The Meb Faber Show

In Episode 93, we welcome entrepreneur, author, and quant investor, John Reese. We start with John’s background. When John was a child, his father was a subscriber to Value Line, and John related to the charts and numbers. Later, this love of numbers took him to MIT, where he researched how to take the wisdom from books and turn it into computer programs. Years later, when he sold his company to GE Capital, John needed to learn how to invest the proceeds. Yet, he wasn’t sure which investment guru to follow in doing this. He decided to study a handful of gurus, and was disappointed to find that there was no repeatability and sustainability of outperformance over multiple time periods. However, John then came across Peter Lynch’s One Up On Wall Street. In the book, Lynch had provided enough detail about his strategy that John was able to translate it into a computer program designed to pick the stocks that Lynch might have chosen. The results were solid. John then moved on to Ben Graham, eventually codifying 12

In Episode 92, we welcome investor, author, and activist, Andrew Tobias. Meb starts by asking Andy about his background and introduction to investing. Andy gives us his origin story, with highlights including collecting stamps, an early introduction to the stock market, a trip behind the Iron Curtain which led to a brief dalliance with Communism, then his becoming a paper millionaire due to some creative accounting (then those monies disappearing). It’s a fascinating look back. Next, Meb recalls a survey we conducted some quarters ago, soliciting readers’ favorite investing books of all time. Andy’s book from 1978, The Only Investment Guide You’ll Ever Need, turned out to be high on that list. Meb asks Andy to explain the thesis of the original book, and whether there have been any significant changes in subsequent editions. Andy tells us “There are just a few things you really need to know about investing, and they don’t ever change. The problem is it’s hard to get people to really grab onto them.” He goes

ER Tribute

Episode 91 is a radio show format. We bounce around a bit in this one, starting with Meb’s most popular Tweet of all time. It involves a market record that people decided to politicize. Next are some “signs of the top.” We discuss various indicators that support the general takeaway that (to no one’s surprise) we’re in a frothy market: US investor stock allocations are approaching the highest levels since 2000… Stocks as a percentage of household assets adjust for pensions funds are now the 2nd highest ever… The average expected return of state and local pension funds is 7.5%... The number of days the VIX has spent below “10” in 2017 was 52 (the combined amount for all years dating back to 1999? Less than “10”)… We then discuss Meb’s upcoming personal portfolio rebalance. He publishes this each year, and he gives us the preview. Then there’s a discussion of Bitcoin, and Meb’s thoughts on how an investor might reasonably participate if so desired. Then we hop into some listener/Twitter questions: Is there a b

In Episode 90, we welcome Founder and Portfolio Manager of Verdad, Dan Rasmussen. We start with a brief walk-through of Dan’s background. It involves a Harvard education, a New York Times best-selling book, a stint at Bridgewater, consulting work with Bain, then his own foray into private equity. Turning to investments, Meb lays the groundwork by saying how many people misunderstand the private equity market in general (often confusing it for venture capital). He asks Dan for an overview, then some specifics on the state of the industry today. Dan clarifies that when he references “private equity” (PE), he’s talking about the leveraged buyout industry – think “Barbarians at the Gate.” He tells us that PE has been considered the crown jewel of the alternative world, then provides a wonderful recap of its evolution – how this market outperformed for many years (think Mitt Romney in the 80s, when he was buying businesses for 4-6 times EBIT), yet its outsized returns led to endowments flooding the market with cap

In Episode 89, we welcome legendary market veteran, Blair Hull. We start per usual, with our guest’s background. In this case, long-time Meb Faber Show listeners may think they’ve heard it before. That’s because Blair’s background shares an interesting similarity with that of Ed Thorp – the card game, Blackjack. It turns out Blair made a considerable sum of money playing Blackjack after reading Ed’s writings on the game. Blair tells us you needed an advantage, and then you need to stay in the game. That’s why he played with a team. More hands played according to their system tilted the odds in his favor. This is a fun part of the podcast you’ll want to listen to for all the details, including Meb’s foray into card counting with a partner that botched the system after drinking too many Bloody Mary’s. Eventually, Blair took his winnings and used them to get a seat on the Pacific Exchange, where he became a market maker and began trading options. Blair tells us he was intrigued with market timing, resulting in a

