[Paul Merriman: This strategy beats a total stock market fund]

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garlandwhizzer
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[Paul Merriman: This strategy beats a total stock market fund]

Post by garlandwhizzer » Mon Oct 21, 2019 12:46 pm

Mr. Merriman is a scholar of the market and an honest man and his most recent article is interesting.

https://www.marketwatch.com/story/the-t ... =home-page

In the past Mr. Merriman has recommended as the "ultimate portfolio" 10 funds each at a 10% weight (6 US, 4 INTL) which looked very attractive on very long term backtesting to both in terms of return and diversification when it was first described. It hasn't done so well more recently however. In addition periodic rebalancing of a ten fund equity portfolio during both accumulation and decumulation phases is more work and complication than most investors want to do.

Now Paul simplifies with two suggestions. First, adding SCV to TSM. SCV offers most diversification per buck to TSM, making a substantial portfolio impact in returns and diversificaiton with just 10% SCV allocation. This is IMO a great choice. Second, apparently his current favorite portfolio is more simplified than the 10 fund of old. Now only 4 US funds: 25% SCV/25% SCG/25% LCV/25% LCG. This portfolio indeed seems much more diversified but the changes from his initial 10 fund suggestion are noteworthy. First of all, the initial 10 fund portfolio included REITS. Interestingly, REITS have modestly underperformed TSM over the last 10 years. Perhaps that had something to do with being dropped. Second, in the initial 10 fund portfolio, there was no specific growth exposure either in the LC or SC spaces, only 10% SCB and 10% LCB (S&P 500). It is interesting that Mr. Merriman, a factor enthusiast, now includes a 25% exposure to SCG which has been described in factor research as the "black hole of investing." Interestingly, SCG has outperformed both SCB and especially SCV over the last 10 years as measured by Vanguard, and in fact over the last 21 years since the inception of these funds. This in spite of being the "black hole of investing." Apparently Mr. Merriman adjusts his recommendations according to more recent reality rather than relying on backtesting back to 1927 more than six decades before factors were first described. The same thing in the LC space: Merriman now switches to LCG instead of LCB, this undoubtedly because again LCG has hugely outperformed LCV and modestly outperformed LCB over the last decade. Again as Vanguard measures V and G, growth has been the winner for 27 years in LC and 22 years in SC.

Two points to be made here. Reality of returns in real funds may or may not fit in well with factor theory depending on the time period chosen and who defines the factors. It is again easy to optimize things like trading frequency and factor definitions is retrospect, not so easy going forward. In fact the opposite of what is expected from theory may occur for long periods of time. Second, factor experts change their recommended portfolios to be in tune with more recent reality so that backtesting over more recent time frames than 1927 or 1970 continues to show their portfolios outperforming. It is incredibly easy to pick a portfolio that has outperformed over any given time frame in the past if you can do arithmetic. Whether that same portfolio will outperform in the future is not certain IMO.

Garland Whizzer

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Re: Paul Merriman article

Post by marcopolo » Mon Oct 21, 2019 1:18 pm

garlandwhizzer wrote:
Mon Oct 21, 2019 12:46 pm
Mr. Merriman is a scholar of the market and an honest man and his most recent article is interesting.

https://www.marketwatch.com/story/the-t ... =home-page

In the past Mr. Merriman has recommended as the "ultimate portfolio" 10 funds each at a 10% weight (6 US, 4 INTL) which looked very attractive on very long term backtesting to both in terms of return and diversification when it was first described. It hasn't done so well more recently however. In addition periodic rebalancing of a ten fund equity portfolio during both accumulation and decumulation phases is more work and complication than most investors want to do.

Now Paul simplifies with two suggestions. First, adding SCV to TSM. SCV offers most diversification per buck to TSM, making a substantial portfolio impact in returns and diversificaiton with just 10% SCV allocation. This is IMO a great choice. Second, apparently his current favorite portfolio is more simplified than the 10 fund of old. Now only 4 US funds: 25% SCV/25% SCG/25% LCV/25% LCG. This portfolio indeed seems much more diversified but the changes from his initial 10 fund suggestion are noteworthy. First of all, the initial 10 fund portfolio included REITS. Interestingly, REITS have modestly underperformed TSM over the last 10 years. Perhaps that had something to do with being dropped. Second, in the initial 10 fund portfolio, there was no specific growth exposure either in the LC or SC spaces, only 10% SCB and 10% LCB (S&P 500). It is interesting that Mr. Merriman, a factor enthusiast, now includes a 25% exposure to SCG which has been described in factor research as the "black hole of investing." Interestingly, SCG has outperformed both SCB and especially SCV over the last 10 years as measured by Vanguard, and in fact over the last 21 years since the inception of these funds. This in spite of being the "black hole of investing." Apparently Mr. Merriman adjusts his recommendations according to more recent reality rather than relying on backtesting back to 1927 more than six decades before factors were first described. The same thing in the LC space: Merriman now switches to LCG instead of LCB, this undoubtedly because again LCG has hugely outperformed LCV and modestly outperformed LCB over the last decade. Again as Vanguard measures V and G, growth has been the winner for 27 years in LC and 22 years in SC.

