Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

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guyinlaw
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Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by guyinlaw »

Paul Merriman discusses asset class performance from 1930s to 2019 in his latest Sound Investing Podcast. Below are the link and accompanying material.

The real secret to long-term investment success
What’s the toughest challenge for many investors? Staying the course for the long term. In this podcast, Paul discusses what he considers "the most useful information for investors.” While adding new insights to his Ultimate Buy and Hold Strategy, Fine Tuning Your Asset Allocation and Distributions in Retirement articles and podcasts, Paul explores nine decades of returns for six asset classes that academics have studied for over 50 years. It turns out that the end result of the returns has been exactly what the academics predicted, but the trip was not an easy one for investors. See and download the Tables referenced here. Paul hopes that in understanding this, all investors — especially young investors — will see that the strategy with the most predictable returns is also the one with the best predictable returns, and maintain the focus and confidence to make it through the normal ups and downs of the market without giving up.
https://paulmerriman.com/the-real-secre ... t-success/

90 Years of Evidence Shows Investor Patience Leads to Better Returns
These three tables confirm what academic research has told us: long-term investing is the most likely route to higher returns. Thanks to Daryl Bahls for creating these tables that should convince investors to “stay the course."
4 fund combo is 25% S&P 500, 25% large-cap value stocks, 25% small-cap blend stocks and 25% small-cap value stocks.

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Triple digit golfer
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Triple digit golfer »

Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by guyinlaw »

Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
The recognition of SCV out-performance first came out in 1992 based on Fama-French research. So likely no funds before that..

DFA first SCV fund was in 1993 - DFSVX CAGR since since inception is 11.00% (vs S&P500 9.73%)

Any data before that likely is best extrapolation by DFA, other funds and researchers.

=====

DFA's first fund was SC Blend (I) DFSCX - started in 1981, CAGR since inception is 11.64% (vs S&P500 11.59%)

DFA data Includes their expense which is now at 0.52%, need to add advisor fee.

Vanguard SC Blend fund NAESX inception was from 1960

https://investor.vanguard.com/mutual-fu ... view/naesx

Here is PV comparison of asset classes.
https://www.portfoliovisualizer.com/bac ... tion4_3=25

Larry's article discussing this
https://www.advisorperspectives.com/art ... -post-test
Time is your friend; impulse is your enemy. - John C. Bogle
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by nedsaid »

I am a believer in factors and in the Small Value premium but John Bogle would say that there was no real world way for a small investor to invest in Small Value back in 1930. An investor would have had to pick his or her own portfolio of Small Value stocks and information on smaller companies was much harder to come by back then. In fact, stock research back then took work. So the academic research regarding Small Value returns is correct but really no realistic way for individual investors to capture this until many years later.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Cubicle »

I really appreciate the OP for posting these. I have been contemplating increasing my risk tolerance. And small cap value is what I've been eyeing.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by theorist »

Is there any somewhat standard analogous portfolio to Merriman’s, but including also allocations to international developed and emerging markets? (Maybe with a catchy name like “6 fund portfolio”...) I ask because I’d surely like to include these in any accounts I set up, and I’m guessing someone has a nice proposal for such a portfolio with a proposed allocation to each category and supporting data from backtesting.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Horton »

Cubicle wrote: Thu Jan 16, 2020 1:02 am I have been contemplating increasing my risk tolerance.
Maybe you should think about waiting for a year when the market is down 10%+ before making the decision?
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Jags4186 »

theorist wrote: Thu Jan 16, 2020 2:24 am Is there any somewhat standard analogous portfolio to Merriman’s, but including also allocations to international developed and emerging markets? (Maybe with a catchy name like “6 fund portfolio”...) I ask because I’d surely like to include these in any accounts I set up, and I’m guessing someone has a nice proposal for such a portfolio with a proposed allocation to each category and supporting data from backtesting.
Merriman's recommended portfolio consists of 10 slices at 10% each:

US Large Cap Blend (Vanguard Total Stock Market Index, VTI)
US Large Cap Value (Guggenheim SP500 Pure Value, RPV)
US Small Cap Blend (Ishares SP600 index, IJR)
US Small Cap Value (Ishares SP600 Value index, IJS)
US Reits (Vanguard Reit Index, VNQ)
International LCB (Vanguard Developed Markets Index, VEA)
International LCV (Ishares MSCI EAFE Value Index, EFV)
International SCB (Schwab International Fundamental SC Index, FNDC)
International SCV (Wisdom Tree International Smallcap Dividend, DLS)
Emerging Markets Value (Wisdom Tree Emerging Markets Dividend, DGS)

Do not be surprised to see the funds change around as time goes on -- these fund suggestions are less than a year old. The categories remain the same but the recommendations on how to achieve those factors shift. Do not be surprised if, for example, Aventus becomes the international small cap value fund recommended in the future.

A poster, TrevH, has shown that you can mimic all of this performance by cutting this down to 4 slices - 25% each in US LCB, SCV, Intl LCV, SCB.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by rascott »

Thanks for posting....I listened to this podcast yesterday and quite enjoyed it. Paul does a good job with keeping an investor focused upon the long term, and why diversifying away from just the SP500 / TSMI is prudent.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Triple digit golfer »

guyinlaw wrote: Wed Jan 15, 2020 11:30 pm
Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
The recognition of SCV out-performance first came out in 1992 based on Fama-French research. So likely no funds before that..

DFA first SCV fund was in 1993 - DFSVX CAGR since since inception is 11.00% (vs S&P500 9.73%)

Any data before that likely is best extrapolation by DFA, other funds and researchers.

=====

DFA's first fund was SC Blend (I) DFSCX - started in 1981, CAGR since inception is 11.64% (vs S&P500 11.59%)

DFA data Includes their expense which is now at 0.52%, need to add advisor fee.

Vanguard SC Blend fund NAESX inception was from 1960

https://investor.vanguard.com/mutual-fu ... view/naesx

Here is PV comparison of asset classes.
https://www.portfoliovisualizer.com/bac ... tion4_3=25

Larry's article discussing this
https://www.advisorperspectives.com/art ... -post-test
Thanks for the data.

I'm getting 10.83% for DFSVX vs. 9.75% for Vanguard's 500 index for the farthest back that Portfolio Visualizer will go.

