Burned by Paul Merriman Advice

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OldSport
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Re: Burned by Paul Merriman Advice

Post by OldSport »

retiringwhen wrote: Wed Apr 13, 2022 12:41 pm
drk wrote: Wed Apr 13, 2022 12:05 pm
retiringwhen wrote: Wed Apr 13, 2022 11:04 am I am speaking specifically about his interviews and podcast appearances. Yes, editors always and writers find it easier to cover their butts when writing.
Please provide an example.
I think the podcast with Rick Ferri is a pretty good example. Rick worked hard to get him to temper his enthusiasm for SCV and he didn't budge much at all. I just re-listened to portions of the podcast just now as I can't seem to find the transcript. Try listening from about 18 minutes to 29 minutes (especially where he downplays John Bogle's behavioral critique at the end).

My problem with Mr. Merriman and others who sell tilts of various sorts is that they spend so much time focussing on the historical example and arguing it is the basis of expected return without judicious investigation all the variables involved in the unexpected (actual) return.

1.) SCV alpha has shown up many times in history but usually in short/sharp periods. If you miss just one of them due to any reason, you are likely to lose out in the long run. This chance risk is huge and is simply too large to ignore.

2.) The second thing he also underplays the practical risk that come from the absolute importance of staying the course with an SCV strategy (see #1). The negative behavioral feedback loop is very strong and Paul downplays the very high likelihood that folks will bail at the absolute worst moment, especially when he is giving generic advice without giving them access to the tools to specifically to manage those behavioral pitfalls. That borders on irresponsible in my book. My proof is the absolute ton of "should I quit my SCV value tilts?" posts on Bogleheads in 2017-2019 just before it started to pay off again for the first time in over a decade.

It is too bad, because, as I said earlier, he gets so much right.
Now THIS is good advice, especially the "judicious investigation of all the variables involved in the unexpected actual return" Has anyone actually done this??
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Re: Burned by Paul Merriman Advice

Post by nix4me »

I got burned as well. I've been holding 100% S&P 500 for 20 years.
Turns out if i would have went 100% Tesla i would have been retired years ago.
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Re: Burned by Paul Merriman Advice

Post by mrspock »

nix4me wrote: Wed Apr 13, 2022 9:46 pm I got burned as well. I've been holding 100% S&P 500 for 20 years.
Turns out if i would have went 100% Tesla i would have been retired years ago.
Ahem… false equivalence. Strike. Try again.
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Re: Burned by Paul Merriman Advice

Post by whodidntante »

You were not burned by his advice. You didn't even follow it. You designed your own portfolio and didn't get lucky like you expected to.
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Re: Burned by Paul Merriman Advice

Post by CyclingDuo »

OldSport wrote: Wed Apr 13, 2022 9:36 pmPossibly. I realize since making the OP was that the "getting burned" was much more the 30% International than the Merriman Tilts. The Merriman tilts within Domestic and International did underperform, but not in any serious way that has me miffed. The International as a whole did TERRIBLE vs. Domestic. Still trying to wrap my head around what happened there. I have no clue if that will persist.
Regarding international investing, the trend has not been our friend for not only the past 5 years...

Image
https://www.ccmmarketmodel.com/

but also for the past 15 years...

Image
https://www.ccmmarketmodel.com/

No need to blame Mr. Paul Merriman for that.

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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

Forget VTI, you should have bought TSLA.

Of course, you didn't know that in advance, but that's not stopping you from regretting not going 100% VTI.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

Mr. Merriman also claims that market timing reduces risk:

https://paulmerriman.com/portfolio-kill ... ing-myths/

I disagree with his position. He seems to be evaluating that from the perspective of taking less risk during the period when timing decisions take assets out of the market, but a market timing protocol needs to be evaluated in terms of variance from expected return over an investment horizon. Timing decisions applied to a reference portfolio have the potential to increase or decrease return relative to the return of the reference portfolio over time. This increases risk overall.
Last edited by Northern Flicker on Wed Apr 13, 2022 10:26 pm, edited 1 time in total.
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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

CyclingDuo wrote: Wed Apr 13, 2022 10:12 pm Regarding international investing, the trend has not been our friend for not only the past 5 years...
Actually, the trend has definitely been your friend (if you followed it regarding U.S. vs. ex-U.S.). The saying means trends generally continue as they are, which has definitely true here for a long time.
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Re: Burned by Paul Merriman Advice

Post by folkher0 »

OldSport wrote: Wed Apr 13, 2022 9:41 pm
retiringwhen wrote: Wed Apr 13, 2022 12:41 pm
drk wrote: Wed Apr 13, 2022 12:05 pm
retiringwhen wrote: Wed Apr 13, 2022 11:04 am I am speaking specifically about his interviews and podcast appearances. Yes, editors always and writers find it easier to cover their butts when writing.
Please provide an example.
I think the podcast with Rick Ferri is a pretty good example. Rick worked hard to get him to temper his enthusiasm for SCV and he didn't budge much at all. I just re-listened to portions of the podcast just now as I can't seem to find the transcript. Try listening from about 18 minutes to 29 minutes (especially where he downplays John Bogle's behavioral critique at the end).

