The Meb Faber Show - Better Investing Folgen

In Episode 56, we welcome Meb's good friend, and CEO of ETF.com, Dave Nadig. Per usual, we start with some background information. Dave tells us about his early days in the investment industry, starting a consulting firm that was working on a then-new idea: fee-only financial advising. His first client was a little shop that went on to become none other than BlackRock. After some professional twists and turns, including running money for a while, Dave ended up at ETF.com. Meb then dives in by referencing an article Dave wrote toward the end of last year, called "Outlook for ETFs in 2017." There were several key points in the article which Meb thinks can help provide a general, 30-thousand-foot overview of the ETF space. The first point - ETF flows. Dave tells us "this is a big year for ETFs." He then takes us through a quick recap of the evolution of ETFs, going from a purely institutional product back in its early days, to something embraced by investment advisors, to an investment vehicle for retail investors. And here we are now, somewhat full circle, with ETFs even more embraced by institutions (think endowments), only now, they're no longer held as fringe investments, but as core holdings.  Meb asks at what point ETF assets will surpass mutual fund assets. Meb had predicted within about 10 years back in 2013. Dave tells us there will always be a demand for mutual funds - that said, he believes the cross will happen around 2025, with asset levels around $14 trillion.  Meb asks if the evolution in the ETF space today is primarily a movement from higher fee to lower fee. David believes this is the case. Most of the new flows are going toward low-cost vanilla products. Dave thinks the whole active/passive debate misses the point - it's really about cost. This dovetails into another business/investment idea Meb has that he's offering to any listener willing to pursue it. Next, Meb brings us back to Dave's 2017 Outlook piece, this time bringing up "ESG."(This stands for "environmental, social and governance" for anyone unaware.). Dave believes that we're near/in the greatest intergenerational wealth transfer in history. And the 40-year-olds that are inheriting, say, a $5M portfolio from their 70-80-year-old parents have different desires about what to do with that money. Dave tells us that this younger generation wants their money to do something - and this usually gets labeled ESG. So Dave believes we'll see more funds targeting this wealth transfer.  As usual, there's plenty more in the episode: exchange traded notes... the regulatory change Dave would like to see... buying ETFs at NAV... Dave's one piece of advice offered to help listeners the most... and Dave's answer to a new question: since Dave is a big "game" lover, Meb asks which three games are his top 3 of all time. What are they? Find out in Episode 56. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 54, we welcome Elizabeth “Liz” Dunn, author of the book, “Happy Money: The Science of Happier Spending”. Meb suggests they walk through the book using its five broad takeaways as their outline. But before they dive in, he asks Liz about her inspiration for writing the book. Liz tells us that when she began making a “real, grown up” salary, she wasn’t entirely certain what to do with it. She was curious how to use it most effectively to promote her own happiness. Interestingly enough, there wasn’t a great deal of research on the topic. Next, Meb asks Liz to discuss her first main finding (and likely the best-known finding) – our happiness tends to increase when we spend money on experiences rather than things. Liz gives us the key takeaways, after which Meb asks why buying experiences over things is hard for us, when we know that’s what we should do. Meb and Liz soon move on to the second takeaway from the book: “make it a treat.” One of the greatest misunderstandings of happiness is the idea that if something makes us happy, then more of it should make us even happier. Apparently, that’s not the case. Whether we’re talking someone’s salary or a little luxury like “avocado toast” (Meb and Liz are both big fans), when we have more of it, this can erode our capacity to appreciate it. This dovetails into the discussion of the salary “line in the sand” above which added dollars has diminishing impact on real happiness. Liz tells us that in the U.S., this figure is about $75K. But she mentions it with an interesting context… There are two “flavors” to happiness: 1) the kind that comes when you evaluate a question like “am I living the kind of life I want to live?” and 2) the kind that comes when you ask “did I laugh or smile yesterday?” If you’re making more money – well beyond $75K, you’re more likely to answer #1 in an affirmative way. Sure, as you jet off to Bora Bora and evaluate your life, you’re likely to feel good about having the wealth to enable such a trip. However, it turns out this added wealth has very