Just as I suspected. Nothing close to 13.7% returns actual realized by a regular Joe investor, or any investor, for that matter.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by rascott »

Triple digit golfer wrote: Thu Jan 16, 2020 8:11 am
guyinlaw wrote: Wed Jan 15, 2020 11:30 pm
Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
The recognition of SCV out-performance first came out in 1992 based on Fama-French research. So likely no funds before that..

DFA first SCV fund was in 1993 - DFSVX CAGR since since inception is 11.00% (vs S&P500 9.73%)

Any data before that likely is best extrapolation by DFA, other funds and researchers.

=====

DFA's first fund was SC Blend (I) DFSCX - started in 1981, CAGR since inception is 11.64% (vs S&P500 11.59%)

DFA data Includes their expense which is now at 0.52%, need to add advisor fee.

Vanguard SC Blend fund NAESX inception was from 1960

https://investor.vanguard.com/mutual-fu ... view/naesx

Here is PV comparison of asset classes.
https://www.portfoliovisualizer.com/bac ... tion4_3=25

Larry's article discussing this
https://www.advisorperspectives.com/art ... -post-test
Thanks for the data.

I'm getting 10.83% for DFSVX vs. 9.75% for Vanguard's 500 index for the farthest back that Portfolio Visualizer will go.

Just as I suspected. Nothing close to 13.7% returns actual realized by a regular Joe investor, or any investor, for that matter.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

If that's what you are attempting to take from the tables, you are really missing the larger point. I'd recommend actually listening to the podcast (or even better, a lot of Paul's podcasts) if you really want to get a full understanding of his arguments.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Elysium »

Real investor returns from SCV funds were more like 5% or 6% since likely most people came into the band wagon after the performance 2000-2003, and received just a few more years of it until 2007 and since then underperformed for 12 years. Give or take a few percentage points, the best case stands around 9% for SCV vs 10% for S&P 500, and SCV came with higher volatility.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by packer16 »

Has Paul ever addressed the issue of historical trading costs and efficiency when recommending SCV. The premium appears to be largest when there was less efficiency and larger bid/ask spreads so trying to "capture" this with a more efficient market and tighter spreads maybe a challenge. Although this premium is cyclical I would think the premium has a downward slope.

If you want more risk why not leverage TSM vs buying a premium that is cyclical and downward sloping?

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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Triple digit golfer »

rascott wrote: Thu Jan 16, 2020 8:15 am
Triple digit golfer wrote: Thu Jan 16, 2020 8:11 am
guyinlaw wrote: Wed Jan 15, 2020 11:30 pm
Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
The recognition of SCV out-performance first came out in 1992 based on Fama-French research. So likely no funds before that..

DFA first SCV fund was in 1993 - DFSVX CAGR since since inception is 11.00% (vs S&P500 9.73%)

Any data before that likely is best extrapolation by DFA, other funds and researchers.

=====

DFA's first fund was SC Blend (I) DFSCX - started in 1981, CAGR since inception is 11.64% (vs S&P500 11.59%)

DFA data Includes their expense which is now at 0.52%, need to add advisor fee.

Vanguard SC Blend fund NAESX inception was from 1960

https://investor.vanguard.com/mutual-fu ... view/naesx

Here is PV comparison of asset classes.
https://www.portfoliovisualizer.com/bac ... tion4_3=25

Larry's article discussing this
https://www.advisorperspectives.com/art ... -post-test
Thanks for the data.

I'm getting 10.83% for DFSVX vs. 9.75% for Vanguard's 500 index for the farthest back that Portfolio Visualizer will go.

Just as I suspected. Nothing close to 13.7% returns actual realized by a regular Joe investor, or any investor, for that matter.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

If that's what you are attempting to take from the tables, you are really missing the larger point. I'd recommend actually listening to the podcast (or even better, a lot of Paul's podcasts) if you really want to get a full understanding of his arguments.
I don't care about arguments. I want to see some real life returns that came close to what he claims the historical return has been.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by rascott »

Triple digit golfer wrote: Thu Jan 16, 2020 8:49 am
rascott wrote: Thu Jan 16, 2020 8:15 am
Triple digit golfer wrote: Thu Jan 16, 2020 8:11 am
guyinlaw wrote: Wed Jan 15, 2020 11:30 pm
Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
The recognition of SCV out-performance first came out in 1992 based on Fama-French research. So likely no funds before that..

DFA first SCV fund was in 1993 - DFSVX CAGR since since inception is 11.00% (vs S&P500 9.73%)

Any data before that likely is best extrapolation by DFA, other funds and researchers.

=====

DFA's first fund was SC Blend (I) DFSCX - started in 1981, CAGR since inception is 11.64% (vs S&P500 11.59%)

DFA data Includes their expense which is now at 0.52%, need to add advisor fee.

Vanguard SC Blend fund NAESX inception was from 1960

https://investor.vanguard.com/mutual-fu ... view/naesx

Here is PV comparison of asset classes.
https://www.portfoliovisualizer.com/bac ... tion4_3=25

Larry's article discussing this
https://www.advisorperspectives.com/art ... -post-test
Thanks for the data.

I'm getting 10.83% for DFSVX vs. 9.75% for Vanguard's 500 index for the farthest back that Portfolio Visualizer will go.

Just as I suspected. Nothing close to 13.7% returns actual realized by a regular Joe investor, or any investor, for that matter.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

If that's what you are attempting to take from the tables, you are really missing the larger point. I'd recommend actually listening to the podcast (or even better, a lot of Paul's podcasts) if you really want to get a full understanding of his arguments.
I don't care about arguments. I want to see some real life returns that came close to what he claims the historical return has been.

How is what you found different than what's in the table? It didn't say 13.7% from 1994.

The recommendation is to diversify across the 4 equity asset classes, not to just pick one.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by guyinlaw »

One important takeaway is to choose a good enough strategy and stick with it, over many decades.

Imagine if I kept switching strategy around every 10 years.

In 2000 - move to LC Bend, as it's been outperforming other assets clases over last decade.

In 2010 - move to SCV, as it's been outperforming other assets clases over last decade.

In 2020 - move again to LC Blend, as it's been outperforming other assets clases over last decade.

Performance would be really really bad.

