I just think we are about as far apart as any two can be in their view of how to plan and make investment decisions. In response to your comments:
A) If historical data is not a reliable guide to the future, because we don't have enough data or because conditions have changed, bootstrapping does not solve the problem. Bootstrapping generally assumes a stable underlying population distribution, which is far from clear. Perhaps you can explain how bootsrap simulation eliminate many of these concerns.
B) This thread is a discussion of the 4% rule, which I regard as "a general rule of thumb based on historical data that's not sufficient to be a reliable predictor of the future."
You objected to that remark, citing 85 years of data and MC simulations. I pointed out their lack of reliability. Your respond in part that the "future that will always be uncertain and unpredictable." Why then are you disagreeing that 4% is a general rule of thumb based on historical data that's not sufficient to be a reliable predictor of the future?
C) They remind me of the old story about the man searching for his keys at night near a lamppost. When questioned as to exactly where the key was lost, he indicated that it was lost elsewhere but that he was searching under the lamppost because the light was better there. We use historical analysis, etc. because the light seems better, but shouldn't fool ourselves that they bring us much closer to finding the keys.
D) If I might respond to your question to Wade, I've frequently said that conditions change, making historical data much less useful. Among other things, we know the past, the world seems safer, we have investment vehicles that didn't exist, tax and other laws have changed, we have modern central banks, technology has made dramatic changes, etc., etc.
Consider some old rules. For example, it used to be said that stock dividends were higher than bond yields because stocks were riskier, so never buy stocks if dividends are lower than interest rates. This was true until about 50 years ago. If you sold at that point, you'd miss a rather long period during which stocks outperformed. Conditions changed.
At best, we have no way of knowing whether conditions are sufficiently similar. At worst, they are meaningfully different. We just don't know. Unreliable guidance may be the best we can do, but we have to be especially mindful, including in light of the psychological issues associated with anchoring (http://en.wikipedia.org/wiki/Anchoring
Much of statistics is based on taking a random sample from an unchanging underlying population. Here, we don't necessarily have either a random sample or an unchanging underlying population.
A) I didn't say history was a perfect
guide to the future, or that the return we have are a perfect
predictor of future returns. You took issue with the lack of enough independent time series using 85 years of historical data
, so I told you that one could run a bootstrap MC simulation to create a large # of independent samples from a limited amount of data. Of course, there are flaws with bootstrapping as well, it doesn't account for volatility clustering (but the ARCH/GARCH line of research has attempted to account for this and it doesn't change the outputs much), nor does it take into account any mean-reversion or momentum in the data, which would improve the outcomes. And it doesn't predict future distributions of returns that may differ from the past, but if historical data does show kurtosis and slight skewness, it would be in the bootstrap simulations.
Anyway, I don't really care about most of this as the most important take away is you can model all different approaches and a reasonable 90% confidence interval of all the outcomes basically overlaps. This doesn't tell us what will happen in the future, again, it simply gives us a baseline or foundation (and a strong one at that) for which to make decisions about the future and evaluate and update those decisions as time goes by.
B) I take issue with my perception
that you use the word "reliable" to mean 'all but guaranteed' or 'a sure thing', which is how your comments come across. I agree with you that no model, theory, or historical perspective is perfect by itself or when combined. I disagree that we are basically guessing and don't know much about what could happen or what the future may look like. I think we have a strong understanding of how things should work, as well as a pretty solid +/- interval around those results. If you've read anything I've written here, I urge plans be based on balance and flexibility as well as a sense of history. You have to start somewhere, and everything I mentioned gives you at least a few steps ahead of the starting line. I still want to know what the alternatives are? How do you invest/plan in a world where "you don't know nuttin?"
C) Yes, when we aren't willing to put some shred of faith in the past or analytical models or highly scrutinized capital market theories on risk/return, we resort to fables, conspiracies, and mental short-cuts. That the market continues to march on, recovering from the worst we throw at it, producing recent returns that look like they belong in the same ballpark (if not the same dugout) with the history that everyone wants to do away with no doubt infuriates the "Cult of Pessimists". Financial markets are not some delicate flower that need perfect economic conditions to grow, wilting under the first sign of trouble as the cultists would have you believe. They are a solid foundation and a permanent element that links human interaction and ensures that capital flows to its most productive use and that capitalists can depend on for a return on that capital. Nothing is assured, but to not stand back and marvel at how the system works despite all is flaws is a defeatist view at its finest. And to not incorporate anything about what we've come to learn and observe from it's history is downright dangerous and threading to one's wealth.
D) And I think this comment gets to the heart of your misunderstanding about markets. You've pointed out a number of random and pointless characteristics
of how markets have evolved over time, you could have told us a story about once being carried around by horse-driven cart compared to hybrid auto today as a sufficient circumstance to disregard the past. It is here I understand that you don't know how to apply history
. You are looking for absolutes, guarantees, an assuredly predictable future that looks like the past before you will make any decisions or "bless" it with your approval for future application. And you take random observations that have little or no impact on prices or future outcomes to indicate some kind of signal when it is just noise. And your historical overview of markets is completely void of any appreciation of basic risk/return tendencies that ultimately drive returns (stock/bond yields instead of beta; the lack of historical investment vehicles despite their representing just commingled funds to own the securities that were frequently traded as individual holdings by investors leading us to the same conclusions; behavioral biases that have always been with us and have never been proven to alter market behavior let alone indicate something exploitable).
I've said all I can on the subject. We know more than we don't, you'd be a fool not to use history, statistical tools, and the application of sound financial theory to your investment decisions while always preserving an element of flexibility for when the unexpected occurs.