The Meb Faber Show

It’s another Q&A episode before everyone gets too busy with the holiday swirl. Per usual, Meb has just come back from more travel, this time to Todos Santos, Mexico. He gives us a quick update before we hop into listener questions. A few you’ll hear tackled are: -         I don’t really understand Trend. In order to maximize return, wouldn’t it make more sense to buy below the simple moving average, then hold or sell when above it? I’m just applying common sense – buy when cheaper than average. What am I missing?   -         If you were building an investment strategy for the next 30-40 years, would it more resemble the one found in your QTAA paper, an absolute value strategy (similar to what Porter discussed in that podcast), or your Trinity approach, which is more buy/hold with rebalancing?   -         Have you ever considered a strategy that buys put option protection for equity portfolios when valuations are historically high? You could buy long puts or long puts/short calls to offset some of the option p

Episode 32 is like no other we’ve done to date. Local guys, Brew and Brett, run a startup in nearby Manhattan Beach – and it’s disrupting the real estate financing market. It’s not long into the episode before the guys give us the overview of how it works. Peer Street invests in real estate debt. Now, when most people try this, there are too many intermediaries. The effect is the yield is stripped out. Peer Street is fixing this, focusing on short-term, high interest rate loans. The guys’ vision is to enable investing in real estate lending to be as easy as buying a stock through an online broker. After giving us their fascinating professional backgrounds prior to starting Peer Street, Brew and Brett dive into how the process work. There’s always been a shadow, niche market in this space. A real estate investor finds a good property that he/she is able to fix up and sell/rent. But to make the deal happen, the developer has to move quickly, and doesn’t have time to get a traditional loan through a bank. In ste

Episode 31 starts with some background information on Mark. After some early-career twists, he got his “big break” – working for his alma mater, Notre Dame, in its endowment department. Several years later, The University of North Carolina came calling, and Mark took the helm for UNC’s investments. Eventually, he moved on to private wealth with his current group, Morgan Creek. Given the heavy institutional background, Meb asks about how endowments invest. Mark tells us that every large pool of capital manages its money the same way – investing in stocks, bonds, currencies, and commodities. That’s it – though how you own those assets might change. Yet despite different wrappings, they all have the same risk factors. This leads Mark to focus on asset allocation, as “asset allocation matters most.” The conversation turns toward money managers (Mark uses various money managers at Morgan Creek). Meb asks how a retail investor can get access to the truly great money managers. It turns out, it’s very difficult. But

As Meb is back from another series of speaking engagements, Episode 30 starts with a brief recap of his travels. But we hop in quickly, first addressing the election. We’ve had several anxious people write in, requesting commentary on the financial markets now that Trump will be taking over. Meb offers his thoughts, which we can reduce to one word: irrelevant. Next Meb gives us an overview of a white paper he’s soon to begin writing – a rebuttal to detractors of Shiller’s CAPE ratio. He provides some convincing points on why CAPE can be an effective timing tool. You’ll want to hear this if you’re a CAPE fan – even more so if you believe CAPE is flawed. After that, we hop into listener Q&A. A few of the questions you’ll hear Meb tackle are: -         How does CAPE do as a valuation metric for a stock index when the composition of the index is changing or there is significant dilution?   -         When it comes to value filters like P/B or P/E, how do you rank metrics which can become negative or distorted when

In Episode 29, we welcome market veteran, Tom McClellan. Meb starts with some background on Tom – he’s been doing financial writing for 20 years, likely making him one of the longest-running financial writers in the business. The guys then provide an overview of Tom’s proprietary market tool, the McClellan Oscillator. The roots of the Oscillator date back decades ago, when Tom’s father, Sherman, was trying to develop a system by which he could better time corn purchases for their farming business. (It turns out, you can get a better price in March.) In short, Sherman eventually crossed paths with some technical analysts who were exploring breadth statistics in the market (advance/decline line). Sherman applied moving averages to the advance/decline line, and a few tweaks later, we got the McClellan Oscillator. Meb then asks about the best way investors can use the Oscillator, and what the signals are telling us now. Tom gives us a quick tutorial, then suggests that the Oscillator is saying “oversold” (keep in