My problem with Mr. Merriman and others who sell tilts of various sorts is that they spend so much time focussing on the historical example and arguing it is the basis of expected return without judicious investigation all the variables involved in the unexpected (actual) return.

1.) SCV alpha has shown up many times in history but usually in short/sharp periods. If you miss just one of them due to any reason, you are likely to lose out in the long run. This chance risk is huge and is simply too large to ignore.

2.) The second thing he also underplays the practical risk that come from the absolute importance of staying the course with an SCV strategy (see #1). The negative behavioral feedback loop is very strong and Paul downplays the very high likelihood that folks will bail at the absolute worst moment, especially when he is giving generic advice without giving them access to the tools to specifically to manage those behavioral pitfalls. That borders on irresponsible in my book. My proof is the absolute ton of "should I quit my SCV value tilts?" posts on Bogleheads in 2017-2019 just before it started to pay off again for the first time in over a decade.

It is too bad, because, as I said earlier, he gets so much right.
Now THIS is good advice, especially the "judicious investigation of all the variables involved in the unexpected actual return" Has anyone actually done this??
Not sure if this is sarcasm or not, but if you take a step back, it would seem that this is an impossible endeavor.

I don’t think you can really know why something happened, but we humans like to create a narrative in our minds to explain history. Why did EM boom in a given year but tank in another? Or why SCV floated when the dot coms busted? Why did the assassination of the archduke set off WWI?

You can come up with a nice narrative to explain the past but it will always be incomplete. You simply can’t know everything. And if you could it will probably be of only marginal benefit in projecting into the future.

For me diversification is about diluting risk, not beating the index. And the benefit of holding more than 3 or four asset classes just isn’t there for me.

That to me is the absurdity of the merriman article, and what’s so fundamentally wrong about it (and so many other popular portfolios). That if you somehow invest $100,000 just right and wait 50 years you could have $50 million or whatever he says in the article as opposed to your dumb neighbor who put the money in the S&P and only ended up with $20 million.

Only works that way if you have a time machine.
Last edited by folkher0 on Thu Apr 14, 2022 12:05 am, edited 2 times in total.
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Re: Burned by Paul Merriman Advice

Post by calmaniac »

danaht wrote: Tue Apr 12, 2022 11:48 amI am still invested in international ETFs - but not adding at this time. I expect things to get worse internationally before things get better.
If you expect things to get worse, continuing to invest (rather than pausing your investing) in international makes much more sense. Why wait until valuations increase to start buying? Buy low.
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Re: Burned by Paul Merriman Advice

Post by CyclingDuo »

willthrill81 wrote: Wed Apr 13, 2022 10:26 pm
CyclingDuo wrote: Wed Apr 13, 2022 10:12 pm Regarding international investing, the trend has not been our friend for not only the past 5 years...
Actually, the trend has definitely been your friend (if you followed it regarding U.S. vs. ex-U.S.). The saying means trends generally continue as they are, which has definitely true here for a long time.
Yes, just flip the charts upside down and the US trend has indeed been our friend. I still have not rebalanced my international as it has dwindled from our target of 14-15% down to single digits. Another 15 years of underperformance and I may just have to pull the plug on my international and join Bogle's own investment strategy of not owning any. :beer

However, staying the course regardless.

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Re: Burned by Paul Merriman Advice

Post by Call_Me_Op »

mrspock wrote: Wed Apr 13, 2022 10:02 pm
nix4me wrote: Wed Apr 13, 2022 9:46 pm I got burned as well. I've been holding 100% S&P 500 for 20 years.
Turns out if i would have went 100% Tesla i would have been retired years ago.
Ahem… false equivalence. Strike. Try again.
I think it makes the point well.
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Re: Burned by Paul Merriman Advice

Post by Call_Me_Op »

Northern Flicker wrote: Wed Apr 13, 2022 10:26 pm Mr. Merriman also claims that market timing reduces risk:

https://paulmerriman.com/portfolio-kill ... ing-myths/

I disagree with his position. He seems to be evaluating that from the perspective of taking less risk during the period when timing decisions take assets out of the market, but a market timing protocol needs to be evaluated in terms of variance from expected return over an investment horizon. Timing decisions applied to a reference portfolio have the potential to increase or decrease return relative to the return of the reference portfolio over time. This increases risk overall.
Merriman does not recommend market timing. He does have half of his assets in a fund that does market time, but he states frequently that he does not recommend this in general.
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Re: Burned by Paul Merriman Advice

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Since apparently the US will continue to outperform ex-US forever, it will eventually reach 100% global market cap and all the foreign markets will drop to zero. So there will only be one stock market left - the U.S. - because, of course, in investing, when something goes up for a really long time, it just continues to go up no matter what.
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Re: Burned by Paul Merriman Advice