In Episode 88, we welcome portfolio manager, Eric Clark. As usual, we start with Eric’s background, which spans 25 years in the investment industry. After working for an asset manager, Eric realized he wanted to do something passion-based – a “timeless equity strategy.” So, when he felt he had the answer, he created a suite of consumption-based brand strategies. Meb asks about these brands and how they play a role in Eric’s portfolio construction. Eric tells us he tasked himself with identifying some stable, persistent themes he could anchor to (for the purposes of building a portfolio). He tells us that “nothing is more persistent than a consumer’s propensity to spend.” With this in mind, he looked at the U.S. economy, and what drives it. Eric tells us that the consumption component of GDP has annualized at about 3.5% a year for 50 years. And of that, about 70% of our GDP is consumption. Now, take these two pieces together – “if consumption…is predictable then how do I build a strategy that taps into that?”

In Episode 87, we welcome market veteran and ETF expert, Mike Venuto. Mike briefly walks us through his background, which includes a fun story about a baffling situation years ago when the gold mining company, Newmont Mining, was falling in price despite gold rising in price. Mike tells us the culprit turned out to be the new ETF “GLD” – Mike realized he needed to learn far more about ETFs. Next, the guys dive into ETFs. Meb starts broadly, asking where we are in the ETF evolution. Mike tells us we’re still quite early. The growth rate has been largely the same over the last 10 years (a little over 20%); but that growth rate is compounded over a larger base now, so it feels like the growth is greater. And in terms of where ETFs are going, free beta is getting saturated. The next move in ETFs will be people thoroughly detailing the differences between two ETFs that appear largely the same at first blush (nowadays, people tend to see similarly-themed ETFs as somewhat the same). Meb pushes deeper on this idea, w

Episode 85 is a radio show format. Meb starts with a recap of his latest travels – this time he was off to New York then Europe. Then, it’s onto Q&A. Some of the questions and topics you’ll hear are: To what extent do economic indicators have any effect on Meb’s view of the markets? Bitcoin has been on a meteoric rise recently in advance of the introduction of Bitcoin futures on Sunday 12/10. What are the potential ramifications of futures trading on it? New money coming in? Prices imploding? What about blockchain? How will it affect various industries? Wes Gray and Toby Carlisle have argued that EV/EBIT is a better metric than PE for latching onto the value premium. Why not then use a cyclically adjusted EV/EBIT instead of CAPE? Someone puts a gun to your head and tells you that you have $1M from an orphanage which you must invest in a single stock. What do you pick? If enough people adopt a trend following approach, and the trend starts heading south, could it lead to a market meltdown like ’87? What

Episode 86 is a solo-Meb show. It’s been 10 years since Meb wrote “A Quantitative Approach to Tactical Asset Allocation” which is the top-downloaded paper of all time on SSRN. In the coming weeks, we’re going to publish a retrospective on that paper in the Journal of Portfolio Management. So Meb thought this episode would be a good opportunity to revisit the original paper and perform his 10-year post mortem. Here’s the abstract of the new paper, and the backbone for what you’ll hear in this episode: “In this article, the author revisits his seminal paper on tactical asset allocation published over 10 years ago. How well did the market strategy presented in the original paper – a simple quantitative method that improves the risk-adjusted returns across various asset classes – hold up since publication? Overall, the author finds that the model has performed well in real-time, achieving equity-like returns with bond-like volatility and drawdowns. The author also examines the effects of departures from the origi