As we recorded Episode 28 on Halloween, it starts with Meb referencing his costume from the prior weekend’s festivities. Can you guess what it was? He stayed true to his financial roots, dressing as Sesame Street’s “Count von Count.” (Sorry, no photographs.) But the guys jump in quickly, beginning with the subject of Larry’s 15th and latest book – “factors.” Larry tells us that the term “factor” is confusing. He defines it as a unique source of risk and expected return. So which factors should an investor use to help him populate his portfolio? Larry believes there are 5 rules to help you evaluate factors: 1) Is the factor “persistent” across long periods of times and regimes? 2) Is it “pervasive”? For instance, does it works across industries, regions, capital structures and so on. 3) Is it “robust”? Does it hold up on its own, and not as a result of data mining? 4) Is it “intuitive”? For instance, is there an explanation? 5) Lastly, it has to be “implementable,” and able to survive trading costs. The guys t

Episode 27 starts with a quick note from Meb. It’s a week of freebies! Why? Meb is celebrating his 10th “blogiversary.” (He’s officially been writing about finance now for a decade.) Be sure to hear what he’s giving away for free. But soon the interview starts, with Meb asking Porter to give some background on himself and his company, as Porter’s story is somewhat different than that of many guests. Porter tells us about being brought into the world of finance by his close friend and fund manager, Steve Sjuggerud. This conversations bleeds into Porter’s thoughts on how a person should spend his 20s, 30s, and 40s as it relates to income and wealth creation. But it’s not long before the guys dive into the investment markets today, and you won’t want to miss Porter’s take. In essence, if you’re a corporate bond investor, watch out. Porter believes this particular credit cycle is going to be worse than anything we’ve ever seen. Why? There’s plenty of blame to go around, but most significantly, the Fed did not all

If you’re ready to dive straight into the deep end, Episode 26 is for you. The guys waste no time, starting off with complicated topic of currencies. Jeremy takes issue with the currency-stance belonging to some former, unnamed Meb Faber Show guests. Specifically, he challenges the idea that currency hedging is expensive. Not true, he says. It’s only “selectively” expensive. You can actually get paid to hedge certain currencies. He gives us more details, leading to his overall takeaway: You should be hedged a lot more than you are. Meb then asks about any rules that might be applied when using a dynamic currency-hedging strategy. Jeremy gives us his thoughts, telling us when we want to be hedged versus when we don’t, as well as two good signals to use – interest rate differentials and momentum. Where are we overall today? Well, Jeremy says that there is no country so cheap that his shop would take their hedge ratio to zero. Eventually, Meb switches the topic to factor investing. Jeremy gives us his take, noti

We have some great guests lined up in the coming weeks, so we figured we’d squeeze in another Q&A episode. This week, Meb is back from traveling yet again, this time to The Caymans. The show starts with Meb giving us highlights from the trip, as well as one low-light (waking up one morning to find a welt on his head, and hoping it isn’t Zika). This transitions into a topic recently covered in one of Meb’s blog posts; of all the animals that people find most terrifying, lions and sharks are near the top of the list. But statistically, lions and sharks are responsible for only a tiny amount of human deaths per year. You know what kills 725,000 humans per year – yet few fear (until recently)? Mosquitos. Similarly, many investors are terrified about the outcome of the U.S. Presidential election. But this election isn’t likely to “kill” a portfolio. On the other hand, you know what is? The mosquito known as “fees.” Eventually, the conversation gravitates toward listener questions. A few you’ll hear Meb tackle are:

