Merriman "Ultimate Buy & Hold" Strategy

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DawgMan

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I stumbled into Paul Merriman when he was a guest on another podcast which led me to his podcasts and web site. I found his research very interesting and as a guy who likes numbers, his "tables" pretty informative. His Ultimate Buy & Hold Strategy really caught my attention, especially how he illustrates moving in small steps from 100% S&P 500 to his suggested ideal portfolio. Any of you fans of his or subscribe to his approach? A little more involved mind you with some additional funds to buy and rebalance, but pretty compelling.
 
His strategy is so 2001 and has been supplanted by a simplified version:
https://www.bogleheads.org/forum/viewtopic.php?t=38374

But he first got me on to a small-cap and value-tilted portfolio way way back when. You can see this in the very first post of LOL!'s market timing newsletter back in 2011 and even earlier in the Asset Allocation Tutorial back in 2007:
http://www.early-retirement.org/forums/f28/asset-allocation-tutorial-31324.html (see post #37)

Just be sure to use tax-efficient asset locations.

Also note that now that a couple of decades have passed since this kind of thing has been around, everybody knows about it and the "premiums" are not as high as they were when Merriman first publicized all this. In fact, small caps and value have had some pretty rough years. That has caused some people to abandon the strategy.
 
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LOL! said:
His strategy is so 2001 and has been supplanted by a simplified version:
https://www.bogleheads.org/forum/viewtopic.php?t=38374

But he first got me on to a small-cap and value-tilted portfolio way way back when. You can see this in the very first post of LOL!'s market timing newsletter back in 2011 and even earlier in the Asset Allocation Tutorial back in 2007:
http://www.early-retirement.org/forums/f28/asset-allocation-tutorial-31324.html (see post #37)

Just be sure to use tax-efficient asset locations.

Also note that now that a couple of decades have passed since this kind of thing has been around, everybody knows about it and the "premiums" are not as high as they were when Merriman first publicized all this. In fact, small caps and value have had some pretty rough years. That has caused some people to abandon the strategy.
Click to expand...

I believe that from 1976 to 1983, small cap was on a tear. If you remove those 7 years from the returns, they are no better than owning the market as a whole. Will those 7 years occur again, nobody knows nuthin. If you tilted to small cap in 1984, you would have done a lot of extra re-balancing
for no additional return. 35 years is a long time to wait.
 
Well so far this Jan, Small Cap is outperforming the SP500 by around 3%, but the year is young. haha
 
LOL! said:
... Also note that now that a couple of decades have passed since this kind of thing has been around, everybody knows about it and the "premiums" are not as high as they were when Merriman first publicized all this. In fact, small caps and value have had some pretty rough years. That has caused some people to abandon the strategy.
Click to expand...
Yes. The Fama/French three-factor model still argues that small-cap and value characteristics are part of asset pricing. Dimensional Fund Advisors (where they are on the board) is a real believer in portfolio tilts; primarily buying the whole market but with little extra doses of these. Their wide variety of funds basically comprises a DIY tilt kit.

But I'm with you. (Fama isn't.) Any market mis-pricing is ultimately damped out by people trying to take advantage of it.

Nevertheless I did move a Roth to a DFA-blessed advisor as an experiment and I will be watching for a couple of years to see how it looks. Fama got the Nobel. I didn't.
 
mickeyd said:
Is he really suggesting that we should be invested 100% this way? I prefer a more balanced portfolio, 50/50.
Click to expand...
No. He has had a table for years showing the risk/return for asset allocations of equities to bonds from 100:0 to 0:100. He has shown total return, max drawdown, longest losing stretch, etc. Investors then choose where they want to be on the risk spectrum.
 
I was roughly following Ultimate Buy & Hold for maybe 15 years. Now I'm converting over to a simple 4 fund portfolio. Hard to say if it gained me anything, but it was wasn't bad either. I'm just not willing to futz with it anymore. And DW may have to take over at some point in the future, so simpler is better now.
 
Animorph said:
I was roughly following Ultimate Buy & Hold for maybe 15 years. Now I'm converting over to a simple 4 fund portfolio. Hard to say if it gained me anything, but it was wasn't bad either. I'm just not willing to futz with it anymore. And DW may have to take over at some point in the future, so simpler is better now.
Click to expand...

+1 Sometimes simple is better. Especially for the surviving spouse and let's face it, no one is getting out of this alive.
 