In Episode 84, we welcome investor and entrepreneur, Howard Lindzon. Howard starts by giving us his background. He was a broker who felt the pain of the ’87 crash. In the aftermath, he got the angel investing and entrepreneurial bugs. He’s currently an investor in Robinhood, and he started StockTwits – which you might think of as Twitter-for-finance. He also runs a fund, Social Leverage. Given that Howard has spent plenty of time in the public markets, Meb starts by asking about his public market framework, and how he approaches markets today. Howard tells us that he likes to see which investments are doing well, then try to join in – in his words “classic trend following.” He uses the analogy of the great white shark and the pilot fish. Howard is a pilot fish, following the great white. He likes this approach as “there’s so many ways the markets are rigged that I think it’s best to just follow along the trends.” Howard believes this approach of following the great whites also works in the private markets. Me

In Episode 83, we welcome fund manager, Randy Swan, who’s calling in from the Bahamas after being displaced from Puerto Rico by Hurricane Maria. The guys start with Randy’s backstory, which leads into why he started Swan Global Investments. In part due to his background in managing liability risk at KPMG, Randy was interested in a way to diversify away market risk. This led him to develop an option-based market approach called the Swan Defined Risk Strategy (DRS), which might be summarized with Randy’s phrase “always invested, always hedged.” Randy walks us through his DRS methodology, which relies on asset diversification and the purchase of puts to protect against market drawdowns. He gives us more info on the duration of the puts, generally how far out of the money the system targets, and other trade specifics. This dovetails into a discussion of selling options as opposed to buying them. Randy uses selling strategies in an effort to generate positive returns on an annual basis.   Meb asks about the genera

In Episode 82, we welcome trader, fund manager, and author, Vineer Bhansali. Per usual, we start with Vineer’s backstory. It involves his physicist-origins, an unexpected move to an assortment of trading desks, and a run-in with the great, Fischer Black. Meb soon dives in, asking about main strategies Vineer uses with his group, Longtail Alpha. Meb reads a quote from LongTail’s website… “LongTail Alpha’s sole focus is to find value in the tails of financial asset return distributions. Either in the left tail as a risk mitigation hedge on multi-asset portfolios, in the right tail to add convexity to an investor’s risk exposures, or in both the right and left tails to produce alpha from convexity and volatility opportunities in a hedge fund structure.” Meb asks Vineer to use this as a jumping off point, explaining his framework, and how he thinks about tail strategies. Vineer tells us that, at LongTail, they believe the probability distribution of returns for asset classes and multi-asset portfolios is actually

In Episode 80, we welcome commodities and gold expert, Claude Erb. As usual, we start with Claude’s back-story, but it’s not long before the guys jump into investing, with Meb asking about Claude’s general framework and view of the markets. Claude tells us there are three concepts that guide his broad investing thinking: first, framing investment opportunities in terms of price/value relationships; second, the concept that no one gives away anything of value for free; and third, the idea that there really is no difference between a successful traditional fundamental approach to investing and a successful quantitative approach to investing. This leads into a quick conversation about how market wisdom compounds over the years, but it’s not long before the guys jump into the topic of “gold.” Claude and his writing partner, Campbell Harvey, wrote the seminal paper, “The Golden Constant”, which explored the possible relationship between the real, inflation-adjusted price of gold and future real gold returns. Meb m

Episode 81 is a radio show format. Meb starts with a note of thanks to listeners. It involves a milestone Cambria just passed as a company. Next, Meb walks us through the common themes he’s hearing from his office hours. In short, all listeners are generally making the same investing mistakes (though everyone seems to believe his/her situation is unique). Meb tells us what everyone is doing. Then, it’s on to listener Q&A. Some of the questions and topics you’ll hear are: What’s the latest on global CAPE values? Which countries are cheapest? Buffett was on CNBC the other day opining that stocks were cheap because you have to view them in relation to competing investment opportunities, and interest rates are still quite low. Thoughts? Is it possible to construct a CAPE index for other asset classes besides stocks? How do you recommend getting exposure to commodities? Aside from the physical metals, it’s hard to get good exposure because most of the ETFs invest in futures which get hurt by contract rolls. Wh