Two points to be made here. Reality of returns in real funds may or may not fit in well with factor theory depending on the time period chosen and who defines the factors. It is again easy to optimize things like trading frequency and factor definitions is retrospect, not so easy going forward. In fact the opposite of what is expected from theory may occur for long periods of time. Second, factor experts change their recommended portfolios to be in tune with more recent reality so that backtesting over more recent time frames than 1927 or 1970 continues to show their portfolios outperforming. It is incredibly easy to pick a portfolio that has outperformed over any given time frame in the past if you can do arithmetic. Whether that same portfolio will outperform in the future is not certain IMO.

Garland Whizzer
How does one distinguish these changes from performance chasing. We are often advised by factor proponents to be patient because factors can under perform, sometime for long periods of time. If we now follow this advice and rotate into the SCG and LCG areas, are we doing so after the "horse has left the barn"?

I can never figure out how to reconcile the "be patient" message with the "adjust your recommendation based on new info" message. Particularly, when the new info is recent under/over performance which we are supposed to be patient about....

To a rank amateur like me, it just seems like ANY strategy could be justified by using these two maxims in the right combinations.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Paul Merriman article

Post by Forester » Mon Oct 21, 2019 2:01 pm

marcopolo wrote:
Mon Oct 21, 2019 1:18 pm
How does one distinguish these changes from performance chasing.
Bogle told Merriman his 10 fund strategy was too complex, Merriman created Two Funds For Life in response.

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Re: Paul Merriman article

Post by marcopolo » Mon Oct 21, 2019 2:03 pm

Forester wrote:
Mon Oct 21, 2019 2:01 pm
marcopolo wrote:
Mon Oct 21, 2019 1:18 pm
How does one distinguish these changes from performance chasing.
Bogle told Merriman his 10 fund strategy was too complex, Merriman created Two Funds For Life in response.
I am not sure how that answers the question.
I am not necessarily against added complexity, if it provides a commensurate benefit.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Paul Merriman article

Post by rascott » Mon Oct 21, 2019 2:28 pm

I don't really read that as he's changing much of anything.

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Re: Paul Merriman article

Post by Jack FFR1846 » Mon Oct 21, 2019 2:31 pm

marcopolo wrote:
Mon Oct 21, 2019 2:03 pm
Forester wrote:
Mon Oct 21, 2019 2:01 pm
marcopolo wrote:
Mon Oct 21, 2019 1:18 pm
How does one distinguish these changes from performance chasing.
Bogle told Merriman his 10 fund strategy was too complex, Merriman created Two Funds For Life in response.
I am not sure how that answers the question.
I am not necessarily against added complexity, if it provides a commensurate benefit.
Given some specific time spans, it may have given commensurate benefit, had you invested that way for that time span. I believe that owning the entire haystack allows me to answer any question of "should this thing be added?" with "Already got that".
Bogle: Smart Beta is stupid

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Re: Paul Merriman article

Post by rascott » Mon Oct 21, 2019 2:40 pm

marcopolo wrote:
Mon Oct 21, 2019 2:03 pm
Forester wrote:
Mon Oct 21, 2019 2:01 pm
marcopolo wrote:
Mon Oct 21, 2019 1:18 pm
How does one distinguish these changes from performance chasing.
Bogle told Merriman his 10 fund strategy was too complex, Merriman created Two Funds For Life in response.
I am not sure how that answers the question.
I am not necessarily against added complexity, if it provides a commensurate benefit.


Merriman talks about this constantly.... in his articles and podcasts. Reams of historical data.

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Re: Paul Merriman article

Post by marcopolo » Mon Oct 21, 2019 3:04 pm

rascott wrote:
Mon Oct 21, 2019 2:40 pm
marcopolo wrote:
Mon Oct 21, 2019 2:03 pm
Forester wrote:
Mon Oct 21, 2019 2:01 pm
marcopolo wrote:
Mon Oct 21, 2019 1:18 pm
How does one distinguish these changes from performance chasing.
Bogle told Merriman his 10 fund strategy was too complex, Merriman created Two Funds For Life in response.
I am not sure how that answers the question.
I am not necessarily against added complexity, if it provides a commensurate benefit.


Merriman talks about this constantly.... in his articles and podcasts. Reams of historical data.
Data != Knowledge, or even necessarily useful insight.

Everyone is looking at the same data, and coming to different conclusions, even amongst strong advocates for factor tilting. Look at all the threads about SCV, where people look at the same data and conclude that the long period of under performance is a sure sign that SCV is under valued and poised to outperform going forward. Merriman here, seemingly looks at the same data and essentially says, "I have earned from new information", SCG is now the place to be".
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Paul Merriman article

Post by rascott » Mon Oct 21, 2019 3:06 pm

marcopolo wrote:
Mon Oct 21, 2019 3:04 pm
rascott wrote:
Mon Oct 21, 2019 2:40 pm
marcopolo wrote:
Mon Oct 21, 2019 2:03 pm
Forester wrote:
Mon Oct 21, 2019 2:01 pm
marcopolo wrote:
Mon Oct 21, 2019 1:18 pm
How does one distinguish these changes from performance chasing.
Bogle told Merriman his 10 fund strategy was too complex, Merriman created Two Funds For Life in response.
I am not sure how that answers the question.
I am not necessarily against added complexity, if it provides a commensurate benefit.


