The Meb Faber Show

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.”

What if you had perfect foresight and knew ahead of time which stocks would be the best performers? The reality is even if you knew this and invested accordingly, you’d still suffer gut-wrenching drawdowns along the way so painful (around 75%) that “even God would get fired as an active investor” if he was managing other peoples’ money. That’s the result of one of Wes’s studies which he and Meb discuss. By the way, with perfect foresight, you’d do about 28% a year, so what does that mean for those investment groups that want your business, claiming they do 35% or so a year? Then Wes says it’s not about volatility – it’s about protection against tail risk. That leads into a discussion on one of Meb’s favorite topics, managed futures, “one of the best diversifiers to a traditional portfolio.” There’s talk of Wes’s roboadvisor, timing factors, and Wes’s secret to getting the best prices on Amazon. All this and more on Episode #4. Learn more about your ad choices. Visit megaphone.fm/adchoices

Is right now a good time to be in U.S. stocks? What about global stocks? Well, the answer in large part depends on the specific market’s valuation. Start investing in an overpriced market and your returns will likely be small. Start in a cheap market, and it’s more likely you’ll enjoy outperformance. So where are we today? And what does it mean for where you should be invested? Meb tells us in this episode, pointing out the most expensive and cheapest markets around the globe. He also asks “What percentage of your stock allocation is in the United States?” Want to know the average answer Meb gets when he asks that question to professional money managers? The answer will surprise you. Find out what it is on podcast #3. Learn more about your ad choices. Visit megaphone.fm/adchoices

Meb and Patrick cover lots of ground in this fun episode. They discuss stocks not to own right now, Meb’s worst market loss of all time, and Patrick’s career advice in response to listener Q&A. They then get a laugh reading aloud the worst book reviews that each has received on their respective investing books (posted anonymously on Amazon). There’s far more, including discussion on stock buybacks, roboadvisors, value versus growth investing, some microbrew tasting, and even how Meb once cheated his own grandmother. Learn more about your ad choices. Visit megaphone.fm/adchoices

On this first-ever podcast, Meb provides listeners with a bit about himself and answers the question “What in the world am I doing starting a podcast?” (After all, he is a self-professed former “glorified ski bum.”) He then discusses a broad investing framework – a global asset allocation model – that serves as a helpful starting point for the shows to come. Next, Meb discusses the portfolio returns of a handful of the smartest, most respected fund managers in the world today. Which portfolio allocation has performed the best over the last several decades? The answer is going to surprise you. And while we’re asking questions, why did Charlie Munger (Warren Buffett’s business partner) say “the investment-management business in insane?” That answer, and far more, on Episode 1 of The Meb Faber Show. Learn more about your ad choices. Visit megaphone.fm/adchoices