boards allows small-minded cowards to take shots at their betters; and where else can that happen? — MacDuff, SWR Research Group, March 25, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #61

Mr Hocus, I love your posts. — Baschmuck, Vanguard Diehards board, October 8, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #62

As way of disclosure, let me say that I tend to skip through most of Hocus’s posts because they are long-winded. However, Allan’s use of the word “irritant” makes me think of how pearls are formed when an irritant gets into an oyster shell. Not to say Hocus (Rob) is a pearl, but maybe he does get some people to come up with pearls for their replies. — EyeDee, Vanguard Diehards board, June 4, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #63

The Internet Is a Powerful New Communications Medium
As a long-time reader from the Motley Fool days, I like hocus’s posts and find the hostility to him annoying. As early retirees (or early retiree hopefuls) we are already on non-traditional paths. We shouldn’t feel threatened by anyone, particularly someone who can represent his/her point of view so well. I, for one, want to keep reading what hocus puts out, old or new. Please let me! — Guest, Early Retirement Forum, October 8, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #64

Reading so many hocus-riddled threads is like being cyberstalked by a cult leader on a perpetual mission to recruit his following. Sickeningly sweet and polite, he’s a con-artist who’s letting others do the dirty work for him. Do you get that, JohnDCraig? This is your role in the long term hoco-plot to take over this board.

Hard to believe? Yes – if you don’t know what skillful passive-aggressive power brokers are capable of. At this point it doesn’t even look like Hocus is running an underhanded smear campaign against Mel, Taylor and other so-called “big shots”, right? It looks like the debunkers are to blame for the ruckus and subsequent polarization of the board into two camps. Like I said, skillful. Well, he’s had a lot of practice at all those other boards where he’s been banned. — Kalimunana, Vanguard Diehards board, June 10, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #65

Many years ago my wife and I joined a church that appealed to us. This church was part of a Christian denomination that distinguished itself in its success in evangelizing through reason rather than via appeal to the emotions. The denomination counted a dozen or more published scholars within its small membership, all of whom had authored widely read treatises on the Christian faith and how to successfully live it. With this intellectual approach, our church, located near the campus of a distinguished secular university, drew many faculty members and advanced degree candidates, not a population easily evangelized.

Newcomers to the church were encouraged to become familiar with the aforementioned books and, of course, the Bible. Naturally, small discussion groups sprang up in which the wisdom of the authors was shared and affirmed.

Occasionally a new or established member would raise a question about a specific teaching espoused in one of the books; not to attack it, but simply to play a form of devil’s advocate with the goal of reaching a deeper understanding and acceptance of the teaching. Those who never dared question the teachings were often aghast at the nerve of such members. One Sunday the senior pastor stunned half the congregation by openly encouraging such questioning as a constructive path toward building and deepening one’s faith. Within two weeks the pastor was accused of heresy and called before a denominational tribunal. Although he was acquitted, the experience divided the church between subgroups of “pure” believers and “enlightened” believers, each of whom did not get along well with the other despite their adherence to the same faith.

Thank God the Vanguard Diehards has no tribunals. — LouisianaLad, Vanguard Diehards board, June 9, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #66

These Diehards have no interest in discussing anything substantial. Their goal is is shut down any discussion about anything that does not follow the party line. Their tactic is to get you bogged down debating meaningless and irrelevant minutia so that the original topic is forgotten. Where they have no argument they resort to the name calling and the personal attacks. This has been played out over and over and over again. Just try discussing Dan Wiener. In one instance a Diehard contacted a poster’s employer and tried to get him fired. Once again the Diehards disgrace themselves. — focus, Vanguard Diehards board, October 19, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #67

Investor Psychology

I was introduced to the Diehard mentality about 10 years ago when I questioned one of Bogle’s truisms. I was immediately jumped upon and beat up by a mob of Diehards. It went downhill from there. The Diehard mentality has done more to discourage investing dialogue and an open exchange of ideas than any other philosophy I know of. — WERman, Vanguard Diehards board, January 22, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #68

I got involved because I felt hocus was taking totally unfair shots from you and Mel and many others, not necessarily that I agree with all or any of what he says.

A few years ago when Motley Fool boards were free, I followed those discussions. I actually was on the side of Greaney regarding the 4% safe withdrawal rate based on historical. I actually think I now lean towards Rob’s view, that you have to consider the starting point….While intercst was busy making fun of Rob, he kept putting out information that may prove extremely painful for those who took his safe withdrawal rate as gospel.

Meanwhile, Rob continues to take hits from many sides. Personally I don’t get it. He has made some valid points and generated some good discussions, despite the threads being filled with many trolling posts attempting to discredit Rob personally instead of discussing the issues. I was told Rob wouldn’t answer questions. He answered mine. I was told they wouldn’t tell how they came up with figures. They provided answers there too, mainly from John Walter Russell. I haven’t seen that any of the critics complaints have merit. Instead, I see a good topic that makes one think about valuations. — Earnabuck, Vanguard Diehards board., May 16, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #69

On the Diehard forum, humility seems to be a one-way street. Anyone accusing Bogle of being wrong is expected to be humble, but anyone criticizing someone who suggests that some active managers might actually be adding value, or suggesting that some forms of long-term market timing might actually work, is treated as virtuously exposing a heretic who is stupidly ignoring the great weight of “scientific” evidence (nevermind that the evidence is inconclusive and ambiguous). We also see posts stringing together quotations from “experts”, and are supposed to believe that somehow proves a controversial point beyond dispute. Nevermind that there are also experts that take contrary positions, and that point out ambiguities and complexities in the evidence. Sorry, Taylor [the reference is to Taylor Larimore, co-author of The Bogleheads Guide to Investing.], but I don’t see much evidence of humility, or open-mindedness, on the part of many Diehards, including some of the leaders of this forum. — Microlepis, Vanguard Diehards board, January 22, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #70

This entire Diehard forum is totally insane. It’s overflowing with Trolls running around calling everyone else Trolls. — Miss Cleo, Vanguard Diehards board, February 5, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #71

Those of us who know Jack [Bogle] cherish his friendship. We’re always concerned about Jack’s safety and his enjoyment at our affairs, so we diligently accept the responsibility to make sure that everyone in attendance is someone we feel comfortable allowing to attend in those regards. — Mel Lindauer (co-author of the book The Bogleheads’ Guide to Investing, Vanguard Diehards, February 18, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #72

Perhaps you all (including the invited speakers) are comfortable with such a version of a “restricted covenant” (is there a consent form that needs to be signed?), but what it tells me is there is a blackball procedure which I find morally disquieting. The very idea that Jack Bogle’s “safety” (or anyone else’s) would be an issue puzzles me, and the notion that the invited speakers need to be “protected” from disagreement really is astonishing. I (mistakenly) thought we were all grown-ups who know the rules of civilized discourse. Please don’t level your attack at Rob, whom I do not know. This is me speaking and I feel downright ashamed of the language of Mel’s #65. — Uphaus, Vanguard Diehards board, February 19, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #73

What bothers me is the double standard which squelches opposing views. A couple years ago, I was posting returns of various portfolios, and comparing them to Dan Wiener’s portfolio. I was interested in seeing whether DW could beat “the market. “An influential poster called Morningstar and complained. I then received a telephone call from Morningstar at my office asking that I not post DW’s returns. It was emphasized that I was not violating any rules, but that it was requested that I should stop posting because it was upsetting a few other posters.

