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How will you use a "new/improved" swr analysis
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Which comes closest to your outlook regarding the planned inflation adjusted "best" swr.
I will bank on it
0%
 0%  [ 0 ]
undecided, some of both, don't like the other responses
15%
 15%  [ 2 ]
I will consider it as one factor among many
84%
 84%  [ 11 ]
Total Votes : 13

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hocus
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PostPosted: Tue Jun 03, 2003 12:59 pm    Post subject: Reply with quote

I feel quite strongly on this point. This issue caused endless tail chasing at the other place.

You are right that this point caused endless tail-chasing. The way to put an end to the tail-chasing is to reach a consensus on the point. I also have strong feelings on this point, but my strong feeling is that it makes no sense to interpret the caveat "unless the future is worse than the past" as referring to the possibility of lower stocks returns.

There are three reasons why I believe this.

The first reason is the historical record. There were many discussions of the caveat prior to May 13, 2002, and it was not interpreted in the way you are suggesting in those references. The caveat was always understood to refer to the possibility of some unanticipated event taking place. The examples given were things like political instability or nuclear war, or the spread of some new disease.

The second reason is the logic of SWR analysis. The purpose is to inform decisions as to one's take-out number and one's allocation percentage. It makes sense to deal with such possibilities as poltical instability under a caveat since there is nothing much that an investor can do about these sorts of possibilities anyway. They are not the sort of thing that can be factored into an investment analysis, so it makes sense to deal with them in a caveat rather than as part of the analytical methodology.

The third reason is that to treat a change in stock returns as part of the caveat reduces the idea of SWR analysis to a nonsense concept. Treat it this way, and all the claims made based on an SWR analysis are tautologies.

Consider what is being said with the claim that a 4 percent withdrawal rate will work "unless the future is worse than the past" if the phrase "the future is worse than the past" is interpreted to refer to the possibility that stock returns may be less than in the past. In these circumstances, the claim cannot possibly fail to be true! Either returns will be what they were in the past, and the claims will be true, or they will not be what they were in the past, and the caveat will apply. Using this interpretation of the caveat, a SWR study can never be proven wrong under any circumstances. That is not science. That is nonsense.

A valid scientific claim must be subject to being disproven. The reality is that the claims made by those using the conventional methodology can be disproven; they already have been. The SWR in the year 2000 was not 4 percent. We all know this. But if you say that the caveat covers the possibility that returns may be less than the past, the caveat swallows the entire analysis.

You are not saying anything if you say only that "you will get this return unless you don't get this return." A valid study should say something. The purpose of the analysis is to give you some assessment of what sorts of returns you can reasonably expect, so the analysis must take some sort of stand on this question. The caveat must be interpreted in a way that requires the analysis to make some sort of claim as to future returns, and then the strength of that claim should be examined to determine whether the methodology being used is a good one or not.

The conventional methodology makes false claims re returns. It indicates that returns are stable in the face of changes in valuation levels, and this is not so. That is why the conventional methodology needs to be replaced.

If you interpret the caveat in such a way as to swallow the entire analysis, it is not possible to show the flaws of any possible methodology. There is no methodology that couid ever be developed of which it would not be true to say "you will either obtain the returns suggested by this methodology or you will not, one or the other will happen for sure."

To have value, a study must take a position on what sort of returns you can reasonably expect with a given allocation. If it does not do that, the study has not done anything of value. The conventional methodology does do that, but it does it wrongly. If you interpret the caveat in the way you are suggesting, it does not even do that. If you interpret the caveat in the way you are suggesting, SWR analysis is a big waste of everyone's time.


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JWR1945
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PostPosted: Tue Jun 03, 2003 1:03 pm    Post subject: Reply with quote

hocus
Quote:
There are three different percentage-of-safety assessments being thrown about in the discussion:

1) There is the percentage assessment that a particular take-out number is safe, according to whatever methodology is being used. This is where you often hear "100 percent safe" claims;

2) There is the chance that the caveat will apply and the future will be worse than the past. This is where you sometimes hear the 100 percent claim reduced to 95 percent (or some other number).; and

3) There is the level of confidence that people have in the analytical tool itself. Some are saying that they don't trust the SWR analytical process enough to assign 95 percent or 100 percent safety assessments any real significance, that it is all just rules of thumb anyway.