Merriman talks about this constantly.... in his articles and podcasts. Reams of historical data.
Data != Knowledge, or even necessarily useful insight.

Everyone is looking at the same data, and coming to different conclusions, even amongst strong advocates for factor tilting. Look at all the threads about SCV, where people look at the same data and conclude that the long period of under performance is a sure sign that SCV is under valued and poised to outperform going forward. Merriman here, seemingly looks at the same data and essentially says, "I have earned from new information", SCG is now the place to be".

Except he says nothing like that. I listen to his podcast every week and never have heard him recommend SCG. I wonder if that was an error in that article where he meant to say SCB.

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Re: Paul Merriman article

Post by greg24 » Mon Oct 21, 2019 3:11 pm

He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."

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Re: Paul Merriman article

Post by willthrill81 » Mon Oct 21, 2019 3:12 pm

greg24 wrote:
Mon Oct 21, 2019 3:11 pm
He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."
What's the advantage to owning both LCG and LCV rather than just LC? Ditto for SCG and SCV.

IIRC, owning LC and SCV give you the greatest diversification.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Paul Merriman article

Post by steve roy » Mon Oct 21, 2019 3:21 pm

Merriman’s recommendation is close to what we’re currently doing with equities, though the portfolio has 70% fixed income.

My two cents: a three fund portfolio is fine; Merriman’s blend is fine. Lots of combinations will work, but knowing which will work BEST is unknowable until after the fact.

The solution is to set up your “ideal” AA, stick with it and live with it. And be prepared to weep bitter tears when the Livesoft Ultimate Portfolio does better.

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Re: Paul Merriman article

Post by rascott » Mon Oct 21, 2019 3:31 pm

greg24 wrote:
Mon Oct 21, 2019 3:11 pm
He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."

I mean that he's never recommend such a combo ever..... he has often talked about a 4 fund combo of

LCB
LCV
SCB
SCV

And has long put up the historical returns of that compared to just the total market index/ LCB on his website.

That's why I wonder if this wasn't some typo/ editing issue. As I've never once heard him recommend a growth fund.

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Re: Paul Merriman article

Post by Leif » Mon Oct 21, 2019 3:32 pm

I did talk with Paul once about his Ultimate Portfolio. I pointed him to the thread here that discusses the simplified version of that. Paul always likes to say if he finds a better portfolio he will change. The thread here is:

Ultimate Buy and Hold - 8 slices vs 4

However, he never responded to that thread. Perhaps he did and I missed it on his podcast.

It's too bad the pics are now gone from Trev's thread. They showed a compelling story. I am surprised at the SG component, even if it has done well recently.
Last edited by Leif on Mon Oct 21, 2019 3:39 pm, edited 1 time in total.

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Re: Paul Merriman article

Post by rascott » Mon Oct 21, 2019 3:33 pm

willthrill81 wrote:
Mon Oct 21, 2019 3:12 pm
greg24 wrote:
Mon Oct 21, 2019 3:11 pm
He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."
What's the advantage to owning both LCG and LCV rather than just LC? Ditto for SCG and SCV.

IIRC, owning LC and SCV give you the greatest diversification.
Those are my only two core holdings.

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Re: Paul Merriman article

Post by marcopolo » Mon Oct 21, 2019 3:56 pm

rascott wrote:
Mon Oct 21, 2019 3:31 pm
greg24 wrote:
Mon Oct 21, 2019 3:11 pm
He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."

I mean that he's never recommend such a combo ever..... he has often talked about a 4 fund combo of

LCB
LCV
SCB
SCV

And has long put up the historical returns of that compared to just the total market index/ LCB on his website.

That's why I wonder if this wasn't some typo/ editing issue. As I've never once heard him recommend a growth fund.
This wasn't someone paraphrasing (and possibly mis-squoting) what he said, this was an article he wrote. He mentions it twice. Once saying these are the four major asset classes, and again later in the article where he says it is a better idea, comparing it specifically to adding just SCV (discussed in paragraph just preceding the "But, here is an even better idea..." quote). Hard to see how that is a typo or editing error.

You are right he has never suggested this before, which is precisely my point. Is he chasing performance, "learning from new information", what do the "be patient" factor proponent say? What are individual investors to make of these seemingly diametrically opposed viewpoint on factors?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Paul Merriman article

Post by Hector » Mon Oct 21, 2019 4:28 pm

rascott wrote:
Mon Oct 21, 2019 3:33 pm
willthrill81 wrote:
Mon Oct 21, 2019 3:12 pm
greg24 wrote:
Mon Oct 21, 2019 3:11 pm
He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."
What's the advantage to owning both LCG and LCV rather than just LC? Ditto for SCG and SCV.

