Robert Keyfitz

Value, contrarian
Robert Keyfitz
Value, contrarian
Contributor since: 2012
Ted: It sounds like our financial and marital situations are about the same. I guess we both lived within our means and married well.
I suspect many people agree with you and Robert Griffin (III?). The data show that in the fashionable end of the wealth distribution many retirees continue to accumulate assets right to the end. Meanwhile, those at the bottom are likely cash constrained and spend every dollar as soon as they get it. Alas, nobody optimizes which is discouraging for an economist as you can imagine!
My point all along has been not that you're doing anything wrong, but that many people who would make the same argument just haven't thought about it for one reason or another. That may or may not apply to you. Not to get too personal, but in the past few years some close family members have passed away after leading full and rich lives. I should be so lucky. But from my perspective (and in some cases even from theirs), the last year or two of their lives didn't add much to the value of their time on earth or the sum total of their lifetime happiness. This experience with death (so to speak) has given me a new perspective and moved preserving capital down in my list of priorities. Not only is the payoff to longevity far in the future, but I suspect for many people it will be less than they anticipate.
Ted: Risk certainly adds another dimension. But:
(1) Why concern yourself with only some risks and disregard others? You're extremely risk averse about running out of money while you still have time, but dismissive of running out of time while you still have money. That's equally a risk and there's a tradeoff. You could spend more now which would bring enjoyment (fly business class when you visit your kids in San Francisco) but you might not have the money for an operation to prolong your decrepitude in a nursing home in your 90s. Or you might not even live that long. Are you sure you're in the right place with a zero drawdown?
(2) It's true you may face a bear market at an inconvenient time. But don't forget your Monte Carlo analysis will show that if annual returns are normally distributed (approximately true) then your future net worth is lognormal and its expected value rises with the volatility in annual returns. I.e. you have an expectation that risk will work in your favor, not against you. Besides, if you plan on drawing down your capital you don't need to go for such high rates of return and can invest more safely which will immunize you to some extent against market conditions.
Ted: Out of curiosity I took up your challenge to run the numbers myself. Solving the problem by trial and error in excel I find that with the interest rate at 4% you could consume 5.6% of your capital annually if you amortize over 30 years and 3.8% if you don't. For George with $400,000 in assets, that would be $22,000 v. $15,000. I don't know, is that negligible? In one case he makes his $50,000 expenditure target, in the other he doesn't.
I'm starting to get concerned about your personal life again. I'm not sure you've thought this through. Anyway, keep in mind the possibility of amortizing in case you discover your rate of return is below 4%. It may be the least painful way to adjust your retirement strategy.
Ted: Whether or not amortizing over 30 years makes a negligible difference depends on the interest rate. If the rate is zero your annual consumption is zero if you don't amortize and 1/30 of your capital if you do. That's hardly negligible.
I take it you've consulted all stakeholders in determining that "we don't mind this and don't need that and aren't interested in the other thing." Not to mention choosing a discount rate. The different interests aren't between you and me, but between you and others in your family unit.
From my standpoint, I'm satisfied you've given enough thought to these complex matters and can get back to buying low! Best wishes for a long and prosperous life.
Ted: Your own example of "possibly different interests" is what I had in mind: different life expectancies.
Ted Fischer: Your 100 year retirement plan without amortization -- not based on any realistic expectation -- has a realistic expectation of leaving a lot of money to your heirs. Is that optimal? Or consider a dollar your plan allocates to consumption at age 85. You're less likely to spend it than one allocated to age 75 and therefore it's expected value to the plan is less. Shouldn't you take that into account? Have you considered the alternative of spending the whole $400,000 on fast women and cars while you can still enjoy them, then winding up the plan (and yourself, of course) when it's all gone?
GS and TF: Is it better to buy high or low? Surely an important question and anyone who's never asked it will find your answer very useful. But really it's pretty obvious. Buy low. Much more interesting and difficult is where did the figure of $50,000 come from? How do you plan around an uncertain life expectancy? Or balance the (possibly different) interests of partners in a marriage? When you write that article, let me know.
An obvious way to close the $21,200 gap is to draw down your capital as required each year. Indeed, if your life expectancy is less than 20 years you could stop worrying and just hold your $400,000 in cash. Who knows, you might even live longer! ;-) Which is just to say your analysis (valuable as it is) oversimplifies the investment/consumption decision.