This is a really good list of distinctions. I know that I have been ambiguous in my own usage. Identifying this context should help a lot.

I have read #1 asserted elsewhere repeatedly and without any thinking behind it whatsoever. I interpret #2 along the lines of what William Bernstein has said. (If you say that you can guarantee 95% safety over 40 years, you are predicting a failure of our political and financial institutions only once in the next 800 years.) I interpret #3 as being the most commonly used description appropriate for any projection. It is here where we often see the words rule of thumb.

In any event these distinctions should help us talk about the same things.

Have fun.

John R.


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hocus
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PostPosted: Tue Jun 03, 2003 1:06 pm    Post subject: Reply with quote

I feel quite strongly on this point. This issue caused endless tail chasing at the other place.

You are right that this point caused endless tail-chasing. The way to put an end to the tail-chasing is to reach a consensus on the point. I also have strong feelings on this point, but my strong feeling is that it makes no sense to interpret the caveat "unless the future is worse than the past" as referring to the possibility of lower stocks returns.

There are three reasons why I believe this.

The first reason is the historical record. There were many discussions of the caveat prior to May 13, 2002, and it was not interpreted in the way you are suggesting in those references. The caveat was always understood to refer to the possibility of some unanticipated event taking place. The examples given were things like political instability or nuclear war, or the spread of some new disease.

The second is the logic of SWR analysis. The purpose is to inform decisions as to one's take-out number and one's allocation percentage. It makes sense to deal with such possibilities as poltical instability under a caveat since there is nothing much that an investor can do about these sorts of possibilities anyway. They are not the sort of thing that can be factored into an investment analysis, so it makes sense to deal with them in a caveat rather than as part of the analytical methodology.

The third reason is that to treat a change in stock returns as part of the caveat reduces the idea of SWR analysis to a nonsense concept. Treat it this way, and all the claims made based on an SWR analysis are tautologies.

Consider what is being said with the claim that a 4 percent withdrawal rate will work "unless the future is worse than the past" if the phrase "the future is worse than the past" is interpreted to refer to the possibility that stock returns may be less than in the past. In these circumstances, the claim cannot possibly fail to be true! Either returns will be what they were in the past, and the claims will be true, or they will not be what they were in the past, and the caveat will apply. Using this interpretation of the caveat, a SWR study can never be proven wrong under any circumstances. That is not science. That is nonsense.

A valid scientific claim must be subject to being disproven. The reality is that the claims made by those using the conventional methodology can be disprrven; they already have been. The SWR in the year 2000 was not 4 percent. We all know this. But if you say that the caveat covers the possibility that returns may be less than the past, the caveat swallows the entire analysis.

You are not saying anything if you say only that "you will get this return unless you don't get this return." A valid study should say something. The purpose of the analysis is to give you some assessment of what sorts of returns you can reasonably expect, so the analysis must take some sort of stand on this question. The caveat must be interpreted in a way that requires the analysis to make some sort of claim as to future returns, and then the strength of that claim should be examined to determine whether the methodology being used is a good one or not.

The conventional methodology makes false claims re returns. It indicates that returns are stable in the face of changes in valuation levels, and this is not so. That is why the conventional methodology needs to be replaced.

If you interpret the caveat in such a way as to swallow the entire analysis, it is not possible to show the flaws of any possible methodology. There is no methodology that couid ever be developed of which it would not be true to say "you will either obtain the returns suggested by this methodology or you will not, one or the other will happen for sure."

To have value, a study must take a position on what sort of returns you can reasonably expect with a given allocation. If it does not do that, the study has not done anything of value. The conventional methodology does do that, but it does it wrongly. If you interpret the caveat in the way you are suggesting, it does not even do that. If you interpret the caveat in the way you are suggesting, SWR analysis is a big waste of everyone's time.