For some simplicity maybe the best so stick with TSM/INT/Bond

For others it maybe TSM/ SC/SCV/INT/EM/Bonds.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by JoMoney »

It turns out that the end result of the returns has been exactly what the academics predicted
If the prediction was of "return to the mean", then yeah...
Image
If you're talking about the papers theorizing there was some "risk premium" or a performance advantage to small cap stocks, or even small value, those have been an empirical failure in the period since the academic papers theorized it.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by rascott »

JoMoney wrote: Thu Jan 16, 2020 9:20 am
It turns out that the end result of the returns has been exactly what the academics predicted
If the prediction was of "return to the mean", then yeah...
Image
If you're talking about the papers theorizing there was some "risk premium" or a performance advantage to small cap stocks, or even small value, those have been an empirical failure in the period since the academic papers theorized it.

The issue an investor may not have the 40 year period waiting for the reversion to the mean. Sequence of return issues is why some may choose to diversify their equity allocations across (sub) asset classes/ factors. No different than why there are such consistent recommendations for international equity allocations in a portfolio.

After the last decade it's very tempting to just dump 100% of one's money into the SP500/ Total market index. But history has shown that wouldn't be ideal.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by livesoft »

rascott wrote: Thu Jan 16, 2020 9:31 amThe issue an investor may not have the 40 year period waiting for the reversion to the mean.
This is so true. Mr. Merriman may go to his grave with SCV underperforming for the previous 20, 10, 5, 3 years. Patience does lead to death.
Last edited by livesoft on Thu Jan 16, 2020 9:45 am, edited 1 time in total.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by JoMoney »

rascott wrote: Thu Jan 16, 2020 9:31 am...
After the last decade it's very tempting to just dump 100% of one's money into the SP500/ Total market index. But history has shown that wouldn't be ideal.
Chasing performance is a horrible strategy. Chasing "ideal" portfolios hasn't worked out so well either.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Jags4186 »

JoMoney wrote: Thu Jan 16, 2020 9:20 am
It turns out that the end result of the returns has been exactly what the academics predicted
If the prediction was of "return to the mean", then yeah...
Image
If you're talking about the papers theorizing there was some "risk premium" or a performance advantage to small cap stocks, or even small value, those have been an empirical failure in the period since the academic papers theorized it.
The fund you are showing is US Microcap stocks, not US Small Cap Value. No one is recommending microcap, but, in case you were wondering a 50/50 blend of that fund plus SP500 rebalanced annually produced better returns than the Sp500.

In fact, the 50/50 blend of those two funds produced a lower “worst year” results than the SP500, a higher “best year” results than the SP500, and better overall returns than either fund on their own.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

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Jags4186 wrote: Thu Jan 16, 2020 7:12 amA poster, TrevH, has shown that you can mimic all of this performance by cutting this down to 4 slices - 25% each in US LCB, SCV, Intl LCV, SCB.
Thanks for mentioning this. I was about to say that ten slices are completely unnecessary. Focusing on U.S. stocks, a 50/50 split between LCB and SCV would have historically done slightly better than using four slices.

I'm glad to see that there is now an ex-U.S. SCV fund (DLS) other than DFA's, but the .58% ER is a bit steep.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by nisiprius »

If you believe there is essentially no risk in stocks if held for a long time, then you likely believe there's essentially no risk in small-cap value if held for a long time.

If you don't believe the risk matters--if you believe the risk is zero, or that all asset classes are equally risky--then of course all you care about is return.

If you believe risk does matter, is not zero, and might well be different for different asset classes, then it is simply wrong to compare raw return by itself. All these "Callan periodic table" charts ought to be comparing risk-adjusted returns, not raw return. You have to take account of risk in some way. If you don't like the Sharpe ratio, then something else. But comparing raw return is deceptive.
Last edited by nisiprius on Thu Jan 16, 2020 10:54 am, edited 1 time in total.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by JoMoney »

Jags4186 wrote: Thu Jan 16, 2020 9:51 am...
The fund you are showing is US Microcap stocks, not US Small Cap Value. No one is recommending microcap, but, in case you were wondering a 50/50 blend of that fund plus SP500 rebalanced annually produced better returns than the Sp500....
The small cap "premium" was the academic theory at the time of the DFSCX funds inception
The small value fund, DFSVX was created more than a decade later, to attempt to capture the "premium" under the new theory.
The small-value funds performance since it's inception wasn't much different, if anything the DFSCX fund looks to have had slightly better returns despite its exposure to the 'growth' stocks the value fund seeks to avoid.
Image


Despite the slightly better returns of the 50/50 mix you suggested might have been able to achieve, it did so with higher volatility and lower 'risk adjusted return', a slightly leveraged S&P 500 could have beat the 50/50 suggestion with lower volatility.
Even the returns the 50/50 portfolio had, were subject to the specific period dependent result where it did "mean revert". In periods where there was more disparity, like in the late 1990's, any exposure to the small caps would have dragged performance and the "rebalancing" would have made it worse as you moved from the better performing asset to the one dragging it down. In the period that followed 2000 that showed more improvement for small-caps the exposure boosted performance, but still brought increased volatility/risk to the portfolio.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Elysium »

Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
You have to ask the question how many on BH forum were invested in SCV in a 4x25 fashion prior to 2000. The answer would be almost no one. This can established based on the posts on the M* forums around 2000-2007 time frame. A couple of FA's dealing with DFA made the idea popular, but it took time for them to convince a significant chunk of forum members to go that route. That meant, even the early adapters did not get into SCV funds until 2001-02 time frame. It took another couple of years of good performance and constant pushing by the FA's for the next set to adopt this approach, say 2003-04 time frame. After that you can say it become popular method on BH forum where one camp took 3-fund portfolio approach and the other 4x25 approach. Let's give this 2006-07 time frame. Anything since 2007 is just more people coming into one of these two camps, and/or a hybrid approach.

Give that, let's examine what would have been the results of each group of SCV adapters.

