Bogle is pro-SCV!

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amd7239
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Bogle is pro-SCV!

Post by amd7239 »

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Re: Bogle is pro-SCV!

Post by saltycaper »

I can't listen to the whole interview right now. What time is SCV discussed?
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Re: Bogle is pro-SCV!

Post by zaboomafoozarg »

amd7239 wrote:The SCV tilt debate is over!

http://paulmerriman.com/10-lessons-jack ... dex-funds/
Just like the US-international allocation debate is over because Bogle advocates US-only? :D
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Re: Bogle is pro-SCV!

Post by amd7239 »

zaboomafoozarg wrote:
amd7239 wrote:The SCV tilt debate is over!

http://paulmerriman.com/10-lessons-jack ... dex-funds/
Just like the US-international allocation debate is over because Bogle advocates US-only? :D
Dammit, you're right!
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Re: Bogle is pro-SCV!

Post by willthrill81 »

Considering the historical record of SCV, I really don't see why there's a debate at all over the issue. SCV has beaten the S&P 500 in every single 20 year period save one, a remarkably reliable track record.

That being said, I wouldn't recommend that anyone go all in with SCV, nor do I even think that it should be the only class of equities one should own. But a tilt, even a strong one, in that direction just makes great sense to me.
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Re: Bogle is pro-SCV!

Post by Valuethinker »

willthrill81 wrote:Considering the historical record of SCV, I really don't see why there's a debate at all over the issue. SCV has beaten the S&P 500 in every single 20 year period save one, a remarkably reliable track record.

That being said, I wouldn't recommend that anyone go all in with SCV, nor do I even think that it should be the only class of equities one should own. But a tilt, even a strong one, in that direction just makes great sense to me.
Just be aware that these are not independent periods, they overlap.

We have few independent 20 year observations. Less that 7. And in the case of scv data is of poor,quality before roughly the 1950s.

Yes scv looks good but it's anything but a slam dunk in the data.
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Re: Bogle is pro-SCV!

Post by Dead Man Walking »

Which is the more important factor - small or value? The S&P 600 small cap index, a small cap blend index, has outperformed the S&P 500 index.

DMW
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Re: Bogle is pro-SCV!

Post by MotoTrojan »

Dead Man Walking wrote:Which is the more important factor - small or value? The S&P 600 small cap index, a small cap blend index, has outperformed the S&P 500 index.

DMW
S&P has quality/earnings requirements which could potentially tilt towards value by weeding out speculative small-cap growth companies...? Just an uninformed thought.

I personally tilt 27% of US equity to S&P 600 Value.
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Re: Bogle is pro-SCV!

Post by indexonlyplease »

Oh no are we now tilting to svc?? I have been all over Paul Marriman's web site and the svc tilt is on. But then some here say no some say yes. What is one to do??
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Re: Bogle is pro-SCV ???

Post by Taylor Larimore »

amd7239 wrote:The SCV tilt debate is over!

amd7239:

This is what Mr. Bogle said according to the MarketWatch article:
The way to really disappoint investors is to put them in diversified portfolios that don't behave like the broad market.
http://www.marketwatch.com/story/this-i ... 2017-07-20

Best wishes.
Taylor
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Re: Bogle is pro-SCV!

Post by iamlucky13 »

I don't tend to keep close track of what Mr. Bogle is saying at any given moment, and given how consistent his message is, I don't generally feel I'm missing out on much by doing so.

But I thought his position has always been that there is nothing really wrong with small cap and value stocks, but that the S&P 500 provides sufficient diversification for *most* investors and *most* investors should not make their portfolios any more complicated than necessary, or else they become more tempted to tinker with it and make bad decisions.
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Re: Bogle is pro-SCV!

Post by tnjj »

I did not gather the same thoughts as the OP. I listened to the podcast. The speaker addresses the subject beginning just after the 20:00 mark. The podcast is worth listening to, as you can better understand the speaker's views. But I did not understand the speaker to state that Bogle was pro-SCV.
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Re: Bogle is pro-SCV!

Post by TD2626 »

1. I think a small scv tilt may be reasonable for some
2. I think overdoing a scv tilt is too risky and is to be avoided
3. I think one needs to really understand what a scv tilt implies before any implementation
4. I think it's really a more risk, more reward story - nothing magical.
5. There is a risk that the premium from a scv tilt may go away for long periods - even forever.
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Re: Bogle is pro-SCV!

Post by Dead Man Walking »

MotoTrojan wrote:
Dead Man Walking wrote:Which is the more important factor - small or value? The S&P 600 small cap index, a small cap blend index, has outperformed the S&P 500 index.