I don’t know who complained, but I imagine it was someone with a lot of “juice” if they could convince Morningstar to call me. — RPetrocelli, Vanguard Diehards board, June 3, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #74

If you want to understand the dynamics of what happened here, you need a model for understanding. I suggest you use a “cult” as a model. The use of a cult model for the Diehards explains the situation more completely than any other model that I can imagine. Using statistical speak, the R-Squared for this model is probably 90 (on a 0 to 100 scale).

Investor Behavior

IMO, it is no coincidence that Rob was banned two days after he started a thread titled, “Bogle’s Big Mistake”. This post was akin to shouting, “Christ was not perfect”, in Church. When I saw this post, I knew that the sh_t would hit the proverbial fan. BTW, for the uninformed, a cult need not be religious in nature. The cult concept extends to intellectuals of many persuasions. All you need a charismatic leader and followers, and of course, a central unifying theme. A cult will develop a hierarchy of authority including enforcers of orthodoxy. In the case of Diehards, the actors and the parts they play are clear.

A cult may be tolerant of others (outsiders) because it sees in them potential converts. But, two things can change this tolerance of outsiders to rage. The first is criticism of the central figurehead. The second is a threat to the hierarchy. In Rob’s case, both of these conditions were met. — Sirschnitz, Vanguard Diehards, February 22, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #75

What is it with Newbies? Do some of you actually believe they are incapable of thinking for themselves? And, who died and left some of you in charge of caring for them? How paternalistic some of you can get makes me laugh! — CoyWesley, Vanguard Diehards board, December 21, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #76

It was totally wrong to ban Rob and I said so when asked before. I began reading this Morningstar forum about 6-8 months ago and quickly learned that valuation matters…and yes from Rob…but I read others to validate my “new” thoughts on the matter…. Several times I posted when someone was just plain harassing him but to no avail…That same person I think was involved in getting him banned. Some need to power over others to feel important…They were probably missing the power they possessed when working and are probably rude to working-class folks in the world still today. — Soaring, March 4, Income and Dividend Investing board, March 4, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #77

I had cordial exchanges with Rob and found him a thoughtful person. I did not agree with several of his stock market theories, but so what is new? Rob was always a gentleman in his posts. If you followed his posts on the Diehard forum, you know that several new posters came out of the woodwork to belittle him and instead of trying to dialog, behaved instead like mythological Erinyes (Furies). If Rob ignored them, they accused him of evading their questions. When Rob responded to their questions, they accused him of being long winded. When they attacked, Rob responded too gently, IMO. So, they accuse him of being “passive aggressive”. There was no way for Rob to come out even. — Sircshnitz, Income and Dividend-Investing board, March 3, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #78

There are many things I like about the Diehards forum, but one of the things that bothers me is that a fair number of Diehards act as if they’ve joined a religion. There is a lot of scriptural recitation and quoting from introductory finance books like “Bogle on Mutual Funds”, “Coffeehouse Investor”, and “Four Pillars of Investing”. Now, I happen to like Bernstein and Bogle, but when people start calling themselves Bogleheads and chanting “Stay the Course” as if it’s a mantra………..well, it kind of creeps me out. I keep waiting for the Vanguard Hare Krishna Bus to show up and for people to hop on board so they can go live with St. Bogle in an ashram outside of Butte, Montana. The tell-tale sign that this is happening is that when someone raises a controversial point, some will debate the point at hand, while others will basically say “Don’t listen…keep the faith…stay the course!!”. — dpdennis, Vanguard Diehards, April 18, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #79

Big Scary Numbers

I’ve learned a lot from the people on this board, but have been very shocked by some of the hypocrisy that I’ve witnessed. For example, I didn’t think Hocus deserved to be banned. While he might have posted a little too much, he was always very polite, even with everyone raining down hate on him…. If the only posters they want on that board are those that will be yes men, repeat the tired old mantras and bow down and kiss the feet of Bogle and the moderators, do you really want to waste your time with such closed-mindedness? — mase_redux — Vanguard Diehards board, April 2, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #80

Vanguard monitors this forum on a regular basis at a very high level, so the “higher-ups” do, indeed, know exactly what’s going on here. — Mel Lindauer, Vanguard Diehards board, April 23, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #81

The whole thing boils down to whether Rob is able to buy back in at a valuation level that turns out to have been low enough to warrant his absence from the market over the past decade. My guess is that, surprisingly, he actually will. Wouldn’t that be a crack-up if what Rob is doing actually worked? I think people would be really mad. — Chip Plumb (author of the Plumb Performance Report), Vanguard Diehards board, January 1, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #82

I have seen many rip Rob, but truthfully I don’t understand what the counter argument is. Is there a counter-argument? — Daryll44, Vanguard Diehards board, May 24, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #83

Go back 100 years in finance and many other disciplines, and examine the academic studies of that era. You will see that they are often riddled with assumptions, theories, and analysis that are now considered to be wrong or even ridiculous. And 100 years from now people will likely view the studies upon which we rely in the same light. Moreover, even today, for every academic study that argues for one proposition, there will typically be another study that argues the opposite. The primary way people on this forum can maintain that academic studies support their views, to the exclusion of others, is by simply ignoring contrary studies and/or the ambiguities and limitations of current studies. — Microlepis, Vanguard Diehards, March 20, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #84

I’ll venture a regular guy opinion. I will say that Rob’s explanation does make sense. However, no one can predict the future. Just when someone uses history to try to backtest, create a model, and then predict the future, the factors change or new factors emerge, thus making the model useless for predicting the future.– Chipmunk, Vanguard Diehards board, May 10, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #85

What Rob said sounds reasonable enough, so I wouldn’t be able to judge his advice without additional input. I must rely on the fact that I don’t hear the authors I trust saying the same thing. The authors I trust seem to agree that returns may be lower in the years to come, but none of them suggest that we should drastically reduce our stock allocations in light of this information….I don’t have time to join the search for ‘the Grail of Investing.’ Besides, I have other priorities in life. So, I have to rely on the judgment of people who make the most sense. — Janey, Vanguard Diehards board, August 9, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #86

If all he thought was that the market is a bit overvalued and we are probably in for a period of below average returns there would be no controversy. His views go way beyond that. He claims that the entire industry is wrong and he, as founder of the New School [of safe-withdrawal-rate analysis], has the “correct” answers. — Jim02, Vanguard Diehards board, January 9, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #87

Why I support hocus:

Rob Bennett Is the Lead Advocate of the Valuation-Informed Indexing Investing Strategy

1. Several people claim not to understand why I support hocus as strongly as I do. They deride his claims to be the person most knowledgeable about Safe Withdrawal Rates. They see that as arrogance, not fact. They dismiss his contributions in keeping the research alive, as if his efforts were insignificant.

2. Most people accept the notion that hocus has been following the topic for a long time. Most people will concede that he really does have 40 notebooks filled with articles and other reference material that he has collected over the years. Many people will accept the idea that hocus has been making use of Safe Withdrawal Rates in his personal financial planning.

3. Many people seem to reject the idea that hocus has a lot of ideas and thread-starters that he has not yet presented. I think that he does have them. I do not think that they are all finished products. I do think that they all contain something useful and worth developing.

4. From my personal experience, there have been numerous times when I have thought that I had addressed something adequately, but I did not. At times I have been surprised to see hocus hang in there on what seemed to be a minor detail. Yet, as the discussions have gone back and forth, there has emerged something of importance, an insight of considerable value.