IIRC, owning LC and SCV give you the greatest diversification.
Those are my only two core holdings.
1) We used to have posts mentioning mid cap is better than who knows what...
2) Holding only SCV and LC also means, you are holding X # of companies in SCV. Few of them are in mid cap now(these few companies experiences appreciated price). Price appreciated more and became large. Now you are buying them back.

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Re: Paul Merriman article

Post by gquogue » Mon Oct 21, 2019 4:29 pm

I also thought that splitting value/growth like this would effectively cancel out any exposure to both the value factor and growth factor (even if growth is not typically referred to as a factor), rendering this allocation neutral and therefore without a point? Isn't this why AQR holds long-short positions, to double up the value exposure?

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Re: Paul Merriman article

Post by Northern Flicker » Mon Oct 21, 2019 5:12 pm

greg24 wrote:
Mon Oct 21, 2019 3:11 pm
He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."
It is an inefficient portfolio. When a stock moves from one of the subclasses to another, one of the funds held will sell it and another will buy it, generating transaction costs within the funds that are a drag on return. At the same time, the aggregate underlying portfolio held by the investor is not changing in any significant way.
Risk provides no guarantee of return.

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Re: Paul Merriman article

Post by willthrill81 » Mon Oct 21, 2019 5:27 pm

gquogue wrote:
Mon Oct 21, 2019 4:29 pm
I also thought that splitting value/growth like this would effectively cancel out any exposure to both the value factor and growth factor (even if growth is not typically referred to as a factor), rendering this allocation neutral and therefore without a point?
Correct. Owning both growth and value, at least of the same size (e.g. LCG and LCV), is pointless. It may actually be harmful due to slightly higher expense ratios with such funds.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Paul Merriman

Post by Taylor Larimore » Mon Oct 21, 2019 6:16 pm

rascott wrote:Merriman talks about this constantly.... in his articles and podcasts. Reams of historical data.
Bogleheads:

Mr. Merriman is a very informed and convincing speaker and writer, but he leaves out historical data such as his four market-timing mutual funds.

https://www.marketwatch.com/lazyportfolio

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Re: Paul Merriman article

Post by gquogue » Mon Oct 21, 2019 8:04 pm

willthrill81 wrote:
Mon Oct 21, 2019 5:27 pm
gquogue wrote:
Mon Oct 21, 2019 4:29 pm
I also thought that splitting value/growth like this would effectively cancel out any exposure to both the value factor and growth factor (even if growth is not typically referred to as a factor), rendering this allocation neutral and therefore without a point?
Correct. Owning both growth and value, at least of the same size (e.g. LCG and LCV), is pointless. It may actually be harmful due to slightly higher expense ratios with such funds.
Right, so I just don't understand how this could be the recommendation. Not sure why you wouldn't just do blend funds.

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Re: Paul Merriman article

Post by unclescrooge » Mon Oct 21, 2019 8:16 pm

willthrill81 wrote:
Mon Oct 21, 2019 5:27 pm
gquogue wrote:
Mon Oct 21, 2019 4:29 pm
I also thought that splitting value/growth like this would effectively cancel out any exposure to both the value factor and growth factor (even if growth is not typically referred to as a factor), rendering this allocation neutral and therefore without a point?
Correct. Owning both growth and value, at least of the same size (e.g. LCG and LCV), is pointless. It may actually be harmful due to slightly higher expense ratios with such funds.
Only if you split the index down the middle, like vanguard does. If you choose the top quintile of growth of value you get a different portfolio than just a blend.

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Re: Paul Merriman article

Post by willthrill81 » Mon Oct 21, 2019 8:37 pm

unclescrooge wrote:
Mon Oct 21, 2019 8:16 pm
willthrill81 wrote:
Mon Oct 21, 2019 5:27 pm
gquogue wrote:
Mon Oct 21, 2019 4:29 pm
I also thought that splitting value/growth like this would effectively cancel out any exposure to both the value factor and growth factor (even if growth is not typically referred to as a factor), rendering this allocation neutral and therefore without a point?
Correct. Owning both growth and value, at least of the same size (e.g. LCG and LCV), is pointless. It may actually be harmful due to slightly higher expense ratios with such funds.
Only if you split the index down the middle, like vanguard does. If you choose the top quintile of growth of value you get a different portfolio than just a blend.
It's theoretically possible for a portfolio with 'deep' value and 'deep' growth to perform differently than a blend, but I've not seen any empirical evidence that it can be achieved with consistency in the real world nor that it would be worthwhile.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Paul Merriman article

Post by whodidntante » Mon Oct 21, 2019 8:41 pm

garlandwhizzer wrote:
Mon Oct 21, 2019 12:46 pm
It is interesting that Mr. Merriman, a factor enthusiast, now includes a 25% exposure to SCG which has been described in factor research as the "black hole of investing." Interestingly, SCG has outperformed both SCB and especially SCV over the last 10 years as measured by Vanguard, and in fact over the last 21 years since the inception of these funds. This in spite of being the "black hole of investing."
I think the black hole refers to lottery tickets. Those won't make it into a growth fund that has a quality screen, like IJT.

