The 40 CAPE Conundrum | Meb Faber on What High Valuations Mean for Markets

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Oct 27, 2025

In this engaging conversation, Meb Faber, an investment manager and author, explores the current landscape of high U.S. valuations and their implications for future returns. He emphasizes the importance of diversification, including international value stocks and real assets, as well as the role of trend following and managed futures as diversifiers. Meb also delves into AI's potential in investing, behavioral traps around performance chasing, and the long-term resilience of value investing. Don't miss his insights from 400 years of market history and a preview of his upcoming book, Time Billionaires.

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INSIGHT

U.S. Market Valuations Change Future Odds

U.S. stock valuations are very high by multiple measures right now.
High valuations widen the range of possible future returns and lower expected 10-year real returns.

ADVICE

Use The Full Menu — Don’t Just Sell US Stocks

If U.S. stocks look expensive, rebalance across the wider menu: cash, T-bills, foreign stocks, or other asset classes.
Add international, value, and real-asset exposures rather than simply exiting to cash.

INSIGHT

Value And Ex-US Stocks Are Regaining Traction

Global cheap-CAPE countries and global value have recently outperformed the S&P over 1–5 years.
This suggests a regime shift where diversification and non-U.S. exposures regain relevance.

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In this episode of Excess Returns, Meb Faber joins the show to discuss valuations, diversification, trend following, value investing, and the evolution of markets and investor behavior over the past two decades. Meb shares insights from his upcoming book, lessons from 400 years of market history, and how investors can position themselves for the next decade. The conversation covers everything from international investing and concentration risk to ETFs, managed futures, AI, and long-term discipline.

Topics covered:

The four historical periods of 15%+ annualized stock market returns and what followed
Why current U.S. valuations don’t necessarily mean an immediate crash
How global value stocks are now outperforming the S&P 500
The role of international diversification and real assets in portfolios
Trend following and managed futures as the “premier diversifiers”
The benefits of blending trend and valuation-based strategies
The permanent portfolio and how managed futures enhance it
Concentration risk in U.S. equities and what history teaches about market leadership
The parallels (and limits) between today’s market and the dot-com bubble
AI’s potential role in investing and portfolio management
The behavioral traps around performance chasing and when to sell
Lessons from launching and running ETFs and the 351 exchange structure for tax efficiency
The future of markets, retail investors, and Meb’s upcoming book “Time Billionaires”

Timestamps:
00:00 Intro and market performance context
04:00 Are U.S. valuations permanently higher?
09:00 The spectrum of future returns and investor playbook
12:00 International and value investing opportunities
15:00 Trend following and managed futures
19:00 The permanent portfolio and diversification
25:00 Concentration risk and market structure
28:00 AI’s impact on investing
32:00 Comparing today’s market to the dot-com bubble
37:00 The long-term case for value investing
41:00 When to sell and investor behavior
45:00 Lessons from running ETFs and industry evolution
51:00 Understanding 351 exchanges and tax-efficient investing
57:00 What’s changed most for investors over 20 years
59:00 Meb’s new book “Time Billionaires” and closing thoughts