The Meb Faber Show - Better Investing

Episode 103 is a solo-Meb show.We just finished a short paper that references the old nutritional “Food Pyramid” published by the FDA a couple decades ago. Given what we’ve learned about health-conscious eating in the years since, that old guideline now seems a bit off-base. In the same way, the investing wisdom of yesteryear now seems similarly misguided. Meb walks us through the white paper that delves into these ideas in this short, just-Meb episode, identifying how his “Investment Pyramid” looks today.Also, most of Meb’s books are now free! Just click here.Get all the details in Episode 103. Learn more about your ad choices. Visit megaphone.fm/adchoices

Episode 102 has a radio show format. In this one, we cover Meb’s Tweets of the Week, some write-in questions, Twitter questions, and our first-ever call-in question.We discuss the “Stay Rich” portfolio, and the unfortunate reality that even the safest portfolios can suffer ~25% drawdowns.Next, there’s discussion of stock buybacks and a recent push from Senator Tammy Baldwin to introduce a bill that would prohibit companies from repurchasing their own shares (she claims it’s exacerbating the wealth gap).Then, with volatility showing some life in the market, there’s discussion of volatility clustering. Next up is the investing service, Robinhood, which is now referring to calls and puts as “going up” and “going down.” Also, an ETF for companion pets filed by Gabelli.We then dive into questions. Some that you’ll hear Meb address include: How do you keep a level head when markets are imploding around you? Meb and Elroy Dimson discussed the historical returns of housing and indicated that owning a house is not a high-performing investment, relative to other asset classes. However, if the alternative to buying a house is paying rent, often at a similar cost to a monthly mortgage payment, how does this factor in to the assessment of the investment? I understand that any given strategy can underperform the market for long periods of time. What is a reasonable time-frame to fairly evaluate the results of any particular strategy? Valuation difference in countries is often caused by sector structure. Can you explain that? The AUM of Target Date Funds was at $250B in '08. Many investors were shocked at the bad performance in '08. Target Date Funds AUM is now $900B. What's the industry's level of responsibility to educate? Is Russia worth the current political risk for long term investor (5-7 years)? If so, is it best to look at specific Russian equities or an index such as the RSX? All this and more in Episode 102. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 101, we welcome the great educator, Paul Merriman.We start with Paul’s background; specifically, the story of an early trading experience with commodities. He doubled his money in days…and then lost everything on the very next trade.Then the guys dive in, with Meb bringing up something Paul wrote called “The Ultimate Buy & Hold Portfolio” and asking for more detail. Paul starts with the S&P which, even with all its up-and-downs, has done great over the years. But then he walks us through some tweaks – adding large cap, then small cap – he notes the various percentage returns added by each, as well as the effect on volatility. He eventually arrives at a final portfolio, showing us the power of this diversification.Meb points the conversation toward the behavioral benefit of diversification and says how some listeners will wonder how much money to put into each of the asset classes Paul had identified. Paul tells us he originally put 10% into 10 different asset classes – after all, if each asset class is worthy, then he wants it to be in his portfolio; especially because there’s no way to be certain which one(s) will shine going forward.Agreeing, Meb touches on being “asset class agnostic” and notes that the problem with being, say, a “gold guy” or any die-hard type of investor, is you get wedded to that asset class. This emotional bond can lead to bad behavior. This leads to a discussion about implementation and the challenges of emotional investing. Paul tells us “I don’t want my emotions to have anything to do with how (my) money is managed.”The conversation drifts toward the benefits of investing early, yet the challenges of educating young people as to its importance, as well as different investing needs over a lifetime. The guys note how the best thing for a young person would be the markets tanking for 10 years. Of course, that would be terrible for an older investor in/near retirement. This bleeds into a conversation about formally educating the younger generation about investing.A bit later, Meb asks about the older investor who might have been burned in ’08, is now near retirement, thinks the U.S. market is expensive, yet needs results. What about him? Paul walks us through the realities of losses and gives us his overall thoughts. This morphs into a common question we get – invest everything at once, or drip it in over time? Paul has some thoughts on how to do this in a way that balances math and emotions.There’s tons more in this episode (it’s one of our longest to date): the challenge of investing in the “shiny object”… how to avoid getting screwed by your advisor… investment newsletters… buy-and-hold versus market timing… the critical nature of understanding past performance… giving money to grandkids… and of course, Paul’s most memorable trade; his involves the ’87 crash.What are the details? Find out in Episode 101. Learn more about your ad choices. Visit megaphone.fm/adchoices

