Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

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Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by Small Law Survivor » Wed Jun 12, 2019 8:30 am

https://earlyretirementnow.com/2019/06/ ... more-40580

As usual with ERN, this is a very detailed analysis. I began an attempt to summarize his conclusions, but it's too difficult - better to read directly if you're interested.
Last edited by Small Law Survivor on Thu Jun 13, 2019 8:19 am, edited 1 time in total.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by Random Walker » Wed Jun 12, 2019 9:15 am

There are significant risk stories supporting both size and value. Value has significant risk and behavioral stories. Sometimes the risk shows up. Internationally the premia have been significant over the last 22 years and last 10 years. Below from Portfolio Visualizer I compared Vanguard total international and DFA International Small Value over longest period available 22 years and last 10 years. Strong case for both maintaining faith in size and value premia and for diversifying internationally. Currently growth-value spreads in US look very favorable; not a good time to lose faith I think. All premia likely shrink after being made popular, but risk stories should persist. The market prices risk. Moreover, factors, including value, tend to be more pronounced in the small cap arena.

Over last 22 years VGTSX 4.52%, DISVX 7.27%
Over last 10 years (when SV tilt has not helped in US) VGTSX 6.73%, DISVX 8.70%

https://www.portfoliovisualizer.com/bac ... 0&total3=0

https://www.portfoliovisualizer.com/bac ... 0&total3=0

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by RamblinDoc » Wed Jun 12, 2019 10:05 am

Small Law Survivor wrote:
Wed Jun 12, 2019 8:30 am
https://earlyretirementnow.com/2019/06/ ... more-40580

As usual with ERN, this is a very detailed analysis. I began an attempt to summarize his conclusions, but it's too difficult - better to read directly if you're interested.

Thank you for sharing this!

I thought Paul Merriman’s interview on ChoseFI was interesting - he is always insightful. However, he does tend to simplify things into gimmicks: ”The Ultimate Buy and Hold Portfolio...”. I think he has a few of these now. :shock:

Karsten (aka Big ERN) has an excellent rebuttal that is full of data.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by columbia » Wed Jun 12, 2019 11:41 am

Merriman’s portfolio is equal weighted on value for small AND large cap, so focusing on just the small is curious. ie The S&P 500 beat his portfolio because of large cap growth.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by dcabler » Wed Jun 12, 2019 12:01 pm

columbia wrote:
Wed Jun 12, 2019 11:41 am
Merriman’s portfolio is equal weighted on value for small AND large cap, so focusing on just the small is curious. ie The S&P 500 beat his portfolio because of large cap growth.
The way he did his analysis, hard to carve out how much of the story was size vs how much was due to Merriman being 50% international.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Wed Jun 12, 2019 12:37 pm

Honestly, I think that Karsten's analysis is a little flawed. Take a look at his main chart.

Image

From 1926-1940, 1974-1981, and 1989-2001, the value premium was zero or negative. The small premium was even more haphazard, being zero from 1946-1977, over 30 years. We've known all along that factors have underperformed for years at a time, sometimes more than a decade. What we've seen since 2006 is little different.

No one knows if these premia will persist going forward, but the past has already shown that a decade or more of underperformance is far from unprecedented.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by randomguy » Wed Jun 12, 2019 12:44 pm

willthrill81 wrote:
Wed Jun 12, 2019 12:37 pm
Honestly, I think that Karsten's analysis is a little flawed. Take a look at his main chart.

Image

From 1926-1940, 1974-1981, and 1989-2001, the value premium was zero or negative. The small premium was even more haphazard, being zero from 1946-1977, over 30 years. We've known all along that factors have underperformed for years at a time, sometimes more than a decade. What we've seen since 2006 is little different.

No one knows if these premia will persist going forward, but the past has already shown that a decade or more of underperformance is far from unprecedented.
Yep. At the end of any cycle the thing out of vogue looks bad and the things that has been doing well looks great. And then we make up a story about how this time is different and the current trend will continue for every. Sometimes it is different. But a lot times it isn't. And that is part of the reason why SV investing works. People give up after periods of underperformance. Then they buy in after a few years of good performance and end up with crappy results.

And international is probably a bigger difference than size/value over the time frame looked at as other people have pointed out.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by privatefarmer » Wed Jun 12, 2019 1:02 pm

Yawn...

1) I don’t know where this guy is getting his data. Portfoliovisualizer shows SCV having a 14% CAGR since 1972 vs a 10% CAGR in large cap blend. DFAs small value fund also has absolutely crushed the total market since inception (early 90s)

2) Fama/French won the Nobel prize for this discovery. The Nobel. Prize. Let me know when this guy’s blog wins the Nobel and I’ll start to pay attention. Do not mean to offend, I have a blog of my own, but it’s easy for someone to make up a blog post and use their own data mining to back it up vs having actual research peer reviewed and verified and then win a Nobel Prize over.

