In Episode 114, we welcome entrepreneur and author, David Gladstone. We start with David’s backstory, which dovetails into how he got into farming, and subsequently, launching a farmland REIT.
Meb asks for David’s broad thoughts on investing in farmland.
David tells us “farmland is one of the most stable assets one can own.” He goes on to say how it correlates with gold, not with the stock market. David gives us an overview of the farming landscape – how corn and wheat are the big categories, but this isn’t where David goes with his REIT, too much competition. He focuses more on berries and specialty crops, which are far more profitable. He mentions how tree/vine/bush crops have a great long-term record for making money for farmers.
Next, Meb asks about operations – does David manage the farms? Just rent them out?
David tells us they use triple net leases with their farmer tenants. Sometimes they will also have a revenue participation, but that’s unusual. David goes on to say how farmland is becoming more scare, so they choose farmers who are experienced and trusted. As an investment, farmland has done quite well. NCREIF publishes a farm index – it has done 12.2% annually over the last 10 years. David believes that due to the growth and stability of farmland, it’s an excellent place to put money – especially as it’s a hedge against inflation. He references a Buffett quote that touts owning farmland versus owning gold.
Meb asks whether there are any current trends in the farming space. David tells us the number of acres per person is declining. It’s now down to about 0.5 farmed acres per person in the world. The conversation segues into water. David makes the point that his team only buys farms with access to their own water. This makes a huge difference. He references the California drought in recent years and notes it was an incredibly profitable period for them since their farms, with their own water supply, continued operations.
Next, Meb asks about David’s framework for finding new farms. What’s the process, and what’s the capital structure?
David tells us that’s what important is to have a tremendously strong farmer. They only deal with the top 20% of farmers in any growing area, so it’s a detailed vetting process. In terms of capital structure, they tend to finance about 50% of the purchase price. They use a variety of lenders.
The guys soon turn toward “risks.” David tell us that rising rates are a risk since they use debt. As rates rise, the price of the farms they purchase will need to drop in order to make the numbers work. Another risk are tariffs. This has a been a big problem for seeds. What if China or Mexico reduces their purchases?
There’s far more in this unique episode: David’s thoughts on expanding farmland REITs globally… the role of automation in farming… and why there aren’t more farmland REITS. If you’re curious about farmland as an investment, this is definitely the episode for you.
Get all the details in Episode 114.
In Episode 113, we welcome entrepreneur and hedge fund expert, Stan Altshuller. Meb starts by asking Stan to give us his backstory, and how he came to co-found Novus Partners.
After Stan gives us his origin story, Meb asks about Stan’s broad approach to the markets. Stan tells us that at Novus, they start with data. This data encompasses everything from public data from regulatory filings, to private data from daily holdings reports. They bring it into an accessible, searchable database. Then engineers and programmers write various algorithms that capture and present the details of that data. This helps identify takeaways such as where the risks might be in a portfolio, and how various portfolios compare to others.
Meb asks about common takeaways from all this analysis. Stan points toward “diworsification.” As the name implies, too many investors have far too many holdings in their portfolio – from a diversification perspective, more than is needed or helpful. Stan tells us that 12 different investments is as beneficial as 100. Another takeaway Stan points toward is “conviction.” Are you truly adding value to your portfolio given your weighting decisions? Meb notes how you have to have greater position concentration to make a real difference in your portfolio. He then asks how Stan measures conviction.
Stan tells us that conviction can mean different things. For equities, the highest ROI comes from stocks with a 7.5% position or higher. But if your portfolio is highly diversified, you’re unlikely to have a single position of this size. Stan adds that, for an allocator, the threshold is about 5%.
Next, Meb asks about the state of active management. With so many headlines about flows going into passive, what are Stan’s thoughts?
Stan gives us a great synopsis, covering “dispersion” and “correlation.” The presence, or lack thereof, of these market characteristics can have much to do with the success of active managers. Overall, Stan says conditions are now setting up such that we’re seeing alpha being generated in the hedge fund space again. He tells us “I’m bullish on active management, but I think that you need a correction for people to remember why hedge funds exist in the first place.”
Meb asks about Stan’s process – what analytics help identify the good funds, what they look for, the red herrings… Stan says the first thing to do is ask whether the manager is telling you the same thing as what the data is telling you. You’re basically double-checking the manager’s stated skill set. Next, analyze whether the manager is truly going to add value to a portfolio. For instance, if you add another manager, how much diversification benefit will t actually provide? If not much, do you really want to pay their fee? Then you look at whether the manager is still generating alpha. Has there been style drift? Is he/she managing significantly more money now than in past years?