5. Thus it was with The Coin Toss post. Hocus had asked me for my comments as he developed his thoughts. After repeated refinements, he came up with a true gem. And later, when he finally succumbed to my repeated requests to post once again, he pulled it out of his files and posted it at the Motley Fool, where it received much acclaim.

6. What truly impresses me is the consistency that hocus points us to something of value. Yes, I do believe that hocus is the most knowledgeable person when it comes to Safe Withdrawal Rates. I have seen too much evidence to believe otherwise. And, of course, I would not have engaged in any research on the matter if it had not been for hocus’s contribution in keeping the discussion alive. Nor would I have become aware of the efforts of the others on these boards. — John Walter Russell, FIRE board at NoFeeBoards.com, October 26, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #88

Some of you are following with me the safe-withdrawal-rate thread on Diehards where Hocus and Dr. Bernstein [author of The Four Pillars of Investing] have posted. It appears that Bernstein agrees with Hocus that even a 2% withdrawal rate might not be safe for early retirees. Could it be that some here have mistaken Hocus’ style, which they find annoying, for the truth, which Bernstein seems to agree he might ultimately have? — Daryll40 — Motley Fool, September 21, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #89

NO! — Gurdison, Motley Fool board, September 21, 2005.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #90

Jim Rogers stated that new ideas tend to be first ignored, then people grow actively hostile, and only later does acceptance come. I read the first chapter of Bernstein’s new book last night, which related the sad experience of early scientific pioneers who were forced to recant upon threat of torture. Only later did people accept what they had discovered. It would not surprise me if most people were still in the ignoring or hostile stages when Reversion to the Mean eventually takes place. Reversion to the Mean is probably still a few years away, IMO.– Mike, SWR Research Group, May 7, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #91

One of the things I admire about your responses in this discussion is that (unlike myself, alas) you seem not to be provoked into anger by negative comments directed toward your ideas or toward you personally. — RBeeman, Vanguard Diehards board, September 27, 2005.

Community Comment #92 on the Campaign of Terror

You’ve got to say one thing for hocus. He has NEVER lowered himself to ad hominen attacks–subliminal or otherwise–on any other person on this board. Not once. Ever. At least give him credit for that. — Catherine Coy, Motley Fool board, November 22, 2002.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #93

Maybe this can be summed up by one question: Why would anyone subject themselves to this much abuse? They’d either have to be a troll or the most saintly person on earth trying to save all of our souls. — TH, Early Retirement Forum, March 18, 2005.

People Are Funny

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #94

I must say hocus always seems to take the high road in the banter. — Gary1Putt, Motley Fool board, January 30, 2003.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #95

I have never seen hocus show incivility. No matter what. Truly amazing. Either he is really the output of an artificial intelligence program, or the man’s on the way to becoming a saint! — Telly, Early Retirement Forum, September 22, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #96

Rob and Cleo are the most trustworthy. These posters always get to the heart of a matter and offer sound, intuitive, original, creative and helpful advice. The good Lord should clone them for the benefit of mankind. Engineers, on the other hand, and here I include “engineer types” (we all know who they are) are typically quantitative and not qualitative. Whatever brain transmitters gave them their high level of mathematical, measuring and similar skills apparently resulted in a lowering of emotional, feeling and human relations skills. — Graywulf, Vanguard Diehards board, December 15, 2007.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #97

Not even your best post on the Vanguard Diehards Forum could come close to matching the cogency and intelligence of Rob’s least sagacious contributions here. While I don’t necessarily agree with Hocus’s views, I believe that it is scandalous that he should so often be the object of the sort of vituperation you’ve heaped on him. — Andrew54, Vanguard Diehards board, August 31, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #98

Hocus! Man, you have a talent for explanation, and I think you are literally gifted. I really appreciate the time and effort in the detailed explanation of P/E10. I like your conservative stance, and I understand what you are saying clear as a bell. — Steverino, Vanguard Diehards board, May 12, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #99

Very cogent analysis! Thanks for sharing. You’ve very articulately stated the misgiving/hunch I’ve always had that the “one size fits all” safe withdrawal rate isn’t completely accurate. — mdwitte, Motley Fool board, April 12, 2004.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #100

I like hocus’ posts. He has supplied many nuggets of wisdom and I hope that he continues. — GordonG, Vanguard Diehards board, September 2, 2006.

Investing Discussion Boards Ban Honest Posting on Valuations! — Community Comment #101

One thing I’ve noticed about investing, it’s what you miss that costs you money. While some of the posts on this board are rather long and technical, I wouldn’t want them anywhere else, because they are all about FIRE [financially independent/retired early].

Post on, Hocus! — SlowProcess, Motley Fool board, November 21, 2002.

You know that something’s happening here
But you don’t know what it is.
Do you, Mr. Jones?

— Dylan, “Ballad of a Thin Man”

Does Mel Lindauer Run Vanguard?

I’ve been pleased to see a number of posts at The New Vanguard Diehards Board in recent days (this article was posted in April 2008) addressing the Mel Lindauer matter in blunt terms.

Vanguard Diehards Board Comment #1 re Mel Lindauer

Mel Lindauer Matter

Wrighton14: Does Mel run Vanguard? Does Mel run this board? Is Mel unhappy? This board is more like a police state than a place to share ideas.

Vanguard Diehards Board Comment #2 re Mel Lindauer

NorbertC: Don’t be put off by a few bad apples. I saw what a certain “Mel” had written….I think the fellow owes you an apology. But in fact he often responds to people with an arrogant “My Way or the Highway” tone.

Vanguard Diehards Board Comment #3 re Mel Lindauer

StatsGuy: We the forum members come here to share information, learn, and help others. I think this conversation shows the worst of the Vanguard Diehards Forum. It is one thing to tell the original poster that his/her post was probably deleted by Morningstar… but to call the poster a “shill” and say “this is the wrong place for you” is rude and condescending.

Vanguard Diehards Board Comment #4 re Mel Lindauer

Uphaus: I would like to officially confirm Mel’s recognition that I am definitely out the loop, depending on the “loop” one has in mind.However, as I pointed out, I am very much in (for 27 years) the Vanguard loop, and very much committed to all Vanguard investors, whatever their investment practice.

Vanguard Diehards Board Comment #5 re Mel Lindauer

Lili: Looks like the Morningstar anti-free speech nazis have banned jerryx. Oh lord, get a life, people. These are just words that get posted here. Stop quivering in your boots when someone disagrees with you. This sort of nonsense is enough to kill a forum.

Vanguard Diehards Board Comment #6 re Mel Lindauer

Mase Redux: The board suffers when…certain posters… try to run other posters they disagree with off this board. It’s particularly outrageous when such posters are part of the small cadre of self-annointed “founders” of this board, who should be leading by example, and not doing one thing while saying another.

Vanguard Diehards Board Comment #7 re Mel Lindauer

Anger Is Not a Sound Long-Term Investing Strategy

MommaD: I will stay here as long as I feel like it (and as long as Morningstar puts up with me, lol!) and I will speak my mind as I see fit and won’t be intimidated by the likes of you.

Vanguard Diehards Board Comment #8 re Mel Lindauer

MommaD: I am a newbie and I am appalled at the way these people act. They are not just zealous, the cult of personality they have going on here is just plain old creepy.