3) ANYTHING can be in a “bubble” including small stocks or “value” stocks. OF COURSE there will be periods of underperformance, this is a BUY AND HOLD strategy so you expect to have periods of underperformance but you are betting on outperformance over the long haul. Simply excluding the larger most growthy stocks, the most popular big name stocks ie Facebook, over long periods of time should give you a slight edge. Of course some of these big name stocks will live up to their reputation but as a group over long periods of time I believe the market over hypes popular companies (ie tech stocks) and if all you do is largely avoid those stocks I think you’ll do slightly better.

4) getting an extra 2-4%/year over decades is life changing. However, most investors are not Bogle heads. Most investors are not buy and holders. Most investors want to be in the “next hot thing” and a 2-4% premium does not interest them. They want to be rich overnight. So although it sounds crazy that a 2-4% premium could exist over long periods of time, the reality is that MOST investors are ignoring this and are betting on the big name growth stocks that Jim Cramer belches about all day. We are in the minority.

Nothing wrong with owning the TSM. Absolutely nothing wrong with that. I myself am 100% tilted to global SCV (well sort of, on the INTL side I just invest in VSS because the “value” is too expensive to tilt into) but I understand and expect to have steeper drawdowns and a bumpier ride. If I get an extra 2% CAGR over several decades I’ll be very happy. If I don’t then I don’t but today I have to make a bet on whether SCV will outperform going forward. I can either bet “yes” or “no” but I only have one chance and can’t go in a time machine to change my answer. So I’m betting “yes” but I don’t know how much it’ll outperform. I do not pay hardly anything extra for this “tilt” as ETFs in SCV are very cheap nowadays nor would I pay significantly more for SCV exposure.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by DDM4inv79 » Wed Jun 12, 2019 1:03 pm

willthrill81 wrote:
Wed Jun 12, 2019 12:37 pm
Honestly, I think that Karsten's analysis is a little flawed. Take a look at his main chart.

From 1926-1940, 1974-1981, and 1989-2001, the value premium was zero or negative. The small premium was even more haphazard, being zero from 1946-1977, over 30 years. We've known all along that factors have underperformed for years at a time, sometimes more than a decade. What we've seen since 2006 is little different.

No one knows if these premia will persist going forward, but the past has already shown that a decade or more of underperformance is far from unprecedented.
1: the article concedes that there is a there's a small-cap premium, but it's not 1.89% p.a. but more like 0.6%.
2: the drop in the value premium is unlike anything we've seen before. See the section "more on the value premium"
3: Even with some "reasonable" factor premium estimates you barely get enough alpha to justify the higher expense ratios. And you certainly don't get to 2% p.a. expected outperformance.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Wed Jun 12, 2019 1:11 pm

DDM4inv79 wrote:
Wed Jun 12, 2019 1:03 pm
willthrill81 wrote:
Wed Jun 12, 2019 12:37 pm
Honestly, I think that Karsten's analysis is a little flawed. Take a look at his main chart.

From 1926-1940, 1974-1981, and 1989-2001, the value premium was zero or negative. The small premium was even more haphazard, being zero from 1946-1977, over 30 years. We've known all along that factors have underperformed for years at a time, sometimes more than a decade. What we've seen since 2006 is little different.

No one knows if these premia will persist going forward, but the past has already shown that a decade or more of underperformance is far from unprecedented.
1: the article concedes that there is a there's a small-cap premium, but it's not 1.89% p.a. but more like 0.6%.
2: the drop in the value premium is unlike anything we've seen before. See the section "more on the value premium"
3: Even with some "reasonable" factor premium estimates you barely get enough alpha to justify the higher expense ratios. And you certainly don't get to 2% p.a. expected outperformance.
Regarding #2, remember that the value premium was flat from 1926-1940, 15 years. We haven't yet reached that level yet. And the expense ratio of a fund like VISVX is only 15 basis points higher than VTSAX. That's not much of a hurdle. I agree that we aren't likely to see 2% outperformance of SCV going forward, and Merriman himself has said so.

The real question is whether a 15 basis point higher ER is worth taking a risk on something like SCV. And that answer is subjective.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by nisiprius » Wed Jun 12, 2019 1:28 pm

privatefarmer wrote:
Wed Jun 12, 2019 1:02 pm
Fama/French won the Nobel prize for this discovery. The Nobel. Prize.
Fama won a Nobel prize, French did not. The prize was not awarded for the Fama/French three-factor model, it was awarded for the efficient market hypothesis.

The Royal Swedish Academy of Sciences press release:
Beginning in the 1960s, Eugene Fama and several collaborators demonstrated that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices. These findings not only had a profound impact on subsequent research but also changed market practice. The emergence of so-called index funds in stock markets all over the world is a prominent example.
But in any case, what was "this discovery?"

Did Fama and French discover that stock price fluctuations are better explained by three dimensions of risk rather than one? Yes.

