Info

The Meb Faber Show

Ready to grow your wealth through smarter investing decisions? With The Meb Faber Show, bestselling author, entrepreneur, and investment fund manager, Meb Faber, brings you insights on today’s markets and the art of investing. Featuring some of the top investment professionals in the world as his guests, Meb will help you interpret global equity, bond, and commodity markets just like the pros. Whether it’s smart beta, trend following, value investing, or any other timely market topic, each week you’ll hear real market wisdom from the smartest minds in investing today. Better investing starts here. For more information on Meb, please visit MebFaber.com. For more on Cambria Investment Management, visit CambriaInvestments.com. And to learn about Cambria’s suite of ETFs and other investment offerings, please visit CambriaFunds.com.
RSS Feed
The Meb Faber Show
2018
September
August
July
June
May
April
March
February
January


2017
December
November
October
September
August
July
June
May
April
March
February
January


2016
December
November
October
September
August
July
June


All Episodes
Archives
Now displaying: May, 2018
May 30, 2018

Episode 108 has a radio show format. In this one, we cover some of Meb’s Tweets of the Week and various write-in questions.

After giving us the overview of his upcoming travel, Meb shares his thoughts on our recent episode with James Montier. It evolves into a conversation about the importance of “process” in investing.

Next, we talk about a Tweet from Meb which evaluated what matters more – your savings rate or your rate of return. As you might guess, in the early years, savings trumps, but for longer investment horizons, rate of return is far more influential.

It’s not long before we jump into listener questions. Some that you’ll hear Meb address include:

  • What is the best way to include commodities in a portfolio? Specifically, is it better to have an ETF containing futures contracts or an ETF containing commodities equities?
  • Obviously historical returns from bonds, especially the last 40 years, will not be repeated in the future. How will you position yourself personally – not Trinity, but personally – for the bond portion of your portfolio?
  • What are some viable simple options for individual investors besides having a globally diversified bond portfolio? Or is global diversification the answer? Is the global risk somehow less risky than a U.S. bond allocation?
  • Star Capital studies and your book show that ten year returns of low CAPE ratio countries are impressive. But it doesn’t tell if those returns occurs gradually, or if the path to this performance is just noise and cannot be predicted. If the path is noise, it would make sense to buy a cheap country ETF and wait at least 7-10 years. But your strategy rebalances every year. Why not hold longer to 7-10 years in total?
  • I recently read that 88% of companies that were in the S&P 500 during the 1950’s are no longer in business. If every company is eventually heading towards zero, why are so few people able to make money on the short side? Shouldn’t the ideal portfolio be long the global market portfolio, with tilts to value and momentum, and short specific individual equities?
  • I’ve looked at you Trinity Portfolios and noticed an allocation of 0.88% to a security. Why? Isn’t the impact neglectable?
  • Do you suggest someone get a second opinion on their financial plan much as someone would get a second opinion for major surgery?

There’s plenty more in this episode including data mining, trend following time-frames, and what Meb’s thoughts are on ramping up equity exposure in a portfolio to offset the effects of living longer. All this and more in Episode 108.

May 23, 2018

In Episode 107 we welcome the great James Montier. The chat starts on the topic of James’ questionable sartorial choices. He tells us he’s “always been a fan of dressing badly.” But the guys quickly jump in with Meb noting how James has generally been seeing the world as expensive over the last few years. Has anything changed today?

James tells us no; by in large, we’re still trapped in this world where, frankly, you’re reduced to this game of “picking the tallest dwarf.” In general, every asset is expensive compared to normal. He summarizes, telling us “there really is a serious challenge to try to put together an investment portfolio that’s going to generate half-decent returns on a forward-looking basis.”

Meb digs into, focusing on James’ framework for thinking about valuation, specifically, as a process.

James starts from accounting identities. There are essentially four ways you get paid for owning an equity: a change in valuation, a change in profitability, some growth, and some yield.  James fleshes out the details for us, discussing time-horizons of these identities. One of the takeaways is that we’re looking at pretty miserable returns for U.S. equities.

James notes that we now have the second highest CAPE reading ever. Or you could look at the median price of the average stock – the price-to-sales ratio has never been higher. Overall, the point is to look at many valuation metrics and triangulate, so to speak. When you do, they’re all pretty much saying the same thing. James finishes by telling us that from his perspective, U.S. equities appear obscenely expensive. 

Meb takes the counter position, asking if there’s any good argument for this elevated market. Is there any explanation that would justify the high values and continued investment?

James spends much time performing this exact exercise, looking for holes. He tells us that most people point toward “low interest rates” as a reason why this valuation is justified. But James takes issue with this. From a dividend discount model perspective, James doesn’t think the discount rate and the growth rate are independent. He suggests growth will be lower along with lower rates. He goes on to discuss various permutations of PE and other models, noting that there’s no historical relationship between the Shiller PE and interest rates.

