Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Uh oh, Rob. Bill Bengen points out the research and data that says you are wrong and that VII is a failure:
“I have not studied in great detail the correlation between Shiller CAPE and withdrawal rate. However, Michael Kitces, a celebrated financial planner who has also done some important research in the area of withdrawal rates, produced an interesting chart some years ago. It showed a strong negative correlation between CAPE and each year’s safe withdrawal rates. So, I am not surprised at the conclusion that Wade reached, although I believe he may have been the first to quantify the “boost” to SAFEMAX by using a timing strategy.
However, for those who wait for a low enough CAPE to invest fully in stocks, it has been a frustrating 25 years, as CAPE has been below its average of about 16 only about 25% of the time during that span (if that much). Today, of course, CAPE stands at more than twice its long-term average. It will be interesting to see if it does indeed “mean revert”, and even drop below its long term average. The only time that has happened in the last 25 years was for a few weeks in 2009. ”
That last paragraph is power-packed stuff, Anonymous. I am grateful to you for sharing it with us.
The claim that the last 25 years have been “frustrating” for Valuation-Informed Indexers is true only from the perspective of a Buy-and-Holder. Yes, if we have missed out on gains, then it could be viewed as frustrating. But the entire question in dispute is the question he puts on the table two sentences later when he questions whether prices will eventually mean revert or even drop below their long-term average. If that happens, the math shows that the Valuation-Informed Indexers will be far, far ahead of the Buy-and-Holders, too far ahead for the Buy-and-Holders to entertain any realistic expectations of ever catching up.
Do I believe that prices are going to mean revert? 100 percent. I have never been more sure of anything in my life. Could I be wrong? 100 percent. I am one of those darn humans. We get them wrong all the time. All of us do. That includes me.
We should be having a national debate re these questions, Anonymous. I can believe that Bengen truly believes that prices are NOT going to mean-revert. I think that he would pass a lie detector test on that question. But I know that I would fail a lie detector test if I said that I believe that we are not going to mean-revert. I am going to continue to post honestly. I am going to continue to say that I believe that prices are going to mean-revert and that Valuation-Informed Indexing is going to show itself superior to Buy-and-Hold one more time, just as it has been doing for 150 years of U.S. stock market history now.
I don’t think that Michael Kitces shares my views 100 percent. But I don’t think that Micheal Kitces shares Bill Bengens’s views 100 percent either.
I don’t believe that Wade Pfau shares my views 100 percent. But I don’t think that Wade Pfau shares Bill Bengens views 100 percent either.
I don’t believe that Robert Shiller shares my views 100 percent. But I don’t think that Robert Shiller shares Bill Bengens views 100 percent either.
Each of these people should be sharing his views precisely as he holds them. That’s how we learn together over time. For that learning together process to work, we all need to speak out in clear and firm and uncompromising terms re the financial fraud stuff. No death threats. Not ever again. No demands for unjustified board bannings. Not ever again. No thousands of acts of defamation. Not ever again. No threats to get academic researchers fired from their jobs. Not ever again. Re that one, there should be 100 percent unity.
This is my sincere take re these terribly important matters, in any event.
My best and warmest wishes to you and yours, old friend.