DMW
S&P has quality/earnings requirements which could potentially tilt towards value by weeding out speculative small-cap growth companies...? Just an uninformed thought.

I personally tilt 27% of US equity to S&P 600 Value.
I should have used Vanguard Small Cap Index fund as an example since it is a purer cap based blend fund. The point I was trying to make was that small cap funds - growth, blend, and value - have outperformed Vanguard's 500 index fund.

I tilt toward small caps both domestically and internationally using blend funds.

DMW
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Re: Bogle is pro-SCV!

Post by whodidntante »

From there it is short walk to multifactor funds, and equity market neutral long-short strategies.
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Re: Bogle is pro-SCV!

Post by richardglm »

Apples and oranges

The argument for broad market index is that you are guaranteed mathematically to do exactly as well as the average domestic stock investor,before taxes and expenses, and practically guaranteed to outperform average net of taxes and fees.

That's a powerful argument to convince people on the fence about indexing. Who doesn't want guaranteed outperformance?

When you add in international and scv tilt, you give up this guarantee. You must give it up, because you're trying to get a different (higher) performance than the average investor. It's perfectly rational, since you expect higher returns. But you also might underperform average. It's a risk.

There's nothing wrong with either approach. To someone who is already deeply committed to index funds and low cost, maybe they don't care about the guarantee. To another the broad market indexing guarantee may be what sways them from active funds.
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Re: Bogle is pro-SCV!

Post by Valuethinker »

Dead Man Walking wrote:Which is the more important factor - small or value? The S&P 600 small cap index, a small cap blend index, has outperformed the S&P 500 index.

DMW
The Fama & French data says that the value effect is much the stronger, I believe.

That's also sustained by critiques by the likes of David Dreman, that small stocks have probably not done as well as the numbers imply, because the historic data is poor. You couldn't actually buy meaningful amounts of many of those stocks at the prices we have for them, in, say, the 1930s. They were far too illiquid and the prices were not reflective of what you could actually buy shares at.

One should always be aware the overwhelming likelihood is that the SCV effect comes with greater risk. Financial markets seldom offer free lunches.

I have also seen a lot of work that to exploit it you need to be able to short the most overvalued decile, as well as long the most undervalued. I.e. that much of the SCV benefit, in practice, can only be extracted by long-short funds.

It's the overvaluation of the high price-to-book (low book to market value in financial economics speak) that is a big part of the SCV effect.
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Re: Bogle is pro-SCV!

Post by grok87 »

A few thoughts.

1) fama and french have a new model that incorporates two new factors, profitability and "low investment" as well as their original small and value factors. In this model they found that value actually drops out, ie is no longer statistically significant. So f&f have no retraced the ground Buffet trod in moving from Benjamin Graham's "buy cheap stocks" to Munger's "buy companies with high gross margins and low need for recurring capital investment".

2) based on the above, value is dead, small lives on, and fama and french's research boils down to "buy the next up and coming company that buffet and munger would want to buy"

3) with value there is always the risk of "value traps", companies that are cheap for a reason, buying the next buggy whip manufacturer as the age of the automobile dawns.

4) small and value also traditionally do well in periods of unexpected inflation and very poorly in periods of deflation depression. But now that tips are available it's easier to hedge against unexpected inflation in a more guaranteed way.

5) so arguably one could take 2 different roads: a) treasuries and small cap value or b) tips and total stock market. With a) the treasuries should hedge the deflationary scenaRios when scv does poorly. But i prefer b) as the inflation hedge is more guaranteed and tips offer some protection against deflation if you buy an auction.

Hope this helps

Cheers
Grok
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Re: Bogle is pro-SCV!

Post by Angst »

grok87 wrote:[Snip...]

5) so arguably one could take 2 different roads: a) treasuries and small cap value or b) tips and total stock market. With a) the treasuries should hedge the deflationary scenaRios when scv does poorly. But i prefer b) as the inflation hedge is more guaranteed and tips offer some protection against deflation if you buy an auction.

Hope this helps

Cheers
Grok
Well no, it doesn't help! I hold mostly TIPS for FI and a lot of SCV. Now what do I do???

Just kidding, I'm ok. Interesting points you make though.
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Re: Bogle is pro-SCV!

Post by triceratop »

richardglm wrote:Apples and oranges

The argument for broad market index is that you are guaranteed mathematically to do exactly as well as the average domestic stock investor,before taxes and expenses, and practically guaranteed to outperform average net of taxes and fees.

That's a powerful argument to convince people on the fence about indexing. Who doesn't want guaranteed outperformance?