Meb comments how so many famous investors echo “low rates allow valuations to be high.” But this wasn’t the case in Japan. Meb then steers the conversation toward advisors who agree that U.S. stocks are expensive yet remain invested. Why?

What follows is a great discussion about what James calls the “Cynical Bubble.” People know they shouldn’t be investing because U.S. stocks are expensive, but investors feel they must invest. If you believe you can stay in this market and sell out before it turns, you’re playing the greater fool game. James tells us about a game involving expectations – it’s a fun part of the show you’ll want to listen to, with the takeaway being how hard it is to be one step ahead of everyone else.

The conversation bounces around a bit before Meb steers it toward how we respond to this challenging market. What’s the answer?

James tells us there are really four options, yet not all have equal merit:

1) Concentrate. In essence, you own the market about which you’re most optimistic. For him, that would be emerging market value stocks. Of course, buying and holding here will be hard to do.

2) Use leverage. Just lever up the portfolio to reach your target return. The problem here is this is incompatible with a valuation-based approach. Using leverage implies you know something about the path that the asset will take back to fair value – yet it may not go that route. You may end up needing very deep pockets – perhaps deeper than you have.

3) Seek alternatives like private equity and private debt. The problem here is most are not genuinely alternative. They’re not uncorrelated sources of return. James tell us that alternatives are actually just different ways of owning standard risk.

4) The last option is James’ preferred choice. Quoting Winnie the Pooh: “Never underestimate the power of doing nothing.”

Next, Meb brings up “process” as James has written much about it. James tells us that process is key. Professional athletes don’t focus on winning – they focus on process, which is the only thing they can control. This is a great part of the interview which delves into process details, behavioral biases, how to challenge your own views, and far more. James concludes saying “Process is vitally important because it’s the one thing an investor can control, and really help them admit that their own worst enemy might be themselves.”

There’s plenty more in this great episode: James’s answer to whether we’re in a bubble, and if so, what type… market myths that people get wrong involving government debt… and of course, James’ most memorable trade. This one was a loser that got halved…then halved again…then again…then again…

How did James get it so wrong? Find out in Episode 107.

May 16, 2018

In Episode 106 we welcome market vet, Brian Singer. Meb dives right now, asking Brian for his general approach to the markets.

Brian tells us it’s fundamental in nature. They look at about 100 different asset markets, trading the broad markets rather than individual equities or bonds. They look for mis-pricings, then when one has been identified, they dig in, running both quantitative and qualitative analyses. They follow this with various risk management strategies. The overall portfolios are both long and short.

As Brian often writes about macro factors that affect asset prices, Meb asks which macro factors are influential today. Brian gives us his thoughts – not just on macro factors, but game theaters as well. He talks about populism, energy (which ties into the Middle East game theater), and Chinese growth. Additional game theaters beyond the Middle East he discusses are the European Union and Asia.

Next, Meb asks about Brian’s process. How does it really work when you’re putting together a portfolio?

Brian starts with valuation work. Specifically, they focus on the present value of future cash flows. They then assess things from a qualitative perspective – for instance, how might a certain government policy affect markets? They don’t look at markets on a company-by-company basis. It’s a macro approach, with fundamental value being a critical component. All of this is the “where” stage in Brian’s process. Next is the “why?” For instance, why does an asset mis-pricing exist? This eventually leads to game theory and an assessment of market turbulence and fragility.

Meb brings up Brian’s portfolio and asks about his current positioning. In general, Brian is cautiously optimistic on some equity markets, but generally against bonds. What he finds attractive right now from an equity perspective are Emerging Markets and some European markets. He’s especially attracted to Greece, Brazil, Argentina, and India; and to a lesser degree, China, Indonesia, and Malaysia. Brian talks more about Italy, Spain, and the UK.

Brian tells us most bond markets are unattractive. He gets into more detail regarding investment grade bonds, sovereigns, and junk.

Soon, the guys dive into currencies. Though most investors tend to think “it’ll all net out in the long run,” Brian takes a more active approach. The specific currencies he finds attractive right now include the Swedish Krona, Indian Rupee, Russian Ruble, Philippine Peso, and Turkish Lira. As to overvalued currencies, he points toward the U.S. Dollar, the Euro, the Swiss Franc, the Thai Baht, and the Israeli Shekel.

Next, Meb asks what is keeping Brian up at night as he looks at the markets today. Brian points toward four major concerns: monetary policy, rules-based strategies such as smart beta, the Volcker Rule, and circuit breaker inconsistency. He dives into tons of great detail that supports the notion for some concern, concluding “We don’t know what will trigger the decline, but when it happens, our fear is that it’s sharper and deeper than investors would otherwise expect.”

