Bogleheads Investing Picks Need Improvement

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
tvubpwcisla
Posts: 63
Joined: Sat Nov 09, 2019 10:09 am

Bogleheads Investing Picks Need Improvement

Post by tvubpwcisla » Thu Feb 13, 2020 10:52 pm

I read an article today that states Bogleheads investing picks could be improved. I'm not sure I agree with Mr. Merriman?

https://www.marketwatch.com/story/the-l ... 2020-02-13

iamlucky13
Posts: 1641
Joined: Sat Mar 04, 2017 5:28 pm
Location: Western Washington

Re: Bogleheads Investing Picks Need Improvement

Post by iamlucky13 » Thu Feb 13, 2020 11:03 pm

This is Mr. Merriman's long term position - overweight value and small share classes.

He's shown a fair amount of historical data backing this up. Larry Swedroe, I believe, shares some of his arguments, although I don't think argues for such a portfolio universally.

I think Mr. Merriman's proposal has merit for investors willing to take on a small amount of added volatility for what over most time periods historically has been a proportionate amount (or perhaps even slightly better than proportionate in risk-adjusted terms - I don't know the details well enough) of added return.

I'm not sure it makes much sense for investors carrying a significant bond allocation versus increasing stock allocation for the same goal. Also, if everyone did this, it would presumably result in a price bubble for small and value classes.

It seems to make sense for risk-tolerant investors, though.

Bama12
Posts: 156
Joined: Fri Aug 30, 2019 11:48 pm

Re: Bogleheads Investing Picks Need Improvement

Post by Bama12 » Thu Feb 13, 2020 11:48 pm

tvubpwcisla wrote:
Thu Feb 13, 2020 10:52 pm
I read an article today that states Bogleheads investing picks could be improved. I'm not sure I agree with Mr. Merriman?

https://www.marketwatch.com/story/the-l ... 2020-02-13
I agree with him.

User avatar
Portfolio7
Posts: 746
Joined: Tue Aug 02, 2016 3:53 am

Re: Bogleheads Investing Picks Need Improvement

Post by Portfolio7 » Fri Feb 14, 2020 1:16 am

I have a substantial base in Global Mid Caps (it's more than just a 'tilt').

I carry some Benchmark Risk. My portfolio acts differently than a typical US 75/25. So far it hasn't bothered me that this is true.
"An investment in knowledge pays the best interest" - Benjamin Franklin

shess
Posts: 405
Joined: Wed May 17, 2017 12:02 am

Re: Bogleheads Investing Picks Need Improvement

Post by shess » Fri Feb 14, 2020 2:05 am

tvubpwcisla wrote:
Thu Feb 13, 2020 10:52 pm
I read an article today that states Bogleheads investing picks could be improved. I'm not sure I agree with Mr. Merriman?

https://www.marketwatch.com/story/the-l ... 2020-02-13
I don't disagree with him, but I'm not sure what the real point of the article is. It feels like if someone said that a big problem is that people eat poorly, and that people should eat a more balanced diet, and then someone else suggested a specific more-balanced-diet. It's not that either of them are wrong, they're like 95% in agreement, and one maybe is a 1% improvement on top of that. Does the last 1% matter? You can measure the difference, but not everyone has the same implementation abilities, so getting 95% right with trivial work is a great first cut at things.

As I said, I actually agree with the value tilt suggested, but I decided that I was not willing to implement it even though I was capable of it. I came to that conclusion in doing deep thinking as a result of a windfall, and instead of thinking about how to optimize for maximal returns, I considered the outcome if I were to die and my family had to figure out what was up with our portfolio. This immediately provided some clarity on certain issues, including a tendency I have to complicate things because I tend to believe that simple things aren't good enough. As a side effect, once I changed my goals I became happier with my simpler portfolio, even though I expect it to have somewhat reduced returns.

valuables
Posts: 4
Joined: Fri Feb 07, 2020 7:55 pm

Re: Bogleheads Investing Picks Need Improvement

Post by valuables » Fri Feb 14, 2020 2:32 am

This exact scenario is what his 2 funds for life portfolio is all about.
shess wrote:
Fri Feb 14, 2020 2:05 am
tvubpwcisla wrote:
Thu Feb 13, 2020 10:52 pm
I read an article today that states Bogleheads investing picks could be improved. I'm not sure I agree with Mr. Merriman?

https://www.marketwatch.com/story/the-l ... 2020-02-13
I don't disagree with him, but I'm not sure what the real point of the article is. It feels like if someone said that a big problem is that people eat poorly, and that people should eat a more balanced diet, and then someone else suggested a specific more-balanced-diet. It's not that either of them are wrong, they're like 95% in agreement, and one maybe is a 1% improvement on top of that. Does the last 1% matter? You can measure the difference, but not everyone has the same implementation abilities, so getting 95% right with trivial work is a great first cut at things.