Did Fama and French discover that all investors ought to incorporate a small value tilt? Did they support the idea of recommending a small value tilt for all investors, as Paul Merriman does? No, they did not.

The Nobel. Prizewinner. said this himself:
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.
If we are going to trust Fama on the basis of his Nobel prize, then shouldn't we trust what Fama actually said?
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Wed Jun 12, 2019 1:36 pm

Here's another way to look at Karsten's supposed 'challenge': how would the 3-fund portfolio and Merriman's UBH have performed for retirees since 2006, the year in which Karsten is claiming that the value premium disappeared? Portfolio 1, the blue line, is 30% TSM/30% ex-U.S./40% TBM, and portfolio 2, the red line, is the UBH portfolio with 40% in fixed income. 4% of the starting portfolio value, inflation-adjusted for subsequent years, was withdrawn (i.e. the '4% rule'). Real funds were used for all asset classes.

Image

At the end of the period, there was a 4% difference between the two portfolios in favor of the 3-fund. But as of March, 2017, both portfolios had identical balances. So there was virtually no difference between the two.

Another "serious challenge" goes thud.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by DDM4inv79 » Wed Jun 12, 2019 1:51 pm

nisiprius wrote:
Wed Jun 12, 2019 1:28 pm
privatefarmer wrote:
Wed Jun 12, 2019 1:02 pm
Fama/French won the Nobel prize for this discovery. The Nobel. Prize.
Fama won a Nobel prize, French did not. The prize was not awarded for the Fama/French three-factor model, it was awarded for the efficient market hypothesis.


Did Fama and French discover that stock price fluctuations are better explained by three dimensions of risk rather than one? Yes.

Did Fama and French discover that all investors ought to incorporate a small value tilt? Did they support the idea of recommending a small value tilt for all investors, as Paul Merriman does? No, they did not.

The Nobel. Prize. Winner. said this himself:
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.
If we are going to trust Fama on the basis of his Nobel prize, then shouldn't we trust what Fama actually said?
The ERN post never claims that Fama won the prize for the 3-factor model but "for his contributions" in general but should certainly clarify that point to avoid confusion. And jokingly "Fama stole your Nobel Prize" if you had known about the size premium before 1980, that's tongue-in-cheek.

But that aside, the quote you provide about what Fama himself has to say about the premium is really important. Too often, the Small-cap-value crowd will try to shut down every argument by claiming "if you don't agree with continued small-cap-value outperformance you negate the Fama-French approach" which is completely bogus, of course.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by DDM4inv79 » Wed Jun 12, 2019 1:54 pm

willthrill81 wrote:
Wed Jun 12, 2019 1:36 pm
Here's another way to look at Karsten's supposed 'challenge': how would the 3-fund portfolio and Merriman's UBH have performed for retirees since 2006, the year in which Karsten is claiming that the value premium disappeared? Portfolio 1, the blue line, is 30% TSM/30% ex-U.S./40% TBM, and portfolio 2, the red line, is the UBH portfolio with 40% in fixed income. 4% of the starting portfolio value, inflation-adjusted for subsequent years, was withdrawn (i.e. the '4% rule'). Real funds were used for all asset classes.

Image

At the end of the period, there was a 4% difference between the two portfolios in favor of the 3-fund. But as of March, 2017, both portfolios had identical balances. So there was virtually no difference between the two.

Another "serious challenge" goes thud.
Yours is a strawman argument. Where's the 2% p.a. outperformance?

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Wed Jun 12, 2019 1:59 pm

DDM4inv79 wrote:
Wed Jun 12, 2019 1:54 pm
willthrill81 wrote:
Wed Jun 12, 2019 1:36 pm
Here's another way to look at Karsten's supposed 'challenge': how would the 3-fund portfolio and Merriman's UBH have performed for retirees since 2006, the year in which Karsten is claiming that the value premium disappeared? Portfolio 1, the blue line, is 30% TSM/30% ex-U.S./40% TBM, and portfolio 2, the red line, is the UBH portfolio with 40% in fixed income. 4% of the starting portfolio value, inflation-adjusted for subsequent years, was withdrawn (i.e. the '4% rule'). Real funds were used for all asset classes.

Image

At the end of the period, there was a 4% difference between the two portfolios in favor of the 3-fund. But as of March, 2017, both portfolios had identical balances. So there was virtually no difference between the two.

Another "serious challenge" goes thud.
Yours is a strawman argument. Where's the 2% p.a. outperformance?
I addressed that in a prior post.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by unclescrooge » Wed Jun 12, 2019 2:06 pm

nisiprius wrote:
Wed Jun 12, 2019 1:28 pm
privatefarmer wrote:
Wed Jun 12, 2019 1:02 pm
Fama/French won the Nobel prize for this discovery. The Nobel. Prize.
Fama won a Nobel prize, French did not. The prize was not awarded for the Fama/French three-factor model, it was awarded for the efficient market hypothesis.