To celebrate the milestone of reaching 100 episodes, we’re thrilled to welcome Professor Elroy Dimson, author of Meb’s favorite investing book of all time, Triumph of the Optimists.Per Meb’s request, Elroy starts by giving us a summation of his research history which led to Triumph of the Optimists. He had a heritage in producing indexes and began reaching out to researchers across the globe in hopes of accessing different data sets. Looking at all the aggregated data, it became clear that from a long-term perspective, people who had invested in risky securities at the beginning of the century had done very well. People who had bought bonds and T-bills had not performed as well. The optimists had triumphed.Next, Meb brings up a quote from Elroy about a controversial finding regarding the lack of correlation between economic growth and stock market performance. If anything, the relationship was reverse. Elroy expounds upon this, telling us that if it’s obvious that a market is growing, that’s public information. You can’t trade that since everyone else knows too. So, if you investing in countries where GDP has been growing, that could mean you’re too late.Meb steers the conversation toward valuation, market cap weightings, and home country bias. Elroy walks us through the market cap concept, touching on the historical Austrian empire as well as the Japanese bubble. This leads to a lesson in finance, which includes real yields today, the Gordon Model, the multiple people are willing to pay today (which is higher), and the takeaway that “high valuations don’t necessarily mean that we’re going to see asset prices collapse” – they’re a reflection of the low interest rates we have today.Meb asks about bonds, and whether Elroy has seen another historical period of negative yielding sovereigns. When you look at real rates, how does it play out for future returns?Elroy tells us that real (inflation adjusted) rates are better to consider than nominal rates. And it turns out, real rates have been lower. Negative real rates are not all that rare – what is rare is so many countries experiencing them at the same time. This dovetails into a conversation about inflation and currency hedging. Elroy provides some color on currency issues but notes that hedging is not required if you’re a long-term investor.There’s plenty more in this centennial episode: factors… growth stocks versus value stocks… historical returns of housing… even stamps, musical instruments and the investment returns of a good Bordeaux.How does it compare to that of equities? Find out in Episode 100. Learn more about your ad choices. Visit megaphone.fm/adchoices

Episode 99 is a radio show format. We start discussing some of Meb’s “Tweets of the Week.” The first involves a presentation from Rob Arnott at Research Affiliates, which Meb considered “required reading for financial advisors everywhere.” It involves the amount of extra alpha you’d need to generate in order to offset taxes given various market approaches.Next, we discuss another Tweet from Meb in which he asked readers to guess at the largest drawdown in US bonds in real terms between 1900 and 2010. Turns out, the majority of respondents were far off. Meb gives us the results and takeaways.Then there’s a discussion of taxes in light of crypto gains (and losses). It seems lots of people may not be factoring tax payments into the equation. Not sure the IRS is going to look favorably on that…We then jump into listener Q&A. Some of the questions you’ll hear answered include: Why should we listen to your podcast when you say the best ROI is to focus on skills directly benefiting our work performance? You've said you'd like to invest in a farm REIT. But you've written about dividend investing as a suboptimal strategy. Can you reconcile these two apparently contradictory ideas? Which asset class is going to shine 5 years from now? What’s the best strategy for folks with a limited selection of 401k funds? There’s plenty more, including why Meb is still very bullish on emerging markets, the realities of mutual fund investing with fees/taxes included, and Meb’s upcoming travel plans.Check it all out in Episode 99. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 98, we welcome a true market veteran, Dr. Ed Yardeni.The episode starts with a fun story about Ed’s school days, studying off Janet Yellen’s notes in James Tobin’s class. But Meb soon brings up Ed’s new book, Predicting the Markets. In it, he writes that if books had theme songs, the appropriate song for his would be the 80s hit, “Don’t Worry Be Happy.” Ed explains this is because, when looking back over the past 40 years, the market has been extraordinarily bullish as a whole. There were plenty of reason to worry along the way, but all in all, the market rewarded brave investors.This eventually leads into a conversation about valuations today that appear somewhat grim, and what Ed’s thoughts are looking forward.Ed tells us it’s okay to be bearish, but don’t forget to get back into the market. He says, “history shows the smartest thing to do is just to invest over the years as you’re getting old, keep putting more money into the markets…recognizing that sometimes you’re going to get bargains and sometimes you’re not.”The conversation drifts toward making macro predictions and the effect of Washington DC on the market. Ed tells us we’re overwhelmed with information and news, which is all the more reason to try to find the fundamental truth that’s out there. Washington doesn’t matter as much as Washington likes to think it matters. Ed gives us more of his thoughts on the market response to Obama, Trump, and the Fed, as well as what he believes actually creates jobs.The conversation turns toward bonds, with Meb asking why bond movements can be challenging to predict. Ed points toward inflation, taking us back to the 50s to discuss bond yields and how they’ve moved in the years since. He brings in nominal GDP and central bankers into the mix.A conversation about negative yielding sovereigns brings various central bankers into the spotlight. Ed walks us through a look back at some of the effects of Fed involvement. He has some interesting thoughts on what the Fed does well – and not so well.  