As I said, I actually agree with the value tilt suggested, but I decided that I was not willing to implement it even though I was capable of it. I came to that conclusion in doing deep thinking as a result of a windfall, and instead of thinking about how to optimize for maximal returns, I considered the outcome if I were to die and my family had to figure out what was up with our portfolio. This immediately provided some clarity on certain issues, including a tendency I have to complicate things because I tend to believe that simple things aren't good enough. As a side effect, once I changed my goals I became happier with my simpler portfolio, even though I expect it to have somewhat reduced returns.

Call_Me_Op
Posts: 7464
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Bogleheads Investing Picks Need Improvement

Post by Call_Me_Op » Fri Feb 14, 2020 8:42 am

There is way too much controversy about Merriman. He tilts to small and value because the long-term data suggests that this has been profitable. That's all there is to it. If you do not mind tracking error and believe that the future is likely to look like the past in terms of factor premiums, have at it.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
Doc
Posts: 9346
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Bogleheads Investing Picks Need Improvement

Post by Doc » Fri Feb 14, 2020 8:46 am

Regarding including small cap
He understood completely. But he told me that, despite their favorable long-term returns, small-cap indexes were too risky for most investors.

He was not referring to the statistical risk of loss, but to a psychological risk.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

Jack FFR1846
Posts: 11067
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Bogleheads Investing Picks Need Improvement

Post by Jack FFR1846 » Fri Feb 14, 2020 8:52 am

Paul states in the article that he and Jack agreed on many things. I'll summarize what he says they differ on (using my own biased view...I go with Jack every time).

Jack: Nobody knows nothin. Buy the entire haystack and you get market results.

Merriman: Nobody knows nothin. But I think I know something because I calculated past results, so I say you should buy more of this group of stocks and that group of stocks.

I've said before that I admire Paul's calculating capabilities. He's put fourth many well defined, well calculated proofs of his hypotheses, showing how his twist beats a true "buy everything at market weight" portfolio. But this isn't any different from Edward Jones telling you how their "fund of the week" has beaten the market since 1927. It's not hard to pick winners when the race is finished. I'm sorry but if you can't predict the future, you can't reliably calculate a winner. Sorry, you can't.

My conclusion is if you buy the market, you get market returns. If you buy something else, your returns will be something else and I don't care if you use triple integrals and all of Maxwell's equations (which I have), you're not going to predict nothin'.
Bogle: Smart Beta is stupid

User avatar
watchnerd
Posts: 3138
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Bogleheads Investing Picks Need Improvement

Post by watchnerd » Fri Feb 14, 2020 8:54 am

tvubpwcisla wrote:
Thu Feb 13, 2020 10:52 pm
I read an article today that states Bogleheads investing picks could be improved. I'm not sure I agree with Mr. Merriman?

https://www.marketwatch.com/story/the-l ... 2020-02-13
Anything other than market cap weighting is a tilt.

i.e. trying to pick winners

Once one philosophically allows for picking winners, why not just go full active?
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

RadAudit
Posts: 3678
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Bogleheads Investing Picks Need Improvement

Post by RadAudit » Fri Feb 14, 2020 8:54 am

shess wrote:
Fri Feb 14, 2020 2:05 am
instead of thinking about how to optimize for maximal returns, I considered the outcome if I were to die and my family had to figure out what was up with our portfolio. This immediately provided some clarity on certain issues,
Similar conclusion. I came to understand that that DW had no interest in rebalancing a four or five fund portfolio (too complicated :oops: ) to maintain a risk appropriate AA. That's when I switched most of the portfolio to two LifeStrategy funds.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

User avatar
JoMoney
Posts: 8369
Joined: Tue Jul 23, 2013 5:31 am

Re: Bogleheads Investing Picks Need Improvement

Post by JoMoney » Fri Feb 14, 2020 8:57 am

Merriman has made a name for himself by trolling people that follow Jack Bogle's simple advice.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

aristotelian
Posts: 6823
Joined: Wed Jan 11, 2017 8:05 pm

Re: Bogleheads Investing Picks Need Improvement

Post by aristotelian » Fri Feb 14, 2020 9:05 am

The problem is, any argument for improved performance of certain funds or classes can only be backward looking. Those historical trends can come and go or disappear for decades at a time. They may turn out to be wrong. What can be known is cost, diversification, and simplicity. From that standpoint the Boglehead portfolio wins.