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Re: Paul Merriman article

Post by Random Musings » Mon Oct 21, 2019 9:04 pm

I'm not a backtesting type of person, but wouldn't rebalancing LCG and SCV (yearly, as one example) vs the Dean Smith inspired four corners investing offense work better as the cycles between large and small and growth and value would be exploited more effectively?

RM
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Re: Paul Merriman article

Post by arcticpineapplecorp. » Mon Oct 21, 2019 9:23 pm

thanks for sharing. this was a bit surprising (the small cap growth part) because he and Larry Swedroe have often referred to SCG I believe as buying lottery tickets.

Anyway, I like Paul and how he builds portfolios, but he has so many different machinations (ultimate buy and hold, m1, motif, ultimate 2 funds for life) that it seems like the article "150 portfolios better than yours":

https://www.whitecoatinvestor.com/150-p ... han-yours/

I'm having trouble with titling something "ultimate" when he keeps changing/tweeking his portfolios!
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Re: Paul Merriman article

Post by unclescrooge » Mon Oct 21, 2019 9:48 pm

willthrill81 wrote:
Mon Oct 21, 2019 8:37 pm
unclescrooge wrote:
Mon Oct 21, 2019 8:16 pm
willthrill81 wrote:
Mon Oct 21, 2019 5:27 pm
gquogue wrote:
Mon Oct 21, 2019 4:29 pm
I also thought that splitting value/growth like this would effectively cancel out any exposure to both the value factor and growth factor (even if growth is not typically referred to as a factor), rendering this allocation neutral and therefore without a point?
Correct. Owning both growth and value, at least of the same size (e.g. LCG and LCV), is pointless. It may actually be harmful due to slightly higher expense ratios with such funds.
Only if you split the index down the middle, like vanguard does. If you choose the top quintile of growth of value you get a different portfolio than just a blend.
It's theoretically possible for a portfolio with 'deep' value and 'deep' growth to perform differently than a blend, but I've not seen any empirical evidence that it can be achieved with consistency in the real world nor that it would be worthwhile.
What about a portfolio of deep value within deep growth? :mrgreen:

Basically you choose the cheapest, high-growth stocks. Or vice-versa.

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Re: Paul Merriman article

Post by cp73 » Mon Oct 21, 2019 10:05 pm

Interesting reading different takes on Merrimans article. I listen to him all the time through his podcasts and articles on his site and appreciate his advice. To me what I read in this article isn't changing any of his beliefs. He first talks about the Total Stock Market vs the SP 500 and their performance and over time they are very similar. He then suggests adding SCV to the Stock Market Index or SP500. He then suggest ditching Total Stock Market Index/SP500 and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value to increase your returns. So at the end of the day you have those last four funds plus SCV. Just another way to increase your returns rather than using just index funds. Although in this article he didn't mention his Ultimate Buy & Hold portfolio with 10 funds, he has admitted that for some investors its too much work keeping them balanced. Possibly he will comment himself in this thread.

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Re: Paul Merriman article

Post by JoMoney » Mon Oct 21, 2019 10:06 pm

unclescrooge wrote:
Mon Oct 21, 2019 9:48 pm
...
What about a portfolio of deep value within deep growth? :mrgreen:

Basically you choose the cheapest, high-growth stocks. Or vice-versa.
I remember when the fad was "Growth At a Reasonable Price" (GARP), popularized by Peter Lynch.
Great story, simple formula (PEG ratio ... picking the lowest priced stocks with the highest expected earnings growth), in practice ... meh ... a blend that typically fell between growth and value. Typically averaged about average (as most do, on average)...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Paul Merriman article

Post by rascott » Mon Oct 21, 2019 10:20 pm

Hector wrote:
Mon Oct 21, 2019 4:28 pm
rascott wrote:
Mon Oct 21, 2019 3:33 pm
willthrill81 wrote:
Mon Oct 21, 2019 3:12 pm
greg24 wrote:
Mon Oct 21, 2019 3:11 pm
He may not have mentioned SCG on his podcast, but the linked article we are discussing includes these quotes:

"The four most important U.S. equity asset classes are large-cap growth, large-cap value, small-cap growth, and small-cap value."

"But here’s an even better idea for the equity part of your portfolio: Ditch the TMI or S&P 500 fund, and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value."
What's the advantage to owning both LCG and LCV rather than just LC? Ditto for SCG and SCV.

IIRC, owning LC and SCV give you the greatest diversification.
Those are my only two core holdings.
1) We used to have posts mentioning mid cap is better than who knows what...
2) Holding only SCV and LC also means, you are holding X # of companies in SCV. Few of them are in mid cap now(these few companies experiences appreciated price). Price appreciated more and became large. Now you are buying them back.

