Paul Merriman criticism?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
ctreada
Posts: 97
Joined: Tue Jun 10, 2014 1:35 pm

Paul Merriman criticism?

Post by ctreada » Mon Oct 27, 2014 11:56 pm

I have been reading and listening to Paul Merriman's podcasts to dig in a bit and try to understand different riffs on boglehead concepts.

Wondering what the criticisms are of his approach? He seems to advocate more complex portfolios and also seems to think beating the market by 1-2% a year is possible by taking advantage of Vanguard and others. Most notably he seems to be a little disappointed by Vanguard's small cap value offerings.

I think his porfolio ideas involve a little more work than a 3 fund portfolio or others advocated here. But hey that's what spreadsheets are for.

Serious critiques of his approach anyone?

daffyd
Posts: 188
Joined: Sun Sep 29, 2013 11:51 pm
Location: Australia

Re: Paul Merriman criticism?

Post by daffyd » Tue Oct 28, 2014 12:09 am

There are two ways of approaching it.

For fans of simplicity, disbelievers in the value premium, etc. there are the criticisms I think you have in mind.

For slicers-and-dicers there's the question of marginal benefit of extra funds and tax and transaction costs from so many overlapping funds.
Here is a long-running example of reducing the number of funds for the equity component: http://www.bogleheads.org/forum/viewtop ... 10&t=38374
The one-sentence version is that the returns and volatility are remarkably similar for the 8-slice equity component as just using Large US, US Small Cap Value, Intl Large Value, Intl Small Cap.

And there are other interesting variations using more recent ETFs, e.g. using PXSV and MTUM as mentioned here: http://www.bogleheads.org/forum/viewtop ... &p=2206369
Or using fundamental indices for the international component.

User avatar
Leif
Posts: 2396
Joined: Wed Sep 19, 2007 4:15 pm

Re: Paul Merriman criticism?

Post by Leif » Tue Oct 28, 2014 12:28 am

I think Paul and some other advisors based their recommendations on portfolios similar to the model portfolio suggested by DFA. That involves around 10 or so equity funds.

It seems that can be simplified a bit as discussed in the "Ultimate Buy and Hold - 8 slices vs 4" post without loss of return.

I think one distinction with Bogleheads is his use of market timing. You may have heard from his podcast that he personally put 50% of his portfolio in as market timing and the other 50% in buy-and-hold index funds. He uses mechanical (pre-determined) criteria for when to buy and sell based on market movements. He believes that reduces the overall volatility of the portfolio and keeps at least part of his portfolio out of the market during large downturns. Bogleheads, on the other hand, believe it is better to adjust their stock/bond allocations based on need and ability to take risk. They recommend against getting in and out of the market based on price gyrations.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

User avatar
White Coat Investor
Posts: 13307
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Paul Merriman criticism?

Post by White Coat Investor » Tue Oct 28, 2014 2:24 am

daffyd wrote: Large US, US Small Cap Value, Intl Large Value, Intl Small Cap.

.
I like that. Very different from the "buy it all" philosophy, but still broadly diversified and good factor diversification with just a few funds.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Call_Me_Op
Posts: 6818
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Paul Merriman criticism?

Post by Call_Me_Op » Tue Oct 28, 2014 5:22 am

I am a regular listener to Paul's podcasts and receive his free newsletter. His approach is evidence-based, that is, based upon historical performance of the various "asset classes." He slices and dices to exploit many of the known risk factors that have historically been compensated. He emphasizes low-cost index funds and ETF's. He also believes in "taking your risk on the equity side." So his approach is not anti-Boglehead - in fact, he considers himself aligned with folks such as Larry Swedroe (a well-respected Boglehead). His recommended approach is more complex than a 3-fund portfolio because the 3-fund has limited factor exposure and lower expected-return (based upon historical factor-based analysis) than the multi-asset-class approach he recommends.

As mentioned above, he does use market-timing for half of his portfolio. He also has about 10% of his assets in a hedge fund. But he doesn't recommend these things to listeners.

Overall, I consider Paul Merriman one of the good guys.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
rustymutt
Posts: 3723
Joined: Sat Mar 07, 2009 12:03 pm
Location: Oklahoma

Re: Paul Merriman criticism?

Post by rustymutt » Tue Oct 28, 2014 7:54 am

Iv'e listened to John Bogle years ago on Paul's internet show, "Sound Investing". He's also a retired professional advisor who has help many, many people for absolutely free, my self included. I've heard Larry on his show also, as they both use DFA funds. I've also gotten answers to my question in the past straight out from Paul. Not all wrapped in intellectual gibberish, that so many try to confuse people with. I don't mean to put that down, but I never did understand anything about investing until I heard Paul.
I understood Paul's teaching quite well, and he's still the man as far as I'm concerned. Although his firm was DFA, he would regularly suggest Vanguard, Fidelity, and Schwab as a great places for low costing index funds. Paul somehow was more helpful to me than anyone else in the business. My hat is off to the man, and I've offered to take him and some of his associates out to dinner. He gracefully declined, but thanked me. Because of Mr Merriman, I retired at age 53, and started my own business in telecommunications after that. He's one of the good guys. Paul, if your reading this, thank you again for making me a better investor, and I hope your retirement and health is good.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

Grt2bOutdoors
Posts: 18438
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Paul Merriman criticism?