Episode 24 brings us back to our most controversial episode format: the “solo Meb” show. Listeners seem to either love and loathe this style of show. If you fall into the “loathe” camp, it’s a short episode so the pain is limited. But hopefully you will listen, as Meb dives into the fascinating, and possibly timely, subject of bubbles. The quick takeaway? Using a trend following approach would have helped you reduce drawdowns as popping market bubbles ravaged portfolios. And this would have helped you achieve investing’s main goal: surviving another day. Meb then dives in, first defining bubbles, then referencing three of the most famous bubbles in history: the South Sea Company bubble, the Mississippi bubble, and the Dutch tulip mania, each of which saw drawdowns of 90%. Meb dives deeper into the South Sea Company bubble. In short, the South Sea Company was a huge pump-and-dump scheme – catching none other than Sir Isaac Newton in its carnage. From here, Meb discusses strategies for capturing the upside of b

If you’re a factor-investor, Episode 23 is for you. In fact, about 10 years ago, Gregg actually trademarked the term “multi-factor” in the use of mutual funds. Meb asks Greg which factors they use. It turns out “price-to-anything” isn’t bad. The conversation gravitates toward the behavioral side of investing, leading Gregg to an interesting comment: “Sometimes the best investment strategy isn’t the right investment strategy.” He goes on to illustrate by saying how if we bought nothing but small cap value stocks and held them for the next 50 years, we’d look back and realize that such a strategy would have been one of the most successful ones anyone could have chosen. The problem is the volatility of that strategy is off the charts, so most investors can’t see it through. In many ways, the experience of investing is as important to us as the outcome. Meb agrees, referencing a recent article detailing how Harvard’s endowment has posted a small loss over the last two years and some folks at Harvard are finding t

Episode #22 is another “Listener Q&A” episode. Meb has been traveling again, this time giving several speeches. So we start the episode with Meb giving us the highlights from his most recent talk in Vegas, in which he details four mistakes that investors are making right now. Next, we get into our listener Q&A. Meb tackles: -         Is shareholder yield a smart beta factor in its own right, or is it a combination of factors? -         Should a shareholder yield strategy outperform portfolios with size, value, and momentum tilts? -         Is there a reason why Meb rarely talks about adding small caps to a portfolio? -         What are the merits of investing in ETFs versus bonds directly? -         Can sentiment indicators be used to add tangible long-term value to a portfolio? -         How does Meb define risk, a term he uses quite often? -         While certain global countries with low CAPEs appear attractive, if the U.S. entered a correction, wouldn’t those foreign countries follow, negating the decisio

Episode 21 starts with a “thank you” to Michael, as it was his advice on starting a podcast that got “The Meb Faber Show” off the ground. But Michael and Meb quickly turn to Michael’s expertise, trend following. This is how Michael summarizes it: “We don’t know what’s going to happen. We can’t make a prediction worth a damn. The market starts to move, whatever that market might be. We get on board, and we don’t get out until it goes against us and we have an exit signal.” They then turn to the infamous “turtle” story. It involves Richard Dennis, a great trader from the 1970’s, who made his first million by about age 25. By the early 80’s, he was worth about $200 million. Around this time, the movie “Trading Places” came out (two millionaires make a bet on the outcome of training a bum to be a financial whiz, while taking a financial whiz and, effectively, turning him into a bum). Richard felt he could similarly train a financial no-nothing, turning him into a great trader. Richard’s partner felt it wouldn’t w

Episode #20 is another “Listener Q&A” episode. Meb starts by telling us about his frustration after doing a guest panel on CNBC earlier in the morning. (Hint: questions about The Fed tend to annoy Meb…also, if you ever chat with him in person, do not refer to a 1% market move as a “major” move.) But soon we change gears, and Meb answers questions including: -         When following a trend strategy based on a 100 or 200-day moving average, is the idea to buy/sell on Day 1 of the broken trend? Or is it more nuanced? -         Is there some magic number of days (when following a trend strategy) that is the right length? -         (The above questions dovetail into a conversation about the #1 mistake the majority of investors make when using a trend following approach – expecting it to be a return-enhancing strategy.) -         What are good trend strategies for sideways/chainsaw markets? -         How about combining a momentum strategy with a simple 10-month trend strategy? -         When looking at managed fu