Vanguard Diehards Board Comment #9 re Mel Lindauer

JerryC: The problem as I see it is that “Diehards” have become very dogmatic and political. The dogma is evident from the absolute rules that they preach and their belief that each of these rules are supported by “scientific” proof. The politics arise because a few want to maintain the authority and power as “the” spokesmen for Diehard dogma. As with any good politician, they want to “reward their friends and punish their enemies”. Needless to say, that attitude does hinder an open exchange of ideas…. It is interesting that major conflicts arise not as a result of polar views, but when more subtle aspects of passive investing are challenged…. The big conflicts arise out of any suggestion that Mel, Taylor or other key Diehard spokesmen are mistaken in their interpretation of Jack Bogle’s philosophy, or that they simply go much too far when they attempt to apply absolutes to something that requires individual choice and analysis. When such conflicts arise, politics raises its ugly head and the call is sent to loyal Diehards to join in on punishing the enemies and rewarding their Diehard friends.

Vanguard Diehards Board Comment #10 re Mel Lindauer

MommaD: There is no need for two separate forums. What there is on this forum is a need for common decency and civility and to let people who have different views from you speak. Then if you don’t agree with them, state why, back it up with facts and logic and let others figure out for themselves who to believe all without launching into ad hominem attacks.

Vanguard Diehards Board Comment #11 re Mel Lindauer

JerryC: Take Mel’s 8-10 posts in this thread. Not one post discusses anything substantive or anything concerning market timing or its variations. Instead, the subject matter of his posts has been: 1) the johndcraig game; 2) suggesting that everyone should put jerryc on the ignore list: 3) calling this thread BS and bad investing information; 4) coming to the defense of the loyal supporters; 5) stating that opposing views are harmful, vague, damaging, misleading, and not the proper subject of “real” investors; 6) suggesting a conspiracy of “spoiled kids”; and 7) generally making sure that all loyal supporters get the praise that is due them.

Vanguard Diehards Board Comment #12 re Mel Lindauer

NorbertC: It’s time to wake up and smell the coffee!I’ve been a Vanguard Voyager client for 10 years. I want the Morningstar Vanguard forum to represent all current and potential Vanguard clients, not just a narrow-minded club. Vanguard deserves better. It’s a solid, customer-oriented company. Your statement that “going outside of Vanguard is performance chasing” is typical. During my years of communication with Vanguard, no one has ever stated or implied such an absurd opinion. To the contrary. This is the only M* forum where I’ve ever encountered similar attitudes – excepting the Politics Forum. I am forwarding your comments to Mr. John Brennan, the Vanguard chairman. I fear that you are driving away potential clients – and that’s bad for existing clients like myself.

Vanguard Diehards Board Comment #13 re Mel Lindauer

Scary Abusive Posting on the Internet

SpringChange: Warning about Ethics- the idea that passive indexing is largely an academic pursuit without reliance of studies of the past that are projected into the future, do not involve paid advisory advocates and general philosophical projections of non-deductionist reasoning, is shamefully deceptive, enough is enough, overselling is overselling, period. Trust for the very intelligent novice comes from simple explanations, a thorough examination of pros and cons, and a rigorous analysis of simple facts, and the type of discussion here from our diehard brethren is a red flag whether pragmatic explanations are true or not. This thread is an example of how the politics and Vanguard forums have failed us- zealous, sloppy, and overwhelming trivial pursuit of a nature that is divisive, upsetting, and distracting. There, I said it, I’ve never recommended anything but this forum to any novice who has ever asked for several years, and none of them has thanked me- bad sign.

Vanguard Diehards Board Comment #14 re Mel Lindauer

NorbertC: There are forums at M* with a terrific, constructive atmosphere. We see qualities such as: (1) curiosity and openness; (2) self-questioning modesty; (3) tolerance and appreciation for multiple points of view; (4) respect and mutual support; (5) humor; and (6) integrity. You never feel like you’re dealing with a know-it-all Scientology salesman: disingenuous, preaching, defensive, and arrogant.It’s sad, really. Being a long-time Vanguard client I’d like to see this forum welcome any serious investor regardless of his or her investing style.

Vanguard Diehards Board Comment #15 re Mel Lindauer

Mase Redux: It’s my personal belief that they shouldn’t try to enforce their rules on the rest of us that are trying to use, learn from and enjoy this board which was set up by the grace of Morningstar. Especially since most of the rest of us appreciate Morningstar hosting these various boards and did not abandon the Vanguard Diehards board, while welcoming and encouraging polite discussion of investment topics, pot shots by some of those self-annointed “founders” have no place here.

Vanguard Diehards Board Comment #16 re Mel Lindauer

Mase Redux: Mel, as one of the self-annointed “founders” of this board, you should be ashamed of yourself. That post was totally uncalled for and you should apologize to Santa Cruz.

Vanguard Diehards Board Comment #17 re Mel Lindauer

Super Snark: It is a sad day in hell when investors are told they can’t discuss investment strategies on an investment forum.

Vanguard Diehards Board Comment #18 re Mel Lindauer

MommaD: If someone wants to dictate what can and can’t be posted on an Internet bulletin board, they should start their own.

Intimdation Tactics

Vanguard Diehards Board Comment #19 re Mel Lindauer

Satori: I had offered up a concrete, specific, example in the hope that it might encourage other concrete, specific examples of how market timing might or might not work — whether other anecdotes or quantitative data. Perhaps you view this effort as unbearably obtuse, and epistemologically unsound, but I think it is far preferable than all the posturing and hit and run pithy, snide comments and generalizing we are being treated to.

Vanguard Diehards Board Comment #20 re Mel Lindauer

Tar42: The DHs start their own forum (Bogleheads) and most had no well wishes for the forum, but yet advise posters on this forum to go elsewhere if the don’t completely tune into the Boglehead thinking. I get a real kick out of some that can’t see that they time markets by moving from from one investment TIPS, bonds, REITS, midcaps, Small caps, LC, etc., and tell the world they are reallocating and those active investors that pull money off the table and place it in the money market are timing.

Vanguard Diehards Board Comment #21 re Mel Lindauer

NorbertC: Mel, you might want to think about what “hubris” really means. You are reacting much like the Church reacted to Galileo in the 16th Century. You will recall that he claimed the world is not flat and was threatened with death by the Church. IMHO, much of the “investing advice” I read on this forum is a formula for financial disaster. It would appear that your theories were developed during the “good times” by people who forget that markets don’t always go up. I consider it vital opposing viewpoints be expressed so that novice investors can make informed decisions.

Vanguard Diehards Board Comment #22 re Mel Lindauer

Pete Elm: Lindauer threatened bodily harm to more than one poster on the Morningstar forum. [This comment was posted at IndexUniverse.com. Pete Elm was at an earlier time a regular poster at the Vanguard Diehards board.]

Vanguard Diehards Board Comment #23 re Mel Lindauer

Herman: I think the definition of a troll are those posters from the other board who roam on all of the boards here starting personal attacks and telling people over here, particularly newbies on the investing basics and personal finance board that they need to go to the other board to get good advice. Not to stay here. As Taylor says, there are many roads to Dublin but too many don’t believe that and in their ignorance and pigheadedness make things unpleasant for everyone and it is carried to an extreme.

Vanguard Diehards Board Comment #24 re Mel Lindauer

Censorship of New Investing Ideas JohnCraig: Yes Morningstar, I agree; it is time for you to decide what is and is not approved activity on this forum. If you read my posts and decide that I should be banned then do so. Otherwise I suggest that you make it clear that unsubstantiated group attacks won’t be tolerated regardless of who are the perpetrators.