Post by Grt2bOutdoors » Tue Oct 28, 2014 8:00 am

[quote="Call_Me_Op"]I am a regular listener to Paul's podcasts and receive his free newsletter. His approach is evidence-based, that is, based upon historical performance of the various "asset classes." He slices and dices to exploit many of the known risk factors that have historically been compensated. He emphasizes low-cost index funds and ETF's. He also believes in "taking your risk on the equity side." So his approach is not anti-Boglehead - in fact, he considers himself aligned with folks such as Larry Swedroe (a well-respected Boglehead). His recommended approach is more complex than a 3-fund portfolio because the 3-fund has limited factor exposure and lower expected-return (based upon historical factor-based analysis) than the multi-asset-class approach he recommends.

As mentioned above, he does use market-timing for half of his portfolio. He also has about 10% of his assets in a hedge fund. But he doesn't recommend these things to listeners.

Overall, I consider Paul Merriman one of the good guys.[/quote]

I agree, he's one of the good guys and he posts on here from time to time.
There may be some merit in that 10 fund portfolio for those who wish to track performance of the various categories.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

larryswedroe
Posts: 15625
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Paul Merriman criticism?

Post by larryswedroe » Tue Oct 28, 2014 8:20 am

FWIW
I have known Paul for a long time and he truly is one of the good guys. He devotes much of his time (retired now) to educating people. And the strategies he recommends are quite simple, not complex at all. This idea of complexity is way overdone. As simple example, you can implement a multi-asset class approach with one single fund--DFA has a global fund that does just that. You can also create more tilted portfolios using just two funds. DFA has CORE portfolios that have different degrees of exposure to size and value (while also incorporating MOM and profitability) that can be used with a CORE US and a CORE International, and then add a bond fund for a three fund portfolio. The Larry Portfolio can now be done with just two equity funds. I use BOSVX and DWUSX. That's it.
Larry

scone
Posts: 1447
Joined: Wed Jul 11, 2012 4:46 pm

Re: Paul Merriman criticism?

Post by scone » Tue Oct 28, 2014 8:37 am

I think he sometimes oversimplifies his approach in his podcasts and writings. If he were here I would say, "hey Paul, I'm a big girl, I use big words. You can present the science and research, it won't scare me off." This is one of the reasons I like Larry Swedroe-- he's not afraid to push me to learn, and he doesn't grade on a curve. :D

The other thing Paul might do is make a better use of infographics. The pie chart used to illustrate the 10 fund portfolio is really confusing, in my view. A better chart might be something like the Morningstar 9 boxes, to show how the portfolio covers the factors, in both domestic and international. It's quite "symmetrical" if you look at it that way.

Altogether, I think if you are interested in a more complex portfolio, you should make a deep dive into the background, and be thoroughly persuaded by the evidence. Otherwise, you might not stick with it. People who don't want to do the work should probably go for a one fund or three fund portfolio. No judgment implied-- whatever works for you. :beer
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: Paul Merriman criticism?

Post by leonard » Tue Oct 28, 2014 10:20 am

I use a Merriman-esque portfolio. I think the main downside is complexity. When rebalancing across multiple taxable, IRA, and 401k accounts - it can get more complex than some folks would like. And, I am not convinced that complexity will pay off vs a 3 or 4 fund portfolio. But, I am staying the course and will find out over the next 20-30 years.

Regarding his criticisms of Vanguard's small cap value - I have always believed those are a straw man, just to emphasize how much "better" the DFA offerings are. I think it's a straw man cause VG did not set these funds up to go after the exact same value and capitalization ratings. VG just happened to define the small and the value at a slightly different point than the similar DFA offerings. One can argue that smaller and value-er are better, but I don't think it's valid to say VG's offerings miss the mark simply by how they are defined. That's a long way of saying I think it's a marketing technique to make the DFA offering seem better and move people to their DFA offerings.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

User avatar
Leif
Posts: 2396
Joined: Wed Sep 19, 2007 4:15 pm

Re: Paul Merriman criticism?

Post by Leif » Tue Oct 28, 2014 10:25 am

Call_Me_Op wrote:
As mentioned above, he does use market-timing for half of his portfolio. He also has about 10% of his assets in a hedge fund. But he doesn't recommend these things to listeners.
I never heard that he uses a hedge fund. What evidence based information is he using for that? That is definitely anti-boglehead.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

User avatar
nedsaid
Posts: 9530
Joined: Fri Nov 23, 2012 12:33 pm

Re: Paul Merriman criticism?

Post by nedsaid » Tue Oct 28, 2014 10:28 am

I am a big fan of Paul Merriman. I went to a couple seminars put on by Tom Cock. I also got a one-hour telephone consultation with one of his advisors. I have not met Paul or talked to him by phone, but I will say that the guy is the real deal. I chose not to invest with his firm but I took many of their portfolio suggestions. He and his firm have given away millions of dollars of their time. Thanks Paul.
A fool and his money are good for business.

pinebarrens1
Posts: 127
Joined: Sat Mar 05, 2011 8:08 pm

Re: Paul Merriman criticism?

