The Meb Faber Show

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

Episode 14 is easily one of our most interesting so far. While there’s great content about trend following, Eric and Meb also delve into the psychological side of investing. There’s a fascinating tension between what people say they want from investing, versus what they actually do. For instance, investors say that want diversification, but very few, in practice, are willing to implement a truly diversified portfolio. Why? The psychological trauma that people experience when they diversify (and watch parts of their portfolio draw down) is simply too painful. This leads into a discussion about one of Eric and Meb’s favorite ways to diversify a portfolio: managed futures. The numbers suggest managed futures are a fantastic addition to a portfolio. Eric ran an experiment with his clients involving portfolio construction. He presented clients the returns and volatility numbers of a handful of asset classes – without revealing what those asset classes were. 100% of the time, when presented blind, people chose mana

Stock picking is hard—really hard. Fortunately, there’s a simple strategy you could begin following today to improve your success. It’s simple to implement, takes just minutes of your time, yet has the potential to vastly improve your investing results. Sadly, if you’re like the average investor, you don’t even know it exists. So what is it? Well, consider the world’s star hedge fund managers – the Buffetts, Klarmans, and Teppers – the guys with average yearly returns in the upper teens and twenties. What if you knew what they were investing in right this second? Logic would suggest if you invested alongside them, you too could post their extraordinary returns. Well, it turns out, the option is available to you thanks to the SEC and Form 13F. This is a form professional fund managers with more than $100m in U.S.-listed assets must fill out. Best of all, it’s available to the public, providing you and me a way to “peek over the shoulder” of some of the world’s most successful investors. Of course, there are so

If you’re a dividend investor, Episode 12 is for you. Yes, historical market data tells us that dividend stocks outperform the broad market. But that’s where too many investors stop. That same historical market data suggests we can improve our dividend-strategy returns—significantly—by a few tweaks. What are they? Well, paying dividends is just one of several ways that corporate managers can return profits to shareholders. They can also buy back stock and pay down debt (a subtler form, but valuable nonetheless). Together, we call these three returns “shareholder yield.” Shareholder yield provides investors a more holistic perspective on the degree to which corporate managers are sharing profits with investors. So when an investor limits his or her analysis simply to dividends, he/she runs the risk of overlooking companies that might be returning major profits to shareholders—but in less visible ways than dividends. That’s a problem because it turns out, when we combine these three yields, this “shareholder yi

Episode 11 features the always-fun Sam Stovall. Sam starts by making an unlikely connection between Clint Eastwood and investing – “A man’s got to know his limits.” Being aware of his own limits, Sam put together a list of rules to help him win at the game of investing. He and Meb dive in, starting with “Let your winners ride, cut your losers short.” Easier said than done, as most of us tend to hold onto our losers, hoping they’ll come back, while selling the winners (prematurely) to lock in gains. “As January goes, so goes the year” is Rule #2. Sam compares investors to dieters looking for a fresh start every year. Rule #3 is a tweak on “Sell in May then go away.” It turns out that’s almost right, but not quite. The better strategy is “rotate rather than retreat.” Do you know the two sectors which historically will boost your returns if you’ll rotate into them during the summer months? Sam will tell you. Rule #4 challenges the idea that there’s no free lunch on Wall Street. According to Sam, there is. If you

Episode #10 is our second “Listener Q&A” episode. This time, instead of spending the entire episode answering one question, Meb tackles many. Here’s a sample of a few of the topics you’ll hear him address: - How should young investors balance low expected returns (ZIRP, U.S. CAPE, etc) with the need to invest young/early? - How much should you allocate to your best idea or opportunity? You hear Charlie Munger talk about betting big on great opportunities. What is “big”? - I get the gist of your global asset allocation strategy, but I’m not an expert on it. Does my lack of knowledge make it dangerous for me to invest this way since I don’t fully understand it? (As opposed to Peter Lynch’s mindset of “buy what you know.”) - What does your (Meb’s) ideal portfolio look like right now? - I’ve stayed away from low volume/liquidity ETFs I would like to own because volume is basically non-existent. Is that fear unfounded? There are many more questions and answers, which dovetail into different topics including Meb’s