Brad: There are plenty of readers who hold you in higher esteem. I missed HASI the first time around at $14, but caught the train later on your second recommendation at $18. For me it represents a stake in what I hope and expect will be the next big thing so my motivation is as much ethical as financial. If it turns out it's not yet time, too bad for me. That's what investing is all about. But I have complete confidence in your impeccable research and what you had to say about financial performance and management quality.
MM: Your comment seems to have struck a chord, but why not accentuate the positive? I loved my job while I was working, but I don't miss it now. Retirement is a career change, a chance to try something different. Those bank reports I used to read? Not great literature! Now I read what I want. I write what I want. I used to be one of those people who expected to die in harness, but now I think, what a lack of imagination.
Chris: I've taken the same side as you in a few exchanges with the DGI crowd. However, the smart ones recognize you need to look for both secure dividends and a fair price and many DGI stocks turn out to be well positioned in risk-return space. So now I'm a bit of a fellow traveller.
If you've got the time, data, software, interest, experience, etc. you can find good deals out there. If you don't and have to buy the superior performance from third parties (like you), it isn't so clear your net return will be better than index funds. In fact, it's pretty clear it won't.
Finally, I used to think about retirement the way you and Warren do. But it shows a lack of imagination. Money is overrated and there's a lot to do other than watching daytime TV or playing golf. Time is the ultimate constraint, don't waste it on things that aren't important.
liong: Only Steve knows whether he screened the data. Maybe he decided ex ante to pick three periods at random and make up a narrative about what he saw. Perhaps he even expected they'd confirm his belief in global warming, but when they didn't he changed his mind. Or maybe he started with the narrative and carefully picked three periods to illustrate it. You seriously believe both of these are equally likely?
Ok, temperature follows CO2 more often than not, but sometimes it doesn't; you aren't sure if there's a relationship. You pick 10 balls out of an urn, of which 9 are black and 1 is white; you aren't sure whether the urn has more black balls than white ones in it. You buy a share from David Fish's list of dividend champions; you aren't sure the dividend won't be cut next year. Etc., etc. Maybe climate change is a cat.
The world is uncertain so you go with odds and you use statistics to figure out what the odds are. If you're not sure of the odds, but think there's a risk we might leave an uninhabitable planet for our children you, you err on the side of caution. You won't learn anything if you listen to people who think they know what the odds are but can't explain why, even if they do stuff that sort of looks like statistics but isn't.
I'm aware of the pejorative meaning of climate denier. I used it for Cliff Hilton because signed his comment that way. I guess it's not pejorative to him.
Cliff Hilton, climate denier: I don't know what you're trying to say.
liongterm: I haven't shown causality and Steve hasn't refuted it. There are many confounding factors such as aerosols, ocean currents, disequilibrium adjustments, solar cycles, etc. that may affect temperature changes over any period of time. Anecdotal evidence like Steve's is unreliable especially if it's been screened to prove a point. It makes a much stronger case to select a sample blindly which is what I did. As to causality, there's lots of science dating back to Arrhenius and Townsend that strongly concludes CO2 causes warming. There are also time series tests for (Granger) causality and when you apply them to the data Steve and I used you get a very strong result that CO2 causes temperature and not the other way around.
I'm as suspicious as you of very complicated structural models with feedbacks lasting thousands of years. I can't understand them and there's no way to test them. I suspect there aren't enough degrees of freedom to estimate them properly. But if you just look at the basic data and use common sense, it seems to me there's a pretty compelling case for what the scientists tell us. At least, there's a compelling enough case not to reject it out of hand the way climate deniers do.
Steve: I could be wrong -- maybe it does take more than what you've remembered from your first year stats course. Or maybe you have to be a little more open minded about what the data are trying to say.
I did sort of the same thing as you, only instead of picking three periods that said what I wanted to hear, I calculated climate sensitivity over a million periods with random start dates and interval lengths. The average was 2.4oC, well within the IPCC's likely range of 1.5oC to 4.5oC.
AZC: With the careful scholarship you demonstrate looking through Exxon's files you shouldn't have any trouble finding out what the API, Heritage, Cato and AEI think about climate change. Follow the people as well as the money -- Lee Raymond, former Mobil CEO, is Vice President of AEI's Board of Trustees.