I doubt very few companies are going from small cap all the way to large cap, in an investor's lifetime. At one time I held small/mid/large in equal proportions, but determined that wasn't really necessary.
Last edited by rascott on Mon Oct 21, 2019 10:21 pm, edited 1 time in total.

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Re: Paul Merriman article

Post by whodidntante » Mon Oct 21, 2019 10:21 pm

unclescrooge wrote:
Mon Oct 21, 2019 9:48 pm

What about a portfolio of deep value within deep growth? :mrgreen:

Basically you choose the cheapest, high-growth stocks. Or vice-versa.
That sounds like every stock mutual fund prospectus from the 90's.

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Re: Paul Merriman article

Post by whodidntante » Mon Oct 21, 2019 10:24 pm

cp73 wrote:
Mon Oct 21, 2019 10:05 pm
Interesting reading different takes on Merrimans article. I listen to him all the time through his podcasts and articles on his site and appreciate his advice. To me what I read in this article isn't changing any of his beliefs. He first talks about the Total Stock Market vs the SP 500 and their performance and over time they are very similar. He then suggests adding SCV to the Stock Market Index or SP500. He then suggest ditching Total Stock Market Index/SP500 and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value to increase your returns. So at the end of the day you have those last four funds plus SCV. Just another way to increase your returns rather than using just index funds. Although in this article he didn't mention his Ultimate Buy & Hold portfolio with 10 funds, he has admitted that for some investors its too much work keeping them balanced. Possibly he will comment himself in this thread.
Yeah, a lot of these "let's throw tomatoes at the factorhead" threads end up being a showcase of biases.

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Re: Paul Merriman article

Post by marcopolo » Mon Oct 21, 2019 10:40 pm

whodidntante wrote:
Mon Oct 21, 2019 10:24 pm
cp73 wrote:
Mon Oct 21, 2019 10:05 pm
Interesting reading different takes on Merrimans article. I listen to him all the time through his podcasts and articles on his site and appreciate his advice. To me what I read in this article isn't changing any of his beliefs. He first talks about the Total Stock Market vs the SP 500 and their performance and over time they are very similar. He then suggests adding SCV to the Stock Market Index or SP500. He then suggest ditching Total Stock Market Index/SP500 and diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value to increase your returns. So at the end of the day you have those last four funds plus SCV. Just another way to increase your returns rather than using just index funds. Although in this article he didn't mention his Ultimate Buy & Hold portfolio with 10 funds, he has admitted that for some investors its too much work keeping them balanced. Possibly he will comment himself in this thread.
Yeah, a lot of these "let's throw tomatoes at the factorhead" threads end up being a showcase of biases.
There is a lot of bias being displayed on both sides. One poster keeps insisting Merriman did not say what he clearly states in the article.
Even the post you responded to says nothing has changed. How do you go from SCV tilt to equal weight SCV SCG LCV and LCG, and not consider that a change? The recommendation was NOT the 4 in ADDITION to SCV tilt, it was in place of it. He describes SCV tilt as a strategy and then says "But here’s an even better idea.." about the 4 equal weighted portfolio. You really have to have some blinders (bias) to say this is not a change in strategy from a SCV tilted portfolio.

I don't claim to know whether "factorheads" are right or wrong because i still can't figure out what the strategy is. Stay committed through under performance, or change strategy as new information becomes available. Since there is always new information becoming available, the two seem contradictory to me, yet i see both being touted based on whichever suits the current recommendation.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Paul Merriman article

Post by Jags4186 » Mon Oct 21, 2019 10:46 pm

I think the article is an error. Paul Merriman never recommends holding SCG or LCG as stand alone asset classes. He recommends holding them as part of a blend asset class.

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Re: Paul Merriman article

Post by marcopolo » Mon Oct 21, 2019 10:50 pm

Jags4186 wrote:
Mon Oct 21, 2019 10:46 pm
I think the article is an error. Paul Merriman never recommends holding SCG or LCG as stand alone asset classes. He recommends holding them as part of a blend asset class.
He wrote the article.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Paul Merriman article

Post by Jags4186 » Mon Oct 21, 2019 10:56 pm

marcopolo wrote:
Mon Oct 21, 2019 10:50 pm
Jags4186 wrote:
Mon Oct 21, 2019 10:46 pm
I think the article is an error. Paul Merriman never recommends holding SCG or LCG as stand alone asset classes. He recommends holding them as part of a blend asset class.
He wrote the article.
I know he did. I think he made an error or the editors did.

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Re: Paul Merriman article

Post by MrMatt2532 » Mon Oct 21, 2019 11:01 pm

To echo others: I think you are reading into nothing here. Read blend wherever it says growth.

I recall some of his old material explaining his strategy simply like this: “half large, half small, half value, half growth”, but when you actually construct the thing he uses blend instead of growth.

Also, I wouldn’t assume since REITS aren’t mentioned that he dropped those from the strategy. This is a high level article, not something that spells out the strategy precisely.

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Re: Paul Merriman article

Post by Forester » Tue Oct 22, 2019 2:13 am

Jags4186 wrote:
Mon Oct 21, 2019 10:46 pm
I think the article is an error. Paul Merriman never recommends holding SCG or LCG as stand alone asset classes. He recommends holding them as part of a blend asset class.
I agree, it's a typo or editing error.