Very early group (2000)
I would say almost no significant strength in this group because at this point only a couple of FA's including Mr.Merriman and Swedroe are in this camp.
Potential return: SCV 10% S&P 500 6%
link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Early BH adopters (2001-02)
SCV: 9.25% S&P 500: 8%
link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Next wave (2003-04)
SCV: 8% S&P 500: 9%
link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Mass entry (2005-06):
SCV: 7% S&P 500 9%
link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

All in (2007-2009)
SCV: 12.5% S&P 500: 14.5%
link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

There you have it. This is as close as it gets to reality when it comes to investor returns. Majority of SCV adopters at this point have trailed S&P 500 after taking time to get convinced and chasing returns. The very early adopters (just a handful) are just about hanging in there, as they have made profits in the early period to convince them this was still a better strategy although they are underperforming for last decade. The rest of those who got in since 2003-07 time frame are wondering whether they got it right or not, and some may have even abandoned the strategy.

How many more years to hold on? another decade, and then what? that is the question if SCV do not outperform. At that point even the very early adopters will question the strategy.

SCV needs a come back, and need it right now, for the strategy to make any sense. Otherwise, it is of no use to real investors.
Last edited by Elysium on Thu Jan 16, 2020 10:40 am, edited 4 times in total.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by caklim00 »

willthrill81 wrote: Thu Jan 16, 2020 10:02 am
Jags4186 wrote: Thu Jan 16, 2020 7:12 amA poster, TrevH, has shown that you can mimic all of this performance by cutting this down to 4 slices - 25% each in US LCB, SCV, Intl LCV, SCB.
Thanks for mentioning this. I was about to say that ten slices are completely unnecessary. Focusing on U.S. stocks, a 50/50 split between LCB and SCV would have historically done slightly better than using four slices.

I'm glad to see that there is now an ex-U.S. SCV fund (DLS) other than DFA's, but the .58% ER is a bit steep.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by willthrill81 »

caklim00 wrote: Thu Jan 16, 2020 10:36 am
willthrill81 wrote: Thu Jan 16, 2020 10:02 am
Jags4186 wrote: Thu Jan 16, 2020 7:12 amA poster, TrevH, has shown that you can mimic all of this performance by cutting this down to 4 slices - 25% each in US LCB, SCV, Intl LCV, SCB.
Thanks for mentioning this. I was about to say that ten slices are completely unnecessary. Focusing on U.S. stocks, a 50/50 split between LCB and SCV would have historically done slightly better than using four slices.

I'm glad to see that there is now an ex-U.S. SCV fund (DLS) other than DFA's, but the .58% ER is a bit steep.
Avdv is only .36
Thanks!
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by JoMoney »

Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
The oldest all time best performing mutual fund (as far as I'm aware) is the OTCFX T. Rowe Price Small Cap (active fund)
It had 13.2% annualized over the past 63 year period.

Almost all the out-performance (relative to broad market) though, was over the returns of the 1975-1983 period, a rather unique period that Prof. Jeremy Siegel described in older editions of "Stocks From The Long Run"
Jeremy Siegel, Stocks For The Long Run 2nd Edition wrote:...Some might object to drawing conclusions from return data where some of the best or worst years have been removed, since such a procedure can significantly distort returns. Yet that criticism is not applicable here. Computer simulations were performed that randomized the historical returns on small and large stocks, and then the nine best consecutive years were removed from the small stock series. Reversals of the magnitude that were found in the actual data were very rare and oc-curred in less than 10 percent of the cases analyzed. Even when the nine best consecutive years for large stocks (which ran from 1950-58) and the best nine consecutive years for small stocks have been removed, large stocks still outperformed small stocks over the past 70 years...
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by deltaneutral83 »

packer16 wrote: Thu Jan 16, 2020 8:45 am Has Paul ever addressed the issue of historical trading costs and efficiency when recommending SCV. The premium appears to be largest when there was less efficiency and larger bid/ask spreads so trying to "capture" this with a more efficient market and tighter spreads maybe a challenge. Although this premium is cyclical I would think the premium has a downward slope.

If you want more risk why not leverage TSM vs buying a premium that is cyclical and downward sloping?

Packer
If it's cyclical and downward sloping we know we're "at least" avoiding the worst time to tilt to SCV. I don't think SCV funds are going to destroy LCB in the next 40 years by something like 300 bps or whatever that the above charts show but it's compelling enough for me to want to capture whatever risk premium it winds up being, which may be negative 30 years from today. Many of the reasons for this have already been stated but for some of us its reason enough to think 40-100 bps over the next 40 years is worth the risk. Again, nothing guaranteed obviously.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by willthrill81 »

deltaneutral83 wrote: Thu Jan 16, 2020 10:46 am
packer16 wrote: Thu Jan 16, 2020 8:45 am Has Paul ever addressed the issue of historical trading costs and efficiency when recommending SCV. The premium appears to be largest when there was less efficiency and larger bid/ask spreads so trying to "capture" this with a more efficient market and tighter spreads maybe a challenge. Although this premium is cyclical I would think the premium has a downward slope.

If you want more risk why not leverage TSM vs buying a premium that is cyclical and downward sloping?

Packer
If it's cyclical and downward sloping we know we're "at least" avoiding the worst time to tilt to SCV. I don't think SCV funds are going to destroy LCB in the next 40 years by something like 300 bps or whatever that the above charts show but it's compelling enough for me to want to capture whatever risk premium it winds up being, which may be negative 30 years from today. Many of the reasons for this have already been stated but for some of us its reason enough to think 40-100 bps over the next 40 years is worth the risk. Again, nothing guaranteed obviously.
Paul Merriman himself has said that he believes that the SCV premium will be lower going forward than it was in the past but still believes it to be worthwhile.

Looking back over the historic returns of SCV compared to TSM, it seems clear to me that there has been a lot more upside potential with SCV than downside risk. Even though SCV has trailed TSM for a good while now, the returns have still been excellent.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by packer16 »

deltaneutral83 wrote: Thu Jan 16, 2020 10:46 am
packer16 wrote: Thu Jan 16, 2020 8:45 am Has Paul ever addressed the issue of historical trading costs and efficiency when recommending SCV. The premium appears to be largest when there was less efficiency and larger bid/ask spreads so trying to "capture" this with a more efficient market and tighter spreads maybe a challenge. Although this premium is cyclical I would think the premium has a downward slope.

If you want more risk why not leverage TSM vs buying a premium that is cyclical and downward sloping?