AZC: I've read quite a few of those papers at this point and corresponded with some of their authors. You can assiduously search out backwaters of the literature where obscure arguments and incomprehensible Bayesian statistical techniques lurk in the shadows, if you want. These always seem a bit labored to me. As Einstein said (was it Einstein?), look for an explanation that's complicated enough but no more. That was my advice to you.
AZC: There's no substitute for looking at the data yourself. All you need is excel and whatever you remember from your first year statistics course. I've done it. There's a robust correlation between CO2 and temperature. CO2 is produced by burning fossil fuel. I’m not a climate scientist, just an interested observer. When I started out I'd have been happy to find it was all a hoax. Who wouldn't want to uncover a conspiracy involving thousands of scientists around the world and some of our most respected institutions? However, that's not the most obvious interpretation of the evidence. You’re the only one you can trust, don't take these other people's word for it.
Author: You’ve clearly done a lot of work to write this article. Less clear is why. About the only reliable information it discloses is your personal views. And those of your readers in the comment thread, of course. Over the years, Exxon has generously funded climate deniers and misrepresenters -- $3.6 million to AEI; $2 million to the Competitive Enterprise Institute; $0.7 million to Heartland Institute; $0.8 million to Heritage, etc. ( We know the playbook and (surprisingly) even the people from similar campaigns against acid rain, ozone, smoking, pesticides, and more. Lie, confuse, deny, mislead.... ( If there is a smoking gun in Exxon’s files, I’m not confident you’d have found it. But even if there isn’t, it would be more surprising if you’d told us Exxon hadn’t aligned itself with conservative organizations opposed to climate action. Who knows whether it broke the law. If there is a case, I'm not sure I'd bother to pursue it. Let's wait and see how things play out.
Uain53 -- You may be right and you may be wrong. But don't be so quick to take a stick to Prof. Mann's dog. The point is about risk. You can't run a successful company for long by ignoring it and assuming everything will turn out for the best. If their only strategy for dealing with climate change is funneling campaign donations to James Inhofe, what if that isn't enough? It shouldn't be enough for you.
The problem with both these companies is their long run unsustainable business model, which is to keep accumulating expensive assets and party like it's 1870. Maybe they're right, but when asked by investors about their planning for climate change, the response from their managements has been pathetic. They're totally oblivious to stranded asset risk. Incidentally SPY also returned 7.7% in 2005-14, arguably at much lower risk.
The problem with both these companies is their long term unsustainable business model, which is to keep accumulating expensive assets and party like it's 1870. When asked by investors about plans for dealing with climate change, the response from their managements has been pathetic. They're totally oblivious to stranded asset risk. Not that that sets them apart from other oil companies. Incidentally, SPY also returned 7.7% from 2005-14, arguably with much less risk.
Stickman: You'll be able to drive yourself to a hotter tomorrow on the cheap.
It's certainly cheaper than it was when I bought a few shares. But cheap? Hard to say. You've only told half the story. The rest of it is why the market has so badly mispriced the inherent risk in one of the largest and most closely followed companies in the world. Without a convincing explanation about that all you can say is that the price is whatever it is.
Unbelievable CIENA. What hare-brained scheme will Gary Smith come up with to fritter away this unexpected windfall? Think big, Gary....
Please, please Ciena, don't add Ericsson to your long list of clumsy, value-destroying acquisitions.
MWinMD: Thanks for your interest and (as always) spirited contributions. Increasingly, it seems to me there are feasible solutions to the environmental challenges we face. I'm quite optimistic, though delay is costly. The real problem is mindset. And money in politics, of course.
fhbecker: With regard to Danish electricity prices, bear in mind that American prices are too low, by as much as 30% according to the National Research Council. For instance, taxpayers or utility customers will eventually pay to dispose of nuclear waste, and they bear public health and other environmental costs. That makes the Danes look a bit smarter.
SDNS: I think you're exactly right. We have a problem that advanced technologies can help to solve. Let's see where they take us.
C. Calder: There's a case for subsidizing emerging technologies in order to demonstrate their feasibility, or move them down the cost curve where there are scale economies, e.g. in manufacturing wind turbines and solar panels. It's harder to justify massive subsidies to fossil fuels and nuclear, which include not charging them for water use and waste disposal and disregarding public health impacts of air pollution.