From Intrinsic Value-Page 2

Research on Safe Withdrawal Rates

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JWR1945
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From Intrinsic Value-Page 2

Post by JWR1945 »

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Post by JWR1945 »

I require the accurate reporting of factual information.

I do not tolerate the misrepresentation of facts. I do not tolerate a revision of history that misrepresents facts.

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Post by ataloss »

I am not too interested in the history of who posted what on some other message board 18 months ago but I accept that various incorrect/misleading statements were made. I think we are agreed that there is no essential tautology in the "conventional methodology."
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ataloss wrote:I am not too interested in the history of who posted what on some other message board 18 months ago but I accept that various incorrect/misleading statements were made. I think we are agreed that there is no essential tautology in the "conventional methodology."
I disagree strongly. The conventional methodology was flawed from the beginning. The most damaging aspect was that the phrase unless the future is worse than the past caused many people to stop thinking and to become overconfident.

We have shown that the conventional methodology, in the absence of carefully made corrections, is invalid for the purposes of calculating Safe Withdrawal Rates.

It is critically important to differentiate between calculating Historical Database Rates by themselves and the conventional methodology. The conventional methodology fails when it states that the lower bound of the Historical Database Rates is also the Safe Withdrawal Rate. That is untrue. That is where the conventional methodology introduces the predictive element.

Even more interesting, but not yet firmly established, is whether the conventional methodology ever was accurate. That is, was the lower bound found among Historical Database Rates also a lower bound of Safe Withdrawal Rates during the historical period? There is evidence that it was not. If that is confirmed, the conventional methodology would have always been an invalid approach for the purpose of calculating Safe Withdrawal Rates.

It is important to understand that Safe Withdrawal Rates are predictions. As with any problem involving probabilities, the accuracy of such predictions are never determined solely on the basis of a particular outcome. For example, if you tossed a coin ten times and it came up heads eight times, you could not immediately conclude that the coin was unfair, loaded or rigged. Such a sequence could have happened even with a fair coin (or something very close to being a fair coin). It is possible that those particular historical sequences that had the lowest Historical Database Rates were not as bad as they should have been simply because of random factors.

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Post by ataloss »

asdf
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Post by JWR1945 »

I am not presenting a straw man.

Advocates of the conventional methodology have misrepresented their position through the use of imprecise language. They have used imprecise language and varying definitions to block serious research into Safe Withdrawal Rates.

They have caused serious damage.

The damage that they have caused is real.

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asdf
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Post by JWR1945 »

I will again point out that we require the careful use of words on this board.

As to whether advocates of the conventional methodology still assert that it produces Safe Withdrawal Rates, my answer is YES.

I have seen this in recent threads on at least two discussion boards at the Motley Fool web site and on (at least) one other thread at Dory36's Early Retirement Forum web site. (Dory36 is the creator of FIRECalc. He is also known as Captain Bill.)

Many people now view the results produced by the conventional methodology as rules of thumb. They do not assert that it produces Safe Withdrawal Rates, as properly defined. My impression is that most of these people are aware that the conventional methodology has been challenged but that are unaware of the details.

Many people are of the impression that the conventional methodology produces the right number and that it is just that the investment mix is wrong. That is a false impression. It is still possible to produce a Safe Withdrawal Rate of 4% with care and effort. But that is not because the conventional methodology got it right. It is because of the care and effort.

On this board, we draw a distinction between Safe Withdrawal Rates and rules of thumb.

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Post by ataloss »

asdf
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Post by JWR1945 »

but my question was aimed at the idea that advocates of the conventional methodology (acm) are currently advocating that their approach will work barring an event like an asteroid striking the earth. I don't think this is the case. The dependence of swr on returns is (I think) widely accepted.
They are referring to events such as asteroids striking the earth. I was not playing word games.

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Post by ataloss »

I was not playing word games.

but probably responding to old positions that the original posters would not defend
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Post by JWR1945 »

ataloss wrote:I was not playing word games.

but probably responding to old positions that the original posters would not defend
Untrue. I was not playing word games.

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Post by ataloss »

A surprising number of those responding to my poll at tmf think the conventional methodology is fine barring an asteroid strike. The board general seems to be very careful in extrapolating past results to the future.
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Post by BenSolar »

ataloss wrote:A surprising number of those responding to my poll at tmf think the conventional methodology is fine barring an asteroid strike. The board general seems to be very careful in extrapolating past results to the future.
Yep, there are still a lot of people over there who think the past 130 years provides us with the data to see the market at it's worst. They don't acknowledge the role of valuation on returns and stick their heads in the sand when it is suggested that the extreme valuations seen recently are, in fact, an event 'worse than the past'.

Their line of thinking seems to be 'If it (4% or whatever the conventionaly method says is the SWR) made it through the Great Depression, then it will make it through any event I'll live through. Or, if I live through an event that would make the 4% fail, then my withdrawal rate will be the last thing I'll be worried about.'

That something as mundane as overvaluation could cause the conventionally derived SWR to fail seems to escape them.
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
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Post by ataloss »

asdf
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