Vanguard Diehards Board Comment #25 re Mel Lindauer

Avilynn: Mel, do you crave to be a moderator here too?

Vanguard Diehards Board Comment #26 re Mel Lindauer

Herman: Jerry is right on and the finger points right at you. Your statement was a personal attack and you opened the floodgates and unleashed the real nastiness. You abandoned this site in a snit because they wouldn’t moderate your way and then the people came here to every board and said go over to that other site where you’ll get the good and true advice. Now it looks like this is coming back and you return and claim 10 years of building it. Yes you did, but you left in a huff and now you’re making sure if you can’t have it your way, no one can have it. Haven’t seen that kind of taking your ball and going home and then coming back when some one came up with another ball since I was a kid. You need to stop the game playing.

Vanguard Diehards Board Comment #27 re Mel Lindauer

Pride Comes Before a Stock Crash

mth5221: Actually it’s more of an economic necessity. It’s necessary for them to come back in order to direct new recruits to their forum. You can’t really expect people to find that new-and-improved, remote diehard forum on their own. So, I can’t blame them for coming back and trying to steal additional M* readers… afterall, there are many souls to save, and many books to sell. :) Perhaps Morningstar will eventually recognize that the Diehard cult has in fact left, and the forum needs to now be known as “Vanguard Funds”.

We’ve begun the process of winning our self-respect back!

When will John Bogle pick up the telephone?

Stock Market Investment Research and the Tricky Tricks Used to Trick You

Stock Market Investment Research Trick #1 — The Tautology Trick

Have you ever heard anyone argue that you should invest in index funds because, when costs are factored in, it’s impossible for the majority of investors to beat the index? Well, duh!

Stock Market Investment Research Tricks

The index is the market. For every investor who beats the market, there has to be one who does worse than the market. Otherwise, the market price wouldn’t be the average of all the gains and losses experienced by the companies comprising the market. In other words, the market price would not be the market price.

The claim that index funds beat investing in individual stocks when costs are factored in is a tautology. This claim tells us precisely zero about what we need to learn to become effective investors. Incredibly enough, there are people who have put together investing research to prove that it is so. It’s like proving that water is wet. The point was never disputed by any serious person.

The point of this “research” is to bully you into accepting that indexing is the superior investing strategy. I like indexing. But I don’t like some of the ham-handed arguments I have heard put forward in support of it. The question that you need to answer in determining whether indexing is for you or not is: Do I possess the skills needed to beat the market. One is tempted to say that those who fall for the tautology trick are better off indexing since indexing is the simpler approach to investing. That’s not entirely so, however. For many of us, the best thing to do is to learn about investing by indexing and then to advance to picking individual stocks when we have a good bit of learning and experience behind us.

So I don’t like the tautology trick. Investing research that proves a tautology is not investing research at all. It’s hand waving. I come over time to lose confidence in investing experts who refer to studies supporting a tautology as investing research. Yes, that means you, John Bogle!

Stock Market Investment Research Trick #2 — The Ignore-the-Marketing-Realities Trick

The highly paid and highly skilled managers of most mutual funds fail to beat the indexes. This proves that the market is efficient and that it is impossible to pick stocks effectively enough to beat the indexes. Right?

Uh, no. Not right.

Say that you were the stock-picker for a big mutual fund. What would be your top priority? Generating strong returns for your those holding shares in your fund? Or getting people to invest in the fund?

The top priority is getting people to invest in the fund. That’s how the fund makes money. Generating strong returns helps attract people to the fund. So that’s viewed as a good thing too. But getting people to invest in the fund is the paramount concern.

investing research

Say that stock prices have gone so high that the best strategic move is to move to safer asset classes for a time. Say that the reason why stock prices are so high is that the majority of investors has gone temporarily bonkers for stocks and will punish any mutual-fund manager who sells them by taking their business elsewhere. What does the fund manager do? He sticks with his excessively high stock allocation.

He opts against making the move that will increase shareholder return in favor of the move that will allow him to keep his high-paying job a bit longer. You’d be surprised how persuasive even the smartest mutual-fund managers find the arguments of their tummies telling them to do whatever it takes so that they will be able to continue to have something to put on the table indefinitely into the future.

There is investment research showing that most mutual fund managers cannot beat the market. The idea is supposed to be that, if these smart people cannot beat the market, no one can. It doesn’t follow. Such research does not tell us what a smart person who did not need to make marketing concerns paramount could do.

Leaving out the marketing reality is a tricky trick designed to trick you. Don’t let it happen.

Stock Market Investment Research Trick #3 — The I-Don’t-Understand-What-You’re Talking-About Trick

Timing works. Long-term timing, that is. If you change your stock allocation in response to price changes thinking that you are sure to see a payoff for doing so in one year or two years or three years, you’re kidding yourself. Short-term timing doesn’t work. If you fail to change your stock allocation in response to price changes thinking that you won’t experience a penalty for failing to do so within 10 years, you’re kidding yourself in a different but just as serious way. The price you pay for the stocks you buy always affects the long-term returns you obtain. Long-term timing always works (and failing to engage in long-term timing always hurts you).

There are “experts” who want to con you on this point. There are people who would prefer that you not consider prices when investing in stocks (it’s of course a wonderful thing for the stock-selling industry if all price resistance is broken down). These people will tell you that we know that timing doesn’t work because there is an impressive body of investing research showing this.

When you look at the studies, you will see that they examine short-term timing, the kind of timing that does not work, instead of long-term timing, the kind of timing that does work. Surprise! Surprise!

stock research
What happens when you point this out? They cite the same studies again. The ones that show that short-term timing does not work. As if saying it a second time would make it so.

Hey! The term “short-term timing” has the word “timing” in it, doesn’t it? Is there some reason why studies showing that short-term timing doesn’t work should not be cited as evidence that long-term timing doesn’t work?

I can think of a good one. The reason is that to cite investment research in that way is a trick.

Stock Market Investment Research Trick #4 — The Idiot-Switching Trick.

John Walter Russell coined the term “Idiot Switching.” It’s a keeper.

Not all long-term timing strategies work, of course. It is possible to imagine long-term timing schemes that would fail. Some of the people who engage in investing research have put their considerable intellectual talents to the task. They’ve produced some compelling “research.”

The fair-value P/E10 value is 15. If you lower your stock allocation when the P/E10 value goes above 20 and increase your stock allocation when the P/E10 value goes below 10, you’ll earn greater long-term returns from your stock investments and will attain financial freedom years sooner.

What if you sell all of your stocks each time the P/E10 value goes to 16 and go to a 100 percent allocation each time the P/E10 value goes to 14? Isn’t it possible that by following this idiot’s approach to switching that you could generate some data showing that long-term timing does not work?

Yes, it’s possible. People with big brains and getting paid big salaries have done this sort of thing. They refer to the work product they put forward as “investing research.”

Stock Market Investment Research Trick #5– The Impossible-Hurdle Trick.

The “Idiot Switching” trick is too obvious for some. Some of the people doing investing research prefer a more subtle approach. The more subtle the trickery being done is, the more likely it is to trick you, no?