Post by Call_Me_Op »

burritoLover wrote: Thu Apr 14, 2022 7:27 am Since apparently the US will continue to outperform ex-US forever, it will eventually reach 100% global market cap and all the foreign markets will drop to zero. So there will only be one stock market left - the U.S. - because, of course, in investing, when something goes up for a really long time, it just continues to go up no matter what.
And the good thing is this will end the seemingly endless debates about whether people should invest outside of the US.
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Re: Burned by Paul Merriman Advice

Post by groomyface »

OldSport wrote: Tue Apr 12, 2022 6:26 am
Multiple black swan events in succession for the past 3 years keep pummeling that. By now its probably priced in.
"The Covid-19 pandemic is not a black swan event." -Nassim Taleb
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Re: Burned by Paul Merriman Advice

Post by burritoLover »

Call_Me_Op wrote: Thu Apr 14, 2022 7:32 am
burritoLover wrote: Thu Apr 14, 2022 7:27 am Since apparently the US will continue to outperform ex-US forever, it will eventually reach 100% global market cap and all the foreign markets will drop to zero. So there will only be one stock market left - the U.S. - because, of course, in investing, when something goes up for a really long time, it just continues to go up no matter what.
And the good thing is this will end the seemingly endless debates about whether people should invest outside of the US.
Right, what will we endlessly debate about here then?
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Re: Burned by Paul Merriman Advice

Post by Zardoz »

mrspock wrote: Tue Apr 12, 2022 10:53 am Simplicity tends to win at the end if the day IMO — and I think the data bears this out. In fact the only thing which reliably beats a two fund approach is…. yes you guessed it: a 1 fund. Sure there will be the odd tilter who might win for a while… but there are LOTS of other tilts which don’t work, so tilting quickly has the same problem as stock picking: how do you find the winners? How do you stick with your flavor of tilting when it has decades of underperformance? Simple: don’t play the tilt game in the first place.

Mentally, the S&P is much easier to stick to during periods of underperformance. Why? Because the mental narratives are simple and have parallels with stock picking (i.e. when somebody pitches a tilt idea): How was I to know tilt strategy X out of the hundreds out there would win? My two fund portfolio might be losing now, but it was winning for Y years… it is likely to win again for a similar period. Tilt strategy X might work for decades, and then stop — how will I know it “stopped” working? If I eventually abandon a tilt strategy because (I FEEL) it no longer works…. what about the capital gains taxes due? Does this wipe out any excess gains I might have had? …. and on and on.
This is the advice I would give to a friend or family member who was a new investor. One part of the problem is that as we learn more about investing, we become exposed to lots of writing about tilts (on this site, in books, in articles, etc.), because it's boring for people to write about buying and holding the market (just like it's boring for people to write about TIPS and I Bonds). It can be very difficult for beginner to intermediate investors to resist getting sucked into to tilting their portfolio in some fashion.
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Re: Burned by Paul Merriman Advice

Post by nisiprius »

My problem with Paul Merriman is that he writes to persuade rather than to inform. Language like
Relying on [Vanguard Total Stock] is likely to prevent investors from retiring when they otherwise could do so
is not a good way to express the idea that

"Taking the extra risk in small-cap value is a calculated risk with a decent chance of paying off--provided you are prepared to stick to it rigorously through as much as two decades of underperformance. Even that isn't guaranteed, of course. Research shows that in the past it would have been a good gamble. Therefore, I recommend a small-cap value tilt to retirement savers who understand the risk and are willing to make a difficult commitment."
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Re: Burned by Paul Merriman Advice

Post by retiringwhen »

folkher0 wrote: Wed Apr 13, 2022 10:26 pm
OldSport wrote: Wed Apr 13, 2022 9:41 pm
retiringwhen wrote: Wed Apr 13, 2022 12:41 pm My problem with Mr. Merriman and others who sell tilts of various sorts is that they spend so much time focussing on the historical example and arguing it is the basis of expected return without judicious investigation all the variables involved in the unexpected (actual) return.
Now THIS is good advice, especially the "judicious investigation of all the variables involved in the unexpected actual return" Has anyone actually done this??
Not sure if this is sarcasm or not, but if you take a step back, it would seem that this is an impossible endeavor.
The very fact that it is an impossible endeavor is the point. To paraphrase Donald Rumsfeld, we have known knowns, known unknowns but what worries me is the unknown unknowns! This teaches me humility in face of the future. There are enough known unknowns available to perform a useful investigation though, my post only discussed one and its behavioral consequences.
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Re: Burned by Paul Merriman Advice

Post by cegibbs »

VTI wrote: Wed Apr 13, 2022 11:56 am
cegibbs wrote: Wed Apr 13, 2022 11:42 am
folkher0 wrote: Tue Apr 12, 2022 6:18 pm [...]
Perfectly stated. Merriman knows nothing and profits from his shoddy advice.
I disagree with Paul Merriman's advice and have tried to steer people away from it, but I'm convinced he's a very good man who believes he's helping people.