When you add in international and scv tilt, you give up this guarantee. You must give it up, because you're trying to get a different (higher) performance than the average investor. It's perfectly rational, since you expect higher returns. But you also might underperform average. It's a risk.

There's nothing wrong with either approach. To someone who is already deeply committed to index funds and low cost, maybe they don't care about the guarantee. To another the broad market indexing guarantee may be what sways them from active funds.
It's very strange to eschew International out of some desire to perform as well as the average domestic stock investors; actually what is strange is turning around and pretending this gives you the "total market" return. I see the point for market segments but you're under weighting stocks by excluding international.
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Re: Bogle is pro-SCV ???

Post by azanon »

Taylor Larimore wrote:
amd7239 wrote:The SCV tilt debate is over!

amd7239:

This is what Mr. Bogle said according to the MarketWatch article:
The way to really disappoint investors is to put them in diversified portfolios that don't behave like the broad market.
http://www.marketwatch.com/story/this-i ... 2017-07-20

Best wishes.
Taylor
Exactly. This is reckless misinformation if you ask me. Bogle is for owning the total US market at as low a cost as possible, and earning your fair share of the returns. He has said that countless times in various interviews.

I read this article yesterday and what I remember from it was that Bogle either said or implied that even if SCV can pay up to 1% more, there's an inherent danger that comes with the tracking error, and that it's much easier to accept temporary bear markets when everyone else is having one too.

Anyway, fast-forward to 2017, and now the herd is all about SCV. Even those not into investing are starting to hear about it now. Smart Beta is everywhere. Virtually all of the robos have this. So if you want to buy what's popular, that's definitely what you want.
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A Good Investor is Skeptical

Post by Taylor Larimore »

Which is the more important factor - small or value? The S&P 600 small cap index, a small cap blend index, has outperformed the S&P 500 index.
Bogleheads:

This post gives no dates. Every fund out-performs and under-performs another fund during certain periods.

"Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is bad idea." -- Bill Schultheis

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Taylor
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Re: Bogle is pro-SCV!

Post by Johnnie »

richardglm wrote:Apples and oranges

The argument for broad market index is that you are guaranteed mathematically to do exactly as well as the average domestic stock investor,before taxes and expenses, and practically guaranteed to outperform average net of taxes and fees.

That's a powerful argument to convince people on the fence about indexing. Who doesn't want guaranteed outperformance?

When you add in international and scv tilt, you give up this guarantee. You must give it up, because you're trying to get a different (higher) performance than the average investor. It's perfectly rational, since you expect higher returns. But you also might underperform average. It's a risk.

There's nothing wrong with either approach. To someone who is already deeply committed to index funds and low cost, maybe they don't care about the guarantee. To another the broad market indexing guarantee may be what sways them from active funds.
+1

My take is that Bogle's focus has always been firmly on the 401k masses who will NOT become educated about investing, are NOT bogleheads, but ARE chum in the water for Wall Street sharks. Saint Jack deserves the label because he helped create a "scaleable" product that serves those masses to a T(SM).

BTW, VG target date funds appear to have 60% TCM and 40% World Stock Mkt on the equity side. Add some value and it looks a lot what Merriman recommends.

Merriman has a different emphasis, which is less about scaleable products for the 401k masses (although he wouldn't mind if that happened). He writes for individuals who ARE interested and ARE willing to learn important details like, "Oh BTW, SCV may bring smiles in the long term, but be prepared for long periods when it may make you cry."

As Merriman reports, Bogle's fear is that too many of those 401k masses will become disappointed, bail on the tilt, and be worse off than if they'd stuck with TCM.

As Richard said, apples and oranges - and both are good!
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Re: A Good Investor is Skeptical

Post by saltycaper »

Taylor Larimore wrote:
Which is the more important factor - small or value? The S&P 600 small cap index, a small cap blend index, has outperformed the S&P 500 index.
Bogleheads:

This post gives no dates. Every fund out-performs and under-performs another fund during certain periods.

"Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is bad idea." -- Bill Schultheis

Best wishes
Taylor
The post also does not refer to any particular fund, so the fact that different funds outperform/underperform is not relevant to the post. Invoking Bill Schultheis is strange, too, as the traditional coffeehouse portfolio is tilted to small-cap, small-cap value, and large-cap value.
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Re: Bogle is pro-SCV ???