“Do I have enough to fund my retirement?” “What’s the optimal lifetime asset allocation?” Those two questions, stemming from a recent academic paper written by Pete, help launch Episode 9. The answers point toward Pete’s solution for retirement challenges, something called “goals-based” asset allocations (as opposed a singular, static “all-in,” asset allocation applied to your entire capital base). In other words, your specific goal – say, college tuition, a second home, maybe a trust – dictates the asset allocation of the associated, earmarked funds. From there, Meb and Pete transition to a discussion on factor-based investing, starting with “term” and “market” factors. According to Pete, “Ninety-five, ninety-six percent of the return variation of all managers and funds in the Morningstar database are explained by…basic factors.” Meb then asks, “What are the best diversifiers to a traditional portfolio?” Hint: Pete’s response includes Meb’s “desert island” strategy. They then discuss whether individual smart

Episode #8 marks Meb’s first “listener feedback” episode. We’ve received numerous bond-related questions from listeners, but they all tend to reduce to something along the lines of: “Bonds are hovering around historically low yields. Where do they fit in a diversified portfolio today?” Meb tackles the question, discussing Treasuries first, then expanding to global sovereign bonds – which, by the way, is the largest asset class in the world. In fact, a market cap weighting would suggest you have about one-third of your portfolio in global bonds. Instead, the average U.S. investor has around 0%. This leads to a discussion about using a value screen to help identify attractive global sovereign debt opportunities. Turns out you could be invested in a basket generating about 7% right now. Of course, you’d be investing in countries like Brazil, Russia, India, Turkey, Mexico... Could you do that? If you’re a yield-starved investor, it might be time to consider the question more seriously as U.S. bond yields may not

With Brexit rattling the markets recently, it’s a good time to revisit the discussion of “black swans” (not that Brexit was a black swan, despite catching many investors off-guard). So what exactly is an investing black swan? And is there anything you can do to protect yourself from one? That leads Meb into a discussion of outliers – specifically, how your returns would look if you missed out on the 10 best market days, but also avoided the 10 worst market days. From there, we discuss a way to help protect your wealth from the biggest drawdown-days in the market. (Hint – it’s how Paul Tudor Jones avoided the ’87 crash, and something you can easily implement in your own account today.) From there we move to actionable takeaways for listeners – after an extended down-period, what markets and/or countries might be cheap and starting to enjoy an uptrend, which would make them good investments right now? And finally, you’ll hear how Meb just lost his entire Kansas wheat crop, destroyed by a fire from an exploded c

Do you know which three concepts most investors – retail and professional alike – get wrong? One is asset allocation; two is a bit different – it’s actually a lack of awareness of a type of investment that actually pays you to own it (confused?); third is a misconception about dividends and dividend stocks. Diving in, when it comes to asset allocation, different institutions and money managers often suggest significantly different asset allocations. So which allocation is the most effective? Turns out that’s the wrong question. There’s a far more important issue lurking here. Meb will tell you what it is. Next, we move on to a discussion few investors know about. It involves a way to be paid to own a fund. Interested? Finally, Meb risks alienating more than a handful of listeners by presenting an unorthodox perspective on dividend investing. But if you’re a dividend investor, you need to hear what he’s saying. Turns out there’s a tweak on a traditional dividend strategy that produced significantly better resu

Meb starts by asking Jared to discuss a point from one of Jared’s newsletters: “If you think 2016 is the opposite of 1981, then you should do the opposite. In 1981, you should have bought stocks, sold gold, and bought bonds…” Jared gives us his thoughts, discussing how the landscape is far different now than in ’81, from heightened regulations to left-leaning policies. How should your portfolio respond? This dovetails into Meb and Jared discussing their “desert island” strategies (what would you invest in if you were about to be stuck on a desert island for 10 years). Then we hop to the Fed… Jared has a great quote “The Fed will pursue the path of least embarrassment.” He goes on to say how the fear of being embarrassed is the primary thing driving all the Fed’s decisions. What does this mean for their future decisions? They then switch gears, discussing a specific market bubble happening right now (it’s up 37% year-over-year). The problem is it’s going to pop – with “big implications for the global economy.”