Yes, he made money when he was an advisor, but he now runs a non-profit and doesn't make a dime from anything he says.
People at non-profits are compensated.
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Re: Burned by Paul Merriman Advice

Post by cegibbs »

Call_Me_Op wrote: Wed Apr 13, 2022 11:59 am
VTI wrote: Wed Apr 13, 2022 11:56 am
cegibbs wrote: Wed Apr 13, 2022 11:42 am
folkher0 wrote: Tue Apr 12, 2022 6:18 pm [...]
Perfectly stated. Merriman knows nothing and profits from his shoddy advice.
I disagree with Paul Merriman's advice and have tried to steer people away from it, but I'm convinced he's a very good man who believes he's helping people.
Can you be more specific as to the aspects of his advice with which you disagree? Other than being a bit complex (i.e., perhaps too many funds for many people's taste), it seems to me that he is recommending a combination of diversified stocks and safe bonds, and he believes that the small and value factors are likely to pay off over the long term.
I would say it overly complicated and too tilted towards international and value (specifically small value). Jack Bogle’s advice is much better IMO.
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Re: Burned by Paul Merriman Advice

Post by Taylor Larimore »

Bogleheads:

It is informative to see the 10-year performance of Paul Farrell's MarketWatch eight "Lazy Portfolios."

Mr. Merriman's portfolio is in last place. Allan Roth's Three-fund portfolio is in first place.

https://www.marketwatch.com/lazyportfolio%20

Best wishes.
Taylor
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Re: Burned by Paul Merriman Advice

Post by Call_Me_Op »

Taylor Larimore wrote: Thu Apr 14, 2022 9:36 am Bogleheads:

It is informative to see the 10-year performance of Paul Farrell's MarketWatch eight "Lazy Portfolios."

Mr. Merriman's portfolio is in last place. Allan Roth's Three-fund portfolio is in first place.

https://www.marketwatch.com/lazyportfolio%20

Best wishes.
Taylor
Dr. Bernstein's "Smart Money Portfolio" is in second to last place. Does that mean it's a bad portfolio? No, the evaluation time period is too short to be meaningful, as is the metric (CAGR). You will notice that the S&P 500 beat all of the Lazy Portfolios - does that mean you should put all of your money there? (The question is rhetorical.)

I have not heard one good criticism of Merriman's approach (in this thread). They seem to be (mostly) based upon recency bias.

Taylor, till love ya, though. :)
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Re: Burned by Paul Merriman Advice

Post by folkher0 »

cegibbs wrote: Thu Apr 14, 2022 9:12 am
VTI wrote: Wed Apr 13, 2022 11:56 am
cegibbs wrote: Wed Apr 13, 2022 11:42 am
folkher0 wrote: Tue Apr 12, 2022 6:18 pm [...]
Perfectly stated. Merriman knows nothing and profits from his shoddy advice.
I disagree with Paul Merriman's advice and have tried to steer people away from it, but I'm convinced he's a very good man who believes he's helping people.

Yes, he made money when he was an advisor, but he now runs a non-profit and doesn't make a dime from anything he says.
People at non-profits are compensated.
Just out of curiosity, and so I don't unintentionally slander the guy I looked it up. In 2019, Paul Merriman did not accept a salary from the foundation. No one did. Only 3 individuals (including Merriman) are listed on form 990 for as officers/employees none of which drew a salary. Only Merriman contributed more than 1 hour a month of time, for the role of President/Treasurer. It's essentially a one man show.

He was the only individual listed as a donor, contributing around of $87,000.

The foundation reported about $1 million in assets. mostly stocks. Expenses were about $127,000.

Most interesting to me is the foundation's corporate stock schedule. Lots of different funds there. I would guess these are donate shares? Just guessing though.

guidestar.org is the source here.
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Re: Burned by Paul Merriman Advice

Post by nisiprius »

Paul Merriman, 7 Market Timing Myths
Myth:Market timing, if done right, can make you a lot of money.

Reality: The “right” way to do market timing, using mechanical trend-following systems, isn’t likely to boost your returns. But it’s guaranteed to reduce your risk.
I am going to interpret "isn't likely to boost your returns" to mean "isn't likely to reduce them, either." Because if he thinks is likely to reduce them, he should darn well have made that clear.

If so, this is nonsense. But is a typical kind of nonsense: the failure ever to equalize risks when comparing strategies.

If a certain strategy is capable of reducing risk without reducing return, then that same strategy can be used to boost return.

You take the superior strategy with the lower risk. You can adjust the portfolio composition by adding something that increases both risk and return; most obviously, by increasing the stock/bond ratio. As you do this, both risk and return will rise. Keep doing it until you have matched the risk of the reference portfolio. When they are equal, you will now have a market-timing portfolio that is beating the reference portfolio with equal risk.

Alternatively, we can take this the other way. Many market timers excuse underperformance by saying "it underperformed but that's OK because it reduced risk." But if the goal is to reduce risk, it's too easy to saying "market timing reduced risk." It is necessary to compare it against alternative ways of reducing risk. There are three different questions here: 1) Does market timing reduce risk? 2) Is it the best way to reduce risk? 3) Is it better than the most obvious, simplest way--reducing stock allocation?
Last edited by nisiprius on Thu Apr 14, 2022 10:23 am, edited 2 times in total.
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Re: Burned by Paul Merriman Advice

Post by e5116 »

Call_Me_Op wrote: Thu Apr 14, 2022 9:53 am
Taylor Larimore wrote: Thu Apr 14, 2022 9:36 am Bogleheads:

It is informative to see the 10-year performance of Paul Farrell's MarketWatch eight "Lazy Portfolios."