Post by pinebarrens1 » Tue Oct 28, 2014 10:42 am

The Larry Portfolio can now be done with just two equity funds. I use BOSVX and DWUSX. That's it.
Larry
unless you don't have access to those funds, wish there were good alternatives outside of DFA and Bridgeway. I'm using Vanguard small value and FTSE small foreign (VSS).

User avatar
Rick Ferri
Posts: 8363
Joined: Mon Feb 26, 2007 11:40 am
Location: Austin, TX. Twitter: @Rick_Ferri
Contact:

Re: Paul Merriman criticism?

Post by Rick Ferri » Tue Oct 28, 2014 10:52 am

His approach is evidence-based
I don't buy into the term "evidence based" investing. It means there is evidence in the past data to support past results. Isn't that true for everything? Long-term bonds have yield more than short-term bonds, therefore there is evidence that they may yield more. The sun has risen in the east, therefore there is evidence that the sun may rise in the east.

Too much marketing for me. :?

Rick Ferri
The Education of an Index Investor: starts in darkness, finds enlightenment, overcomplicates everything, embraces simplicity.

Call_Me_Op
Posts: 6818
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Paul Merriman criticism?

Post by Call_Me_Op » Tue Oct 28, 2014 11:02 am

Leif wrote:
Call_Me_Op wrote:
As mentioned above, he does use market-timing for half of his portfolio. He also has about 10% of his assets in a hedge fund. But he doesn't recommend these things to listeners.
I never heard that he uses a hedge fund. What evidence based information is he using for that? That is definitely anti-boglehead.
He only has ~ 10% of his investments in a hedge fund - a fund that he helped start back in 1995. (I believe it has compounded at better than 15%.) This is his gambling money. I am sure he has plenty of money, so that fact that he chooses to speculate with 10% of it doesn't seem like a big deal to me, and should not detract from the fact that he gives good advice. As I stated above, he does not recommend that the average investor use hedge funds.

If you want to hear him talk about his hedge fund investment, listen to his podcast "Hedge Funds - the Good, Bad, and Ugly."
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
nedsaid
Posts: 9530
Joined: Fri Nov 23, 2012 12:33 pm

Re: Paul Merriman criticism?

Post by nedsaid » Tue Oct 28, 2014 11:07 am

Rick Ferri wrote:
His approach is evidence-based
I don't buy into the term "evidence based" investing. It means there is evidence in the past data to support past results. Isn't that true for everything? Long-term bonds have yield more than short-term bonds, therefore there is evidence that they may yield more. The sun has risen in the east, therefore there is evidence that the sun may rise in the east.

Too much marketing for me. :?

Rick Ferri
Rick, I have read your excellent book, "All About Asset Allocation." You proposed a small/value tilting, adding REITs and microcaps in a manner very similar to Merriman. I think you citied very similar academic research to what Merriman relies on for his conclusions. I am not sure where you are coming from on your comments.
A fool and his money are good for business.

Call_Me_Op
Posts: 6818
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Paul Merriman criticism?

Post by Call_Me_Op » Tue Oct 28, 2014 11:08 am

Rick Ferri wrote:
His approach is evidence-based
I don't buy into the term "evidence based" investing. It means there is evidence in the past data to support past results. Isn't that true for everything? Long-term bonds have yield more than short-term bonds, therefore there is evidence that they may yield more. The sun has risen in the east, therefore there is evidence that the sun may rise in the east.

Too much marketing for me. :?

Rick Ferri
He freely discloses the bases for his recommendations and also points-out that he might be wrong. For that reason, he only tilts marginally. He still recommends some large cap and some growth, for example. Almost every advisor or author I have read puts some value in past behavior of asset classes. In fact, in your book "All About Asset Allocation", you have lots of graphs and charts that are based upon past behavior of various asset classes. I don't think Paul ever says that the future is guaranteed to look like the past.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
Leif
Posts: 2396
Joined: Wed Sep 19, 2007 4:15 pm

Re: Paul Merriman criticism?

Post by Leif » Tue Oct 28, 2014 11:13 am

I've probably listened to more than 100 of his podcasts, and that is being very conservative. I buy his books, I watched his PBS presentation and bought the PBS video. I read his articles on MarketWatch. I agree he is a "good guy". However, the OP asked how he differed from Bogleheads. I think owning a hedge fund, even only 10%, would qualify. I didn't know he use to run one, but I do recall Taylor mentioned to me that he ran a mutual fund(s) that he later closed
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

User avatar
rustymutt
Posts: 3723
Joined: Sat Mar 07, 2009 12:03 pm
Location: Oklahoma

Re: Paul Merriman criticism?

Post by rustymutt » Tue Oct 28, 2014 11:20 am

Rick Ferri wrote:
His approach is evidence-based
I don't buy into the term "evidence based" investing. It means there is evidence in the past data to support past results. Isn't that true for everything? Long-term bonds have yield more than short-term bonds, therefore there is evidence that they may yield more. The sun has risen in the east, therefore there is evidence that the sun may rise in the east.

Too much marketing for me. :?

