June 27, 2006 Short Posts
Updated: September 17, 2006.
Special Note about Mean Reversion
Rob Bennett has made an important discovery. Mean Reversion occurs faster when you adjust for valuations.
Special Note about Mean Reversion
Rob Bennett's Mean Reversion Discovery
No New Discovery This Time
Normally, I specify a single withdrawal rate. Then I see what happens to portfolio balances. This time, I looked at what happens when you withdraw at each portfolio’s Historical Surviving Withdrawal Rate. I was hoping to find something useful, something to tell us when everything is going OK.
I was hoping to find something new. I didn’t.
No New Discovery This Time
Looking a Little Bit Harder
Recently, I reported that I made No New Discovery This Time. This time, I dug a little bit deeper. There is a story to tell after all.
Looking a Little Bit Harder
Time and the Gordon Model
The Gordon Model makes its best predictions 5, 10 and 15 years into the future. It does not do as well at 20 and 30 years.
Time and the Gordon Model
Edited: Orders of Magnitude
The rebalancing bonus exists because of a misleading definition. It is an illusion. Very often, rebalancing lowers returns.
Returns from individual market slices add or subtract 2% to 3% from the market as a whole.
Variations caused by valuations are huge. At today’s prices, with P/E10=26, the most likely (real) return ten years from now is 1.3%. At historically typical prices, with P/E10=14, the most likely return after ten years is 6.3%. At bargain levels, but well above market bottoms, with P/E10=8, the most likely return after ten years is 14.5%.
Edited: Orders of Magnitude
Orders of Magnitude
Using Stock Return Predictions
According to the Stock-Return Predictor, the most likely return of stocks will be 1.3% (plus inflation) ten years from now. Today’s TIPS yield 2.5% (plus inflation).
Does this mean that we should invest entirely in TIPS?
No. Not necessarily.
Using Stock Return Predictions
Eye Opening Calculations with Compact CVTVR L
I have placed Compact Calculator CVTVR L into my Yahoo Briefcase. It is great for long-term planning.
Here are some examples of what it can do.
Eye Opening Calculations with Compact CVTVR L
New Standards for Financial Reporting
During my professional career, I was never allowed to get away without doing the following. Why do we allow "financial experts" to get away with anything less?
This is based on my “It’s about time...” series of notes.
New Standards for Financial Reporting
Tobin q Errors
This is the next step following my survey using Tobin’s q. It identifies the most important findings.
Tobin q Errors
Tobin q Backup Material
Turning Points
History verifies that the stock market rises higher than expected and falls lower than expected. Our investigations of Tobin’s q and stock market returns tell us more. They tell us about the turning points.
Turning Points
A Helpful Theorem
To calculate withdrawal rates for various final balances, it is sufficient to know the withdrawal rates for final balances of zero and 100% of the initial balance. Rates for intermediate balances maintain the same proportions.
I have incorporated these findings into Super Variable Terminal Value Rate SVTVR calculator L. It is a simplified version of SVTVR K.
A Helpful Theorem
Why Dividends Are Better
If you just looked at Gummy’s (Professor Peter Ponzo) Safe Withdrawal Rate formula, you would have no idea that withdrawing dividends is better than harvesting capital gains. It is.
What happens is that the statistical distribution CHANGES when there are dividends.
Why Dividends Are Better
Dividends versus Capital Appreciation
Which is more important to retirees? Dividends or capital appreciation? Or does it make a difference?
Answer: Dividends. They are much more reliable.
Dividends versus Capital Appreciation
Edited: E10 or D10?
Professor Robert Shiller’s P/E10 does a great job when calculating Safe Withdrawal Rates. Sometimes, using dividends (P/D10) is even better.
Edited: E10 or D10?
E10 or D10?
Type 2A Bull Bear Retirement Trainer
I am continuing to improve my Type 2 Bull Bear Retirement Trainer. It does a great job in Bear Markets. It doesn’t do a good job in Bull Markets. It fails to reach high valuations.
I examined a variety of alternatives. The simplest solution is best. Don’t use separate Bull Market equations. Use the standard (Neutral Market) equations except during Bear Markets.
Type 2A Bull Bear Retirement Trainer
Retirement Planning Insights
Here are insights for retirement planning, both before and after retirement.
Retirement Planning Insights
Older Short Posts
SWR Success, Extracting Information, What Do I Really Think About Dividends?, Allocate 25%, What If There Is A Bubble?, Volatility and Your Timeframe, Dividend Growth Sensitivity Study, Three Powerful Advantages of Dividend Strategies, May 2006 Highlights, Investment Traps, Why People Ignore Valuations, Edited: Idiot Switching, Typical Values of P/E10
February 6, 2006 Short Posts
September 27, 2005 Short Posts
September 27, 2005 Short Posts
Pre-September 27, 2005 Short Posts
Pre-September 27, 2005 Short Posts