Episode #101: Paul Merriman, “The People That Have Come Out Ahead Are the People Who Have Put Their Trust in the System Over the Long-Term”

Episode #101: “The People That Have Come Out Ahead Are the People Who Have Put Their Trust in the System Over the Long-Term”

Guest: Paul Merriman. Paul is a nationally recognized authority on mutual funds, index investing, asset allocation and both buy-and-hold and active management strategies. Now retired from Merriman, the Seattle-based investment advisory firm he founded in 1983, he is dedicated to educating investors, young and old, through weekly articles at Marketwatch.com, and via free eBooks, podcasts, articles, recommendations for mutual funds, ETFs, 401(k) plans and more, at his website. Paul is also the author of four previous books on personal investing, including Financial Fitness Forever: 5 Steps To More Money, Less Risk and More Peace of Mind (McGraw Hill, Oct. 2011). Over the years Paul has led more than 1,000 investor workshops, hosted a weekly radio program and has been a featured guest on local, regional and national television shows.

Date Recorded: 3/29/18

Run-Time: 1:25:12

Episode Sponsor: Inspirato

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Summary: In Episode 101, we welcome the great educator, Paul Merriman.

We start with Paul’s background; specifically, the story of an early trading experience with commodities. He doubled his money in days…and then lost everything on the very next trade.

Then the guys dive in, with Meb bringing up something Paul wrote called “The Ultimate Buy & Hold Portfolio” and asking for more detail. Paul starts with the S&P which, even with all its up-and-downs, has done great over the years. But then he walks us through some tweaks – adding large cap, then small cap – he notes the various percentage returns added by each, as well as the effect on volatility. He eventually arrives at a final portfolio, showing us the power of this diversification.

Meb points the conversation toward the behavioral benefit of diversification and says how some listeners will wonder how much money to put into each of the asset classes Paul had identified. Paul tells us he originally put 10% into 10 different asset classes – after all, if each asset class is worthy, then he wants it to be in his portfolio; especially because there’s no way to be certain which one(s) will shine going forward.

Agreeing, Meb touches on being “asset class agnostic” and notes that the problem with being, say, a “gold guy” or any die-hard type of investor, is you get wedded to that asset class. This emotional bond can lead to bad behavior. This leads to a discussion about implementation and the challenges of emotional investing. Paul tells us “I don’t want my emotions to have anything to do with how (my) money is managed.”

The conversation drifts toward the benefits of investing early, yet the challenges of educating young people as to its importance, as well as different investing needs over a lifetime. The guys note how the best thing for a young person would be the markets tanking for 10 years. Of course, that would be terrible for an older investor in/near retirement. This bleeds into a conversation about formally educating the younger generation about investing.

A bit later, Meb asks about the older investor who might have been burned in ’08, is now near retirement, thinks the U.S. market is expensive, yet needs results. What about him? Paul walks us through the realities of losses and gives us his overall thoughts. This morphs into a common question we get – invest everything at once, or drip it in over time? Paul has some thoughts on how to do this in a way that balances math and emotions.

There’s tons more in this episode (it’s one of our longest to date): the challenge of investing in the “shiny object”… how to avoid getting screwed by your advisor… investment newsletters… buy-and-hold versus market timing… the critical nature of understanding past performance… giving money to grandkids… and of course, Paul’s most memorable trade; his involves the ’87 crash.

What are the details? Find out in Episode 101.

Links from the Episode:

  • 2:35 (First question) – Welcome our guest Paul Merriman
  • 2:56 – Books
  • 2:57 – Podcast
  • 3:14 – First investments
  • 4:32 – Timeline on becoming an investment advisor
  • 7:10 – Paul’s framework for investing and putting together a portfolio
  • 7:54 – Lessons from 2018 ​Ultimate Buy and Hold Strategy 2018
  • 13:31 – What investors should consider in terms of asset classes and making adjustments to the standard 60/40 portfolio
  • 13:56 – How people should implement this plan in their portfolio
  • 15:41 – Investing workshop
  • 19:57 – How can young investors be encouraged to start early and stick with it through the bad times
  • 24:53 – Paul’s thoughts on why everyone isn’t educated on investing and personal finance
  • 26:18 – William Bernstein Podcast Episode
  • 31:50 – Paul’s advice for investors closer to retirement
  • 37:14 – Entering the market mathematically rather than emotionally
  • 39:05 – How Paul talks to investors about new investing fads that may not be prudent
  • 39:56 – Sponsor: Inspirato
  • 45:19 – How to pick a good advisor
  • 45:53 – Get Smart or Get Screwed: How To Select The Best and Get The Most From Your Financial Advisor – Merriman
  • 50:50- Paul takes issue with the financial stock picking newsletters
  • 53:10 – Wes Gray Podcast Episode
  • 55:58 – Paul’s thoughts on market timing investment strategies
  • 1:03:24 – Simple investment philosophy to avoid shooting yourself in the foot
  • 1:08:04 – Elroy Dimson Podcast Episode
  • 1:08:07 – Triumph of the Optimists: 101 Years of Global Investment Returns – Dimson, Marsh, Staunton
  • 1:08:37 – Among the facts that every investor should know, any that stand out
  • 1:08:41 – Video – 50 Facts Every Investor Should Know
  • 1:12:22 – The importance of half a percent
  • 1:14:47 – Why the boring stuff, like picking funds with the lowest fees, is actually best for your portfolio
  • 1:20:36 – The idea of a Forever Fund
  • 1:22:18 – Paul’s most memorable trade or investment
  • 1:24:56 – How investor experiences can have a long-term impact on people’s lives

Transcript of Episode 101:

Coming soon.