Rick Ferri

Wasn't he in the same business that you're in? What term do you buy into? You don't market yourself? Come now Rick.
Last edited by rustymutt on Tue Oct 28, 2014 2:15 pm, edited 1 time in total.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

User avatar
rustymutt
Posts: 3723
Joined: Sat Mar 07, 2009 12:03 pm
Location: Oklahoma

Re: Paul Merriman criticism?

Post by rustymutt » Tue Oct 28, 2014 11:27 am

As another good man said, "There is more than one road to Dublin".
Last edited by rustymutt on Tue Oct 28, 2014 2:14 pm, edited 2 times in total.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

User avatar
Rick Ferri
Posts: 8363
Joined: Mon Feb 26, 2007 11:40 am
Location: Austin, TX. Twitter: @Rick_Ferri
Contact:

Re: Paul Merriman criticism?

Post by Rick Ferri » Tue Oct 28, 2014 11:31 am

Evidence based isn't a Meriman creation. It's being used by several "DFA Advisers" who promote DFA funds as well as by a certain paid marketing consultant/ghost writer who works with DFA advisers to promote their businesses. Much of the content in articles on "evidence based investing" isn't written by the person whose name is on the article. It's paid-for content written by a ghost writer. Are you shocked? :shock:

Rick
The Education of an Index Investor: starts in darkness, finds enlightenment, overcomplicates everything, embraces simplicity.

leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: Paul Merriman criticism?

Post by leonard » Tue Oct 28, 2014 11:34 am

Rick Ferri wrote:Evidence based isn't a Meriman creation. It's being used by several "DFA Advisers" who promote DFA funds as well as by a certain paid marketing consultant/ghost writer who works with DFA advisers to promote their businesses.

Rick
I can't tell if you are taking issue with the term "evidence based" or the marketing that uses that term or the fact that it is ghost written. Seems a bit cryptic, like you are trying to make a point but don't want to reveal too much behind the curtain stuff to make it.

EDIT: I see. your revision laid it out more plainly.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

User avatar
Rick Ferri
Posts: 8363
Joined: Mon Feb 26, 2007 11:40 am
Location: Austin, TX. Twitter: @Rick_Ferri
Contact:

Re: Paul Merriman criticism?

Post by Rick Ferri » Tue Oct 28, 2014 11:36 am

It falls in the same category as "smart beta."
The Education of an Index Investor: starts in darkness, finds enlightenment, overcomplicates everything, embraces simplicity.

leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: Paul Merriman criticism?

Post by leonard » Tue Oct 28, 2014 11:45 am

Paul has posted on BH before - so hopefully he'll come along and provide his perspective.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

larryswedroe
Posts: 15625
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Paul Merriman criticism?

Post by larryswedroe » Tue Oct 28, 2014 11:55 am

Rick
FWIW IMO you are WAY off base on this one. First many people use that term. You yourself make decisions based on the evidence from peer reviewed journals. All it means is that the advice isn't based on opinions, but evidence, facts. It's totally different than smart beta which is purely a marketing term (though IMO not as "evil" as you make it out to be because one can make an argument that there is smart beta, such as excluded securities with pure risk characteristics like penny stocks for example).

Bottom line is investors should based decisions on evidence that is persistent and pervasive and has logical risk based or behavioral explanation. I'm pretty confident is saying that is what you do yourself.
Larry

Call_Me_Op
Posts: 6818
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Paul Merriman criticism?

Post by Call_Me_Op » Tue Oct 28, 2014 11:55 am

Please note that the term "evidence-based" was mine. I don't even recall Paul using the term. I used it in the literal sense, meaning based upon evidence. My point was that his recommendation to tilt (like nearly all other tilting recommendations) is based upon the past performance of asset classes. And again, he has acknowledged that the factor premiums may not persist in the future (without using those exact words).
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
rustymutt
Posts: 3723
Joined: Sat Mar 07, 2009 12:03 pm
Location: Oklahoma

Re: Paul Merriman criticism?

Post by rustymutt » Tue Oct 28, 2014 12:10 pm

Call_Me_Op wrote:Please note that the term "evidence-based" was mine. I don't even recall Paul using the term. I used it in the literal sense, meaning based upon evidence. My point was that his recommendation to tilt (like nearly all other tilting recommendations) is based upon the past performance of asset classes. And again, he has acknowledged that the factor premiums may not persist in the future (without using those exact words).

Paul uses the word "Academics", which is what doctors, lawyers, and other professionals would want in any science or business training for professionals. There really isn't any other way to understand markets, but to study the past. He always claims that the past in no guarantee of future performance. What else is there?
Last edited by rustymutt on Wed Mar 02, 2016 6:56 am, edited 1 time in total.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

User avatar
Rick Ferri
Posts: 8363
Joined: Mon Feb 26, 2007 11:40 am
Location: Austin, TX. Twitter: @Rick_Ferri
Contact:

Re: Paul Merriman criticism?

Post by Rick Ferri » Tue Oct 28, 2014 12:15 pm

LarrySwedroe wrote:Rick, FWIW IMO you are WAY off base on this one
Larry,

"Evidenced based investing" is another way of saying "back-tested". Let's not make it out to be something special.

Rick Ferri
The Education of an Index Investor: starts in darkness, finds enlightenment, overcomplicates everything, embraces simplicity.

placeholder
Posts: 3957
Joined: Tue Aug 06, 2013 12:43 pm

Re: Paul Merriman criticism?