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JWR1945
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PostPosted: Tue Jun 03, 2003 2:48 pm    Post subject: Reply with quote

I have seen this form the basis behind many semantics games. They have been used against hocus frequently (elsewhere):

The third reason is that to treat a change in stock returns as part of the caveat reduces the idea of SWR analysis to a nonsense concept. Treat it this way, and all the claims made based on an SWR analysis are tautologies.

It is an ultimate retreat into triviality. It has been used often, whenever the substance of an argument has been shown to be false. The caveat is repeated later in the hope of catching readers unaware.

Have fun.

John R.


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BenSolar
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PostPosted: Tue Jun 03, 2003 6:30 pm    Post subject: Reply with quote

hocus wrote:
The third reason is that to treat a change in stock returns as part of the caveat reduces the idea of SWR analysis to a nonsense concept. Treat it this way, and all the claims made based on an SWR analysis are tautologies.


I disagree. The historical record does include some remarkably dismal returns sequences. I think that before the recent extended debate many did believe that it would take something like a repeat of the Depression, or a huge disaster of some sort to break the historic low returns. The consequences of the level of overvaluation in 2000 were very poorly understood by most people. Even those who had spent a lot of time studying investing. I certainly had no clue Confused, and while I wasn't a PhD in financial theory, I'd read a quite a few books, articles, etc ... .

It was 'common knowledge' in 2000 that you could expect 12% annually from the S&P 500 if you held for the long term. It takes a long time for that level of indoctrination to be scrubbed off. Due to the incessant hammering we gave them at the REHP on the valuation subject, now most there admit that the valuations in 2000 raised a serious threat to the historic SWR.

Now, some people did hide behind the triviality that the historic SWR is right by definition. That is a debating technique that cannot be defeated by changing the meaning of a phrase, IMO. It is too self-evident to too many people that stock market returns worse than those seen in the Depression is a future worse than the past. When you deny that that is true, it just seems unnecessarily combative and stubborn. If some wish to hide behind triviality, then pointing out that the valuations of the recent bubble were outside the historic record and that valuations affect returns, so returns from those valuations may well be outside the historic record should protect innocent onlookers.

Finally I want to clarify that I didn't mean to imply that this was the only or main source of confusion and tail chasing over there. Far from it. Wink

Regards,
Ben



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hocus
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PostPosted: Wed Jun 04, 2003 1:24 am    Post subject: Reply with quote

Some people did hide behind the triviality that the historic SWR is right by definition. That is a debating technique that cannot be defeated by changing the meaning of a phrase, IMO. It is too self-evident to too many people that stock market returns worse than those seen in the Depression is a future worse than the past. When you deny that that is true, it just seems unnecessarily combative and stubborn.

You did a good job of placing the point in context, BenSolar. I don't want to come off as combative and stubborn. So, if there is a way to finesse this one, I am game.

I don't care one way or another if some future FIRE historian writes in his little book that the caveat covered the possibiliy of future returns being worse than past returns or not. The semantics point just doesn't matter. My focus is on having us reach a consensus that the conventional merthodology is invalid. My concern with going along with the idea the caveat covers the possibility of future returns being worse than past returns is that someone will say that that shows that there is really nothing wrong with the fact that the conventional methodology generates unreasonable SWRs, that we should expect it to generate unreasonable SWRs when circumstances come into play when future returns are likely to be less than returns experienced in the past. If we have a consensus that that is not a good argument in defense of the conventional methodology, then I see no need to settle this question of what is really covered by the caveat.

One other concern I have is that, if people give the expansive intepretation to the caveat that you propose, there may be a good number of circumstances in which the caveat comes into play under the conventional methodology. The conventional methodology assessed the probabilities of various returns possibilities in a fundamentally flawed way, so the caveat is probably going to kick in more than 5 percent of the time. I don't think it is fair to blame the SWR analytical tool for that. It is the fault of one particular methodology, not of the tool itself. A valid methodology would do a better job of assessing the probabilities of various future returns possibilities, and would not so often produce SWR numbers that ended up causing busted retirements.