The Royal Swedish Academy of Sciences press release:
Beginning in the 1960s, Eugene Fama and several collaborators demonstrated that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices. These findings not only had a profound impact on subsequent research but also changed market practice. The emergence of so-called index funds in stock markets all over the world is a prominent example.
But in any case, what was "this discovery?"

Did Fama and French discover that stock price fluctuations are better explained by three dimensions of risk rather than one? Yes.

Did Fama and French discover that all investors ought to incorporate a small value tilt? Did they support the idea of recommending a small value tilt for all investors, as Paul Merriman does? No, they did not.

The Nobel. Prizewinner. said this himself:
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.
If we are going to trust Fama on the basis of his Nobel prize, then shouldn't we trust what Fama actually said?
No, we should trust what he actually does.

I had the opportunity to ask him last year.

All of his investments are in DFA small cap and value funds.

However, he is old and still does research and collects a paycheck. And he has more money than he can spend. So this works for him. I think he was trying to say that investors should do whatever works for them.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by siamond » Wed Jun 12, 2019 2:06 pm

Yeah, I read the piece this morning too. And yawned too.

First off, he's using the numbers from the French-Fama library, the 5 factors series, where the breakdown between small and large bears absolutely no resemblance to the breakdown used by regular industry indices, and where value is a breakdown on P/B alone, which no industry index does either. I made that mistake as well in the past, then caught myself realizing that my analysis was quite off-the-mark. I stopped using the FF numbers since then.

Then he's putting arrows on the graph matching his narrative, but I could put another arrow which matches the opposite narrative and look credible, this is just a visual trick. And yes, he's happily ignoring the fact that SV already went through several long periods of non-premium in the past.

Next, his arguments seem very weak. He claims that the value factor disappeared after it was discovered, trying to twist the early 2000s numbers by pointing out that the big run of SCV was following a big drop (which is true, except that the run was significantly bigger than the drop, and sure, value stocks are very volatile by nature, so what's your point again?). His point about sectors reflects pure recency bias and seem to basically say 'growth sectors are great because they grew a lot' and 'value sectors suck because the corresponding companies are troubled'. Er, excuse me, those are tautologies. Fact is sector winners come and go over time, and I would never make a sector bet, even on IT nowadays.

Then he totally ignores all the international evidence, the behavioral factors, etc. I mean, sorry, this is NOT a serious analysis.

I have no crystal ball about the fact that the Small Value premium will keep occurring and by how much. At the minimum, I find quite hard to believe that the premium would become permanently negative given all the past evidence, so it really doesn't bother me much to make a contained bet. What is for sure is that I'll stay the course for quite a while, and any write-up centered on recency bias will not impress me very much.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by packer16 » Wed Jun 12, 2019 3:14 pm

One issue that I have not seen discussed (but maybe I missed it) is the implementation drag from the theoretical value premium. There are a number of judgement calls when you implement factors which can help or hurt capturing this premium. These calls include market-cap versus equal weighting, the size constraint of implementing SCV with a large pool of money & removing some firms that are considered outliers (lottery-type stocks). Also, it appears there are different implementations (different stocks with different weights) of these funds depending upon the fund provider. IMO these factors alone let alone additional fees could remove any premium we see in the data.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by Northern Flicker » Wed Jun 12, 2019 5:29 pm

There is also a logical inconsistency between the idea of factor premiums being risk premiums but factor diversification reducing risk.

Some will say that a small-cap value portfolio is less risky than would be determined by the risk premiums because of diversified exposure to market beta, size, and value, which are not perfectly correlated.

But if small-cap value has a higher expected return because the market is discounting in a risk premium, then the market in aggregate will discount in a premium commensurate with overall risk, and that will drive the higher expected return. If the market’s assessment of risk mitigation from SCV’s exposure to multiple, less than fully correlated factors is that the risk is reduced by that, then the market will discount in a commensurately smaller risk premium for SCV, and expected return will be reduced to be commensurate with the lower risk.

Lastly, data going back to 1926 covers 60+ years when small-caps in general including small-cap value stocks were not very liquid. To discuss excess return properly we need to understand how much of it was a liquidity risk premium not likely to be discounted in at current levels of liquidity.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by vineviz » Wed Jun 12, 2019 6:32 pm

Northern Flicker wrote:
Wed Jun 12, 2019 5:29 pm
There is also a logical inconsistency between the idea of factor premiums being risk premiums but factor diversification reducing risk.
Not at all, at least not if the risks are less than perfectly correlated.

Every single stock has some degree of idiosyncratic risk. Combine 50 or 500 or 5,000 stocks together and you have a portfolio with less risk than the average stock that you combined.

