In this insightful conversation, renowned financial expert Paul Merriman shares his wealth of knowledge and experience in investing. He discusses his journey from stockbroker to founding his own investment advisory firm, and eventually establishing the Merriman Financial Education Foundation. Paul delves into various topics, including:
✅ The importance of data-driven investing and understanding the math behind it
✅ His meeting with John Bogle and their differing philosophies on investing
✅ The case for small cap value investing and its historical performance
✅ The challenges of market timing and the benefits of portfolio diversification
✅ The emergence of ETFs and trend following strategies
Useful links:
- PaulMerriman.com
- ETFAtlas.com – A new portal offering a comprehensive catalog of ETFs from the United States, Canada, and Europe.
Video and podcast
Listen to “The Index Edge: Paul Merriman’s Investment Insights” on Spreaker.
Episode Overview
Paul Merriman, a renowned figure in the world of investing and financial education, shared his insights on various aspects of investing strategy, portfolio construction, and market dynamics. Here are the key highlights from our in-depth conversation:
The Journey to Financial Education
Paul’s journey in the investment world began unexpectedly. Married at 19, he wasn’t a natural investor but a diligent saver. His father-in-law, an engineer with a passion for the stock market, became his first mentor. This early exposure sparked Paul’s interest in investing, leading him to pursue a career as a stockbroker after college.
“I started what actually when I was about nineteen interviewing with a New York Stock Exchange company with the idea that I would go to work for them when I got out of college“, Paul recounted.
His early experiences in the brokerage industry taught him valuable lessons about conflicts of interest and the importance of client-focused advice. This realization led him to start his own investment advisory firm in 1983, focusing on helping a few hundred people with their investments.
The Merriman Financial Education Foundation
After selling his company in 2012, Paul established the Merriman Financial Education Foundation. The foundation’s mission is to provide comprehensive, evidence-based investment education to individuals, with a particular focus on young investors and do-it-yourself investors.
“I am now one hundred percent teacher, zero percent investment advisor,” Paul emphasized. “And so now my job is to think through the eyes of an individual. How do we manage money that we have the highest probability of staying the course for the long term?“
The Case for Small Cap Value
Paul is well-known for his advocacy of small cap value investing. He explained his perspective:
“Let me tell you why I feel so strongly about this: Even for my two-year-old granddaughter, my wife and I have put away $10,000 to start when she is old enough, working, and earning an income. I want this $10,000, and whatever it grows to, to be used to fund a Roth IRA for as long as it lasts. That money should be split in half—one part in a total market index (not Vanguard or Fidelity, but a different one that I think will perform better) and the other half in small-cap value.“
Paul acknowledges the criticism and skepticism surrounding small cap value, especially during periods of underperformance. However, he maintains his conviction based on long-term historical data and academic research.
On Market Timing and Portfolio Construction
While Paul uses some market timing strategies in his personal portfolio, he is cautious about recommending them to individual investors. He explained:
“I am not an advocate of individual’s market timing. And this is not because I don’t believe in market timing. I wouldn’t have market timing in my own portfolio. And that is that market timing, then the first thing I think people need to understand is the unit of return per unit of risk is not going to change much with the timing.“
Paul emphasizes the importance of understanding one’s risk tolerance and the potential challenges of implementing timing strategies consistently.
The Future of Investing
Paul remains optimistic about the future of investing, particularly for those who take a disciplined, evidence-based approach. He continues to advocate for broad diversification, low-cost investing, and a focus on long-term results rather than short-term market fluctuations.
As our conversation concluded, Paul’s passion for financial education and his commitment to helping investors make informed decisions shone through. His insights offer valuable food for thought for both novice and experienced investors alike.