Post by placeholder » Tue Oct 28, 2014 12:23 pm

I studied Merriman's suggested portfolios along with those from some of the books I read from Larry Swedroe and William Bernstein so I have a slicer type portfolio but if starting new I'd probably look hard at what Trev put together.

LittleD
Posts: 178
Joined: Sun Jul 31, 2011 7:23 am

Re: Paul Merriman criticism?

Post by LittleD » Tue Oct 28, 2014 12:49 pm

Rick Ferri wrote:It falls in the same category as "smart beta."

Rick, this aversion to the term "Smart Beta" wears thin after awhile because we know you don't care for the marketing
aspect. Actually, I'm hearing the term "Strategic Beta" used more and more with these types of index formulations.
Most of us get it that these types of index funds are just variations of selection bias based on something other than
market capitalization. Who knows (not me for sure) what index types will perform best in the future. You
pays your money and takes your chances. With the power and speed advances of computers in the future, I'm
sure whichever strategy works best for a period of time will be arbitraged away like the speed of light.

LittleD
Posts: 178
Joined: Sun Jul 31, 2011 7:23 am

Re: Paul Merriman criticism?

Post by LittleD » Tue Oct 28, 2014 12:56 pm

placeholder wrote:I studied Merriman's suggested portfolios along with those from some of the books I read from Larry Swedroe and William Bernstein so I have a slicer type portfolio but if starting new I'd probably look hard at what Trev put together.

Like your thoughts... I too follow Merriman often but I agree that TREV_H put a lot of work and time in developing his
UB&H portfolio using 4 stock funds or ETF's and a couple of Bond funds to round out the portfolio. Anyone ought to be
able to manage and rebalance this type of fully diversified portfolio for life. Of course, no one knows what the
expected returns might come out to be in the next 10-20 years.

Good Luck with your investments...

staythecourse
Posts: 5691
Joined: Mon Jan 03, 2011 9:40 am

Re: Paul Merriman criticism?

Post by staythecourse » Tue Oct 28, 2014 1:06 pm

I don't have a dog in the fight, but do agree as a physician when I hear evidence based that means there simply is evidence to say do this or that based on past studies. In medicine you can have different levels of strength of such evidence. MOST studies are retrospective. They go back in time to see if the data in the past supports a certain hypothesis. This I think is basically data mining. Nothing wrong with that as it is MUCH easier to get the sample size using available past data. The stronger studies are PROSPECTIVE studies which are usually much smaller sample sizes. Where you take groups of people and give them X and another Y and see what the results are. X would be your study drug and Y would be a placebo, for example.

Retrospective and prospective analysis are BOTH evidence based, but of course prospective is a level above. Not even sure if we know that is true. I don't know any study to see if studies done in either fashion makes one better then the other in predicting outcome. It is one of those dogmas which I am not sure has a leg to stand on.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

larryswedroe
Posts: 15625
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Paul Merriman criticism?

Post by larryswedroe » Tue Oct 28, 2014 1:16 pm

Yes Rick that is what it means in a strict sense. But that doesn't mean it's a bad term which you seem to be making it out to be.
It is actually means more than that though. Evidence based should mean that there is statistically significant evidence that is persistent and pervasive enough to have sufficient confidence in the data to make an informed decision---and that there should also be a logical risk or behavioral story.
If you don't base decisions on evidence what do you do? There is no other alternative that is logical

IMO just making mountains out of not even mole hills here, like looking for something to argue over, while I can understand the issue of smart beta I don't get it at all here

Just my opinion
Larry

LittleD
Posts: 178
Joined: Sun Jul 31, 2011 7:23 am

Re: Paul Merriman criticism?

Post by LittleD » Tue Oct 28, 2014 1:25 pm

staythecourse wrote:I don't have a dog in the fight, but do agree as a physician when I hear evidence based that means there simply is evidence to say do this or that based on past studies. In medicine you can have different levels of strength of such evidence. MOST studies are retrospective. They go back in time to see if the data in the past supports a certain hypothesis. This I think is basically data mining. Nothing wrong with that as it is MUCH easier to get the sample size using available past data. The stronger studies are PROSPECTIVE studies which are usually much smaller sample sizes. Where you take groups of people and give them X and another Y and see what the results are. X would be your study drug and Y would be a placebo, for example.

Retrospective and prospective analysis are BOTH evidence based, but of course prospective is a level above. Not even sure if we know that is true. I don't know any study to see if studies done in either fashion makes one better then the other in predicting outcome. It is one of those dogmas which I am not sure has a leg to stand on.

Good luck.

Very...very nice response to a quote that I'm not sure Paul Merriman ever made. I believe that he most often relates his portfolio design
to "Academic Based" evidence and that this was the best formulation he could recommend from his over 40 years in the business. Paul
has always said that he doesn't know if his strategy will work as well in the future but that having assets in most all asset classes should allow
the portfolio to weather whatever fads come our way. Since he retired, Paul is striving to help young and old investors reach their goals with little
mumbo-jumbo and for the lowest manageable costs. He has no axe to grind and no money to make. He does support an investment course in a Northwestern College near Seattle and does teach there from time to time.