Same with sources of systematic risk (i.e. factors).
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by MindBogler » Wed Jun 12, 2019 6:45 pm

siamond wrote:
Wed Jun 12, 2019 2:06 pm
I mean, sorry, this is NOT a serious analysis.
I'll probably come off harsh but there are serious flaws in many articles I've read on ERN. Most of the analyses are superficial or seriously flawed but that's what you get from a blog.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by klaus14 » Wed Jun 12, 2019 6:56 pm

dcabler wrote:
Wed Jun 12, 2019 12:01 pm
columbia wrote:
Wed Jun 12, 2019 11:41 am
Merriman’s portfolio is equal weighted on value for small AND large cap, so focusing on just the small is curious. ie The S&P 500 beat his portfolio because of large cap growth.
The way he did his analysis, hard to carve out how much of the story was size vs how much was due to Merriman being 50% international.
Exactly. Not only that. he compares sp500 with Ultimate portfolio which has stocks and bonds! And he doesn't even show volatility.
Now i am questioning everything i read from that blog.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Wed Jun 12, 2019 6:59 pm

klaus14 wrote:
Wed Jun 12, 2019 6:56 pm
dcabler wrote:
Wed Jun 12, 2019 12:01 pm
columbia wrote:
Wed Jun 12, 2019 11:41 am
Merriman’s portfolio is equal weighted on value for small AND large cap, so focusing on just the small is curious. ie The S&P 500 beat his portfolio because of large cap growth.
The way he did his analysis, hard to carve out how much of the story was size vs how much was due to Merriman being 50% international.
Exactly. Not only that. he compares sp500 with Ultimate portfolio which has stocks and bonds! And he doesn't even show volatility.
Now i am questioning everything i read from that blog.
His earlier work on early retirement is second to none. But it seems that he might be stretching it to find new topics to post about. I'm really disappointed in this work of his.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by Forester » Wed Jun 12, 2019 9:25 pm

What's the big deal? If the author is correct and there is little to no small cap or value premiums to be had, then all Merriman is guilty of is adding complexity. Following the author's logic, returns will wash out to be the same as just holding a megacap index fund.

All we can say is that in the last slicing & dicing did add meaningful return, but at the potential risk of introducing investor misbehaviour, vs a simple approach such as a target date fund.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Wed Jun 12, 2019 9:28 pm

Forester wrote:
Wed Jun 12, 2019 9:25 pm
What's the big deal? If the author is correct and there is little to no small cap or value premiums to be had, then all Merriman is guilty of is adding complexity. Following the author's logic, returns will wash out to be the same as just holding a megacap index fund.

All we can say is that in the last slicing & dicing did add meaningful return, but at the potential risk of introducing investor misbehaviour, vs a simple approach such as a target date fund.
My post above showed that a 3-fund portfolio would not have done meaningfully better for year 2006 retirees than Merriman's UBH portfolio. So they wouldn't have really lost anything. As long as folks are not counting on getting higher returns from their tilting, no harm, no foul.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by Random Walker » Wed Jun 12, 2019 10:17 pm

willthrill81 wrote:
Wed Jun 12, 2019 9:28 pm
My post above showed that a 3-fund portfolio would not have done meaningfully better for year 2006 retirees than Merriman's UBH portfolio. So they wouldn't have really lost anything. As long as folks are not counting on getting higher returns from their tilting, no harm, no foul.
I think this is a big point. Even a highly tilted equity portfolio has a big dose of the market factor. So when a tilted portfolio underperforms, it’s not by much. When it outperforms, it tends to be more significant. Beyond that, the tilt gives the diversification benefit of weakly correlated or uncorrelated sources of return.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by heyyou » Wed Jun 12, 2019 10:38 pm

by Random Walker
willthrill81 wrote: ↑
My post above showed that a 3-fund portfolio would not have done meaningfully better for year 2006 retirees than Merriman's UBH portfolio. So they wouldn't have really lost anything. As long as folks are not counting on getting higher returns from their tilting, no harm, no foul.
I think this is a big point. Even a highly tilted equity portfolio has a big dose of the market factor. So when a tilted portfolio underperforms, it’s not by much. When it outperforms, it tends to be more significant. Beyond that, the tilt gives the diversification benefit of weakly correlated or uncorrelated sources of return.
Dave
Both of these quotes matter. Tilt if it suits you, and don't tilt if it doesn't fit. Either choice does not make the other investor wrong, nor headed for the poor house. That is the problem here, each side suggests that the other is missing out on great wealth, and that is just not true. Try to go beyond thinking "Since I'm right, the other guy must be wrong."