Packer
If it's cyclical and downward sloping we know we're "at least" avoiding the worst time to tilt to SCV. I don't think SCV funds are going to destroy LCB in the next 40 years by something like 300 bps or whatever that the above charts show but it's compelling enough for me to want to capture whatever risk premium it winds up being, which may be negative 30 years from today. Many of the reasons for this have already been stated but for some of us its reason enough to think 40-100 bps over the next 40 years is worth the risk. Again, nothing guaranteed obviously.
If 40-100bp pick up is all you are looking for why not just leverage TSM by 10 to 20% at IB and you should more than achieve your goal, you have no cycle risk & you can take advantage of today's low interest rates.

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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by JoMoney »

willthrill81 wrote: Thu Jan 16, 2020 10:50 am...
Looking back over the historic returns of SCV compared to TSM, it seems clear to me that there has been a lot more upside potential with SCV than downside risk. Even though SCV has trailed TSM for a good while now, the returns have still been excellent.
How do you justify the "more upside potential .. than downside risk" given the much higher volatility of SCV?
If anything, it would seem the risk/returns would be even more unpredictable.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by packer16 »

willthrill81 wrote: Thu Jan 16, 2020 10:50 am
deltaneutral83 wrote: Thu Jan 16, 2020 10:46 am
packer16 wrote: Thu Jan 16, 2020 8:45 am Has Paul ever addressed the issue of historical trading costs and efficiency when recommending SCV. The premium appears to be largest when there was less efficiency and larger bid/ask spreads so trying to "capture" this with a more efficient market and tighter spreads maybe a challenge. Although this premium is cyclical I would think the premium has a downward slope.

If you want more risk why not leverage TSM vs buying a premium that is cyclical and downward sloping?

Packer
If it's cyclical and downward sloping we know we're "at least" avoiding the worst time to tilt to SCV. I don't think SCV funds are going to destroy LCB in the next 40 years by something like 300 bps or whatever that the above charts show but it's compelling enough for me to want to capture whatever risk premium it winds up being, which may be negative 30 years from today. Many of the reasons for this have already been stated but for some of us its reason enough to think 40-100 bps over the next 40 years is worth the risk. Again, nothing guaranteed obviously.
Paul Merriman himself has said that he believes that the SCV premium will be lower going forward than it was in the past but still believes it to be worthwhile.

Looking back over the historic returns of SCV compared to TSM, it seems clear to me that there has been a lot more upside potential with SCV than downside risk. Even though SCV has trailed TSM for a good while now, the returns have still been excellent.
Your assumption that it has more upside potential is based upon the assumption that the market is valuing SCV as it has in the past. This is assumption I am challenging. Over time the market has become more efficient and IMO the risk of SCV is more correctly reflected in stock prices than in the past. I just do not think that getting 40 to 100bp is worth the additional timing risk of SCV at this point.

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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Vulcan »

guyinlaw wrote: Wed Jan 15, 2020 11:30 pm
Triple digit golfer wrote: Wed Jan 15, 2020 10:49 pm Can somebody show me actual real funds that have had a 90 year CAGR of 13.7%? I'll even settle for 40 years.
The recognition of SCV out-performance first came out in 1992 based on Fama-French research. So likely no funds before that..
So not only does the table show past performance, it shows past performance that was not available to retail investor.
And as soon as it became available...
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by willthrill81 »

JoMoney wrote: Thu Jan 16, 2020 10:55 am
willthrill81 wrote: Thu Jan 16, 2020 10:50 am...
Looking back over the historic returns of SCV compared to TSM, it seems clear to me that there has been a lot more upside potential with SCV than downside risk. Even though SCV has trailed TSM for a good while now, the returns have still been excellent.
How do you justify the "more upside potential .. than downside risk" given the much higher volatility of SCV?
If anything, it would seem the risk/returns would be even more unpredictable.
Check out the rolling returns below.

Image

Which of the two portfolios would you say has had less downside risk?
packer16 wrote: Thu Jan 16, 2020 10:57 am
willthrill81 wrote: Thu Jan 16, 2020 10:50 am
deltaneutral83 wrote: Thu Jan 16, 2020 10:46 am
packer16 wrote: Thu Jan 16, 2020 8:45 am Has Paul ever addressed the issue of historical trading costs and efficiency when recommending SCV. The premium appears to be largest when there was less efficiency and larger bid/ask spreads so trying to "capture" this with a more efficient market and tighter spreads maybe a challenge. Although this premium is cyclical I would think the premium has a downward slope.

If you want more risk why not leverage TSM vs buying a premium that is cyclical and downward sloping?

Packer
If it's cyclical and downward sloping we know we're "at least" avoiding the worst time to tilt to SCV. I don't think SCV funds are going to destroy LCB in the next 40 years by something like 300 bps or whatever that the above charts show but it's compelling enough for me to want to capture whatever risk premium it winds up being, which may be negative 30 years from today. Many of the reasons for this have already been stated but for some of us its reason enough to think 40-100 bps over the next 40 years is worth the risk. Again, nothing guaranteed obviously.
Paul Merriman himself has said that he believes that the SCV premium will be lower going forward than it was in the past but still believes it to be worthwhile.

Looking back over the historic returns of SCV compared to TSM, it seems clear to me that there has been a lot more upside potential with SCV than downside risk. Even though SCV has trailed TSM for a good while now, the returns have still been excellent.
Your assumption that it has more upside potential is based upon the assumption that the market is valuing SCV as it has in the past. This is assumption I am challenging. Over time the market has become more efficient and IMO the risk of SCV is more correctly reflected in stock prices than in the past. I just do not think that getting 40 to 100bp is worth the additional timing risk of SCV at this point.

Packer
When people say 'this time, it's different', my spidey-sense gets all tingly.

And look at the rolling returns above. Which of the two portfolios has had greater start date sensitivity?
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by packer16 »

willthrill81 wrote: Thu Jan 16, 2020 11:00 am
JoMoney wrote: Thu Jan 16, 2020 10:55 am
willthrill81 wrote: Thu Jan 16, 2020 10:50 am...
Looking back over the historic returns of SCV compared to TSM, it seems clear to me that there has been a lot more upside potential with SCV than downside risk. Even though SCV has trailed TSM for a good while now, the returns have still been excellent.
How do you justify the "more upside potential .. than downside risk" given the much higher volatility of SCV?
If anything, it would seem the risk/returns would be even more unpredictable.
Check out the rolling returns below.