The key point can be illustrated by expanding our tramboline scenario. The tramboline manufacturer tells you that "we have done safety assessments, and we provide a 100 percent guarantee that this product will not collapse when used by body weights of up to 100 pounds." You are impressed, and pull out your credit card. When you get home, you read the actual language of the guarantee, and you see there is a caveat that states that: "The guarantee does not apply in the event that the tramboline collapses when used by someone with a body weight of less than 100 pounds. That is an event worse than any that turned up in our safety assessment, so we of course cannot extend the guarantee to that sort of situation."

A valid stock investing safety assessment must take a position on returns expectations. The problem with the conentional methodology is that it says something wrong about them. It says (implicitly) that changes in valuation levels do not affect returns expectations, and this is not so. The future may be worse than the past in regard to returns, but if it is worse because of something that should have been taken into account by the study methodology, it is fair to fault the methodology for generating a poor risk assessment.

The practical truth of the matter is that the people who designed and used the conventional methodology were not aware that changes in valuation levels had such an important effect. If they had intended for this effect to be covered by the caveat, they would have made note that the caveat kicked in on the day when valuations went higher than they had ever been in the 130 years for which data was examined.

Once valuation levels exceeded those levels, the future was already worse than the past. The bad returns that may play out in days to come are a function of the higher valuation levels; there is no terrible event that needs to take place in the future (like political instability or another depression) to cause such bad returns. It is not reasonable to expect the same level of returns starting from the valuation level we were at in the year 2000 as we experienced starting from the various valuation levels examined in the existing studies.

If the matter had been thought through and the caveat had been deliberately designed to cover the possibility of lower future returns, the people who designed and used the conventional methodology would have warned us of the higher levels of risk associated with stock investing that kicked in during the late 1990s. We didn't hear such warnings. That suggests strongly that the people who designed and used the existing studies just weren't aware that changes in valuation levels was so critical a factor to assessing safety.

They didn't recommend risky stock allocations on purpose. It was a mistake. But now that we are aware of the mistake, there is no reason to favor the idea of the issusance of yet further studies that perpetuate the mistake. We should favor a revision of the methodology, to have the analytical tool reflect what we know today about the realities of safe withdrawal rates.


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PostPosted: Wed Jun 04, 2003 2:33 am    Post subject: Reply with quote

hocus wrote:
The practical truth of the matter is that the people who designed and used the conventional methodology were not aware that changes in valuation levels had such an important effect. If they had intended for this effect to be covered by the caveat, they would have made note that the caveat kicked in on the day when valuations went higher than they had ever been in the 130 years for which data was examined.

Once valuation levels exceeded those levels, the future was already worse than the past. The bad returns that may play out in days to come are a function of the higher valuation levels; there is no terrible event that needs to take place in the future (like political instability or another depression) to cause such bad returns.
...
They didn't recommend risky stock allocations on purpose. It was a mistake. But now that we are aware of the mistake, there is no reason to favor the idea of the issusance of yet further studies that perpetuate the mistake. We should favor a revision of the methodology, to have the analytical tool reflect what we know today about the realities of safe withdrawal rates.


I agree 100%. Very Happy

In fact, I bet that the NFB community is largely in agreement. Let's do a poll Exclamation

B.



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JWR1945
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PostPosted: Wed Jun 04, 2003 4:46 am    Post subject: Reply with quote

BenSolar
Quote:
I agree 100%.

I agree as well.

Have fun.

John R.


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ataloss
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PostPosted: Wed Jun 04, 2003 10:01 am    Post subject: Reply with quote

Thanks JWR1945, I am burdened by having read the book a year ago. Your Bernstein quote doesn't really seem to support what hocus was saying does it?