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Wed Jun 12, 2019 10:55 pm

Random Walker wrote:
Wed Jun 12, 2019 10:17 pm
willthrill81 wrote:
Wed Jun 12, 2019 9:28 pm
My post above showed that a 3-fund portfolio would not have done meaningfully better for year 2006 retirees than Merriman's UBH portfolio. So they wouldn't have really lost anything. As long as folks are not counting on getting higher returns from their tilting, no harm, no foul.
I think this is a big point. Even a highly tilted equity portfolio has a big dose of the market factor. So when a tilted portfolio underperforms, it’s not by much. When it outperforms, it tends to be more significant. Beyond that, the tilt gives the diversification benefit of weakly correlated or uncorrelated sources of return.
Precisely. If we extend the analysis back to 2001 (earliest data in PV) under the same conditions as I noted above (i.e. 4% fixed dollar withdrawals), then the UBH would have come out far ahead. UBH retirees would now have 128% of their inflation-adjusted starting portfolio, while 3-fund retirees would have just 76% of the same.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by Northern Flicker » Thu Jun 13, 2019 12:54 am

vineviz wrote:
Wed Jun 12, 2019 6:32 pm
Northern Flicker wrote:
Wed Jun 12, 2019 5:29 pm
There is also a logical inconsistency between the idea of factor premiums being risk premiums but factor diversification reducing risk.
Not at all, at least not if the risks are less than perfectly correlated.

Every single stock has some degree of idiosyncratic risk. Combine 50 or 500 or 5,000 stocks together and you have a portfolio with less risk than the average stock that you combined.
The market prices individual stocks according to the actual risk with the assumption that security-specific risk is diversified away. There is no premium for taking that risk.
Same with sources of systematic risk (i.e. factors).
Yes. If so-called factor diversification of a single asset class like SCV reduces risk, then that is built-in to the risk level of that asset class, and the market will price SCV according to the residual risk.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by vineviz » Thu Jun 13, 2019 7:10 am

Northern Flicker wrote:
Thu Jun 13, 2019 12:54 am
The market prices individual stocks according to the actual risk with the assumption that security-specific risk is diversified away. There is no premium for taking that risk.
Yes. And?
Northern Flicker wrote:
Thu Jun 13, 2019 12:54 am
If so-called factor diversification of a single asset class like SCV reduces risk, then that is built-in to the risk level of that asset class, and the market will price SCV according to the residual risk.
This sentence isn't very clear, so I can't find your point.

Each factor represents an independent source of systematic risk. You can diversify away the idiosyncratic risk associated with each small cap value stocks, but you can't diversify away the systematic components of small value: you decide to bear those risks, or not. If you do ,then you expect some reward in exchange for bearing that risk. Otherwise, why bear it?
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by donaldfair71 » Thu Jun 13, 2019 7:49 am

As in most reasonably diversified portfolios with similar stock/fixed, the best return will come from the person who stayed the course. Because once you get to debating reasonable approaches, nobody knows nothing.

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by JoMoney » Thu Jun 13, 2019 8:38 am

The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio

Mr. Bogle's "Turn on a Paradigm?" OpEd in the Wall Street Journal in 2006 was quite prescient and timely given the popularity spurring new "Factor" ETF's that started around that time.

I find it kind of humorous when people site both "Risk Premiums" and "Behaviorial Anomalies" as reasons to follow the strategy. If is/was "Behaviorial Anomalies" those chasing after returns are likely to be the ones exhibiting the "anomalous" behavior.
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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Thu Jun 13, 2019 8:49 am

JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by siamond » Thu Jun 13, 2019 10:06 am

willthrill81 wrote:
Thu Jun 13, 2019 8:49 am
JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
Certainly not. This being said, in all fairness, ERN's question at the very end of his unfortunate write-up is a good one (when do we know that a past pattern is now structurally broken?).

It would take quite a while for me to accept it, actually... I don't think that another decade of mildly negative premium would convince me to steer off course. And I really wouldn't care about the following decade displaying no premium, notably with today's very low ERs. Still, at one point, steady tenacity becomes silly stubbornness. When is that? Good question.

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by packer16 » Thu Jun 13, 2019 10:21 am

One question I have is the effects of fees and implementation slippage on SCV. These alone will reduce the value/SC effect to some extent. I listened to a podcast Bogle did with B. Ritholtz yesterday describing his history of value & growth and the associate tax arb angle. Invest in growth when you are in high tax bracket and value when you are in lower tax bracket. That approach assumes no value premium but still provides a benefit. However, there still is the timing risk of when you shift from to another.

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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by Park » Thu Jun 13, 2019 10:28 am

unclescrooge wrote:
Wed Jun 12, 2019 2:06 pm
nisiprius wrote:
Wed Jun 12, 2019 1:28 pm
privatefarmer wrote:
Wed Jun 12, 2019 1:02 pm
Fama/French won the Nobel prize for this discovery. The Nobel. Prize.
Fama won a Nobel prize, French did not. The prize was not awarded for the Fama/French three-factor model, it was awarded for the efficient market hypothesis.

The Royal Swedish Academy of Sciences press release:
Beginning in the 1960s, Eugene Fama and several collaborators demonstrated that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices. These findings not only had a profound impact on subsequent research but also changed market practice. The emergence of so-called index funds in stock markets all over the world is a prominent example.
But in any case, what was "this discovery?"

Did Fama and French discover that stock price fluctuations are better explained by three dimensions of risk rather than one? Yes.