Image

Which of the two portfolios would you say has had less downside risk?
packer16 wrote: Thu Jan 16, 2020 10:57 am
willthrill81 wrote: Thu Jan 16, 2020 10:50 am
deltaneutral83 wrote: Thu Jan 16, 2020 10:46 am
packer16 wrote: Thu Jan 16, 2020 8:45 am Has Paul ever addressed the issue of historical trading costs and efficiency when recommending SCV. The premium appears to be largest when there was less efficiency and larger bid/ask spreads so trying to "capture" this with a more efficient market and tighter spreads maybe a challenge. Although this premium is cyclical I would think the premium has a downward slope.

If you want more risk why not leverage TSM vs buying a premium that is cyclical and downward sloping?

Packer
If it's cyclical and downward sloping we know we're "at least" avoiding the worst time to tilt to SCV. I don't think SCV funds are going to destroy LCB in the next 40 years by something like 300 bps or whatever that the above charts show but it's compelling enough for me to want to capture whatever risk premium it winds up being, which may be negative 30 years from today. Many of the reasons for this have already been stated but for some of us its reason enough to think 40-100 bps over the next 40 years is worth the risk. Again, nothing guaranteed obviously.
Paul Merriman himself has said that he believes that the SCV premium will be lower going forward than it was in the past but still believes it to be worthwhile.

Looking back over the historic returns of SCV compared to TSM, it seems clear to me that there has been a lot more upside potential with SCV than downside risk. Even though SCV has trailed TSM for a good while now, the returns have still been excellent.
Your assumption that it has more upside potential is based upon the assumption that the market is valuing SCV as it has in the past. This is assumption I am challenging. Over time the market has become more efficient and IMO the risk of SCV is more correctly reflected in stock prices than in the past. I just do not think that getting 40 to 100bp is worth the additional timing risk of SCV at this point.

Packer
When people say 'this time, it's different', my spidey-sense gets all tingly.

And look at the rolling returns above. Which of the two portfolios has had greater start date sensitivity?
I am saying it is different due to greater efficiency which I think we all pretty much agree is true. If I thought the market efficiency was the same as in the past, I would agree with you. IMO a better way to get higher returns maybe through modest leverage of TSM vs. investing in an asset class that has large sine waves going through it and should be declining based upon market efficiency.

To test the robustness of SCV why not change the start date of your analysis to 1994 (SCV fund beginning) and 2003 (rebound from tech crash). IMO using data before 1994 while interesting may not be relevant as the market no knows all about SCV.

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Last edited by packer16 on Thu Jan 16, 2020 11:15 am, edited 1 time in total.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by nisiprius »

Elysium wrote: Thu Jan 16, 2020 10:32 am...You have to ask the question how many on BH forum were invested in SCV in a 4x25 fashion prior to 2000. The answer would be almost no one. This can established based on the posts on the M* forums around 2000-2007 time frame. A couple of FA's dealing with DFA made the idea popular, but it took time for them to convince a significant chunk of forum members to go that route. That meant, even the early adapters did not get into SCV funds until 2001-02 time frame. It took another couple of years of good performance and constant pushing by the FA's for the next set to adopt this approach, say 2003-04 time frame...
That's an interesting point.

And it's almost always an issue. When the big gains were made, was anybody really making them? In the days when lots of people believed in actively managed stock funds, it was often the case (e.g. Legg Mason Value Trust) that the big gains were in early years when hardly anybody was in the fund to make them; and by the time the performance got them fame and popularity, they were already into the grey-area land of "maybe." During the salad days of the Legg Mason Value Trust... for example, after 1997, which is about the time Legg Mason began making them available in 401(k) plans... the fund continued to beat the S&P 500 every year, but by then it was by unimportant, hair-thin amounts.

I'm a factor skeptic, but I do want to give a factor crowd one big, important credit. The key Fama-French papers were published in 1992 ("The Cross-Section of Expected Stock Returns") and 1993 ("Common risk factors in the returns of stocks and bonds"), and DFSVX became available almost instantly thereafter (inception 3/2/1993).

By 1998 or so, a number of people really were on record, in print... in published ink-on-paper books, completely with ticker symbols (in The Coffeehouse Portfolio, by Bill Schultheis) or at least with obvious matches between seemingly "generic" asset class names and matching DFA fund names (The Only Guide to a Winning Investment Strategy You'll Ever Need, Larry Swedroe). So it was out there. Written down. In public. Fully specified, and implementable in real-world, low-cost mutual funds.

So, they called it. And the "diversifiers" worked just beautifully in 2000-2003, going up when the stock market was going down. And, even more important, although they did not repeat the performance in 2008-2009, in the time since 2003-present, despite the death of value and everything, they have done no worse.

So people were able to buy into the strategy as early as 1997-1998, the information and the investment vehicles were out there, and anybody who did is way ahead of me, and at no time would they have had any reason for serious regret.

The people who got in time were rewarded, and the people who got in late weren't penalized, they just failed to get rewarded.

I happen to think it was a fluke but the data is the data and the history is the history.

This is very different from the experience of those who bought into the, dare I say it, fad, for "commodities" (collateralized commodity futures mutual funds and ETFs) that started around 2006.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

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It is interesting that SCV did not hurt you much but I think part of that was the increasing efficiency of the market over that time. You have seen the large lags since 2015. This is consistent with efficient markets. We will see going forward how much of the SCV premium is risk vs. mispricing. If the mispricing has been pretty well rung out, then going forward you only have risk and there is a natural bias to owning growth stocks due to their tax efficiency in the US.

SCV is more complicated than just TSM. TSM you have a largely risk exposure with little if any inefficiency exposure. With SCV you have a combo with the inefficiency factor declining over time. It is the variance in the inefficiency factor that makes SCV returns more complicated and more difficult to forecast with certainty versus a pure risk factor like TSM.

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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Elysium »

nisiprius wrote: Thu Jan 16, 2020 11:12 am By 1998 or so, a number of people really were on record, in print... in published ink-on-paper books, completely with ticker symbols (in The Coffeehouse Portfolio, by Bill Schultheis) or at least with obvious matches between seemingly "generic" asset class names and matching DFA fund names (The Only Guide to a Winning Investment Strategy You'll Ever Need, Larry Swedroe). So it was out there. Written down. In public. Fully specified, and implementable in real-world, low-cost mutual funds.