There are three different percentage-of-safety assessments being thrown about in the discussion:

1) There is the percentage assessment that a particular take-out number is safe........
2) There is the chance that the caveat will apply and the future will be worse than the past.
3) There is the level of confidence that people have in the analytical tool itself.

My problem with all of these is that they are unknown and unknowable but people use percentages loosely on a scale that isn't evident to me. I guess this will work= 75%; will certainly work =95%?

Real percentage success rates can be derived from historical studies like
4) Trinity or
5) Monte Carlo analysis.
I think there is some tendency to blindly apply these numbers to the future. If someone said that per Trinity a 3% withdrawal rate would be 100% safe as applied to the future, they were wrong. If someone is going to use Monte Carlo analysis I think they need to be careful not to claim that a given result will be 95% safe. Both results depend critically on assumptions. I think we need to recognize that we really don't know the future probability of success. This talk about a "data based" objective "tool" that will give a unambiguous answer to the SWR question concerns me since it doesn't exist and isn't logically possible. I don't think the solution to the limitations of historical analysis lies in making unsupportable claims about Monte Carlo results.


Changes in valuation are implicit in the study.
Quote:
This is the source of our disagreement, ataloss. I am saying that changes in valuation levels are not factored into the analysis when it is done using the conventional methodology.

The reality is that the SWR changes each time the price level of the DOW changes. When the DOW goes up, the SWR for someone retiring at that moment goes down. When the DOW goes down, the SWR for someone retiring at that moment goes up. The conventional methodology indicates that the SWR is stable in the face of changes in valuation levels. I am saying that this is a fundamental flaw in the conventional methodology.


In fact, the swr is based on the worst case scenario. This does not change on a daily basis. The maximal withdrawal rate (which is unknowable) varies day to day based on the market. Valuation is an obvious concern.
This is why (I think) Bernstein says historical analysis can "sometimes be misleading." He does not say that it is wrong since it hasn't been proved wrong.
Quote:
A valid scientific claim must be subject to being disproven. The reality is that the claims made by those using the conventional methodology can be disproven; they already have been. The SWR in the year 2000 was not 4 percent. We all know this. But if you say that the caveat covers the possibility that returns may be less than the past, the caveat swallows the entire analysis


I am not sure if you are still basing this on Bernstein. His estimate of 2% is based on another methodology and assumptions which may or may not be correct. I understand why you would prefer Bernstein's estimate but to say that 4% is disproven is simply wrong. I think that there is an important distinction between saying that something is wrong and preferring another means of making an estimate.


Quote:
The third reason is that to treat a change in stock returns as part of the caveat reduces the idea of SWR analysis to a nonsense concept. Treat it this way, and all the claims made based on an SWR analysis are tautologies.

Consider what is being said with the claim that a 4 percent withdrawal rate will work "unless the future is worse than the past" if the phrase "the future is worse than the past" is interpreted to refer to the possibility that stock returns may be less than in the past. In these circumstances, the claim cannot possibly fail to be true! Either returns will be what they were in the past, and the claims will be true, or they will not be what they were in the past, and the caveat will apply. Using this interpretation of the caveat, a SWR study can never be proven wrong under any circumstances. That is not science. That is nonsense.


Hocus you have confused returns and swr. If real future investment returns are lower then swr will be lower (unless volatility diminishes.)
If A then B.


Quote:

The first reason is the historical record. There were many discussions of the caveat prior to May 13, 2002, and it was not interpreted in the way you are suggesting in those references. The caveat was always understood to refer to the possibility of some unanticipated event taking place. The examples given were things like political instability or nuclear war, or the spread of some new disease.


I am sorry that you misunderstood the limitations of historical swr analysis. I understand that you feel that a proponent of this approach also misunderstood or misled you. It has always been obvious to me that swr analysis was likely critically dependent on stock returns remaining in the historical range. Is anyone really interested in these old misunderstandings?



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PostPosted: Wed Jun 04, 2003 5:14 pm    Post subject: Reply with quote

I submit this statement as proof positive of my assertion that KenM is light years ahead of many. IMHO, he is light years ahead of most.