OldShooter said:
Nevertheless I did move a Roth to a DFA-blessed advisor as an experiment and I will be watching for a couple of years to see how it looks.
Click to expand...
Do you think you can learn anything useful from a sample period this short? There's a long history out there, and if we accept it all (not excluding certain periods for reasons unknown) then it looks like the small and value premiums continue.


Perhaps the markets. as would be predicted by EMH, will eventually get rid of the small/value premium, but it's been known for decades and so far, it persists. I think we'll find the explanation for the persistent small/value premiums in behavioral economics and human processing quirks, and not among the "econs."


ETA: I have a small/value tilt to our holdings, but not a huge one.
 
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LOL! said:
No. He has had a table for years showing the risk/return for asset allocations of equities to bonds from 100:0 to 0:100. He has shown total return, max drawdown, longest losing stretch, etc. Investors then choose where they want to be on the risk spectrum.
Click to expand...


Got the link to this table?
 
COcheesehead said:
All the variations are right here.

https://paulmerriman.com/distributions-2018/
Click to expand...

Very nice data.

My WR last year was below 3%, and his tables only go as low as 3% WR. And my WR was without any SS.

Looking at this, I guess I need to "blow some dough", else I would have money coming out the wazoo. :)

I wonder what my wife would say if I told her I needed more lithium battery for my energy storage shed.
 
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LOL! said:
When this thread was active, I readily found it via
Google so I will let you repeat my work and post it here. Thanks!
Click to expand...


I use StartPage, which masks me so g** does not insert web beacons into my browser & track me everywhere & monitize my private behavior.


Startpage did not find the particular page using the search terms I can think of.
 
Does he have one with "flexible" schedule (ie a %) with columns for 10% changes in equity:bond ratio (as he does for fixed dollar amount)?
 
Bongleur said:
This seems to be the one. Why does he start with odd amounts of money instead of a round $1M? Even accounting for the fact that the first number is the END of year, after the distribution... the odd few thousands would be gains, but that still is a non-round starting number:
Fixed distribution strategy 2018

Retirement Distribution Tables (S&P 500)
Click to expand...

The tables does start out with exactly $1M in Jan 1st, 1970, which is not shown.

You then withdraw $30K, and invest the remaining $970K. On Dec 31st, 1970, the portfolio balance is shown on the first row of the table. This is before withdrawal for 1971.
 
Darn, I cannot paste these tables from his PDF into Excel. I would like to create a column showing "number of years distributions remaining" so after a year like 2007 you could see "if I bailed out into TIPS I would still have enough for my remaining lifespan."
 
I wish I could paste the Distribution columns from the % Current Value and Fixed Real $$ draws side by side and calc the percentage difference each year.
...........................................................................................................................

For example, FOR 100% S&P500 INDEX in 1980 the Fixed Real Value $30,000 is drawing about 50% more real dollars than the 3% Current Value: $61k vs $39k.

...........................................................................................................................
So if you really need that $30,000 of Real dollars to live on, the % draw is failing you; you are only getting half the spending power you require.
...........................................................................................................................
So running all the years could show how often the shortfall is "significant" in that you could not just tighten your belt for a few years.
...........................................................................................................................
And it shows you how much to have in your inflation-protected cash reserve to make up those years of shortfall. So you need another column tracking the value of the cash reserve portfolio.
...........................................................................................................................
I suppose you would have a ladder of TIPS and you would spend $21k of matured money instead of rolling it over, so you get your full amount of necessary (real) money: $61k vs $39k + $21k from emergency funds.
 
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Have you tried any of the PDF-to-Word or PDF-to-Excel converters? I would, but I do not feel like doing it now. :)
 
Bongleur said:
This seems to be the one. Why does he start with odd amounts of money instead of a round $1M? Even accounting for the fact that the first number is the END of year, after the distribution... the odd few thousands would be gains, but that still is a non-round starting number:
Fixed distribution strategy 2018

Retirement Distribution Tables (S&P 500)
Click to expand...

Head scratch. He does start with $1,000,000. What are you looking at? Read the very first line in the table. “Initial investment $1,000,000”
 
Essentially from 1973 thru 1986 the 3% gave you substantially less than the $30k real you need. Bad Initial Sequence :confused: But it looks like none of the AAs shown would have done the job.
 
NW-Bound said:
The tables does start out with exactly $1M in Jan 1st, 1970, which is not shown.

You then withdraw $30K, and invest the remaining $970K. On Dec 31st, 1970, the portfolio balance is shown on the first row of the table. This is before withdrawal for 1971.
Click to expand...


OK, need to look at the columns in a funky order. And exact interest isn't stated, so must be the odd $$$.
 
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