So, they called it. And the "diversifiers" worked just beautifully in 2000-2003, going up when the stock market was going down. And, even more important, although they did not repeat the performance in 2008-2009, in the time since 2003-present, despite the death of value and everything, they have done no worse.

So people were able to buy into the strategy as early as 1997-1998, the information and the investment vehicles were out there, and anybody who did is way ahead of me, and at no time would they have had any reason for serious regret.

The people who got in time were rewarded, and the people who got in late weren't penalized, they just failed to get rewarded.

I happen to think it was a fluke but the data is the data and the history is the history.
Agree with the part that the very early adopters were not hurt, but they didn't gain anything if they were accumulators. See here Time Weighted vs Money Weighted returns of two portfolios, one is standard 3-fund total market funds and the other is 4x25 Slice & Dice into value / size.

Link: https://www.portfoliovisualizer.com/bac ... n11_2=3.75

Strangely enough at the of 2019, both portfolios had same amount of final balance.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by willthrill81 »

packer16 wrote: Thu Jan 16, 2020 11:24 am It is interesting that SCV did not hurt you much but I think part of that was the increasing efficiency of the market over that time. You have seen the large lags since 2015. This is consistent with efficient markets. We will see going forward how much of the SCV premium is risk vs. mispricing. If the mispricing has been pretty well rung out, then going forward you only have risk and there is a natural bias to owning growth stocks due to their tax efficiency in the US.
SCV trailed TSM significantly in the late 1990s. And then in the early 2000s, SCV blew TSM out of the water. That might happen again. No one knows.
packer16 wrote: Thu Jan 16, 2020 11:24 amSCV is more complicated than just TSM. TSM you have a largely risk exposure with little if any inefficiency exposure. With SCV you have a combo with the inefficiency factor declining over time. It is the variance in the inefficiency factor that makes SCV returns more complicated and more difficult to forecast with certainty versus a pure risk factor like TSM.
TSM is only exposed to market beta. SCV is exposed to market beta, the small factor, and the value factor.

I haven't heard many experts claim that market inefficency was the reason for SCV's historic outperformance. Fama and French certainly don't think so.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by WhiteMaxima »

most investors doesn't have 90 years to invest. mostly 30-40 years. While during the last 30 years, large growth beat the small value. So for average investors, better just stay with total stock which include all class of equities.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by packer16 »

willthrill81 wrote: Thu Jan 16, 2020 12:01 pm
packer16 wrote: Thu Jan 16, 2020 11:24 am It is interesting that SCV did not hurt you much but I think part of that was the increasing efficiency of the market over that time. You have seen the large lags since 2015. This is consistent with efficient markets. We will see going forward how much of the SCV premium is risk vs. mispricing. If the mispricing has been pretty well rung out, then going forward you only have risk and there is a natural bias to owning growth stocks due to their tax efficiency in the US.
SCV trailed TSM significantly in the late 1990s. And then in the early 2000s, SCV blew TSM out of the water. That might happen again. No one knows.
packer16 wrote: Thu Jan 16, 2020 11:24 amSCV is more complicated than just TSM. TSM you have a largely risk exposure with little if any inefficiency exposure. With SCV you have a combo with the inefficiency factor declining over time. It is the variance in the inefficiency factor that makes SCV returns more complicated and more difficult to forecast with certainty versus a pure risk factor like TSM.
TSM is only exposed to market beta. SCV is exposed to market beta, the small factor, and the value factor.

I haven't heard many experts claim that market inefficiency was the reason for SCV's historic outperformance. Fama and French certainly don't think so.
IMO you need to take a look at the context of the SCV outperformance, it was due to underperformance in the late 1990s but there was still inefficiencies being wrung out. I think some like Larry Swedroe say it is a combo, which I think makes sense. We just cannot observe what portion in mispricing and what portion is risk. Some of the new factors IMO are constructs, especially value, that is not based upon fundamentals but pricing and thus are subject to arbitrage/efficiency over time.

A simple example is bid/ask spreads. The old data folks are using to estimate the value factor were not investable prices due to the large bid/ask spreads. The main driver since the 1990s has been the tech boom & bust which created a dynamic which undervalued value stocks. Unless you think this is going to happen again and the market has not become more efficient to offset the potential undervaluation, then IMO expecting SCV to outperform may be wishful thinking. IMO thinking that SCV will perform closer to TSM may be more realistic.

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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by rascott »

packer16 wrote: Thu Jan 16, 2020 12:18 pm
willthrill81 wrote: Thu Jan 16, 2020 12:01 pm
packer16 wrote: Thu Jan 16, 2020 11:24 am It is interesting that SCV did not hurt you much but I think part of that was the increasing efficiency of the market over that time. You have seen the large lags since 2015. This is consistent with efficient markets. We will see going forward how much of the SCV premium is risk vs. mispricing. If the mispricing has been pretty well rung out, then going forward you only have risk and there is a natural bias to owning growth stocks due to their tax efficiency in the US.
SCV trailed TSM significantly in the late 1990s. And then in the early 2000s, SCV blew TSM out of the water. That might happen again. No one knows.
packer16 wrote: Thu Jan 16, 2020 11:24 amSCV is more complicated than just TSM. TSM you have a largely risk exposure with little if any inefficiency exposure. With SCV you have a combo with the inefficiency factor declining over time. It is the variance in the inefficiency factor that makes SCV returns more complicated and more difficult to forecast with certainty versus a pure risk factor like TSM.
TSM is only exposed to market beta. SCV is exposed to market beta, the small factor, and the value factor.

I haven't heard many experts claim that market inefficiency was the reason for SCV's historic outperformance. Fama and French certainly don't think so.
IMO you need to take a look at the context of the SCV outperformance, it was due to underperformance in the late 1990s but there was still inefficiencies being wrung out. I think some like Larry Swedroe say it is a combo, which I think makes sense. We just cannot observe what portion in mispricing and what portion is risk. Some of the new factors IMO are constructs, especially value, that is not based upon fundamentals but pricing and thus are subject to arbitrage/efficiency over time.

A simple example is bid/ask spreads. The old data folks are using to estimate the value factor were not investable prices due to the large bid/ask spreads. The main driver since the 1990s has been the tech boom & bust which created a dynamic which undervalued value stocks. Unless you think this is going to happen again and the market has not become more efficient to offset the potential undervaluation, then IMO expecting SCV to outperform may be wishful thinking. IMO thinking that SCV will perform closer to TSM may be more realistic.

