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ataloss
**** Heavy Hitter

Joined: 25 Nov 2002
Posts: 559

 Posted: Tue Sep 23, 2003 7:50 am    Post subject: Education of a Hocusologist Warning this is a hocusology post At one time I thought that hocus could modify his statements and compete better against the alternative swr guru. Simple things like saying that the rehp study appeared to rest on outdated assumptions rather than saying it was "invalid." Anyway, hocus wasn't really interested and persisted in claiming that he knew that the exact swr in 2000 could be easily calculated and that lower future stock returns were a matter of mathematical certitude. The interesting part of this was jwr's role. I claimed that future returns were unknown but likely to be lower. JWR "explained" hocus by claiming that hocus meant something else. On any specific date in the future, the S&P 500 will be at some very well defined level. We don't know now what it will be. We will know then. Regardless of what that number is, we will be able to calculate the stock market return between now and then when the time comes. We have a mathematical formula for calculating annualized returns. That calculation involves the ratio of that future price to today's price. The calculation always shows that the annualized return is bigger if today's price is lower. (We are holding the future price at a fixed level). http://nofeeboards.com/boards/viewtopic.php?p=6769#6769 AFAIK, this is the first example of jwr twisting the facts to try to make hocus look less foolish_________________Have fun. Ataloss
wanderer
*** Veteran

Joined: 26 Nov 2002
Posts: 363
Location: anytown, usa

 Posted: Tue Sep 23, 2003 4:28 pm    Post subject: an then someone said this: That means that the lower today's prices are (i.e., lower valuations), the bigger the annualized return. That relationship always holds. Along the same lines and regardless of the details, a safe withdrawal rate calculation must always favor starting out at lower valuations (i.e., you are safer if you start out at lower prices). Only if you ignore the details. Like the dividend yield. FWIW, I think this may be the problem with Q - it looks solely at valuation and not at the income stream._________________regards, wanderer The field has eyes / the wood has ears / I will see / be silent and hear
*** Veteran

Joined: 25 Nov 2002
Posts: 265

Posted: Wed Sep 24, 2003 2:46 am    Post subject:

 wanderer wrote: an then someone said this: Only if you ignore the details. Like the dividend yield. FWIW, I think this may be the problem with Q - it looks solely at valuation and not at the income stream.

Wanderer,

With all due respect to JWR, I wouldn't put too much faith in these switching studies. The results don't impress me much considering the risks involved. If you pick an indicator and it doesn't behave in the future as it did in the past then you're hosed. I would be particalarly leery of earnings based indicators like PE and even PE10 since they are so prone to nefarious manipulation by some of our less than honest CEO's out there.

IMO the best way to approach the problem is to own reasonably valued asset classes and adjust over time as valuations change.

wanderer
*** Veteran

Joined: 26 Nov 2002
Posts: 363
Location: anytown, usa

 Posted: Wed Sep 24, 2003 6:24 am    Post subject: With all due respect to JWR, I wouldn't put too much faith in these switching studies. The results don't impress me much considering the risks involved. If you pick an indicator and it doesn't behave in the future as it did in the past then you're hosed. Yes, raddr, I was trying to point out that there was something beyond valuation to consider. That's why, when someone says, It is impossible to say what is safe without looking at the effect of changes in valuation, a factor that William Bernstein says affects long-term returns (and therefore long-term safety) as a matter of "mathematical certitude." that's not much of a statement to me. While I agree current S&P valuations are pretty silly, long-term returns are often 'rescued' by sequence and dividends and some other factors. The hocus board posters lose me when they don't use 'weasel words'. The criticism of the rehp study and theirs stands: not enuf data to 'prove' something statistically. Enough data to bet one way or another with imperfect knowledge - but I'm leery of a 6%-8% draw. As for the switching studies, they are difficult for me to follow/read. And then there's that 1.6% draw rate (shrug). Speaking of which, I thought it was a SWR of 2% that WB asserted with mathematical certitude. Or has that one been retracted but I just missed it? (where's that headshake gif?) here's more from somewhere else: In speaking to a community in which a good number still cling to the belief that a methodology that always generates wrong answers can somehow remain valid nevertheless, it was proper to employ that shorthand way of talking about things. I thought someone preferred the calculated precision of his own words. Perhaps the phraseology on that one should have been turned over to ataloss._________________regards, wanderer The field has eyes / the wood has ears / I will see / be silent and hear
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