My other issue with the slice-and-dice portfolio is that the more slices you have, the more you end up approximating the total market and diluting the impact of any one slice. Just doesn't seem worth the increased cost and effort.

User avatar
nisiprius
Advisory Board
Posts: 39967
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Bogleheads Investing Picks Need Improvement

Post by nisiprius » Fri Feb 14, 2020 9:21 am

Call_Me_Op wrote:
Fri Feb 14, 2020 8:42 am
There is way too much controversy about Merriman. He tilts to small and value because the long-term data suggests that this has been profitable. That's all there is to it. If you do not mind tracking error and believe that the future is likely to look like the past in terms of factor premiums, have at it.
No, there is a good bit more to it, and in my opinion the controversy is justified by the kind of language Merriman customarily uses. He doesn't say "the long-term data suggests that this has been profitable." He uses language like this:
​Why everyone should invest in small-cap value funds

Small-cap value is the gold ring of investing

The one asset class every investor needs

The One Fund Every Investor Should Own
Compare that to the kind of language used by Eugene Fama, whom, for the benefit of tvubpwcisla, I will call "the discoverer of small-cap value":
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) ...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....I think it's totally a matter of taste.
Merriman, like many others, is also guilty of failing to distinguish between raw return, which is what usually presents, and risk-adjusted return. Many, many writers do this. The portfolio they are recommending almost combines has both more return and more risk, and they hide the question of how much of the return is simply reward for the additional risk.

It's completely legitimate to say "investors who take an active interest in investing ought to be aware that there are schools of thought that favor" (small-cap value, REITs, dividend stocks, consumer staples, emerging markets stocks, what have you), but to put it in the stark way Merriman does is to go much too far.
Last edited by nisiprius on Fri Feb 14, 2020 9:28 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

rascott
Posts: 1419
Joined: Wed Apr 15, 2015 10:53 am

Re: Bogleheads Investing Picks Need Improvement

Post by rascott » Fri Feb 14, 2020 9:28 am

nisiprius wrote:
Fri Feb 14, 2020 9:21 am
Call_Me_Op wrote:
Fri Feb 14, 2020 8:42 am
There is way too much controversy about Merriman. He tilts to small and value because the long-term data suggests that this has been profitable. That's all there is to it. If you do not mind tracking error and believe that the future is likely to look like the past in terms of factor premiums, have at it.
No, there is a good bit more to it, and in my opinion the controversy is justified by the kind of language Merriman customarily uses. He doesn't say "the long-term data suggests that this has been profitable." He uses language like this:
​Why everyone should invest in small-cap value funds

Small-cap value is the gold ring of investing

The one asset class every investor needs

The One Fund Every Investor Should Own
Compare that to the kind of language used by Eugene Fama, whom, for the benefit of tvubpwcisla, I will call "the discoverer of small-cap value":
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) ...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....I think it's totally a matter of taste.
Merriman, like many others, is also guilty of failing to distinguish between raw return, which is what he always cites, and risk-adjusted return. Many, many writers do this. The portfolio they are recommending almost combines has both more return and more risk, and they hide the question of how much of the return is simply reward for the additional risk.

Larry Swedroe's "Larry portfolio"--not apparently intended as a complete portfolio for average investors--is one of the few example I know where the portfolio designer really equalized the risk of the baseline and modified portfolios.

If I look at risk-adjusted return, what I usually find is that for most time periods and choices of vehicle, small-cap value has had higher risk-adjusted return but the gap between it and the total market shrinks to the point where we are in the "land of maybe," and when you then put them into an actual portfolio, the difference shrinks even further. For example, if we simply go to PortfolioVisualizer and use their built-in version of the Merriman "FundAdvice Ultimate Buy and Hold" portfolio, and compare it to an untilted portfolio with the same percentages of US stocks, international stocks, and bonds--30%, 30%, 40%--what you actually see here is the Merriman portfolio, which, as expected, has a hair higher risk, and lower risk-adjusted return. In this case, it actually lower return. I'm not going to show a picture because the choice of funds used in PortfolioVisualizer's representation limited the year range to 2006-2019. I don't want to go down the old rabbithole--practically any portfolio using obtainable funds rather than research numbers will show a nice benefit from factor tilts if it goes back far enough to include 2000-2003, and not if it doesn't.