Leesbro63
Posts: 5332
Joined: Mon Nov 08, 2010 4:36 pm

Re: Paul Merriman criticism?

Post by Leesbro63 » Tue Oct 28, 2014 2:40 pm

A different subject than the current discussion but directly related to Paul Merriman. In 1994, just as our second child was born, I came across this article. Then I helped my parents do this (see link) for both of my children (the older was 4 and we funded her more as if we started in 1990). Money was put in there then, in 1994, and more was added in 2006.

The bad news is that it was with a Scudder Horizon annuity for the first 10 years before I found that Vanguard had a better alternative. The average annual return has only been about 6%. Hopefully this all-equity portfolio do better during the remaining 40 years of the trust. But even if it just continues to average just 6%, it will still provide a nice retirement supplement, although not a full ride. And most Millenials will work till 70 so perhaps they'll be smart enough to let it accumulate for another 5 years beyond the age 65 earliest withdrawal opportunity.

http://articles.latimes.com/1994-12-09/ ... ment-ideas

The jist of the article is this: "When Merriman's grandson Aaron was born earlier this year, Merriman made a gift of $10,000 to an irrevocable trust for Aaron's benefit. The gift is not taxable to Aaron, whose parents are the money-managing trustees. They have directed the $10,000 to a variable annuity that lets the money build tax-deferred within the trust, and that lets them select mutual fund investments within the annuity.


The trust is set up so that Aaron can't touch the money until the year 2059, when he'll turn 65. At that point, Aaron will be able to receive 7% of the assets every year until he dies. Those payments, under current tax law, will be taxable as ordinary income to Aaron.

When Aaron dies, what's left in the trust will go to charitable organizations that are tax-exempt. By then, Merriman hopes, there will be a Merriman Family Foundation, staffed by (well-paid) junior Merrimans who direct the funds to the charities of their choice.

And these are the numbers:

Merriman expects the trust to grow at an annual average rate of 11.2% a year, so that it holds some $10 million when Aaron turns 65. That's a little optimistic but may be made more possible by the long-term investment horizon of the trust. A 9% rate of return compounded over 65 years would leave about $3 million in the trust.

Using Merriman's figures, Aaron's 7% cut would give him $700,000 in the first year, a figure worth about $85,000 today given past inflation rates. Aaron's cut will increase every year as the trust grows, and after 20 years, there still be some $23 million left in the trust to turn over to charity, Merriman said. "
Last edited by Leesbro63 on Tue Oct 28, 2014 2:49 pm, edited 3 times in total.

Leesbro63
Posts: 5332
Joined: Mon Nov 08, 2010 4:36 pm

Re: Paul Merriman criticism?

Post by Leesbro63 » Tue Oct 28, 2014 2:44 pm

MORE FROM THE PRIOR POST JUST ABOVE:

In hindsight. it MIGHT have made more sense to skip the annuity and to put the money directly into Total Stock Market and/or Total International, file the tax returns annually (which I do not have to do with the sheltered annuity), and pay a little tax each year on the dividends at the trust rate. Then the kids could the grown principal and withdrawn at the lower capgains/div tax rates. And avoid the higher fees of the annuity. Esp when it was at Scudder. Versus the current actual set up where any withdrawals will be taxed as ordinary income. That was 20 years ago and the future is at least 40 more and I'm very unlikely to see it. I just did what Merriman suggested at the time. But for a small cost upfront, my kids (who are turning out well now at age 20 and 24) will get a nice bonus going forward. And it's hard to project the current tax structure 65 years into the future.

For what it's worth, I told them about this recently. And pointed out how the original investments could have been quickly whizzed away on another depreciating car or a soon-to-be-forgotten trip. I think that the lesson of this deferred gratification/long term investment is as important as the result itself. The kids were impressed!
Last edited by Leesbro63 on Tue Oct 28, 2014 2:52 pm, edited 1 time in total.

anil686
Posts: 731
Joined: Thu May 08, 2014 12:33 pm

Re: Paul Merriman criticism?

Post by anil686 » Tue Oct 28, 2014 2:49 pm

I really like Paul's podcasts and information. I seriously contemplated investing with that approach, but then did a simple 4 fund (3 fund with REIT slice). My questions always came back to how can you compare 2 strategies which change so much over time. For example, TISM is nothing like TISM in 1987 or even 2008. It is a completely different fund now - so how does one account for the current fund's performance going back in time? I guess all funds are also different - they follow different indices for better or worse. Is the CRSP index better than the MSCI total stock index or the Dow broad market index? What happens if a fund changes it's index every 10 years - does that matter when looking back - is it not significant? Is the market more efficient today (with all the computers and information) than it was in 1981 or 1972 or 1961 - and does that matter for future returns? I don't know the answers to these questions - just asking out loud for those smarter than me to give me clearer answers...

TIA

User avatar
nedsaid
Posts: 9530
Joined: Fri Nov 23, 2012 12:33 pm

Re: Paul Merriman criticism?