Episode 19 is a fun, unique episode, delving into the connection between “more money” and “more happiness.” Turns out, Jonathan has literally written the book on this complex relationship. Do you know what studies suggest is the “line in the sand” for annual income, separating happy and unhappy people? Good chance it’s lower than you think. But why? Jonathan tells us. That dovetails into a discussion about how people should spend their money in order to optimize their happiness. It turns out that spending our money on “experiences” with important people in our lives produces far more intrinsic happiness than money spent on “things.” Next, Meb leads the discussion into familiar territory – investing. Jonathan notes two major traps most of us fall into when investing: 1) overconfidence, and 2) loss aversion. These two Achilles Heels tend to inflict significant damage to our portfolios. So what’s our best defense? Jonathan gives us his three-pronged strategy. The topic then moves to portfolio construction, with

Episode 18 is packed with value. It starts with Meb asking Rob to talk about market cap weighting and its drawbacks. Rob tells us that with market cap weighting, investors are choosing “popularity” as an investment criterion more so than some factor that’s actually tied to the company’s financial health. What’s a better way? Rob suggests evaluating companies based on how big they are instead (if you’re scratching your head, thinking “size” is the same as “market cap,” this is the episode for you). Is this method really better? Well, Rob tells us it beats market cap weighting by 1-2% compounded. Then Rob gives us an example of just how destructive market cap weighting can be: Look at the #1 company in any sector, industry, or country – you name it – by market cap. Ostensibly, these are the best, most dominant companies in the market. What if you invest only in these market leaders, these #1 market cappers, rotating your dollars into whatever company is #1? How would that strategy perform? You would do 5% per y

Episode 17 starts with the guys from ReSolve discussing how they view asset allocation and top-down investing. They start with the global market portfolio which is the aggregate of what every investor in the world owns, yet interestingly, nearly no individual investor allocates this way. They then adjust the global market portfolio by striving for balance, specifically, risk parity. They discuss how leverage enables an investor to scale risk and target a specific volatility level, therein equalizing the portfolio. Risk parity gets you to start thinking about risk allocation instead of capital allocation. And this is helpful as “you’ve always got something killing it in your portfolio…and always got something killing you.” The topic then moves to valuation. The guys from ReSolve tell us how they see today’s market—near the peak of a cycle and expensive relative to history. What does this mean for returns over the next 10-20 years? They think 1-2% real. This leads to a discussion about the Permanent Portfolio a

Big news today! This isn't our usual podcast. Instead, Meb has an announcement for his listeners. It's only a few minutes long, so don't miss this one!

Episode #16 is another “Listener Q&A” episode. With Jeff asking follow-ups, here are a few of the questions Meb tackles: -         Given low bond yields, what asset would you suggest holding in a trend following strategy while in “cash”? Would you stick to short-term bonds, diversify with several bond funds, or actually hold cash? -         I struggle with a way to screen for quality. I just listened to your podcast with Pete Mladina and he alluded to profitability as a factor. Have you done any work here? -         Do you believe that the development of smart beta (momentum, value, low vol…) will kill the edge of these factors? -         It’s difficult to distinguish signal from noise when evaluating different indicators, such as forward PE versus TTM PE. What suggestions do you have for evaluating the myriad indicators out there? -         I just came into a lump sum of money. Is there any research on the best way to invest it into a pricey market? All at once? Average in? Buy on the pull-backs? -         S

Meb tries something new in Episode 15. In “audio book” style, he walks listeners through his latest research piece: The Trinity Portfolio. “Trinity” reflects the three pillars of this investing approach: globally-diversified assets, weightings toward value and momentum investments, and active trend-following. On one hand, Trinity is broad and sturdy, rooted in respected, wealth-building investment principles. On the other hand, it’s strategic and intuitive, able to adapt to all sorts of market conditions. The result is a unified, complementary framework that can relieve investors of the handwringing and anxiety of “what’s the right strategy right now?” If you’re an investor who’s struggled to find an investing framework able to generate long-term returns that make a real difference in your wealth, Episode 15 is for you. Learn more about your ad choices. Visit megaphone.fm/adchoices