The subtle way to show that long-term timing does not work is to impose an impossible hurdle. If you can obtain an annual increase in your investment return of 1 percent, you will attain financial freedom years sooner. What if investment research were prepared in which the test of whether long-term timing works or not is that it must increase returns by 3 percent or 4 percent or 5 percent? Employing such a rule would make it possible to show that long-term timing does not “work.”

It’s been done.

Stock Market Investment Research Trick #6 — The Ignore-a-Key-Factor Trick

The Old School safe-withdrawal-rate studies make no adjustment for changes in price levels. They report the same withdrawal rate as safe for retirements beginning at times of high valuation as they do for retirements beginning at times of low valuation.

That cannot be. Valuations affect long-term returns as a matter of “mathematical certainty,” according to William Bernstein and many other of the best-informed investing experts.  Lower returns obviously translate into lower safe withdrawal rates.

Why then do the Old School studies ignore the valuation factor?

Because they can. Because you do not demand better in the investing research you use to develop your investing strategies. Because at times of high valuations most investors want to hear fairy tales that make them feel good rather than genuine research and there are a good number of “researchers” willing to dress up fairy tales with tables and footnotes to meet the demand.

market research

Do you remember that movie Network in which the guy screamed out that “I’m mad as hell and I’m not going to take it anymore!” I hope that the next time we lose a big hunk of our retirement accounts because of the trickery that is frequently passed off as “investing research” we give the sentiment expressed the consideration it deserves.

Stock Market Investment Research Trick #7 — The Create-An-Imaginary-World Trick

The dominant investing model of today is something called theEfficient Market Theory. It assumes that investors are rational and that all relevant information is thus incorporated into the stock price that prevails each day. You cannot beat the market because the market knows all and all that is known is reflected in its price, according to this theory.

Has there even been a market in which the assumption in which this theory is rooted applied? Has there ever been a market in which investors set prices rationally rather than by getting caught up in a wild enthusiasm for stocks and then by an equally emotional disillusionment? No, there’s never been one.

So why do many of the people who prepare investing research act as if the Efficient Market Theory provides us a reasonable model by which to understand how stock investing works?

I answered this question up above. It’s because they can, it’s because we let them. If we investors were rational and concerned about pursuing our own self-interest, we would not let the people preparing investing research get away with this sort of thing. But we’re not. So we do. It’s not the Efficient Market Theory, really. It’s the Efficient Market Story. It’s something that we tell ourselves to help ourselves get to sleep at night. When stock prices are high, we like thinking that they are high for a reason, that it all makes sense somehow.

From one way of looking at it, the people preparing investing research that partakes in the Create-an-Imaginary-World Trick are doing us a favor.

That really is so from one way of looking at it.

For a time.

Stock Market Investment Research Trick #8– The Undefined-Word Trick

Don’t worry too much about valuations. Stocks will do fine in the long term.

You’ve heard that one, right? This claim is based on investing research, don’t you know?

invalid studies

Stop giggling. Serious people did this investing research. They wear ties. They have nice smiles. You should sit up straight and pay attention when they speak.

Please take a brief look at The Stock-Return Predictor. At today’s valuations (this article was posted in September 2007), stocks are not likely to provide a return superior to far safer asset classes in 10 years. Nor are stocks likely to provide a return superior to far safer asset classes in 20 years. Go out 30 years, though, and stocks are looking good.

So it’s true that stocks are always best for the long term.

That’s what the investing research says, isn’t it?

Stock Market Investment Research Trick #9 — The Ignore-Dividends Trick

The biggest part of your long-term return from your stock investment is the dividends paid. Investing research that tries to persuade you that stocks are not the best asset class for the long-term investor often reports only what happens to the stock price while ignoring the fact that those owning the underling stocks were being paid dividends all the time that the price was going up and down.

Ignoring dividends makes as much sense as ignoring valuations. It makes zero sense. Investing research that ignores dividends is not science, it’s science fiction.

Stock Market Investment Research Trick #10 — The Know-Nothing Trick

wall street today

You are trying to come to a better understanding of how long-term investing really works. You have familiarized yourself with the various tricks played on middle-class investors by the “experts” purporting to put forward investing research. Their tricks don’t work on you anymore. You know what to look for. You’ve gone beyond the power of the con.

But wait. They find one last nasty trick way down at the bottom of that big nasty bag of them. It’s the topper of them all, The Know-Nothing Trick!

We really cannot know how stocks are going to perform in the future. We don’t have enough data. The future could turn out different than the past. None of the valuation assessment tools are sufficiently precise. Yada, yada, yada. Blah, blah, blah. Blee, blee, blee.

Pointing out the caveats that apply with all valid investing research is not a trick. That’s responsible reporting of the realities. It becomes a trick when the purpose is to cause the listener to give up hope of learning how stocks may perform in the future by looking at how they have always performed in the past.

We can’t know everything. We can know some important things. It is every bit as much of mistake to fail to inform yourself of what we can know as it is to pretend that we can know more than we really can. Anyone using the historical stock-return data to learn how to invest successfully for the long run needs to be aware of the caveats that apply. Anyone failing to become familiar with what the historical data says is investing blind.

wall street research

When the stock market investment research is not tricking you by telling you things that are not so, it’s tricking you by telling you that it’s not possible to know what is so and what is not. Those who say they know nothing are wrong. They know enough to know that what they “know” is wrong. They just don’t want to know it. You know?

The historical stock-return data is our friend. No trick.

Community Comments on the Great Safe Withdrawal Rate Debate

Set forth below is the text of a post that I put to the Motley Fool board in the early days of The Great Safe Withdrawal Rate Debate (the post is dated August 10, 2002). It provides snippets of a number of comments advanced by Financial Freedom Community members.

”hocus” is me (Rob Bennett, owner of the PassionSaving.com site).

”intercst” is John Greaney, owner of the RetireEarlyHomePage.com site.

“JWR1945” is John Walter Russell, owner of the Early-Retirement-Planning-Insights.com site.

”TNFBogey” is David Forrest, site adminisstrator at the Motley Fool boards.


Thanks for your post.

The Retire Early Discussion-Board Community

I’ve had a few e-mail conversations with TMFBogey as this debate has proceeded because I want to avoid violating any Motley Fool rules as to the extent to which a non-board founder may question conclusions of a board founder. I’ve noted in earlier posts that, while TMFBogey prefers open debate as an ideal, he also grants some deference to what he refers to as “board culture.”

So I have tried to monitor whether my effort to get a discussion started on some investing ideas that have not been discussed on this board in the past disrupts the board culture in any way. I believe that there are arguments that can be made that it does. Certainly most of the threads relating to this effort have been far less pleasant to read than the average RE board thread. Posts like yours, however, suggest something different, that there are people who come to this board who appreciate threads on Retire Early investment ideas that have not been discussed here previously. I keep a file of such comments that I refer to from time to time when I am having a debate with myself whether to continue the effort to encourage such discussions or to drop the idea.

Set forth below is a sample of some of the comments from posts I have entered in my file. Set A is a set of comments suggesting that the person posting likes the idea of a broader range of investment discussions. Set B is a set of comments suggesting that people participating in the debate have gained some insight or another from the effort. If people are enjoying the debate or learning from it, that suggests to me that it is not entirely disruptive to board culture to try to advance it.

I believe that we all would be learning a lot more if there were some way to make the debate less argumentative in nature. But even under current conditions it does not seem to me that the effort has been 100 percent a waste of time.