Post by nedsaid » Tue Oct 28, 2014 2:58 pm

larryswedroe wrote:Rick
FWIW IMO you are WAY off base on this one. First many people use that term. You yourself make decisions based on the evidence from peer reviewed journals. All it means is that the advice isn't based on opinions, but evidence, facts. It's totally different than smart beta which is purely a marketing term (though IMO not as "evil" as you make it out to be because one can make an argument that there is smart beta, such as excluded securities with pure risk characteristics like penny stocks for example).

Bottom line is investors should based decisions on evidence that is persistent and pervasive and has logical risk based or behavioral explanation. I'm pretty confident is saying that is what you do yourself.
Larry
I am with Larry on this one. The past data is all we have available to learn about how asset classes behaved in the past and how they are likely to behave in the future. We take what we learned from the past and make our best guesstimates for the future. We construct model portfolios and make projections about the future estimated returns. It isn't perfect but it is what we have.

I for one am not going to pound the table and say that my investment decisions are completely based on whim and that I ignore historical data. I am not going to say that I consult palm readers or fortune tellers to make investment decisions. Should we be "un-evidence" based investors?

Perhaps Rick's point is that marketing makes future performance to seem certain when in fact we don't know future asset class returns. My argument is that past data and experience give us a pretty good idea of what might happen in the future. Rick makes a good limited point about marketing hype but certainly he isn't telling us not to invest based on evidence.
A fool and his money are good for business.

209south
Posts: 467
Joined: Mon Jan 28, 2013 10:58 pm

Re: Paul Merriman criticism?

Post by 209south » Tue Oct 28, 2014 3:12 pm

Haven't followed Merriman but like what I've read on this thread...just ordered his latest book on Amazon!

Lessbro63 I also love that legacy idea...thanks for the link...my kids are older (19, 23 and 25) but I spend time thinking about the best way to put money away for their retirement (mine is in pretty good shape)...not huge amounts, but to Merriman's point, money I won't spend on some silly consumption item along the way. The annuity idea isn't low-cost but it does avoid the aggravation and cost of tax return filings each year.

babydoc
Posts: 6
Joined: Tue Jun 03, 2014 8:20 am

Re: Paul Merriman criticism?

Post by babydoc » Tue Oct 28, 2014 4:01 pm

He is definitely one of the good guys. While he can't guarantee the future, I like his approach. I like that in his retirement, he is dedicated towards educating the masses on making good financial choices while receiving no compensation. He has been very generous with his time by calling me personally a couple of times to answer an email question of mine. I was impressed since I don't even know him personally. Is he right all the time? I don't think he claims that, but he definitely has his heart in the right place and I appreciate what he is trying to do.

User avatar
Yesterdaysnews
Posts: 424
Joined: Sun Sep 14, 2014 1:25 pm

Re: Paul Merriman criticism?

Post by Yesterdaysnews » Tue Oct 28, 2014 7:49 pm

I am also a fan. Evidence based.

rjb112
Posts: 90
Joined: Sun Jan 05, 2014 6:27 am

Re: Paul Merriman criticism?

Post by rjb112 » Wed Oct 29, 2014 1:22 am

babydoc wrote:He is definitely one of the good guys. While he can't guarantee the future, I like his approach. I like that in his retirement, he is dedicated towards educating the masses on making good financial choices while receiving no compensation. He has been very generous with his time by calling me personally a couple of times to answer an email question of mine. I was impressed since I don't even know him personally. Is he right all the time? I don't think he claims that, but he definitely has his heart in the right place and I appreciate what he is trying to do.
I agree with what you said. That has also been my experience.
He also replied to an email question I sent him, which was surprising, and I don't know him personally either.

User avatar
tfb
Posts: 7838
Joined: Mon Feb 19, 2007 5:46 pm
Contact:

Re: Paul Merriman criticism?

Post by tfb » Wed Oct 29, 2014 1:54 am

ctreada wrote:Wondering what the criticisms are of his approach?
Too much emphasis on what worked in the past. Gives the impression it will work in the future, even though he says it's not guaranteed. Not enough caution on it might not work. The approach itself isn't necessarily bad. He just makes you feel more confident than you should be.
Harry Sit, taking a break from the forums.

User avatar
Rick Ferri
Posts: 8363
Joined: Mon Feb 26, 2007 11:40 am
Location: Austin, TX. Twitter: @Rick_Ferri
Contact:

Re: Paul Merriman criticism?

Post by Rick Ferri » Wed Oct 29, 2014 6:45 am

LittleD wrote:
Rick Ferri wrote:It falls in the same category as "smart beta."

Rick, this aversion to the term "Smart Beta" wears thin after awhile because we know you don't care for the marketing
aspect. Actually, I'm hearing the term "Strategic Beta" used more and more with these types of index formulations.
The correct term is "Additional Beta" because these strategies have additional risk over market risk. This is Gene Fama's term, not me.

Rick Ferri
The Education of an Index Investor: starts in darkness, finds enlightenment, overcomplicates everything, embraces simplicity.

Call_Me_Op
Posts: 6818
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Paul Merriman criticism?

Post by Call_Me_Op » Wed Oct 29, 2014 7:03 am

I think people sometimes get too wrapped-up in terminology. There are asset sub-classes that tend to have higher risk than the overall market, and if you are willing to take this additional risk you are likely to obtain a greater return. Doesn't matter what you call the strategy - it's just the old risk-return trade-off.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Grt2bOutdoors
Posts: 18438
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Paul Merriman criticism?