I blush suitably Embarassed

But this is the advantage of the internet - the anonimity to ask stupid questions - and the ability to find somewhere like NFB where people have the patience and interest to debate, advise and answer my questions.

Another factor is that I stop work next year and as Samuel Johnson is supposed to have said
Quote:
Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.

If I don't chop through all the theoretical SWR verbiage Smile to produce my own practical, pragmatic retirement income strategy by the end of this year, then obviously I'm going to regret it later.



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PostPosted: Wed Jun 04, 2003 8:14 pm    Post subject: Reply with quote

hocus
You write so much that I think it's probably easy to catch you out on some of your statements so I'm not trying to be unfair but I can't agree with some of what you say:-

We now know that the number produced by the conventional methodology will in many circumstances not work if the future is like the past. - The SWR in the year 2000 was not 4 percent. We all know this
If the future is like the past then it must work. We don't know that the 2000 SWR is not 4%, there is still a possibility that it may be 4% for the particular period starring 2000 - if 2000 valuations can be above the historic values then why can't, for example, future volatilities be less than historic? If so, then 4% may still be achievable even though commonsense says it may be unwise to rely on it, who can predict?

The Trinity study methodology does not take into account how the SWR changes with changes in valuation levels - I am saying that changes in valuation levels are not factored into the analysis when it is done using the conventional methodology - The conventional methodology makes false claims re returns. It indicates that returns are stable in the face of changes in valuation levels, and this is not so.
Sorry - can't agree. See ataloss's comments.

Consider what is being said with the claim that a 4 percent withdrawal rate will work "unless the future is worse than the past" if the phrase "the future is worse than the past" is interpreted to refer to the possibility that stock returns may be less than in the past. In these circumstances, the claim cannot possibly fail to be true! Either returns will be what they were in the past, and the claims will be true, or they will not be what they were in the past, and the caveat will apply. Using this interpretation of the caveat, a SWR study can never be proven wrong under any circumstances. That is not science. That is nonsense.
Sorry, but to me that is science and it's not nonsense - and even if you come up with your own model I suggest you're going to have to use the same caveat - it's impossible to predict the future except to attempt to indicate a range of probabities/possibilities. To me, it is easy to visualise that, for example, stock returns could be negative for 20 years (look at Japan) or that future volatility may be outside the historical range (instant internet information, cheap trading costs, etc). I don't have to rely on asteroids etc to think about situations worse than the past.

My focus is on having us reach a consensus that the conventional methodology is invalid. The practical truth of the matter is that the people who designed and used the conventional methodology were not aware that changes in valuation levels had such an important effect. If they had intended for this effect to be covered by the caveat, they would have made note that the caveat kicked in on the day when valuations went higher than they had ever been in the 130 years for which data was examined.
The methodologies including Trinity et al, with the accompanying caveats are valid IMO - however I'm not qualified to comment on how the results may have been misused in arguments/debates/etc by some people. It would not make sense to list out all the variables such as valuations, volatility, annual returns etc requiring a caveat.

Possibilities that I cannot evaluate well enough to include in a valid study methodology are probably not going to influence my investment decisions much anyway.
Sorry, but can't agree. There are many possibilities I can't properly evaluate to include in an SWR analysis but that would definitely influence my decisions. That's why, for me, there is no way to predict one true future SWR.

The goal should be to produce the most objective measure of the SWR possible. In essence, the analytical technique is not a rule of thumb. It aims at scientific accuracy. It fails to achieve this goal only because we do not possess access to perfect knowledge of what affects the result and we do not possess perfect data on the factors that we know do so. But methodology questions should still be addressed in such a way as to reflect the purpose of the tool, which is to provide an objective assessment of risk.
Fully agree Smile.....
The time for incorporating subjectivity into the process is at the application stage, not the calculation stage.
...but, sorry, can't agree. The data is not sufficient at the calculation stage....but then fully agree with the following again Smile
We cannot make the tool a perfectly objective assessment of risk factors because we do not possess access to all the data needed to do so. But why not make it as objective as it can be, based on what we know today about the realities of SWRs and on what data is available to us to do so?