Please understand that I do not believe that any of the posters below agree with my views on investing. Most do not, or agree with some aspects of my views and not others. The point of the collection of posts is not to show that others agree with me, but to suggest that there are people other than me who would like to see a variety of investing options discussed on the board.

Set A: Posters Who Enjoy Broad Debate:

Vickifool Post #66931.

Vickifool thinks this was a worthwhile and useful thread. This board is a good place to discuss these things until you understand them. Much better than arguing religion or political jingoism, IMHO. Look at all the bandwidth that’s been wasted on those topics lately.

I have had to stop and think, Now is Hocus right? You are certainly convincing (good writer that you are) so I really had to look carefully at what you had to say and why it was, or was not, correct.

UCalgaryGeer Post #66959.

Thanks to everybody for a fascinating discussion; imagine my shock when the top ranked posts on REHP suddenly started to be about retiring early!

FoolMeOnce Post 68454.

The REHP safe withdrawal study speaks not at all to the issues involved in the accumulation stage and doesn’t help a single soul to accelerate the process of achieving early retirement. All it does is prescribe a method which some individuals could use to help insure that they don’t outlive their assets, once they are accumulated. This is not unimportant, but receives entirely too much focus here.

nnn12345 Post #66842.

The Financial Freedom Discussion-Board Community

HOCUS–IMHO, you have started one of the most interesting and stimulating discussions this board has seen in a long time. It would be a loss for this board to not have such discussions.

Although the majority of posters may completely agree and be entirely comfortable with the premise of the 4% safe withdrawal rate, I for one simply find it to be a useful concept and tool which perhaps could be refined and improved if only challenged and questioned a bit. I hope that you will keep on posting your thoughts, comments, and provocative insight.

Dagrims Post #73316.

I’m enjoying this discussion, hocus, even if others may be tiring of it. I enjoy reading your posts and discussing these issues helps flesh out my thoughts and ideas much better. If you’d like to, feel free to e-mail me privately to continue.

BobBluff Post #66725.

I very much appreciate this thread, especially the points brought up by hocus…. We should not become fixed on the “one way to do it”. Different folks have used different methods to achieve FIRE….

nmckay Post #66709.

I do think you’re on to something about valuation that should be addressed. Keep at it. This has been one of the best threads we’ve had in a while.

JWR1945. Post #73284

I am continually frustrated by the attacks and diversions caused by those who restrict retirement and investment discussions to a very limited range….The mechanical structure of investing that makes the Retire Early study so very valuable also limits its applicability. That should be an advantage. It should cause people to think and to extend the research rather than to apply it in a mindless, mechanical manner.

Post 69209

We can provide real help to real people by extending the applicability of the Retire Early Safe Withdrawal Rate studies. Seldom can they be extended to answer questions directly. But they can provide valuable insights for making sound decisions. People do need answers to questions that extend well beyond a very narrowly defined set conditions that are not clearly delineated.

FriendlyGirl Post #70633.

The universe of the safe withdrawal study is limited, this is true. The data is insufficient to include many asset classes that are open to and might prove useful to investors. But even for these people the safe withdrawal study can be some help, if limited.

Perhaps intercst’s website could use a more extensive discussion of asset allocation and how you might go about determining it. I don’t think everyone is served by having an optimized asset allocation. Basically, I agree with you that we could expand the conversation.

mhtyler Post #70573.

I have let Hocus know that if he forms up a new group that is more supportive of alternative retirement discussion that I’ll be there, because as good as this group is, it doesn’t appear that it will ever get beyond the mathematics of the efficient frontier…helpful though they are.

JAFO31 Post #68952

FWIW, it [the debate you are proposing] would not bother me. I might even kibitz from the sidelines on occasion with questions, but I doubt that I would be a heavy or regular contributor.

path40a Post #73291.

I quickly realized that there was an on-going debate and some history between someone named intercst and someone named hocus. Both seemed to present thoughtful information, albeit from differing viewpoints (always good, IMNSHO). I then noticed that the tone of the discussion shifted to one which was quite combative, with perhaps an endgame intending to silence the less popular opinion. My fears were confirmed when Ms. Coy joined the board and was quickly attacked for expressing her ideas.

While I see nothing wrong in taking sides in a debate, I find the goal of silencing dissenting voices appalling. Surely there is more than one way to FI and RE!

inparadise Post #68951.

The Indexing Discussion-Board Community

I am very open for new topics, and think that though the various threads triggered by your issues have been excessively long and cantankerous, some excellent points have been raised.

Post #68869.

There are situations and personalities where the SWR just won’t always work, because the people won’t be able to stomach the volatility of the approach. Hocus, (and correct me if I’m wrong, Hocus,) thinks among other things that this is an issue that should be brought up and explored, a warning to those considering the system if you will. I think he has a very valid point.

FoolMeOnce Post #68775.

I don’t dispute any of your [referring to intercst] math exercises and never have. But you wear them like a protective cloak insulating you from the reality that the performance of 100% equity portfolios is little more than an interesting intellectual exercise and teaching tool. You appear not to understand that in terms of application to real people, in a real world, such examples are useless, because they simply can’t be put into practice by enough people to make them meaningful.

Daryll40 Post 68692.

I have read with interest the HOCUS-inspired look at equity-heavy portfolios. I kinda fall somewhere in the middle. I have NEVER EVER been comfortable with a high proportion of equities and even when I started here, back in 1999 when the Dow was going to 36000 tomorrow, I always felt uncomfortable with the exact Intercst approach….In the end, the answer to MOST things is “in the middle” as it is here.

nas90skog Post 68597.

So far the “Masterminds” have successfully driven away most of the real estate investors and who knows how many other “evil non-conformists”. The techies frustration with humanists that intercst referred to is no doubt as equally frustrating to the humanists. Having served on the engineering side of things, I can certainly acknowledge and relate to the arrogance and self proclaimed superiority of the “techie” view of the world. It was not until I became more aware of the “human” side of the equation however, that life revealed a broader value and potential. For me personally, I “get” what Hocus is trying to say.

[in response to an intercst assertion that he is “heartened” whenever FoolMeOnce or nas90skog find his posts repugnant] My recollections are that FMO has made a diligent effort to steer clear of petty bickering when he has presented his personal experiences in real estate investing. Why would you be put off by that type of person?…Sincerely appreciative of the work done by intercst, et al regarding FIRE management, but for me, its only part of the puzzle. And at times, the pompous arrogance that can permeate the board just becomes a bit overwhelming.

holzgrafe Post 68887.

Perhaps it will help if people on all sides (note not “both” sides ;o)) spend a little more time attempting to define the issues they wish to discuss in a given thread…I do think that good boards have a focus, often set by the founder or the gurus, and that, while discussion and new insights are valuable, significant departure from that focus belongs on its own board.

Certainly the focus here is RE, not SWR as such, but it seems to me that discussions on this board should focus on how best to achieve investing efficiency. What I mean by efficiency in the accumulation stage is the most rapid accumulation of the necessary wealth and in the distribution phase the maximum disbursable income consistent with longevity.

In both cases, the approaches espoused should be based upon generally-agreed-upon constraints, and I think it is very important that those constraints should be explicitly stated. If the participants in a discussion cannot agree upon the constraints, the chances of the discussion going anywhere useful are pretty much nil.

We have the same sort of hassles on the MI board over a different subject, and it’s really depressing how little communication is achieved on either side. It’s like one philosophy is being expressed in English and the other in Chinese. I think that breakthroughs in communications are starting to appear on both boards, but it’s a slow and frustrating process.