This is a great show, melding market history, implementable market wisdom, and Ed’s fascinating career. There’s way more, including where Ed sees the biggest changes coming in technology, and how it will affect markets… Ed’s favorite three indicators… which period over Ed’s 40-year career stands out the most… Ed’s movie reviews… and of course, his most memorable trade.What are the details? Find out in Episode 98. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 97, we welcome one of the most successful syndicate leads in angel investing, Phil Nadel (he also happens to be Meb’s favorite syndicate lead on Angel List).After Phil runs us through his background, Meb asks about Phil’s group, Forefront Venture Partners and its connection to Angel List. Phil gives us the run-through, noting how when Angel List announced its syndicate feature, he felt it was a great way for smaller angels to get involved, so he signed up. Today, he’s one of the largest/most active leads on Angel List.Meb asks how the syndicate process works. Phil tells us that accredited investors can register and sign up with syndicate leads like Forefront. This enables them to see the deal-flow of the lead, and invest on same terms. There’s no management fee, instead, investors pay a 20% carry on the backend if there’s a profit. You can invest small amounts – sometimes as little as $1K, yet you get all the same due diligence and legal review as a big investor.Meb notes how syndicates have removed so much of the hassle and made the entire process simpler – which is both good and bad.Next, Meb asks about Phil’s syndicate and the average investor. Phil tells us the average investment in a company is roughly $300K. And they’ve invested in about 44 deals since inception. The average investment per person is around $4-5K. This dovetails into a conversation about how to approach angel investments. Phil tells us a “portfolio” approach is important. He’s against picking only a few companies, as most will go out of business. He tells us “if you try to pick winners, and you only invest in a handful of companies, odds are you’re going to lose your money.” Phil recommends picking companies diversified by industry and stage.The conversation then drifts into timing. Do you invest all at once, or drip in over time? Phil gives us his thoughts. Then it’s Phil’s rule of thumb about success rates. He tells us that out of 100 investments, 70 will go out of business. About 20-30 will stagnate, or exit as a single to a triple. Maybe one or two will turn out to be home runs.Meb asks how Phil finds his deals. Turns out, lots of referrals. The guys then dive into what Phil looks for in a company – it includes post-revenues and capital efficiency. But he’s industry and geography-agnostic. His sweet spot is a valuation in the $5-12M range.Next up, the guys discuss KPIs, or “Key Performance Indicators.” Phil discusses burn and runway, then customer acquisition cost and lifetime value. Phil wants to see that the company knows how to acquire and monetize customers in an efficient and scalable way. He then also looks at margins.There’s plenty more in this angel-themed episode: the extent of Phil’s involvement in a startup after funding… the critical role that updates from founders play in the startup process… some “bad investor behavior” which Phil has seen over the years… what Phil learned from Barbara Corcoran of the show, Sharktank… and of course, Phil’s most memorable trade. What are the details? Find out in Episode 97. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 96, we welcome two of the brightest guys in real estate, Craig Leupold and Jim Sullivan of Green Street.After touching on Craig’s and Jim’s backgrounds, the guys jump into real estate, with Meb asking about Green Street’s approach to the real estate markets (public and private) and how they think about valuation.Craig gives us an overview, referencing Green Street’s REIT research (focusing on the public markets), their real estate analytics (focusing on private markets), and their advisory consulting group. Craig touches upon lots of ideas – understanding the value of the properties owned by the various companies… identifying the associated premiums or discounts at which the companies might be trading… a deeper dive into their real estate analytics lineup… looking at how to allocate capital…Meb asks how the real estate world looks today, and what’s the outlook for 2018. Craig tells us that with the exception of retail real estate, most sectors are seeing increases in rents and occupancies. But fundamentals have moved from “great,” to “good,” to now, “okay.” He goes on to give us his growth forecast over the next four years, as well as what he expects for commercial pricing over the next 12 months.When Meb brings up “returns,” the guys make the distinction between public and private markets and how there’s a divergence. Private real estate is generally fairly valued today, yet in the public market, REITs are trading at an 11% discount to their unleveraged asset value.Jim dives into greater detail on this topic, telling us how the average REIT should trade at a modest premium to