It's completely legitimate to say "investors who take an active interest in investing ought to be aware of the cases for" (small-cap value, REITs, dividend stocks, consumer staples, emerging markets stocks, what have you), but to put it in the stark way Merriman does is to go much too far.

Actually Paul doesn't use that language at all, himself.... if you were ever to listen to his podcasts..... he says all the time that he doesn't get to pick the titles of those marketwatch articles.... that he and Buck submit the articles with some boring title.... and that Marketwatch always changes them to whatever clickbait title they want to use.

Again.... if people are REALLY interested in Paul's free advice.... listen to his weekly podcast. It's good stuff.
Last edited by rascott on Fri Feb 14, 2020 9:31 am, edited 1 time in total.

User avatar
nisiprius
Advisory Board
Posts: 39967
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Bogleheads Investing Picks Need Improvement

Post by nisiprius » Fri Feb 14, 2020 9:30 am

rascott wrote:
Fri Feb 14, 2020 9:28 am

Actually Paul doesn't use that language at all, himself.... if you were ever to listen to his podcasts..... he says all the time that he doesn't get to pick the titles of those marketwatch articles.... that he and Buck submit the articles with some boring title.... and that Marketwatch always changes them to whatever clickbait title they want to use.
I got them from his own web page on his own website, where what he presents is entirely under his own control.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

rascott
Posts: 1419
Joined: Wed Apr 15, 2015 10:53 am

Re: Bogleheads Investing Picks Need Improvement

Post by rascott » Fri Feb 14, 2020 9:33 am

nisiprius wrote:
Fri Feb 14, 2020 9:30 am
rascott wrote:
Fri Feb 14, 2020 9:28 am

Actually Paul doesn't use that language at all, himself.... if you were ever to listen to his podcasts..... he says all the time that he doesn't get to pick the titles of those marketwatch articles.... that he and Buck submit the articles with some boring title.... and that Marketwatch always changes them to whatever clickbait title they want to use.
I got them from his own web page on his own website, where what he presents is entirely under his own control.
Yeah.. where he says clearly they are just reprints of the marketwatch articles. I have no clue the contractual basis he has..... but he comments frequently about those article titles and how they don't come from him.

User avatar
rustymutt
Posts: 3810
Joined: Sat Mar 07, 2009 12:03 pm
Location: Oklahoma

Re: Bogleheads Investing Picks Need Improvement

Post by rustymutt » Fri Feb 14, 2020 9:36 am

Jack and Paul both are teachers. I've a portfolio that both would approve of. It's mix, and it's got me at 11% over the last ten years. My hat is off to both Mr Bogle, and Paul for the help to investors that both have been. I'm comfortable in my investments. Education is a wonderful gift that's only wonderful when it's shared with others. It makes for sound investing.
Paul, your advice has been golden to me. I would still like to buy you and your wife a steak dinner. LOL

:happy
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

UpperNwGuy
Posts: 3070
Joined: Sun Oct 08, 2017 7:16 pm

Re: Bogleheads Investing Picks Need Improvement

Post by UpperNwGuy » Fri Feb 14, 2020 9:40 am

Whether Merriman is right or whether he is wrong, I am not willing to tilt. I will continue to hold the broad market index. I cannot imagine a worse disappointment than holding a tilted portfolio for 20 years and then seeing it fall short of the broad market index. On the other hand, if the tilted portfolio comes out ahead, I will not be disappointed.

rascott
Posts: 1419
Joined: Wed Apr 15, 2015 10:53 am

Re: Bogleheads Investing Picks Need Improvement

Post by rascott » Fri Feb 14, 2020 9:41 am

tvubpwcisla wrote:
Thu Feb 13, 2020 10:52 pm
I read an article today that states Bogleheads investing picks could be improved. I'm not sure I agree with Mr. Merriman?

https://www.marketwatch.com/story/the-l ... 2020-02-13

If you are ok with tracking error (having a portfolio that looks/behaves different than the SP500), and is slightly more volatile..... it's a fine way to go.... but it requires sticking with it.... probably the most difficult part for people. I think the volatility increase is negligible and likely never much noticed.