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Even if one expects zero small or value premium.... it's still logical to spread bets across asset classes due to sequence of return risks. No different than US vs Intl.

The lag since 2015 is totally irrelevant. Growth has beaten value across both large and small. The growth vs value gap is historically very large right now.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by Taylor Larimore »

guyinlaw wrote: Wed Jan 15, 2020 10:45 pm Paul Merriman discusses asset class performance from 1930s to 2019 in his latest Sound Investing Podcast. Below are the link and accompanying material.
Bogleheads:

Mr. Merriman is very knowledgeable and very likeable. However, his portfolio recommendations are based almost entirely on "past performance." This is so dangerous that the government requires mutual funds to warn us about using past performance to select funds.

The government warning is justified. For example, Mr. Merriman has long recommended "Small-Cap Value" stocks. Unfortunately U.S. Small Cap Value stocks have been the WORST performing of all sixteen Morningstar style categories during the past five years (and longer).

http://news.morningstar.com/index/indexReturn.html

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by willthrill81 »

Taylor Larimore wrote: Thu Jan 16, 2020 12:31 pm
guyinlaw wrote: Wed Jan 15, 2020 10:45 pm Paul Merriman discusses asset class performance from 1930s to 2019 in his latest Sound Investing Podcast. Below are the link and accompanying material.
Bogleheads:

Mr. Merriman is very knowledgeable and very likeable. However, his portfolio recommendations are based almost entirely on "past performance."
The past performance of stocks is a huge reason why so many of us invest in them.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by abuss368 »

Taylor Larimore wrote: Thu Jan 16, 2020 12:31 pm
Bogleheads:

Mr. Merriman is very knowledgeable and very likeable. However, his portfolio recommendations are based almost entirely on "past performance." This is so dangerous that the government requires mutual funds to warn us about using past performance to select funds.

The government warning is justified. For example, Mr. Merriman has long recommended "Small-Cap Value" stocks. Unfortunately U.S. Small Cap Value stocks have been the WORST performing of all sixteen Morningstar style categories during the past five years (and longer).

http://news.morningstar.com/index/indexReturn.html

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."
Thanks Taylor! Incredible that Small Cap Value stocks have been the WORST performing of all sixteen Morningstar style categories during the past five years (and longer).
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by packer16 »

willthrill81 wrote: Thu Jan 16, 2020 12:38 pm
Taylor Larimore wrote: Thu Jan 16, 2020 12:31 pm
guyinlaw wrote: Wed Jan 15, 2020 10:45 pm Paul Merriman discusses asset class performance from 1930s to 2019 in his latest Sound Investing Podcast. Below are the link and accompanying material.
Bogleheads:

Mr. Merriman is very knowledgeable and very likeable. However, his portfolio recommendations are based almost entirely on "past performance."
The past performance of stocks is a huge reason why so many of us invest in them.
It is a combination of a fundamental reason (stock provide upside above the cost associated with debt of firms) and the past data that one invests in stocks. Investing in the value factor is based upon past performance and theoretical reason why the should do better than TSM not a fundamental reason why. If theory of why value stocks should generate returns above TSM is wrong then the idea IMO loses its merit beyond an observation.

Packer
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by jdilla1107 »

willthrill81 wrote: Thu Jan 16, 2020 12:38 pm
Taylor Larimore wrote: Thu Jan 16, 2020 12:31 pm
guyinlaw wrote: Wed Jan 15, 2020 10:45 pm Paul Merriman discusses asset class performance from 1930s to 2019 in his latest Sound Investing Podcast. Below are the link and accompanying material.
Bogleheads:

Mr. Merriman is very knowledgeable and very likeable. However, his portfolio recommendations are based almost entirely on "past performance."
The past performance of stocks is a huge reason why so many of us invest in them.
Not me. Equities provide return above and beyond the fixed terms of bonds. Equity is also lower in the capital structure, which is where the additional risk comes from. The difference between debt and equity is literally a fundamental tenant of capitalism.

Investing in equities "because of past performance" is a good setup to try and chase performance and engage in market timing.
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by nisiprius »

Let's consider what Eugene Fama said. Regrettably, the video interview from which this is taken, does not seem to be available on Dimensional's site any more. The transcription was made by ObliviousInvestor and I can personally testify that it is an accurate transcript of what he said:
Interviewer: Some people cite your research showing that value and small firms have higher average returns over time and they assume that you would recommend most investors have a big helping of small and value stocks in their portfolios. Is that a fair representation of your views?

Fama: Um, no. (Laughs) Basically this a risk story the way we tell it, so there is no optimal portfolio. The way I like to talk about it when I give presentations for DFA or other people is, in every asset pricing model, the market portfolio is always an efficient portfolio. It's always a relevant portfolio for an investor to hold. And investors can decide to tilt away from that based on their personal tastes. But that's what it amounts to. You can decide to tilt toward more value or smaller size based on your tastes for these dimensions of risk. But you needn't do it. You could also decide to go the other way. You could look at the premiums and say, no, I think I like the growth stocks better. Then, as long as you get a diversified portfolio of them, I can't argue with that either. So there's a whole multi-dimensional continuum here of efficient portfolios that anybody can decide to buy that I can't quarrel with. And I have no recommendations about because I think it's totally a matter of taste. If you eat oranges and I eat apples I can't really quarrel very much with that.
Let's assume that Fama is a valid authority on the topic.

How would I make the best evaluation of my personal taste for dimensions of risk?

Would someone point me to (or create) a questionnaire I could answer, or some other kind of assessment instrument, that would tell me whether I have a personal taste for value, a personal taste for growth, or a personal taste for the market portfolio?
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Re: Paul Merriman -SCV- 1930-2019 Evidence - Patience Leads to Better Returns

Post by rustymutt »

Horton wrote: Thu Jan 16, 2020 5:52 am
Cubicle wrote: Thu Jan 16, 2020 1:02 am I have been contemplating increasing my risk tolerance.
Maybe you should think about waiting for a year when the market is down 10%+ before making the decision?
But that's market timing, and it doesn't work. What now?
Even educators need education. And some can be hard headed to the point of needing time out.
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