Did Fama and French discover that all investors ought to incorporate a small value tilt? Did they support the idea of recommending a small value tilt for all investors, as Paul Merriman does? No, they did not.

The Nobel. Prizewinner. said this himself:
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.
If we are going to trust Fama on the basis of his Nobel prize, then shouldn't we trust what Fama actually said?
No, we should trust what he actually does.

I had the opportunity to ask him last year.

All of his investments are in DFA small cap and value funds.

However, he is old and still does research and collects a paycheck. And he has more money than he can spend. So this works for him. I think he was trying to say that investors should do whatever works for them.
About Fama stating there is no optimal portfolio, the operative words from Fama are "this is a risk story". If you believe that the small/value premiums are due to risk, then what he says makes complete sense. It's similar to deciding your stock/bond allocation based on your ability, willingness and need to take risk.

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by dcabler » Thu Jun 13, 2019 10:35 am

siamond wrote:
Thu Jun 13, 2019 10:06 am
willthrill81 wrote:
Thu Jun 13, 2019 8:49 am
JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
Certainly not. This being said, in all fairness, ERN's question at the very end of his unfortunate write-up is a good one (when do we know that a past pattern is now structurally broken?).

It would take quite a while for me to accept it, actually... I don't think that another decade of mildly negative premium would convince me to steer off course. And I really wouldn't care about the following decade displaying no premium, notably with today's very low ERs. Still, at one point, steady tenacity becomes silly stubbornness. When is that? Good question.
Indeed! There must be a point when the usual BH "stay the course" becomes untenable with any portfolio. And no idea what that might be.

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Thu Jun 13, 2019 10:45 am

siamond wrote:
Thu Jun 13, 2019 10:06 am
willthrill81 wrote:
Thu Jun 13, 2019 8:49 am
JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
Certainly not. This being said, in all fairness, ERN's question at the very end of his unfortunate write-up is a good one (when do we know that a past pattern is now structurally broken?).

It would take quite a while for me to accept it, actually... I don't think that another decade of mildly negative premium would convince me to steer off course. And I really wouldn't care about the following decade displaying no premium, notably with today's very low ERs. Still, at one point, steady tenacity becomes silly stubbornness. When is that? Good question.
I agree that it's a good question, one that I've considered in other investment contexts.

With regard to the Market Watch page, the "Second Grader's Starter" portfolio (i.e. 3-fund) has the lowest bond exposure of all the portfolios listed on that page at just 10%. So after 10 years of stocks going up, we should expect it to outperform the other portfolios. It's comparing apples and oranges.
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Re: Karsten (Early Retirement Now) Pens a Serious Challenge to Merriman and the Small/Value Premium

Post by Random Walker » Thu Jun 13, 2019 11:29 am

Park wrote:
Thu Jun 13, 2019 10:28 am

No, we should trust what he actually does.

I had the opportunity to ask him last year.

All of his investments are in DFA small cap and value funds.

However, he is old and still does research and collects a paycheck. And he has more money than he can spend. So this works for him. I think he was trying to say that investors should do whatever works for them.
About Fama stating there is no optimal portfolio, the operative words from Fama are "this is a risk story". If you believe that the small/value premiums are due to risk, then what he says makes complete sense. It's similar to deciding your stock/bond allocation based on your ability, willingness and need to take risk.
[/quote]

Big point of his work is that size and value are unique and independent from the market factor. Makes sense to diversify across sources of risk rather than put all one’s risk in the single market factor.

Dave

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by garlandwhizzer » Thu Jun 13, 2019 1:48 pm

Very interesting article, Small Law Survivor, thanks for posting. It's important IMO to have a certain sense of skepticism when someone tells you which slice of the market is going to outperform in the future. A factor portfolio using S and V has not outperformed in the US for a long time. That is a fact, not an opinion. Whether these factors will outperform to a significant degree in in real funds in a risk adjusted manner after costs going forward depends more on belief system than certainty IMO. There are those on the Forum who debate this question over and over. It is important to keep in mind that the future of the market, like the future of everything else, is not only unknown but by definition unknowable. There are no clear crystal balls. Factor models are derived from cost free long/short portfolios without trading frictions which do not exist in the real world. How well they translate into reality in current professionally dominated markets where everyone knows about them is IMO an open question going forward.

The thing that seems most important to me as a take home lesson is simply to select the approach that appeals to you most, select a portfolio aligned with your risk tolerance and goals and stick with it. Either a 3 fund portfolio or factor based equity plus quality bonds will work just fine in the long run. About that there is little in the way of rational debate. There is a lot of debate on which is the better approach but one thing is clear. Whichever approach one picks, keep costs low. The data on cost structure and portfolio returns is not ambivalent. Increased costs are associated with lower returns as the failure of hedge funds and active management in aggregate clearly demonstrate. Personally, I tilt only modestly to factors in the US where TSM is my dominant holding and more so internationally where I believe markets are less efficient. I accept that I am not certain that this the optimal approach but I am certain that money is lost obsessively seeking the optimal approach and constantly tinkering with the portfolio trying to get it relative to finding a good solid approach and sticking with it. The vast majority of very knowledgeable and highly intelligent mutual fund/hedge fund/private equity managers using either stock picking or factor approaches rather consistently underperform comparable indexes. Perhaps there is no discoverable secret portfolio sauce other than staying invested in the good rather than perfect approach of your choice.