Meb hones in on one part of Stan’s comments – “performance as a metric.” This is a great part of the interview in which Stan really draws out the point that looking at performance alone isn’t necessarily all that helpful. You need to understand how a manager created his alpha. Unless you understand that, you’re a duck in the water. You cannot invest based on performance alone.
There’s so much more in this great interview: What percentage of managers are really adding value with their short book… Stan’s take on whether hedge fund managers truly deserve their fees… When is it time to give up on a manager if performance has been lagging… A major risk in today’s hedge fund space… And Stan’s most memorable trade…
This one involves Amazon and Google. Listen to Episode 113 for all the details.
In Episode 112, we welcome Professor Peter Ricchiuti. We start with Peter’s origin story, which includes his time in the investment world, then managing money for the state of Louisiana, then teaching at Tulane where he created, and now runs, the Burkenroad Reports program (a student stock research program).
Diving into investing, Meb asks Peter about his broad approach to the markets and the economy. Peter tells us that from an economist’s perspective, “labor” is a huge factor when evaluating economic conditions. And he believes the U.S. is facing challenges with its labor pool. From a narrower, equity-perspective, Peter tells us that right now things look perhaps a little too good. He notes “you’re better off investing when things look miserable.” At present, given so much market optimism, he’s pulling back.
The conversation turns toward the global market, and how interconnected we all are these days. Peter tells us that part of the reason we’ve done so well over the past several years is because so many countries were growing at a positive pace at the same time. This dovetails into a discussion about today’s elevated PEs. Peter believes that, here in the U.S., we’re on a “sugar high” from the tax cuts. Companies have been using that money to buy back stock or buy each other. But what they haven’t been doing as much is building for expansion. Peter believes companies haven’t been focusing as much on planning for future growth.
Next, Meb asks a question that he admits hating to get himself – what causes this bull market run to end? What are the main risk factors?
Peter points toward higher interest rates. He believes we’re going to see Treasuries at 3.5%. Plus, earnings growth will begin to slow. He tells us that the economy is at or close to its peak right now – it could last longer, but as far as the peak goes, we’re in that general area now.
The conversation turns toward the Burkenroad program, bouncing around a bit: An interesting takeaway from a lunch with a small-cap company’s CEO… the attributes that Peter and his students look for in the companies they vet… the illiquidity advantage over institutions… even one great find through the program – a stock that went from $0.72 to about $150.
Meb asks which mistakes the students make repeatedly. Peter points toward looking at the past more so than evaluating the future. One manifestation of this is paying more attention to past earnings than the prospect of future earnings. Also, many of the students lack patience.
There’s way more in this fun episode: The recent Buffett op-ed piece on short-termism and Peter’s take on how to teach students to focus on the long-term… How Peter’s approach to markets has changed through his experiences running the program… The actual Burkenroad Fund, which has been around about 17 years and outperformed boatloads of competition… And of course, Peter’s most memorable trade.
Get all the details in Episode 112.
Episode 111 has a radio show format. In this one, we cover numerous Tweets of the Week from Meb, as well as some write-in questions.
Before jumping in, a few housekeeping items… Meb discusses a proxy campaign with which we need your help, an award Cambria just received, Meb’s new Office Hours, when the Trinity ETF will launch, a new webinar we’re going to put on later this summer, and more.
We start with some of Meb’s Tweets of the Week. We discuss a WSJ op ed piece penned by Jamie Dimon and Warren Buffett, in which they suggest short-termism is harming the economy. Specifically, they believe public companies should reduce or eliminate the practice of estimating quarterly earnings.
Next, there’s a quote from Jim O’Shaughnessy: “Money is like manure; if you pile it up it stinks to high heaven, but if you spread it around, it does a lot of good.” This is a springboard into a conversation about the role of cash in a portfolio, especially in today’s market.
This segues into the next subject – how Americans are reaching retirement age in worse financial shape than the prior generation, for the first time since Harry Truman was president. This leads to a conversation about starting investing early, but also focusing on active income and delaying the retirement age.
Next, there’s a tweet about early stage private investing. We use this as an opportunity to catch up on Meb’s private investments.
Other topics are fund-flow differentials between ETFs and mutual funds, as well as Meb’s dissection of Wealthfront’s latest fee structure. If you’re a Wealthfront client, you’ll want to listen to this.
We then get into listener Q&A. Some that you’ll hear Meb address include:
All this and plenty of other rabbit holes in Episode 111.