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Re: Paul Merriman article

Post by Longtermgrowth » Tue Oct 22, 2019 6:37 am

Jags4186 wrote:
Mon Oct 21, 2019 10:46 pm
I think the article is an error. Paul Merriman never recommends holding SCG or LCG as stand alone asset classes. He recommends holding them as part of a blend asset class.
I agree. If it said diversify equally between large and small, while overweighting the value side of both large and small, that would sound more like what Mr. Merriman recommends.

He even states further up in the article that shifting just 10% of a total market fund into small value could boost returns 25% over a 40 year period.

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Re: Paul Merriman article

Post by paul merriman » Tue Oct 22, 2019 7:35 am

Most of what you all said is right, I generally write/talk about combining large and small cap blend (which, depending how you differentiate growth from value, is mostly growth) with large and small cap value . In an attempt to simplify the article (always trying to limit word count at Marketwatch) we used the word growth rather than blend. There is no risk in the past. We always know what we should have done. We should have used blend and taken a few words to make it clear that blend is a combination of growth and value. By the way, there are situations where I am okay using an all small cap value portfolio. In my article, "How to turn $3,000 into $50 million" I suggest using small cap value to fund a strategy for a newborn child. The other strategy that has a lot of small cap value is a 2 Funds for Life strategy. The amount of small cap value position is determined by multiplying your age by 1.5 and putting that amount into a Vanguard target date fund with the balance invested in a small cap value fund or ETF. Using that formula automatically reduces the small cap value as the investor gets closer and closer to retirement. At age 66 the formula would have an investor 100% in the TDF. By the way, I'm 76 and in my own portfolio (buy and hold portion) I have 50% of my equities in small cap, with half of that in small cap blend and half in small cap value and half of each of those in U.S. and half in international equity asset classes. I mention that only to make the point that none of my recommendations or studies are meant to be used without a lot of personal knowledge of an investors risk tolerance and need for return. I am sincere when I say it is an honor to be part of this discussion. Thanks for allowing me the opportunity to respond.

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Re: Paul Merriman article

Post by snailderby » Tue Oct 22, 2019 8:17 am

paul merriman wrote:
Tue Oct 22, 2019 7:35 am
Most of what you all said is right, I generally write/talk about combining large and small cap blend (which, depending how you differentiate growth from value, is mostly growth) with large and small cap value . In an attempt to simplify the article (always trying to limit word count at Marketwatch) we used the word growth rather than blend. There is no risk in the past. We always know what we should have done. We should have used blend and taken a few words to make it clear that blend is a combination of growth and value. By the way, there are situations where I am okay using an all small cap value portfolio. In my article, "How to turn $3,000 into $50 million" I suggest using small cap value to fund a strategy for a newborn child. The other strategy that has a lot of small cap value is a 2 Funds for Life strategy. The amount of small cap value position is determined by multiplying your age by 1.5 and putting that amount into a Vanguard target date fund with the balance invested in a small cap value fund or ETF. Using that formula automatically reduces the small cap value as the investor gets closer and closer to retirement. At age 66 the formula would have an investor 100% in the TDF. By the way, I'm 76 and in my own portfolio (buy and hold portion) I have 50% of my equities in small cap, with half of that in small cap blend and half in small cap value and half of each of those in U.S. and half in international equity asset classes. I mention that only to make the point that none of my recommendations or studies are meant to be used without a lot of personal knowledge of an investors risk tolerance and need for return. I am sincere when I say it is an honor to be part of this discussion. Thanks for allowing me the opportunity to respond.
Thanks for all you do to contribute to this conversation, Paul. I think the 2 Funds for Life strategy is an interesting idea, although I don't use it myself.
Last edited by snailderby on Tue Oct 22, 2019 12:44 pm, edited 1 time in total.

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Re: Paul Merriman article

Post by donaldfair71 » Tue Oct 22, 2019 8:20 am

Leif wrote:
Mon Oct 21, 2019 3:32 pm
I did talk with Paul once about his Ultimate Portfolio. I pointed him to the thread here that discusses the simplified version of that. Paul always likes to say if he finds a better portfolio he will change. The thread here is:

Ultimate Buy and Hold - 8 slices vs 4

However, he never responded to that thread. Perhaps he did and I missed it on his podcast.

It's too bad the pics are now gone from Trev's thread. They showed a compelling story. I am surprised at the SG component, even if it has done well recently.
He mentioned it on a podcast this past summer towards the end when he answers e-mails. To summarize, he said that it probably would be okay, but he doesn't see much value in the drag of 25% S&P500, which has shown to be inferior over time.

Edit: It was addressed on the 6/26 episode at 31:31.
Last edited by donaldfair71 on Tue Oct 22, 2019 8:28 am, edited 1 time in total.

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Re: Paul Merriman article

Post by donaldfair71 » Tue Oct 22, 2019 8:27 am

I feel lost.