In Episode 79, we welcome Jason Goepfert, founder of SentimenTrader. Per usual, we start with Jason’s background. It involves listening to margin calls, when “real emotion” would come out. Jason tells us anger and panic were what you would hear, and that people are not necessarily rational. These experiences and others eventually led Jason to launch Sentimentrader which is, according to its website: “an independent investment research firm dedicated to the application of mass psychology to the financial markets… Our focus is not market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence.” The guys discuss some of the mechanics of Sentimentrader – the time-frames of the various models, the inputs, and how most people want just one indicator (but t

In Episode 78, we welcome angel investor, Alex Rubalcava. As Meb and Alex are friends, we start with Meb recalling the first time he met Alex over some egg tacos. Alex goes on to give us more about his background, which took him from pension funds, to dot.coms to VC investing. Meb asks for more information on Alex’s group, Stage Venture Partners. Alex tells us that Stage is a classic seed venture fund. They invest in enterprise software companies that are about a year or two old. They look for companies that have a product in the market and are generating some early revenues. This dovetails into a broader discussion of how Alex landed on being a seed-stage investor, and the VC climate here in L.A. The guys talk about what Alex looks for, the size of the investment in a typical round for him, and where good ideas come from. It's not long before Meb references our podcast with angel investor, Jason Calacanis. We received a great deal of feedback after that show from listeners eager to start angel-investing. But

In Episode 77, we welcome author and asset manager, Tobias “Toby” Carlisle. After discussing Toby’s background, including his time as an M&A lawyer and what drew him to investing, we jump into his latest book, The Acquirer’s Multiple. Toby tells us that the book describes a simple way to find undervalued companies. In essence, you’re trying to find a company trading below its intrinsic value. This is how to get a great price as a value investor. Of course, you get these prices because things don’t look too rosy with the stock – there’s usually a crisis or some hair on it, so to speak. Toby tells us “In order to find something that is genuinely undervalued…there’s always something that you don’t like.” This leads into a great conversation about what Warren Buffett seeks in a company, versus what Toby, through the Acquirer’s Multiple, seeks. While Buffett looks for wonderful companies trading at fair prices, Toby seeks fair companies trading at wonderful prices. Toby goes on to tell us that for a company, ther

In Episode 76, we welcome Phil DeMuth. We start with Phil’s background. It’s a fun recap, involving Phil’s clinical psychology roots, his move to LA to be a screenwriter, his experiences in the Dot Com boom with friend, Ben Stein, which led to the writing of his first investment book, which eventually resulted in his managing money. Meb dives into investing, asking for an overview of the framework Phil uses with clients. Phil seeks to construct a portfolio that matches each individual’s situation, so it’s largely bespoke. That said, in general, he starts with a global market portfolio, then adds various factors – for example small value, or momentum, or low beta… Then he’ll add bonds, some alternatives, gold, and so on – again, all relative to the individual’s needs and goals.  This leads into a great conversation on the idea of a person’s “personal beta.” This dovetails into the concept of a person’s human capital. Meb believes that adjusting a portfolio to reflect a person’s human capital is something advis

In Episode 75, we welcome Mike McDaniel, CIO and co-founder of Riskalyze. It’s a special episode, being recorded at the Riskalyze Fearless Investment Summit in Lake Tahoe. Per usual, we start with Mike’s origin story, but it’s not long before the guys dive into investments. Meb asks about Mike’s investment framework – how does he think about the world as a practitioner. Mike tells us he tries to let the market do as much as possible. One of the biggest things that will lead to success is simply being investing. And because our emotions can trip us up so much, by quantifying risk and then having a better idea of what to expect, we stand a better chance of success. This concept is what lead to the Riskalyze Risk Number. Meb asks for an overview of what this number is and how it works. Mike gives us a great overview of its background and how Riskalyze seeks to quantify risk on a scale of 0-100. (Basically “cash” to a “single stock.”) The conversation morphs into how the Risk Number has been further refined over