Post by saltycaper »

Taylor Larimore wrote:
This is what Mr. Bogle said according to the MarketWatch article:
The way to really disappoint investors is to put them in diversified portfolios that don't behave like the broad market.
http://www.marketwatch.com/story/this-i ... 2017-07-20

Best wishes.
Taylor
Catering to investor ignorance is not a good solution to a problem. By this logic, investors shouldn't hold bonds, since their portfolios will not track the stock market indices quoted in the popular press, and they thus will be disappointed in bull markets. We see this frequently when people compare their portfolios to the S&P 500 and wonder why their returns are subpar, and the reason is that they hold something other than just a broad market index fund, something entirely appropriate, such as bonds or international stocks. The better solution is to educate investors about why it's not only okay and normal but even preferable for their portfolios not to match the performance of the broad US stock market.
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Re: Bogle is pro-SCV!

Post by nedsaid »

I don't have 90 minutes right now for the interview but I would be utterly shocked that Jack Bogle would endorse Small-Value tilting. Otherwise, what would the point have been for his "Telltale Chart" speech given at a Morningstar Conference? I suppose he might admit that Small Value has outperformed but he would counter that only in more recent years has there been a practical way for small investors to invest in the small value space. Were there Small Value funds in 1926? 1936? 1946? 1956? 1966? He would also talk about the risk of tracking error from the broad indexes.

I have advocated factor tilting and have done this without realizing it for many years. I am getting concerned that academia has let the cat out of the bag and now Wall Street is chasing factors aggressively. Smart beta and all of that. I am reminded of the Yogi Berra quote, "That restaurant is getting so crowded that nobody goes there anymore." You have to wonder if the factor restaurant is getting too crowded.
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Re: Bogle is pro-SCV!

Post by saltycaper »

nedsaid wrote:
I am getting concerned that academia has let the cat out of the bag and now Wall Street is chasing factors aggressively. Smart beta and all of that. I am reminded of the Yogi Berra quote, "That restaurant is getting so crowded that nobody goes there anymore." You have to wonder if the factor restaurant is getting too crowded.
It's a self-correcting problem. Performance diminishes and both marketers and investors move on to something else. If there ever was a there there, it should still be there until/unless risk premia, human behavior, and the constraints of the way markets function (e.g., arbitrage) change. If you believe in those things, who cares about marketeers and buzzwords?
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Re: Bogle is pro-SCV!

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saltycaper wrote:
nedsaid wrote:
I am getting concerned that academia has let the cat out of the bag and now Wall Street is chasing factors aggressively. Smart beta and all of that. I am reminded of the Yogi Berra quote, "That restaurant is getting so crowded that nobody goes there anymore." You have to wonder if the factor restaurant is getting too crowded.
It's a self-correcting problem. Performance diminishes and both marketers and investors move on to something else. If there ever was a there there, it should still be there until/unless risk premia, human behavior, and the constraints of the way markets function (e.g., arbitrage) change. If you believe in those things, who cares about marketeers and buzzwords?
That has been my thinking as well. Factor tilting will require patience for this reason. Pretty much you have to outwait the Wall Street hype and marketing machine. That could take a while.
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Re: Bogle is pro-SCV!

Post by indexonlyplease »

Also, on a podcast with doughroller Paul Merriman stated he times the market. And it works.

Even the host was shock.


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Re: A Good Investor is Skeptical

Post by aegis965 »

Taylor Larimore wrote:
Which is the more important factor - small or value? The S&P 600 small cap index, a small cap blend index, has outperformed the S&P 500 index.
Bogleheads:

This post gives no dates. Every fund out-performs and under-performs another fund during certain periods.

"Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is bad idea." -- Bill Schultheis

Best wishes
Taylor
I don't see how factor is based on past performance. I believe everything about the robustness and pervasiveness of academic factors has been made very clear in Larry's book, which, I believe, many Bogleheads know about. And Larry himself had stated this again and again in this forum. Yet those who oppose still use the same outdated argument that doesn't even address to the question again and again like a broken record.
I may be biased.
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Re: A Good Investor is Skeptical

Post by Fryxell »

aegis965 wrote: I don't see how factor is based on past performance. I believe everything about the robustness and pervasiveness of academic factors has been made very clear in Larry's book, which, I believe, many Bogleheads know about. And Larry himself had stated this again and again in this forum. Yet those who oppose still use the same outdated argument that doesn't even address to the question again and again like a broken record.
It is based on past performance, but so is the evidence for the equity premium. Yet, people that don't believe in factors somehow still believe in the equity and term (bond) premiums. They'll still advise people to hold more stocks if they want greater returns. That's the inconsistency in the argument. To each their own.
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Re: A Good Investor is Skeptical

Post by pascalwager »