Mr. Merriman's portfolio is in last place. Allan Roth's Three-fund portfolio is in first place.

https://www.marketwatch.com/lazyportfolio%20

Best wishes.
Taylor
Dr. Bernstein's "Smart Money Portfolio" is in second to last place. Does that mean it's a bad portfolio? No, the evaluation time period is too short to be meaningful, as is the metric (CAGR). You will notice that the S&P 500 beat all of the Lazy Portfolios - does that mean you should put all of your money there? (The question is rhetorical.)

I have not heard one good criticism of Merriman's approach (in this thread). They seem to be (mostly) based upon recency bias.

Taylor, till love ya, though. :)
Right, the "rankings/recent performance" of these Lazy Portfolios is overwhelmingly dictated by how much international and bonds. The "Second Grader's Starter" three fund has been best because it's only 10% bonds and 20% international (I think - the links to the portfolio breakdowns no longer work). The rest are like 30% bonds + 30% international. So, in this case, being mostly in US Total Stock has worked out best. As you state, S&P 500 has beaten them all. But having more bonds reduces risk. Having international stock increases diversification. Those can work out on the performance side or not, but comparing a 100% equity portfolio with a 70/30 portfolio with a 90/10 portfolio doesn't really give a fair comparison.

Having said all the above, I have the "Lazy Portfolios" from Farrell still bookmarked in my browser! :D I recall back in 2008 when I first looked at it, all the Lazy Portfolios were beating the S&P 500 across almost all time horizons. So, things can change.
Last edited by e5116 on Thu Apr 14, 2022 10:25 am, edited 1 time in total.
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Re: Burned by Paul Merriman Advice

Post by delamer »

Call_Me_Op wrote: Thu Apr 14, 2022 7:14 am
Northern Flicker wrote: Wed Apr 13, 2022 10:26 pm Mr. Merriman also claims that market timing reduces risk:

https://paulmerriman.com/portfolio-kill ... ing-myths/

I disagree with his position. He seems to be evaluating that from the perspective of taking less risk during the period when timing decisions take assets out of the market, but a market timing protocol needs to be evaluated in terms of variance from expected return over an investment horizon. Timing decisions applied to a reference portfolio have the potential to increase or decrease return relative to the return of the reference portfolio over time. This increases risk overall.
Merriman does not recommend market timing. He does have half of his assets in a fund that does market time, but he states frequently that he does not recommend this in general.
When people don’t follow their own advice, that’s a red flag.

They are either putting something over on others or they think they are special and the rules don’t apply to them.

No thanks.
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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

delamer wrote: Thu Apr 14, 2022 10:22 am
Call_Me_Op wrote: Thu Apr 14, 2022 7:14 am
Northern Flicker wrote: Wed Apr 13, 2022 10:26 pm Mr. Merriman also claims that market timing reduces risk:

https://paulmerriman.com/portfolio-kill ... ing-myths/

I disagree with his position. He seems to be evaluating that from the perspective of taking less risk during the period when timing decisions take assets out of the market, but a market timing protocol needs to be evaluated in terms of variance from expected return over an investment horizon. Timing decisions applied to a reference portfolio have the potential to increase or decrease return relative to the return of the reference portfolio over time. This increases risk overall.
Merriman does not recommend market timing. He does have half of his assets in a fund that does market time, but he states frequently that he does not recommend this in general.
When people don’t follow their own advice, that’s a red flag.

They are either putting something over on others or they think they are special and the rules don’t apply to them.

No thanks.
I don't agree in this situation at least. Paul has been vocal that he has a timing strategy with 50% of his portfolio as a risk mitigation tool, but he has fully acknowledged the drawbacks, especially those that are behavioral, of the approach and doesn't recommend that others do it (anymore at least). He even goes so far as to have someone else implement the timing strategy for him because he doesn't want to be involved with it anymore.
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Re: Burned by Paul Merriman Advice

Post by er999 »

Mr.BB wrote: Wed Apr 13, 2022 12:36 pm You didn't get burned, you made a financial decision that did not workout for you. No different than someone signing up with EJ and then complaining later what rotten returns that got or how much it cost them in expense fees and AUM. I don't think there is a person on this board that hasn't made a stupid investing decision over their years that cost them some money. Hopefully you will learn from it.
Like holding international funds this last decade. :)
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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

er999 wrote: Thu Apr 14, 2022 11:08 am
Mr.BB wrote: Wed Apr 13, 2022 12:36 pm You didn't get burned, you made a financial decision that did not workout for you. No different than someone signing up with EJ and then complaining later what rotten returns that got or how much it cost them in expense fees and AUM. I don't think there is a person on this board that hasn't made a stupid investing decision over their years that cost them some money. Hopefully you will learn from it.
Like holding international funds this last decade. :)
Indeed. The OP could just as easily have claimed that Vanguard and countless others who recommended international stocks 'cost them huge money' over the last decade.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