Post by Grt2bOutdoors » Wed Oct 29, 2014 7:06 am

Someone should drop Paul a line and have him come here and clarify his strategy.
I think his strategy is fine if one has the time and inclination to monitor and rebalance it, otherwise, there are other funds available that could suit your needs and it doesn't require 10 funds to do so.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Call_Me_Op
Posts: 6818
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Paul Merriman criticism?

Post by Call_Me_Op » Wed Oct 29, 2014 7:13 am

Grt2bOutdoors wrote:Someone should drop Paul a line and have him come here and clarify his strategy.
I think his strategy is fine if one has the time and inclination to monitor and rebalance it, otherwise, there are other funds available that could suit your needs and it doesn't require 10 funds to do so.
I don't think his strategy really requires clarification. It has been explained well in this thread. He believes in slicing-and-dicing equities to take advantage of small and value factors, along with broad international diversification - and periodic rebalancing. He believes in taking risk on the equity side and holding as much in equities as you can stomach. What needs further clarification?

Yes, this is more work than a 3-fund portfolio - but that work amounts to perhaps 30 minutes total per year.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

larryswedroe
Posts: 15625
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Paul Merriman criticism?

Post by larryswedroe » Wed Oct 29, 2014 7:56 am

Rick
For what it's worth, the term additional beta I don't think is an accurate one. Better term would be different beta ---different loadings on the factors or sources of returns. Now that might be smart (avoiding jackpot stocks for example IMO is smart and gives you different beta with much higher Sharpe Ratio historically, with higher returns and lower risk)

Larry

User avatar
Rick Ferri
Posts: 8363
Joined: Mon Feb 26, 2007 11:40 am
Location: Austin, TX. Twitter: @Rick_Ferri
Contact:

Re: Paul Merriman criticism?

Post by Rick Ferri » Thu Oct 30, 2014 9:28 am

larryswedroe wrote:Rick
For what it's worth, the term additional beta I don't think is an accurate one.
Larry
You'll need to argue that point with Gene Fama. See this direct quote in my article, Smart Beta Is Silly Talk.

“Multifactor models have factors in addition to the market factor, and the additional factors have their own regression slopes, which can be interpreted as additional betas. The additional betas are not alternative or smart." Nobel Laureate Eugene Fama

This makes good sense because all diversified portfolios have market beta (sensitivity to market fluctuations). Additional risks are added on to beta in a multifactor portfolio. These "additional betas" give a portfolio different factor loads than the market.

This is exactly how the FF 3-factor model equation reads. SmB and HmL are add-on risks to beta.


Rick Ferri
The Education of an Index Investor: starts in darkness, finds enlightenment, overcomplicates everything, embraces simplicity.

sschullo
Posts: 2363
Joined: Sun Apr 01, 2007 8:25 am
Location: Rancho Mirage, CA
Contact:

Re: Paul Merriman criticism?

Post by sschullo » Thu Oct 30, 2014 10:22 am

Grt2bOutdoors wrote:Someone should drop Paul a line and have him come here and clarify his strategy.
I think his strategy is fine if one has the time and inclination to monitor and rebalance it, otherwise, there are other funds available that could suit your needs and it doesn't require 10 funds to do so.
Grt2bOutdoors--I am sure Paul is reading this thread!

I have listened to Paul's pod casts for a decade. He is a good communicator to this ordinary chap about the complexities of investing.
There was one recent podcast that I thought he was over the top critical of Vanguard's asset allocation strategies for beginning investors. He has always differed with VG about VG broadest diversification possible, but this one podcast he really ripped VG apart. I was so disappointed I sent him a message and here is his response to my concerns about beating up on Vanguard over small cap and value investing.

Thanks Steve. It wasn't that I was off my game. I just think Vanguard and a lot of very large 401k plans take the easy path to offering advice and asset classes. My challenge is someone reads my material, as well as info from a lot of other advisors, and they are ready to take the steps to take advantage of the work of Dr. Fame and Dr. French (and other academics). I work hard to make the case and then the Vanguard advisor tries to convince investors it's too much value, too much small cap and too much international. Of course if they called Merrill Lynch they would probably say there is too much in index funds. I just want to prepare people that if they take my advice they will find a lot of people who disagree. It is a battle for the minds of investors. I have tried to make the evidence fairly clear so that the magic is eliminated. My daughter says I should focus on more magic in life and less control She may be right but I am still on the side of greater control when it comes to investing. If it means I have to be a little confrontational with Vanguard so be it. I think they are an amazing organization but their expertise is not in asset allocation. I would choose Fama and French over Bogle on asset allocation but that's my bias. There are lots of places to get very low cost access to DFA so I don't think the cost should be the stambling block. Let me have it! I'm very thick skinned. Thanks for listening to my podcasts. The best is yet to come.
All the best, Paul


Paul is one of the good guys. I don't agree with him about what is Vanguard trying to do to bring in new investors. IMO, Paul might be expecting too much from folks who are just beginning to learn this stuff. Come on, French/Fama for my teacher colleagues who don't understand how a mutual fund works! It takes time, sometimes a up to a lifetime.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

Post Reply