Fryxell wrote:
aegis965 wrote: I don't see how factor is based on past performance. I believe everything about the robustness and pervasiveness of academic factors has been made very clear in Larry's book, which, I believe, many Bogleheads know about. And Larry himself had stated this again and again in this forum. Yet those who oppose still use the same outdated argument that doesn't even address to the question again and again like a broken record.
It is based on past performance, but so is the evidence for the equity premium. Yet, people that don't believe in factors somehow still believe in the equity and term (bond) premiums. They'll still advise people to hold more stocks if they want greater returns. That's the inconsistency in the argument. To each their own.
Yes, and that might be a good reason to consider the cap-weighted world bond/stock portfolio the basic, default investment as per Bill Sharpe. Then you might decide to increase stocks if you're young, but it would be an acknowledged and legitimate bet. But now we have academic research (Fama-French, see Grok87 above) showing no significant risk premium for value as opposed to research, I assume, still showing a risk premium for stocks.

My own 23-year old portfolio is two-thirds DFA, mostly large value and and small company–some US deciles 6-10 value; so my long-standing bets (as per an advisor) haven't been overly successful. My other one-third portfolio (new) is a Bill Sharpe-type Vanguard world bond/stock market portfolio.

Anyway, a potential small value investor should probably read Larry's book and also note whether it was published prior to the latest Fama-French research, which might be a game-breaker.
Last edited by pascalwager on Fri Jul 21, 2017 3:02 pm, edited 1 time in total.
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Re: Bogle is pro-SCV!

Post by pascalwager »

I suspect that Mr. Bogle was only being polite, fully recognizing that Paul Merriman is a tireless advocate for small value investing.
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Re: Bogle is pro-SCV!

Post by grok87 »

Angst wrote:
grok87 wrote:[Snip...]

5) so arguably one could take 2 different roads: a) treasuries and small cap value or b) tips and total stock market. With a) the treasuries should hedge the deflationary scenaRios when scv does poorly. But i prefer b) as the inflation hedge is more guaranteed and tips offer some protection against deflation if you buy an auction.

Hope this helps

Cheers
Grok
Well no, it doesn't help! I hold mostly TIPS for FI and a lot of SCV. Now what do I do???

Just kidding, I'm ok. Interesting points you make though.
Thanks.
"Now what do i do"- pray the '30s don't repeat?
:)

I personally own predominantly tips that i bought at auction. I'm trying to figure out right now if and when i roll some of the older issues into newly auctioned ones to minimize my deflation exposure.

I guess that will be the proof of how much i believe my own argument. The transaction costs will be real. But the deflation is just a theoretical risk.
RIP Mr. Bogle.
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Re: A Good Investor is Skeptical

Post by aegis965 »

Fryxell wrote:
aegis965 wrote: I don't see how factor is based on past performance. I believe everything about the robustness and pervasiveness of academic factors has been made very clear in Larry's book, which, I believe, many Bogleheads know about. And Larry himself had stated this again and again in this forum. Yet those who oppose still use the same outdated argument that doesn't even address to the question again and again like a broken record.
It is based on past performance, but so is the evidence for the equity premium. Yet, people that don't believe in factors somehow still believe in the equity and term (bond) premiums. They'll still advise people to hold more stocks if they want greater returns. That's the inconsistency in the argument. To each their own.
What I meant was that stellar past performance does not make a factor. Everyone with a database can come up with some long-term-market-beating strategies, but that doesn't make their backtesting result a factor.
Edit: I know where I was wrong. I should have said factors are not "solely" based on past performance.
I may be biased.
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Re: Bogle is pro-SCV!

Post by Johnnie »

indexonlyplease wrote:Also, on a podcast with doughroller Paul Merriman stated he times the market. And it works.

Even the host was shock.


DR 270: The Ultimate Buy and Hold Strategy with Paul Merriman
Merriman says half his portfolio is in a "mechanical," rules-based momentum-based timing system that supposedly takes the human emotion element out of it (except for writing the rules). He reports that over time it has delivered about the same returns as his Ultimate buy-and-hold.

My read between the lines is this: Before the Fama/French research et al , this momentum system was used by the firm Merriman founded and ran. I ran across a newspaper article from around 2011 or 2012 that described how his son discovered the factor research and sold the old man, possibly around the time a successorship plan was nigh or underway.

But he still keeps half his own money in it, which I interpret as wanting to keep faith with his old clients. And because apparently it's an OK system if you're willing to pay a lot to have someone do it for you.

~~~~~~~~
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Re: Bogle is pro-SCV!

Post by Alchemist »

Given the lack of a published transcript, and Merriman's history of hyperbole, exaggerations, and potential mis-representations (see his articles on VTSAX for example...) I give little credence to his characterization of the discussion.

I know he is well thought of by many Bogleheads and I do not mean to offend them, but I just do not see whatever it is they do in the guy.
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