I have listened to every one of his podcasts and thought that the goal of the 8 fund (and subsequent 4 fund invented here) was to have an equal (or just about equal) amount in the Morningstar style boxes that rep:
Small/Mid/large
Value/Blend/Growth

Is it possible that this is what is meant in this article? It would round the seemingly square peg. I am certain I have heard him call SG the "Black Hole of investing", but also that there is some in there just in case for diversification purposes.

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Re: [Paul Merriman: This strategy beats a total stock market fund]

Post by LadyGeek » Tue Oct 22, 2019 9:14 am

I retitled the thread for clarity. Also, I confirm that paul merriman is indeed the article's author.
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Re: Paul Merriman article

Post by WoodSpinner » Tue Oct 22, 2019 9:24 am

paul merriman wrote:
Tue Oct 22, 2019 7:35 am
Most of what you all said is right, I generally write/talk about combining large and small cap blend (which, depending how you differentiate growth from value, is mostly growth) with large and small cap value . In an attempt to simplify the article (always trying to limit word count at Marketwatch) we used the word growth rather than blend. There is no risk in the past. We always know what we should have done. We should have used blend and taken a few words to make it clear that blend is a combination of growth and value. By the way, there are situations where I am okay using an all small cap value portfolio. In my article, "How to turn $3,000 into $50 million" I suggest using small cap value to fund a strategy for a newborn child. The other strategy that has a lot of small cap value is a 2 Funds for Life strategy. The amount of small cap value position is determined by multiplying your age by 1.5 and putting that amount into a Vanguard target date fund with the balance invested in a small cap value fund or ETF. Using that formula automatically reduces the small cap value as the investor gets closer and closer to retirement. At age 66 the formula would have an investor 100% in the TDF. By the way, I'm 76 and in my own portfolio (buy and hold portion) I have 50% of my equities in small cap, with half of that in small cap blend and half in small cap value and half of each of those in U.S. and half in international equity asset classes. I mention that only to make the point that none of my recommendations or studies are meant to be used without a lot of personal knowledge of an investors risk tolerance and need for return. I am sincere when I say it is an honor to be part of this discussion. Thanks for allowing me the opportunity to respond.
Thanks for stepping and clarifying your thoughts. Obviously, your voice and thinking matter — lot’s of us listen, discuss, and strategize.

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Re: Paul Merriman article

Post by Jack FFR1846 » Tue Oct 22, 2019 9:35 am

paul merriman wrote:
Tue Oct 22, 2019 7:35 am
There is no risk in the past.
I'm going to remember this. So true.
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Re: Paul Merriman article

Post by YRT70 » Tue Oct 22, 2019 9:45 am

paul merriman wrote:
Tue Oct 22, 2019 7:35 am
Most of what you all said is right, I generally write/talk about combining large and small cap blend (which, depending how you differentiate growth from value, is mostly growth) with large and small cap value . In an attempt to simplify the article (always trying to limit word count at Marketwatch) we used the word growth rather than blend. There is no risk in the past. We always know what we should have done. We should have used blend and taken a few words to make it clear that blend is a combination of growth and value.
Hi Paul, thanks for contributing. If you meant to say blend but the article says growth, shouldn't the article be corrected?

The article as it is now will lead many people to believe that you're recommending small cap growth. Examples can be seen in this thread and in the comments.

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Re: [Paul Merriman: This strategy beats a total stock market fund]

Post by TSPballer » Tue Oct 22, 2019 10:18 am

If I'm understanding what I've read correctly:

Article states: 4x25% SCV, SCG, LCV, LCG

Mr. Merriman intended: 4x25% SCV, SCB, LCV, LCB

If that's correct, I'd reccomend MW update the article as individuals will almost certainly consider the first option Mr. Merriman's suggestion.

Having said all that, thanks so much for taking the time to write the article and clarify here.

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Re: Paul Merriman article

Post by Leif » Tue Oct 22, 2019 11:09 am

donaldfair71 wrote:
Tue Oct 22, 2019 8:20 am
Leif wrote:
Mon Oct 21, 2019 3:32 pm
I did talk with Paul once about his Ultimate Portfolio. I pointed him to the thread here that discusses the simplified version of that. Paul always likes to say if he finds a better portfolio he will change. The thread here is:

Ultimate Buy and Hold - 8 slices vs 4

However, he never responded to that thread. Perhaps he did and I missed it on his podcast.

It's too bad the pics are now gone from Trev's thread. They showed a compelling story. I am surprised at the SG component, even if it has done well recently.
He mentioned it on a podcast this past summer towards the end when he answers e-mails. To summarize, he said that it probably would be okay, but he doesn't see much value in the drag of 25% S&P500, which has shown to be inferior over time.

Edit: It was addressed on the 6/26 episode at 31:31.
Thanks, I'll check that out. My discussion with Paul was a long time ago. At least 7-8 years ago. Has anyone tried Portfolio Visualizer on the FundAdvice Ultimate Buy & Hold? I wonder how that would do vs. 4 corners?

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