NAV. The reason for this is that an investor should be willing to pay the fair market value for the property owned by the REIT, but then there’s the added benefit of the management team and the liquidity of the REIT structure; both deserve a premium. But again, today, we’re not seeing this premium today – quite the opposite, in fact.Meb brings up valuation, asking about how to distinguish between buying opportunities and value traps. Jim tells us it’s situational, and depends on the property type. This dovetails into a discussion about pessimism in the mall sector.Soon, the conversation turns toward rising rates. The common opinion is that rising rates are bad for real estate, but Jim tells us it’s more complicated than that. If rates are rising due to our economy accelerating, then that could be positive for commercial real estate, leading to higher occupancies and rising rents.There’s far more in this episode: activism in the real estate space… how the real estate market looks around the world… the challenge of figuring out what risk-adjusted returns should be in different global locations… which geographies look particularly attractive today… farmland REITs… and Craig’s and Jim’s one piece of advice to investors looking to allocate to the REIT space.All this, as well and Craig’s and Jim’s most memorable trades, in Episode 96. Learn more about your ad choices. Visit megaphone.fm/adchoices

Episode 95 is a radio show format. We start with a recap of Meb’s recent travels to Nicaragua and San Francisco, but then dive into a discussion about volatility. With the VIX spiking at the beginning of the month, some short-vol funds suffered massive losses. We discuss the short-vol trade, then the long-vol trade.Next up, Meb gives us a quick (overdue) update on his trip to see Van Simmons, including which coins he purchased. But we quickly dive into a different topic – a recent offering from Wealthfront that’s raising some questions for Meb. The conversation touches upon a risk parity market approach, robo fees, and general transparency.We then jump into listener Q&A. Some of the questions you’ll hear answered include: I've heard Meb say it may be appropriate to allocate up to 20% of your portfolio in a hedging strategy. I've also heard him say you need an exit plan. What is his exit strategy regarding this play? How/when should an investor use leverage? What’s Meb’s take on a vanilla Vanguard Target Date fund vs Trinity over 15-20 years? With fee compression and product commoditization, how do you see large, active-focused publicly traded asset managers faring in the next 5-10 years? How would you think about asset allocation for a millennial (sub-30) with retirement accounts? The typical 60/40 doesn’t seem great. With rising rates, I am in short-term notes to limit duration; with hints of higher inflation do TIPS make sense? All this and more in Episode 95. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 94, we welcome entrepreneur, author, and SEC filings expert, Michelle Leder.We start with Michelle’s background. She was a business journalist – a self-professed “document geek.” She wrote the book Financial Fine Print: Uncovering a Company's True Value and decided to launch a website as an accompaniment to the book. Here we are, 15 years later.Meb asks Michelle to give an overview of what she’s looking for in the various filings. She tells us that changes are important. She doesn’t necessarily look closely at the numbers because it’s more about the language. Also, the forward-looking statements can be big. Michelle mentions an example of one that used a significant amount of extra language.This dovetails into a discussion about the process – is it a keyword search or is there software? Michelle uses both, as keywords alone don’t always work. She gives the example of when Goldman Sachs was subpoenaed, the language used to describe it in the filings was something like “an invitation to respond to the DOJ.”Meb asks for examples of red flag behavior in the filings. Michelle looks for unusual compensation or stock grant amounts. Also, lots of extra language used to describe earnings or adjusted EBITDA. She mentions a company called GT Advanced Technology, which used to be an Apple supplier. In one particular filing, they added new disclosure language, identifying their dependence on Apple, and their vulnerability if that relationship soured. Some time thereafter, Apple ended the relationship.Next, Meb and Michelle discuss the “Friday Night Dump.” This is the 90 minutes after market close on Friday, when there’s no major trading. Companies tend to dump all their bad info here. Michelle mentions recent examples using Tesla and Wynn. But her most memorable disclosure dump was Chesapeake Energy, revealing it had paid over $12M for a map collection.Meb asks if Michelle has ever been contacted by a company she’s profiled, trying to defend or explain itself. She mentions Dell. Apparently, the company once purchased a company from Dell’s own brother and something seemed a tad off. After Michelle covered it, Dell reached out to tell her she had gotten it all wrong.This is a fun episode with plenty more in it – what sort of time commitment this would take the average investor… the atmospheric changes Michelle has seen in the last 10-15 years… the story of Meb stealing someone else’s disclosure language for his own blog but forgetting to remove the other company’s name…There’s even a discussion of something Twitter did recently that grabbed Michelle’s interest. If you’re a Twitter investor, you might want to listen. All this and more in Episode 94. Learn more about your ad choices. Visit megaphone.fm/adchoices