User avatar
patrick013
Posts: 2818
Joined: Mon Jul 13, 2015 7:49 pm

Re: Bogleheads Investing Picks Need Improvement

Post by patrick013 » Fri Feb 14, 2020 9:45 am

There is enough data becoming available where utilities, certain dividend indexes, and Russell mid-cap value have visually trounced the market (500 index) the last 10-15 years depending on info available for Etf's for sale. Old fashioned best describes SCV to me for the portfolio tilt. :)
age in bonds, buy-and-hold, 10 year business cycle

Call_Me_Op
Posts: 7464
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Bogleheads Investing Picks Need Improvement

Post by Call_Me_Op » Fri Feb 14, 2020 9:46 am

UpperNwGuy wrote:
Fri Feb 14, 2020 9:40 am
I cannot imagine a worse disappointment than holding a tilted portfolio for 20 years and then seeing it fall short of the broad market index.
Really? If it disappoints, it would probably be by a very small amount. I can imagine many, many worse disappointments.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

alluringreality
Posts: 120
Joined: Tue Nov 12, 2019 10:59 am

Re: Bogleheads Investing Picks Need Improvement

Post by alluringreality » Fri Feb 14, 2020 10:39 am

aristotelian wrote:
Fri Feb 14, 2020 9:05 am
What can be known is cost, diversification, and simplicity. From that standpoint the Boglehead portfolio wins.
While I'm not interested in the Merriman portfolios, how is a portfolio based on total market necessarily more diversified than a tilted portfolio? For example VTSAX currently indicates "10 largest holdings = 19.90% of total net assets". If I take part of the money I could have put into total market and instead index a different section of the US stock market, it would seem that I would have less concentration in those 10 companies.

aristotelian
Posts: 6823
Joined: Wed Jan 11, 2017 8:05 pm

Re: Bogleheads Investing Picks Need Improvement

Post by aristotelian » Fri Feb 14, 2020 11:08 am

alluringreality wrote:
Fri Feb 14, 2020 10:39 am
aristotelian wrote:
Fri Feb 14, 2020 9:05 am
What can be known is cost, diversification, and simplicity. From that standpoint the Boglehead portfolio wins.
While I'm not interested in the Merriman portfolios, how is a portfolio based on total market necessarily more diversified than a tilted portfolio? For example VTSAX currently indicates "10 largest holdings = 19.90% of total net assets". If I take part of the money I could have put into total market and instead index a different section of the US stock market, it would seem that I would have less concentration in those 10 companies.
Yes, there is an ongoing debate about the meaning of diversification. Put it this way, at least you can say that the total market portfolio includes the all the slices at their market weight.

22twain
Posts: 2223
Joined: Thu May 10, 2012 5:42 pm

Re: Bogleheads Investing Picks Need Improvement

Post by 22twain » Fri Feb 14, 2020 11:33 am

Call_Me_Op wrote:
Fri Feb 14, 2020 8:42 am
If you do not mind tracking error and believe that the future is likely to look like the past in terms of factor premiums,
and if you need the potential extra return,
have at it.
Of course, "needs" versus "wants" is something that everybody has to come to terms with, based on their own situation.
My investing princiPLEs do not include absolutely preserving princiPAL.

rockstar
Posts: 176
Joined: Mon Feb 03, 2020 6:51 pm

Re: Bogleheads Investing Picks Need Improvement

Post by rockstar » Fri Feb 14, 2020 11:33 am

What about the impact on small cap staying private via private equity firms? This is my biggest doubt about small cap going forward. And why wouldn’t large cap companies like Google buy these companies before they go public?

What’s the case going forward?

Personally I have titled toward REITs. So small cap is definitely a class I don’t have good exposure to.

dcabler
Posts: 1225
Joined: Wed Feb 19, 2014 11:30 am

Re: Bogleheads Investing Picks Need Improvement

Post by dcabler » Fri Feb 14, 2020 11:37 am

Portfolio7 wrote:
Fri Feb 14, 2020 1:16 am
I have a substantial base in Global Mid Caps (it's more than just a 'tilt').

I carry some Benchmark Risk. My portfolio acts differently than a typical US 75/25. So far it hasn't bothered me that this is true.
Very similar here, but at 60/40. Not sure about benchmark risk (or "tracking error") as I see no need to benchmark my portfolio against anything at all, much less against what people philosophically may be believe is a proper benchmark for everything. If I'm happy with the performance, that's sufficient.