But if you do try to produce a methodology by building in and combining all the possible worst case scenarios arising from high valuations, demographics, longer runs of negative returns than historic, greater volativity than historic, etc, etc then the SWR is going to be so low, so conservative and so pessimistic that it would be useless - for me anyway.



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PostPosted: Wed Jun 04, 2003 8:53 pm    Post subject: Reply with quote

Quote:
Thanks JWR1945, I am burdened by having read the book a year ago.


I am in this same boat. I started reading it again tonight so I can participate in these discussions. I found the first few pages as wonderful as I remembered.

Anyone who has not read this book really should check it out of the library and read it.



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PostPosted: Thu Jun 05, 2003 12:50 am    Post subject: Reply with quote

Although I promised myself I wouldn't, I really have to jump in and play in your sandbox :^)

About the Trinity Study:
It shows what would have happened had you invested this way or that, in the past.
It doesn't make any claims about the future.
How can it possibly be "invalid"? (Unless, of course, their data was invalid.)

Are these also "invalid" studies?
http://home.golden.net/~pjponzo/sensible-1.gif
http://home.golden.net/~pjponzo/Losses-SPa.gif

About Historical Data and "the Future is like the Past":
I love to use historical returns. I think they should give a good (not perfect!) estimate of the future.
However, I prefer to use these returns NOT in the order in which they occurred (as in the Trinity Study).
I find it more instructive to use them in random order
(avoiding arguments about whether it's more appropriate to consider lognormal or normal distributions):
http://home.golden.net/~pjponzo/Min_Max_SP500.gif

About Monte Carlo and "current valuations":
Monte Carlo requires that you stick in some numbers (like Mean Returns, Volatility, etc.).
You incorporate "current valuations" by changing these inputs, no?
Everybuddy will have their own ideas concerning appropriate inputs.
Is that what we're debating?

About "Safe" withdrawal rates:
I can't believe that anybuddy would argue that some SWR is "95% safe", proceeding into an unknowable future**
Perhaps the best we can do is quote what I call the Monte Carlo Probability.
Given the inputs to the MC simulations (the return distribution, inflation, initial withdrawal rate, etc.), the MC Probability pops out.
How one uses this number (or "these" numbers, since presumably one would do lots of simulations) depends upon your genetic configuration.

** However, I'd love to make such a claim and stick around for another 20 years and be able to say to somebuddy whose portfolio just dropped to $0: "See? I was right! Alas, you just got that last 5%"


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WiseNLucky
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Joined: 26 Nov 2002
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Location: Florida

PostPosted: Thu Jun 05, 2003 3:04 am    Post subject: Reply with quote

gummy wrote:
Quote:
Although I promised myself I wouldn't, I really have to jump in and play in your sandbox :^)


I don't care what the others think. You are permitted to play in our sandbox anytime you want. Cool

Can you recommend a refresher math book for self study? It is now a long time since my college calculus. I recognize the terms but do not remember what they mean.

I know that understanding the math is not necessary to investing (a BIC approach will work), but I would like to understand for sake of discussion. And so I will be welcome in the sandbox too. Very Happy



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ElSupremo
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Joined: 21 Nov 2002
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Location: Cincinnati, Ohio

PostPosted: Thu Jun 05, 2003 3:33 am    Post subject: Reply with quote

Greetings gummy Smile
Quote:
Although I promised myself I wouldn't, I really have to jump in and play in your sandbox


I fail to understand why you wouldn't want to play in our sandbox. Confused Has someone kicked sand in your face? Wink Besides, it's MY sandbox and you are MORE than welcome! So is everyone else as long as they can play nice! Smile

If you have any issues here gummy I'd love to hear from you! Any suggestions for the good of our boards are always appreciated.