Call_Me_Op wrote: Thu Apr 14, 2022 7:14 am
Northern Flicker wrote: Wed Apr 13, 2022 10:26 pm Mr. Merriman also claims that market timing reduces risk:

https://paulmerriman.com/portfolio-kill ... ing-myths/

I disagree with his position. He seems to be evaluating that from the perspective of taking less risk during the period when timing decisions take assets out of the market, but a market timing protocol needs to be evaluated in terms of variance from expected return over an investment horizon. Timing decisions applied to a reference portfolio have the potential to increase or decrease return relative to the return of the reference portfolio over time. This increases risk overall.
Merriman does not recommend market timing. He does have half of his assets in a fund that does market time, but he states frequently that he does not recommend this in general.
My post concerned his apparent claim in the cited link that market timing reduced risk, not whether he recommended using the strategy.

As far as I know, he does not make references to past recommendations publicly available, so it is difficult for me to tell if he recommended market timing in the past, or the timeline and evolution of his recommended portfolios.
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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

Northern Flicker wrote: Thu Apr 14, 2022 1:10 pm My post concerned his apparent claim in the cited link that market timing reduced risk, not whether he recommended using the strategy.
It's hard to claim that a strategy does or does not reduce or increase risk unless risk is defined first, and that's a very sticky wicket.
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Re: Burned by Paul Merriman Advice

Post by Aged Maduro »

I do not see any benefit to keeping a large allocation to bonds and international stocks. We are at the end of a long term debt cycle when inflationary pressures will most likely be very bad for bonds for at least the next decade. If you take a look around, the United States is still the least dirty shirt in the hamper and will be in a much stronger position relative to the rest of world and their respective economies especially as globalism wanes.

I am 90% us equities and 10% bonds. This has done me extraordinarily well for the last decade i am "staying the course" on that. If you stick with bonds and international stocks hoping for better results i am afraid you will be waiting for a very, very long time.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

willthrill81 wrote: Thu Apr 14, 2022 1:56 pm
Northern Flicker wrote: Thu Apr 14, 2022 1:10 pm My post concerned his apparent claim in the cited link that market timing reduced risk, not whether he recommended using the strategy.
It's hard to claim that a strategy does or does not reduce or increase risk unless risk is defined first, and that's a very sticky wicket.
It is very straightforward to define risk. It is the variance of real or nominal return over an investment horizon period of interest.

Where people get tripped up is using different investment periods for measuring risk and return or expected return. Thus, if you have a 30-year investment horizon, and care about real returns, then the risk measure of interest should be the variance of 30-year real returns. Volatility is the variance (or equivalently the standard deviation) of short-term nominal returns.

The claim that market timing reduces risk for retirement investors results from a mismatch of return and risk parameters. A retirement saver cares about long-term real returns. Market timing reduces volatility (variance of nominal short-term returns) whenenever equity market exposure is reduced, but it increases variance of long-term returns (real or nominal). It increases risk for long-term investors.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

Aged Maduro wrote: I do not see any benefit to keeping a large allocation to bonds and international stocks. We are at the end of a long term debt cycle when inflationary pressures will most likely be very bad for bonds for at least the next decade. If you take a look around, the United States is still the least dirty shirt in the hamper and will be in a much stronger position relative to the rest of world and their respective economies especially as globalism wanes.
You must know more than the collective bond market participants about how inflation will look over the next 10 years, because the yield curve is not pricing in persistent inflationary pressures for the next 10 years.

It is hard to see how the end of globalization would be good news for stocks, US or otherwise. How it would play out among equities of various countries, if such a thing came to pass, is far from clear. But in the process, we would learn how much of the US equity outperformance during the period of globalization was a result of globalization.
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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

Northern Flicker wrote: Thu Apr 14, 2022 2:18 pm
willthrill81 wrote: Thu Apr 14, 2022 1:56 pm
Northern Flicker wrote: Thu Apr 14, 2022 1:10 pm My post concerned his apparent claim in the cited link that market timing reduced risk, not whether he recommended using the strategy.
It's hard to claim that a strategy does or does not reduce or increase risk unless risk is defined first, and that's a very sticky wicket.
It is very straightforward to define risk. It is the variance of real or nominal return over an investment horizon period of interest.
That's one way to view it but certainly not the only way. If you believe it to be so, then I strongly encourage you to start another thread about it.
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Re: Burned by Paul Merriman Advice

Post by cegibbs »

folkher0 wrote: Thu Apr 14, 2022 10:03 am
cegibbs wrote: Thu Apr 14, 2022 9:12 am
VTI wrote: Wed Apr 13, 2022 11:56 am
cegibbs wrote: Wed Apr 13, 2022 11:42 am
folkher0 wrote: Tue Apr 12, 2022 6:18 pm [...]
Perfectly stated. Merriman knows nothing and profits from his shoddy advice.
I disagree with Paul Merriman's advice and have tried to steer people away from it, but I'm convinced he's a very good man who believes he's helping people.