User avatar
Doc
Posts: 9346
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Bogleheads Investing Picks Need Improvement

Post by Doc » Fri Feb 14, 2020 1:01 pm

aristotelian wrote:
Fri Feb 14, 2020 11:08 am
Yes, there is an ongoing debate about the meaning of diversification. Put it this way, at least you can say that the total market portfolio includes the all the slices at their market weight
Total Stock Market and Russell 2000 Value: 3 month moving average.
Image

They often perform differently. If your holdings of the SCV is greater than the market weight your portfolio will be more diversified. The two don't march in step. Whether or not you can take advantage of that is another storey.

If you buy SCV when it dips more than TSM and buy TSM when it goes up more than SCV then in theory you would have a higher total return over time. So just rebalance on the third Thursday of every month. :D
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

UpperNwGuy
Posts: 3070
Joined: Sun Oct 08, 2017 7:16 pm

Re: Bogleheads Investing Picks Need Improvement

Post by UpperNwGuy » Fri Feb 14, 2020 1:31 pm

Call_Me_Op wrote:
Fri Feb 14, 2020 9:46 am
UpperNwGuy wrote:
Fri Feb 14, 2020 9:40 am
I cannot imagine a worse disappointment than holding a tilted portfolio for 20 years and then seeing it fall short of the broad market index.
Really? If it disappoints, it would probably be by a very small amount. I can imagine many, many worse disappointments.
Yes, really. Did you think I was lying? Or joking? I was deadly serious.

afan
Posts: 4493
Joined: Sun Jul 25, 2010 4:01 pm

Re: Bogleheads Investing Picks Need Improvement

Post by afan » Fri Feb 14, 2020 4:39 pm

It has long amazed me how many people say they tilt because Fama said to. The great majority of these people, as best I can tell, have never read Fama's work. Instead, they rely on what people who (claim to) have read his work say that he said. Not surprising that this second hand approach often gets it wrong. All I have ever seen Fama say is that the higher returns of small and value were compensation for risk. If one wants to undertake the higher risk then they can reasonably anticipate a higher reward. The reward is far from assured, while they deliver on the risk quite reliably.
Yet people like to pretend this is some way to beat the markets and say they do it because Fama told them they should. He did no such thing.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

User avatar
fortyofforty
Posts: 1825
Joined: Wed Mar 31, 2010 12:33 pm

Re: Bogleheads Investing Picks Need Improvement

Post by fortyofforty » Fri Feb 14, 2020 8:21 pm

afan wrote:
Fri Feb 14, 2020 4:39 pm
It has long amazed me how many people say they tilt because Fama said to. The great majority of these people, as best I can tell, have never read Fama's work. Instead, they rely on what people who (claim to) have read his work say that he said. Not surprising that this second hand approach often gets it wrong. All I have ever seen Fama say is that the higher returns of small and value were compensation for risk. If one wants to undertake the higher risk then they can reasonably anticipate a higher reward. The reward is far from assured, while they deliver on the risk quite reliably.
Yet people like to pretend this is some way to beat the markets and say they do it because Fama told them they should. He did no such thing.
Well said. What some seem to forget is that tilting toward small and toward value increases risk. What risk? If there is always a higher reward, guaranteed, over any time period, then it is not risk, it is a sure thing. I think the risks are higher volatility and the possibility that there is no pot of gold at the end of the rainbow, maybe even severe underperformance or losses.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

Triple digit golfer
Posts: 4017
Joined: Mon May 18, 2009 5:57 pm

Re: Bogleheads Investing Picks Need Improvement

Post by Triple digit golfer » Fri Feb 14, 2020 8:52 pm

So tired of the argument that the market is heavily weighted to a few large companies. Those large companies are so much more diversified in product lines, services offered, global reach, etc. than smaller companies. Look at Amazon vs. Harley Davidson. Cloud based web services, huge retail marketplace, grocery stores, etc. vs. ...motorcycles.

You can split the largest companies into many smaller companies mentally if it makes you feel better. Me, I'm fine putting 20% of my U.S. equities in ten very large, diverse companies with resources, product lines, and diversity far greater reaching than smaller companies.

Equal weighing is subjective because it treats each corporation as one. In reality, larger corporations have far more brands and product lines and services than smaller companies. I would never invest anywhere near as much in Harley Davidson as Amazon. I invest a proportionate amount in each, i.e. market weight.