Post 1942 on Real Estate Board.(making reference to efforts to discuss non-MasterMind strategies at RE board.)

Financially Independent Retired Early

Perhaps a public discussion forum is not the appropriate place for those who can tolerate no dissension–or take what dissension there is personally… The core group at the REHP seems to be quite set in their ways, a result, possibly, of having retired and now having no compelling reason at such a young age to remain flexible in their thinking.

For example, there’s hardly a shred of support on the REHP for real estate as a road to early retirement. Maybe that’s because the original board-opening requester is anti-real estate to the extreme, in my opinion. You’d think by now the board would have evolved to include this very important component of wealth. I do not see that happening because of the sometimes virulent reaction to anything but the party line.

Moghoper. Post 68894.

I think it was a tremendous debate. I think there are many people who agree with you – and while some do not, that should be ok in a debate. And while some have even gone to the point of being borderline abusive during the expression of their opinions, I don’t think this prevented you from posting your opinions.

Agree or not, this is as spirited as the board has been in some time.

Set B: Posters Who Have Learned From Debate Thus Far:

rkmacdonald. Post 68981.

In this case, I think it could be argued that this person’s Personal SWR is actually 2% and not the Unemotional SWR of 3.7%. In fact, I wonder just how many people living right on the edge of the Unemotional SWR world really would have the personality and steel, to stay the course following a 1929 (or maybe a 2000) style market collapse. Is it possible that no real person actually has a Personal SWR that is as high as the Unemotional SWR!!

I wonder if there is some way to introduce a modifier to the Unemotional SWR, that would predict the true Personal SWR for each individual based on their personality and risk tolerance?

Patnbj Post 68793.

There certainly are differences for those who attempt to ER with a small portfolio. Let’s compare two ERs who are both single with no kids. #1 has a portfolio of $2 million and #2 has $500k. #1 has a lot more options than #2….

DaveLee Post 69080

Even the coarsest of stock valuation measures, if accurate, could benefit stock market withdrawals by increasing the average price of shares sold over 5 to 6 year periods. (Some people call this market timing. I do not.)….

I would end up with an equity allocation somewhere closer to 40 to 60% with fixed income instruments of mostly intermediate duration.

stoferj Post #73266.

What I’ve come to appreciate over the past couple years is the value of asset allocation. A lot of people think that if you’ve got a 30 year investment horizon you should be 100% in equities.

The Probabilities of Stock Investing

Well that may very well work for some folks but I can’t stand the volatility. I’m going to investigate building a portfolio that includes some real estate, bonds and hard assets as well as equities. I need a smoother overall return. This up 30% one year down 40% the next is too hard on the stomach.

FoolMeOnce Post #68738

Depending on how early you want to retire and actual market performance, the middle of the road approach may actually get you to your starting nut quicker. It will certainly propel you in that direction more predictably.

An increase in savings rate may also obviate the need to work for a longer period. With a high reliance of equities during the accumulation stage, even an increased rate of savings may not help much if the market turns against a portfolio heavily weighted in equities.


This debate between the efficient-frontier advocates and the skeptics is fascinating….Harry Markowitz, the discoverer of modern mean-variance portfolio theory (i.e., the theoretical underpinnings upon which the Safe Withdrawal Study rests) who won the Nobel Prize in Economics for this work, apparently does *not* allocate his assets in accordance with the efficient frontier; he actually uses something like a naive 50-50 stocks/fixed-income split, because his goal is to “minimize future regret”.

FoolMeOnce Post #69060.

Based on periods as long as 29 years, from my own simple models it is obvious that by judiciously diversifying into other asset classes it is possible to exceed the returns of the S&P 500 with less risk (as measured by standard deviation). By increasing returns while simultaneously holding the volatility down, I am confident that the maximum withdrawal rates can be increased significantly. A twenty nine year period includes the bear of 73/74, the crash of 87 and the recent unpleasantness, but is still not 130 years.

The question is should we constrain ourselves to asset classes for which more than a century of data is available or not? There is no good answer to this question beyond “more is better”, but 29 years is good enough for me.


[in response to an early retiree who revealed to the board that he has recently lessened his stock allocation in response to price drops]

Far from reacting emotionally as another responder has said, it seems to me that you’re simply reacting to the market. I’d expect your strategy to minimize your losses, but also temper your ability to see upside. I’m doing exactly the same thing, but I’ve reversed from 70/30 equity/fixed to 30/70.

My ultimate goal…and possibly yours too is to see that reverse back again, but if you’re newly retired (2 yrs) as I am you may seek to minimize your risk rather than prove out all the fancy RE philosophy of this board on your way to the poor farm.

JWR 1945 Post 68582

Buy-and-Hold Bias

It would be nice to know the effects of a more rational allocation of the fixed income component. Currently, the fixed income component is mechanically reinvested and rebalanced every year. However, because the income of a fixed income investment is highly predictable (when held to maturity even when inflation is taken into account), fixed income investors can take advantage of locking in favorable yields for longer periods and investing in shorter term instruments when yields are low. In addition, an investor may choose among fixed investment classes whenever he rebalances his portfolio.

Post 69074

I also see great merit in extending the usefulness of the Safe Withdrawal Rate study. Right now there is (roughly speaking) only one question that it answers. That answer is always right if that one question is asked. More often the study gives the wrong answer because the wrong question is asked. Sometimes that answer is very close to the correct answer. If so, it is very useful. Sometimes that answer is not only wrong, but it is dead wrong. At the same time, it gives one a false level of confidence.

I prefer to think in terms of opportunities. If hocus had relied on a single answer from the Safe Withdrawal Study, he would never have saved money. Lots of people are like that…if the only option for handling risk is to change from 25 times your desired withdrawal rate to some bigger number; retirement becomes an illusion…an unobtainable goal. But hocus has demonstrated that other options are available. I think that the applications of the Safe Withdrawal Study can be extended to make many more dreams come true. It answers only one question. But it can provide helpful information for a lot of questions.

Post 68916

The book [“Stock Cycles”] suggests that a there really is true Safe Withdrawal Rate…derived from the same data but using a different approach…that varies with market valuation.

We have a sensitivity study that shows that minor differences in withdrawal amounts caused by small errors or differences in the details of the Safe Withdrawal Rate calculations result in large variations in the outputs…the number of years at an acceptable level of risk…..We have another sensitivity study that shows that it often takes about a decade before you know how safe your withdrawals are.

Post 67551.

What hocus really needs are the tools to spot any problems by himself and to spot them early enough to fix things. He needs something better than that familiar assurance…„”trust me.”

Post 67209

Censorship of Discussion of Safe Withdrawal Rate Errors

Great advances in science are made by studying the anomalies…the things that are not fully understood.

Post 66854

The fact that there were only three bad periods to start a retirement in the twentieth century indicates that you probably can vary allocations successfully as long as your actions are based on decade-long variations and not one or two year changes. So far, it seems as if some changes in the percentage of stocks and in the type of cushion (commercial paper, TIPS, 5 year treasuries, long term treasuries) do make sense….

If you share hocus’s concern about valuations, think of your investments in terms of two portfolios. The first is the basic growth account at the best allocations indicated by the studies and the other is your reserve account that lets you sleep at night. Maybe that can help clarify your thoughts. If the basic account goes nowhere for a decade…and it might…you will be able to handle it. Personal considerations are always the most important in any financial decision.