Yes, he made money when he was an advisor, but he now runs a non-profit and doesn't make a dime from anything he says.
People at non-profits are compensated.
Just out of curiosity, and so I don't unintentionally slander the guy I looked it up. In 2019, Paul Merriman did not accept a salary from the foundation. No one did. Only 3 individuals (including Merriman) are listed on form 990 for as officers/employees none of which drew a salary. Only Merriman contributed more than 1 hour a month of time, for the role of President/Treasurer. It's essentially a one man show.

He was the only individual listed as a donor, contributing around of $87,000.

The foundation reported about $1 million in assets. mostly stocks. Expenses were about $127,000.

Most interesting to me is the foundation's corporate stock schedule. Lots of different funds there. I would guess these are donate shares? Just guessing though.

guidestar.org is the source here.
Good information. I should have stated “can be compensated” rather than “ are compensated”, which was my error.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

willthrill81 wrote: Thu Apr 14, 2022 3:29 pm
Northern Flicker wrote: Thu Apr 14, 2022 2:18 pm
willthrill81 wrote: Thu Apr 14, 2022 1:56 pm
Northern Flicker wrote: Thu Apr 14, 2022 1:10 pm My post concerned his apparent claim in the cited link that market timing reduced risk, not whether he recommended using the strategy.
It's hard to claim that a strategy does or does not reduce or increase risk unless risk is defined first, and that's a very sticky wicket.
It is very straightforward to define risk. It is the variance of real or nominal return over an investment horizon period of interest.
That's one way to view it but certainly not the only way. If you believe it to be so, then I strongly encourage you to start another thread about it.
Mr. Merriman did not define his notion of risk when claiming that market timing reduces risk. You can define risk any way you want as long as the definition is available to assess claims about risk and to assess whether the definition of risk is aligned with goals.

Variance of real or nominal return over a time period is a broad formalism for risk that covers many investment situations. It may not apply to multigenerational wealth, which is not my interest or focus anyway. Certainly, a retirement saver is interested in having enough assets to meet real retirement liabilities at some point in the future, and so the variance of real returns over the period captures the dispersion of outcomes that deviate from the goal.

Another risk measure would be the probability of meeting an objective, in this case, the probability that real return over some period equals or exceeds some value. With such a risk measure, a market timing strategy would be evaluated by the frequency of making good timing decisions.
Last edited by Northern Flicker on Fri Apr 15, 2022 12:21 am, edited 1 time in total.
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Re: Burned by Paul Merriman Advice

Post by Call_Me_Op »

Northern Flicker wrote: Thu Apr 14, 2022 4:09 pm
willthrill81 wrote: Thu Apr 14, 2022 3:29 pm
Northern Flicker wrote: Thu Apr 14, 2022 2:18 pm
willthrill81 wrote: Thu Apr 14, 2022 1:56 pm
Northern Flicker wrote: Thu Apr 14, 2022 1:10 pm My post concerned his apparent claim in the cited link that market timing reduced risk, not whether he recommended using the strategy.
It's hard to claim that a strategy does or does not reduce or increase risk unless risk is defined first, and that's a very sticky wicket.
It is very straightforward to define risk. It is the variance of real or nominal return over an investment horizon period of interest.
That's one way to view it but certainly not the only way. If you believe it to be so, then I strongly encourage you to start another thread about it.
Mr. Merriman did not define his notion of risk when claiming that market timing reduces risk. You can define risk any way you want as long as the definition is available to assess claims about risk and to assess whether the definition of risk is aligned with goals.

Variance of real or nominal return over a time period is a broad formalism for risk that covers many investment situations. It may not apply to multigenerational wealth, which is not my interest or focus anyway. Certainly, a retirement saver is interested in having enough assets to meet real retirement liabilities at some pount in the future, and so the variance of real returns over the period captures the dispersion of outcomes that deviate from the goal.

Another risk measure would be the probability of meeting an objective, in this case, the probability that real return over some period equals or exceeds some value. With such a risk measure, a market timing strategy would be evaluated by the frequency of making good timing decisions.
Merriman has admitted that he uses a market timing approach for half of his portfolio for emotional reasons; he simply feels he needs to have more defense than his 50:50 "buy and hold" portfolio offers. I don't think he has claimed that it reduces risk as defined in any formal or precise manner.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

Call_Me_Op wrote: Thu Apr 14, 2022 4:14 pm Merriman has admitted that he uses a market timing approach for half of his portfolio for emotional reasons; he simply feels he needs to have more defense than his 50:50 "buy and hold" portfolio offers. I don't think he has claimed that it reduces risk as defined in any formal or precise manner.
He claimed it reduces risk. I did not see a definition what he means by risk. From the web page referenced by the link I included in my first post to the thread on the matter:
Paul Merriman wrote: Reality: The “right” way to do market timing, using mechanical trend-following systems, isn’t likely to boost your returns. But it’s guaranteed to reduce your risk.
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Re: Burned by Paul Merriman Advice

Post by Call_Me_Op »