User avatar
fortyofforty
Posts: 1825
Joined: Wed Mar 31, 2010 12:33 pm

Re: Bogleheads Investing Picks Need Improvement

Post by fortyofforty » Fri Feb 14, 2020 9:38 pm

Triple digit golfer wrote:
Fri Feb 14, 2020 8:52 pm
So tired of the argument that the market is heavily weighted to a few large companies. Those large companies are so much more diversified in product lines, services offered, global reach, etc. than smaller companies. Look at Amazon vs. Harley Davidson. Cloud based web services, huge retail marketplace, grocery stores, etc. vs. ...motorcycles.

You can split the largest companies into many smaller companies mentally if it makes you feel better. Me, I'm fine putting 20% of my U.S. equities in ten very large, diverse companies with resources, product lines, and diversity far greater reaching than smaller companies.

Equal weighing is subjective because it treats each corporation as one. In reality, larger corporations have far more brands and product lines and services than smaller companies. I would never invest anywhere near as much in Harley Davidson as Amazon. I invest a proportionate amount in each, i.e. market weight.
Larger corporations are larger because they grew larger. Nobody woke up one day and beknighted Microsoft and Apple the largest corporations in the world. And as other corporations bubble up, they'll be overtaken. The largest always are overtaken. Always. But when and by whom are not for me to decide. Like a surfer catching a wave, I'll ride whichever companies surface.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

shess
Posts: 405
Joined: Wed May 17, 2017 12:02 am

Re: Bogleheads Investing Picks Need Improvement

Post by shess » Fri Feb 14, 2020 11:58 pm

Triple digit golfer wrote:
Fri Feb 14, 2020 8:52 pm
So tired of the argument that the market is heavily weighted to a few large companies. Those large companies are so much more diversified in product lines, services offered, global reach, etc. than smaller companies. Look at Amazon vs. Harley Davidson. Cloud based web services, huge retail marketplace, grocery stores, etc. vs. ...motorcycles.

You can split the largest companies into many smaller companies mentally if it makes you feel better. Me, I'm fine putting 20% of my U.S. equities in ten very large, diverse companies with resources, product lines, and diversity far greater reaching than smaller companies.

Equal weighing is subjective because it treats each corporation as one. In reality, larger corporations have far more brands and product lines and services than smaller companies. I would never invest anywhere near as much in Harley Davidson as Amazon. I invest a proportionate amount in each, i.e. market weight.
I think people get focussed on the large companies failing, and/or being replaced by previously-smaller companies, but ignore the fact that for every one of those smaller companies which replaces a large company, there were probably 2 or 3 smaller companies which didn't really go anywhere much, and 5 or 6 of them who flamed out and failed. I don't know if there is proportionally more churn in the smaller companies than the larger - but there are more of them, so there's certainly more absolute churn.

Also, if there is any way to play it safe and be prudent with large sums of money, large companies are where you're going to see that happen, simply because they have the motivation and the resources to do it. I don't think there's any way to solve that problem entirely, but I do think there's a lot of evidence that you can hold things in check for a LONG time. If I read things right, over half of the DJIA is over 100 years old (P&G founded 1837!), and half of the rest is over 50. Sure, being in Apple would have given you better returns than being in Caterpillar - but that goes for almost any stock compared to Apple...

User avatar
arcticpineapplecorp.
Posts: 4683
Joined: Tue Mar 06, 2012 9:22 pm

Re: Bogleheads Investing Picks Need Improvement

Post by arcticpineapplecorp. » Sat Feb 15, 2020 11:01 pm

Paul has often said on his podcast, "There's no risk in the past." and "We know what we should have done". He knows as much as anyone that he can't guarantee better returns. He says the only guarantee he can make is that from time to time you'll lose money (because of market/systemic risk which we must all take to get market returns). He may not say it enough and is more of a cheerleader for small cap/value premiums, but he does remind himself to couch his strong beliefs with a dose of "we just won't know until some future date".

I don't tilt myself, but I have learned from Merriman, Bernstein and Bogleheads about tilting and whether I utilize those strategies or not, I have benefited from the arguments on both sides.

There are an infinite number of portfolios. The problem is, there's no way to know (in advance) which will outperform the others.

one of my favorites (150 Portfolios better than yours. Updated for 2020. Now it's 200 portfolios better than yours):
https://www.whitecoatinvestor.com/150-p ... han-yours/
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Post Reply