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raddr
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PostPosted: Thu Jun 05, 2003 3:52 am    Post subject: Reply with quote

gummy wrote:


About Historical Data and "the Future is like the Past":
I love to use historical returns. I think they should give a good (not perfect!) estimate of the future.
However, I prefer to use these returns NOT in the order in which they occurred (as in the Trinity Study).
I find it more instructive to use them in random order


Hi gummy,

I agree! You might be interested in this sequencing exercise I did awhile back: http://nofeeboards.com/boards/viewtopic.php?t=119

Just swapping two of the last 130 years can make a big difference in the SWR. Shocked


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wanderer
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PostPosted: Thu Jun 05, 2003 4:07 am    Post subject: Reply with quote

I can't believe that anybuddy would argue that some SWR is "95% safe", proceeding into an unknowable future

I'm in a quandry, gummy. If I provide chapter and verse, I am engaging in "game-playing" (right?). But you just made a statement you know is untrue because you know that someone did assert that fact quite confidently. Because I referenced the post in which he did it. Right? Or did you miss that reference?

In fact, that "argument" was repeated hundreds of times by molto individuals.



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[KenM]
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PostPosted: Thu Jun 05, 2003 4:17 am    Post subject: Reply with quote

Quote:
How one uses this number ........ depends upon your genetic configuration.


.....now that would be an interesting investigation Smile



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gummy
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PostPosted: Thu Jun 05, 2003 5:45 am    Post subject: Reply with quote

Quote:
Although I promised myself I wouldn't, I really have to jump in and play in your sandbox

Quote:
I fail to understand why you wouldn't want to play in our sandbox.

Actually, this is the most interesting discussion I've read in a long time.
However, although I enjoy READING the posts, I don't enjoy participating until I know what the discussion is about.
In particular, are we talking about a "safe" withdrawal rate calculation for:
[1] the person who's just retired? If so, is it to be some fixed SWR (until he drops dead)?
[2] Is it for the person who's planning to retire in 30 years (and contributing monthly to her portfolio)? If so, is she supposed to reevaluate periodically and readjust her investments in light of a newly calculated SWR?
[3] Are we looking for a "method of calculation" (for either/both [1]/[2]) or are we looking for a definition of "safe" or are we looking for a "current" SWR calculation or ... ***
Quote:
I can't believe that anybuddy would argue that some SWR is "95% safe", proceeding into an unknowable future

Uh ... it was about 3 am (locally) when I wrote that. What I should have said (had I been wide awake) was:
I don't understand why anybuddy would argue that some SWR is "95% safe" ...
Quote:
Can you recommend a refresher math book for self study?

There's one here:
http://home.golden.net/~pjponzo/Calculus.htm
You may recognize the format:
a prof and a student who asks ^$%#@!? questions :^)

P.S.
*** I recall telling ataloss:
I'm amused when I overhear discussions (in a restaurant, for example) like:
"It's clearly a case of avita-gargoyle"
"It most certainly is NOT. It's more certo-mosivich"

I feel like asking the participants to define "avita-gargoyle" and "certo-mosivich", feeling that, if they could, the definitions themselves would settle the issue. Very Happy


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ataloss
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PostPosted: Thu Jun 05, 2003 5:52 am    Post subject: Reply with quote

I can't believe that anybuddy would argue that some SWR is "95% safe", proceeding into an unknowable future

I'm in a quandry, gummy. If I provide chapter and verse, I am engaging in "game-playing" (right?). But you just made a statement you know is untrue because you know that someone did assert that fact quite confidently. Because I referenced the post in which he did it. Right? Or did you miss that reference?

In fact, that "argument" was repeated hundreds of times by molto individuals.

Unbelievable things happen sometimes. I couldn't believe that someone would suggest that real estate was a lousy investment based on capital appreciation while ignoring rent. It happened. I think it is sufficient if we agree that if someone said "you will be 100% safe" if you follow this swr, they were wrong. People that went through hazing at another board and were accused of being mentally ill have understandable negative feeling about that place and/or its founder.

Since I am skeptical by nature I knew the historical swr might not work and I may have tended to dismiss and overlook remarks to the contrary.



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