Garland Whizzer

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by JoMoney » Thu Jun 13, 2019 7:35 pm

willthrill81 wrote:
Thu Jun 13, 2019 8:49 am
JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
Sure, there are conclusions that can be drawn, like not to use past performance is an indicator of future results ;)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Thu Jun 13, 2019 8:29 pm

JoMoney wrote:
Thu Jun 13, 2019 7:35 pm
willthrill81 wrote:
Thu Jun 13, 2019 8:49 am
JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
Sure, there are conclusions that can be drawn, like not to use past performance is an indicator of future results ;)
Especially when the portfolios being compared have significantly different AAs. :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by JoMoney » Thu Jun 13, 2019 8:53 pm

willthrill81 wrote:
Thu Jun 13, 2019 8:29 pm
JoMoney wrote:
Thu Jun 13, 2019 7:35 pm
willthrill81 wrote:
Thu Jun 13, 2019 8:49 am
JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
Sure, there are conclusions that can be drawn, like not to use past performance is an indicator of future results ;)
Especially when the portfolios being compared have significantly different AAs. :wink:
For sure... The FA Ultimate B&H only has 6% allocated to the S&P 500 (which pretty much is the U.S. stock market). If someone was expecting the stock markets return while putting 94% of their portfolio into something else, they had a bad strategy, at least relative to a very simple one that was certain to match the market. Sometimes the strategy picked is an important factor in the outcome.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by Northern Flicker » Thu Jun 13, 2019 9:08 pm

Each factor represents an independent source of systematic risk. You can diversify away the idiosyncratic risk associated with each small cap value stocks, but you can't diversify away the systematic components of small value: you decide to bear those risks, or not. If you do ,then you expect some reward in exchange for bearing that risk. Otherwise, why bear it?
We are in agreement there. Some proponents of factor investing talk about diversification across factors within a single asset class.

If you hold say large cap value and small-cap blend together then if they are less than fully correlated, there may be a diversification benefit in holding them together. If some or all of the source of that reduced correlation is the fact that one has value and market beta exposure and the other has size and market beta exposure, then that is fine.

Where I think a problem arises is with a different notion where one might just hold small-cap value stocks. In this scenario if you say that the risk is reduced for this single asset class because of diversification of exposure to size, value, and beta where each may deliver the premiums at different times due to reduced correlation of the factors, then I would argue that the market will also discount in a smaller risk premium into the expected return of small-cap value stocks than otherwise to reflect the actual assessed risk of the asset class as it stands with the factor exposures the asset class possesses. That doesn’t mean the small-cap value is a bad investment by any means, but just that you don’t get the additive risk premiums of each factor while simultaneously getting risk that is less than the combined risks of the factor exposures. The market will price in a risk premium for small-cap value based on its aggregate view of the overall risk of the asset class.
Last edited by Northern Flicker on Fri Jun 14, 2019 12:23 am, edited 1 time in total.

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Re: Karsten (Early Retirement Now) Pens a Challenge to Merriman and the Small/Value Premium

Post by willthrill81 » Thu Jun 13, 2019 9:51 pm

JoMoney wrote:
Thu Jun 13, 2019 8:53 pm
willthrill81 wrote:
Thu Jun 13, 2019 8:29 pm
JoMoney wrote:
Thu Jun 13, 2019 7:35 pm
willthrill81 wrote:
Thu Jun 13, 2019 8:49 am
JoMoney wrote:
Thu Jun 13, 2019 8:38 am
The Fundadvice Ultimate Buy & Hold portfolio has been the worst of the lazy portfolios tracked over the last decade at MarketWatch
https://www.marketwatch.com/lazyportfolio
Are we supposed to take meaningful conclusions from a decade of performance?
Sure, there are conclusions that can be drawn, like not to use past performance is an indicator of future results ;)
Especially when the portfolios being compared have significantly different AAs. :wink:
For sure... The FA Ultimate B&H only has 6% allocated to the S&P 500 (which pretty much is the U.S. stock market). If someone was expecting the stock markets return while putting 94% of their portfolio into something else, they had a bad strategy, at least relative to a very simple one that was certain to match the market. Sometimes the strategy picked is an important factor in the outcome.
I find it remarkable that the FA UBH and a 30% TSM/30% ex-U.S./40% TBM portfolio have had nearly identical performance since 2006 (the date which Karsten claims that the value premium disappeared) despite their very disparate compositions.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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