Northern Flicker wrote: Thu Apr 14, 2022 4:43 pm
Call_Me_Op wrote: Thu Apr 14, 2022 4:14 pm Merriman has admitted that he uses a market timing approach for half of his portfolio for emotional reasons; he simply feels he needs to have more defense than his 50:50 "buy and hold" portfolio offers. I don't think he has claimed that it reduces risk as defined in any formal or precise manner.
He claimed it reduces risk. I did not see a definition what he means by risk. From the web page referenced by the link I included in my first post to the thread on the matter:
Paul Merriman wrote: Reality: The “right” way to do market timing, using mechanical trend-following systems, isn’t likely to boost your returns. But it’s guaranteed to reduce your risk.
I suspect he was defining risk in a peculiar manner that was very specific to whatever point he was making - and probably meant (something like) it reduces the risk of suddenly losing half of your investment. Sounds like an isolated statement that is only properly understood when put into context.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

In my opinion, such a blanket statement is misleading to investors at best, with or without a specification of the notion of risk being used. It only reduces risk of any kind if you are committed to never re-entering the market should the market take off with a powerful rally while the timing algorithm has pulled your assets out of the market.
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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

Northern Flicker wrote: Thu Apr 14, 2022 6:44 pm In my opinion, such a blanket statement is misleading to investors at best, with or without a specification of the notion of risk being used. It only reduces risk of any kind if you are committed to never re-entering the market should the market take off with a powerful rally while the timing algorithm has pulled your assets out of the market.
That's not accurate. Peer-reviewed studies of the 200 DMA have indicated that it's had similar or higher returns but smaller drawdowns than buy-and-hold going back many decades.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

willthrill81 wrote: Thu Apr 14, 2022 6:49 pm
Northern Flicker wrote: Thu Apr 14, 2022 6:44 pm In my opinion, such a blanket statement is misleading to investors at best, with or without a specification of the notion of risk being used. It only reduces risk of any kind if you are committed to never re-entering the market should the market take off with a powerful rally while the timing algorithm has pulled your assets out of the market.
That's not accurate. Peer-reviewed studies of the 200 DMA have indicated that it's had similar or higher returns but smaller drawdowns than buy-and-hold going back many decades.
Past outcome != risk but it certainly does not guarantee (Mr. Merriman's word) anything.
Last edited by Northern Flicker on Thu Apr 14, 2022 6:56 pm, edited 1 time in total.
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Re: Burned by Paul Merriman Advice

Post by willthrill81 »

Northern Flicker wrote: Thu Apr 14, 2022 6:53 pm
willthrill81 wrote: Thu Apr 14, 2022 6:49 pm
Northern Flicker wrote: Thu Apr 14, 2022 6:44 pm In my opinion, such a blanket statement is misleading to investors at best, with or without a specification of the notion of risk being used. It only reduces risk of any kind if you are committed to never re-entering the market should the market take off with a powerful rally while the timing algorithm has pulled your assets out of the market.
That's not accurate. Peer-reviewed studies of the 200 DMA have indicated that it's had similar or higher returns but smaller drawdowns than buy-and-hold going back many decades.
Past outcome != risk and it certainly does not guarantee (Mr. Merriman's word) anything.
Alright, but it demonstrates that what you said was not true for the last 60+ years.
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Re: Burned by Paul Merriman Advice

Post by Northern Flicker »

So is the momentum factor a risk factor?
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Re: Burned by Paul Merriman Advice

Post by nisiprius »

willthrill81 wrote: Thu Apr 14, 2022 6:49 pm
Northern Flicker wrote: Thu Apr 14, 2022 6:44 pm In my opinion, such a blanket statement is misleading to investors at best, with or without a specification of the notion of risk being used. It only reduces risk of any kind if you are committed to never re-entering the market should the market take off with a powerful rally while the timing algorithm has pulled your assets out of the market.
That's not accurate. Peer-reviewed studies of the 200 DMA have indicated that it's had similar or higher returns but smaller drawdowns than buy-and-hold going back many decades.
Paul Merriman said "it’s guaranteed to reduce your risk." Are you prepared to use the word "guaranteed?"

And, do you know of some examples of funds or ETFs that have followed such a strategy, and have enjoyed such results? The only one I know of offhand, but my knowledge is not extensive, is Mebane Faber's GTAA (i.e. Global Tactical Asset Allocation)

Vanguard LifeStrategy Conservative fund (40/60, blue)
GTAA, orange

Image

The time period represents the period during which Faber was personally one of the fund managers. He left, the ETF continued for a while with similar performance, and it was eventually shuttered.

Are there some conspicuous success stories that can be verified easily?
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Re: Burned by Paul Merriman Advice

Post by 000 »

The benchmark hugging phenomenon is extremely powerful and is part of why asset bubbles form.
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Re: Burned by Paul Merriman Advice

Post by 000 »

Northern Flicker wrote: Thu Apr 14, 2022 7:05 pm So is the momentum factor a risk factor?
No. Markets do not price risk factors, at least over the short term. Prices are set by supply and demand for securities, which may or may not rationally reflect the riskiness of the securities.
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