There’s plenty more in this episode: Brian’s thoughts on what steps can be taken to help protect against a declining market… his stance on cash in a portfolio… whether the 10-year bond will ever get back to 4%-5%... and finally, Brian’s most memorable trade.

This one involves Black Monday. Hear all the details in Episode 106.

May 9, 2018

Episode 105 is a wholly unique show. In this episode, we depart from traditional investment themes, and instead, bring you an episode featuring Meb’s second professional love, biology. Specifically, we welcome the renowned evolutionary biologist and writer, Olivia Judson.

It turns out Olivia wrote for The Economist in her early years. Meb asks how a scientist got started writing for a business magazine. Olivia tells us of the progression that led from one article submission to several other articles, to a staff job.

Next, Meb asks about the genesis for writing Dr. Tatiana's Sex Advice to All Creation. (For anyone unaware, the book is written in the style of a sex-advice column to animals. It details the variety of sexual practices in the natural world and provides the reader with an overview of the evolutionary biology of sex.) Olivia tells us one of her early articles was the inspiration, though she’d been studying and researching the topic for years. She thought the book would take her only six months to write so she quit her job…she finally finished it four years later.

Meb notes how much of the book identifies a power struggle between males and females, and how this shapes evolutionary dynamics. Olivia expounds, telling us how sometimes what the male wants is not in the interest of the female (and vice versa). These differences create the tensions which affect evolutionary direction.

This leads to a conversation about Bateman’s Principle, namely, the general idea that females are pillars of virtue, while males are cads. Olivia’s book suggested this isn’t necessarily true. Meb asks for more details. Olivia starts by redefining the term “promiscuous,” digging deeper into the word in light of the term “choosy.” It turns out certain females can benefit from having multiple partners, though the reasons can vary. In any case, this awareness is much more prevalent than thought 40 years ago.

A bit later, Meb asks about homosexuality in the animal world, including questions regarding procreation and genes. Olivia gives us a fascinating answer that includes the concepts of “genetic component,” “exclusivity,” and “commonality” and how these factors might affect homosexual genes remaining in the population.

There’s way more in this fun, totally different episode: A dating party where women smelled men’s T-shirts to determine which scent they found most appealing… the male Australian Redback Spider, who actually tries to get eaten by the female during sex… Meb’s surprising discovery from his 22 and Me test that he has more Neanderthal genes than 95% of the population… Olivia’s views on gene editing… Camping on the side of a volcano in Antarctica… and whether we’ll find life beyond our world.

We end with asking Olivia about her most memorable experience in all of her research. What is it? Find out in Episode 105.

May 2, 2018

In Episode 104, we welcome the legendary, Ken Fisher.

Meb starts with a quick word of congratulations to Ken, as his firm just passed $100B in assets under management. The guys then discuss Ken’s interest in fishing with a bow and arrow, which eventually morphs into a conversation about a millionaire who allegedly hid a million dollars somewhere in the Rockies, leaving clues to treasure-hunters searching for it.

The guys then jump into investing, discussing Ken’s early days in launching Fisher Investments. They touch upon one of Ken’s early claims to fame, championing the price-to-sales ratio. This leads to a conversation about being factor agnostic, which includes some interesting takeaways from Ken on capital pricing.

Soon, Meb brings up Ken’s book, Debunkery, and asks about one of its points: namely, the misbelief by so many investors that bonds are safer than stocks. What follows is a great commentary by Ken about short-term volatility risk versus opportunity cost risk. When you look at longer, rolling time periods, it becomes clear that stocks are far less risky than bonds. And in the long term, stocks are less risky than cash. Ken tells us that in his business, it’s his job to focus his clients on the longer-term.

Next, the conversation takes an interesting turn, touching upon the explosion of tech science, and how it’s affecting our lives, as well as the capital markets. It bleeds into Meb suggesting that older investors tend to become more conservative or pessimistic, and so they tilt away from equities, and whether that’s a behavioral challenge Ken has to address with his clients. Ken gives us his thoughts, concluding with that idea that people need to be relatively comfortable in capital markets with things that are generally uncomfortable.

The conversation then veers into politics and the effects on the market. Ken tell us that when you look at presidents and market history, our system gives presidents much less power to affect markets than most people believe.

Meb jumps to Twitter questions, bringing up one that wonders how to position yourself in the end of a bull market. Ken gives us a fascinating answer which I’m going to make you listen to in order to hear, but it tends to focus on large cap and quality.

There’s way more in this great episode: capital preservation and growth… volatility (a great quote from Ken “volatility is your friend, it’s not your enemy, if you use it correctly”)… the media’s impact on investor perception… the Fed and sovereign balance sheets… the senate bill trying to eliminate the ability of public companies buying back their own stock in the marketplace… housing (and the need to account for the full housing costs when calculating returns)… and of course, Ken’s most memorable trade.

What are the details? Find out in Episode 104.

1