little effect on the second type of happiness – day-to-day happiness. The third takeaway is “buying time.” What are we actually doing with the minutes of our lives? Is there a way to trade our money for more time? Liz and Meb discuss spending an hour commuting to work every day, and how miserable that makes people. Wherever appropriate, it makes sense to spend money on things/services/people that can give us back our time, which we can then spend with loved ones or volunteering, etc. The fourth takeaway is “pay now, consume later.” This is hardly the way our culture does things, with its credit card mentality. Unfortunately, consuming first and paying later is exactly the wrong thing for happiness. Liz and Meb discuss this in detail, dovetailing into the toxic effects of debt. The final takeaway is “invest in other people.” Liz has found that we tend to be happier when we spend our money on other people, more so than ourselves. In supporting this takeaway, she tells us of her study in which she gave people either a $5 or $20 bill, and asked them to spend it by the end of the day – the caveat was that some people were asked to spend it on themselves, while others were asked to spend it on other people. Liz’s team followed up at the end of the day, calling the participants, and found that those who spent the money on others reported feeling happier than the people who’d spent it on themselves.    There’s plenty more in this episode, including Liz’s next research project, discussion of Syrian refugees, what prompted a classic Meb-meltdown as a child, and finally, Meb’s pointed question to Liz: If I put you on the spot and asked you to give us one single piece of advice for achieving more happiness, what would it be? What’s Liz’s answer? Find out in Episode 54. Learn more about your ad choices. Visit megaphone.fm/adchoices

Episode 53 is another “radio show” format. This means we tackle a handful of topics from Meb’s blog and tweets. TOPIC 1 – VALUATIONS 3 DIFFERENT TAKES ON CURRENT VALUE PICTURE: Meb’s recent blog post “A Bar Too High” indicated that for stocks to meet expectations over next 10 years, valuations must rise to highest they’ve ever been in history. With a current CAPE ratio of 29, that means the stock market multiple needs to INCREASE to all-time 1999 bubble highs to meet investor expectations. He thinks tepid growth is more realistic. On the other hand, James Montier, member of the asset allocation team at the Boston-based asset manager GMO, is convinced that the US stock market is in bubble territory. However, European equities aren’t particularly cheap, either. Only emerging markets value-stocks appear vaguely attractive to him. Investors should be patient and hold a lot of cash in their portfolios in order to be able to buy when markets are correcting. What would make the US equity market attractive again – how much would it have to correct? To get back to our sense of fair value tomorrow, it would have to fall by more than 50%. Then we would be on average valuation, which again we estimate based on profitability going back to normal. A third option from a reader question: “Lately there seems to be a lot of talk about CAPE measure not being as meaningful as many seem to think that it is because the very low yields on bonds and full pricing of bonds are basically changing the overall risk adjusted returns landscape. I think the point people are making is that stocks are fairly priced for current overall market conditions, despite many indicators which suggest that prices are historically high.” Three viewpoints – how does Meb see them all? You’ll hear his take. TOPIC 2 – INVEST IN SINGLE STOCKS AT YOUR PERIL A new study by finance professor Hendrik Bessembinder, called “Do Stocks Outperform Treasury Bills?” found that while investing in the overall stock market makes sense, individual stocks resemble lottery tickets: A very small percentage of winning stocks have done splendidly, but when gains and losses are tallied up over their lifetimes, most stocks haven’t earned any money at all. What’s more, 58 percent of individual stocks since 1926 have failed to outperform one-month Treasury bills over their lifetimes. Professor Bessembinder found that a mere 4 percent of the stocks in the entire market — headed by Exxon Mobil and followed by Apple, General Electric, Microsoft and IBM — accounted for all of the net market returns from 1926 through 2015. By contrast, the most common single result for an individual stock over that period was a return of nearly negative 100 percent — almost a total loss. Given all this, what reason is there for the average retail investor to be in specific equities instead of broader sector and index ETFs? TOPIC 3 – VOLATILITY We'll post a chart about our current low volatility – actual U.S. stock market volatility going to back 1928 has only been lower about 3% of trading days. How does Meb interpret this – do these low readings mean a reversion is likely? Or is it the opposite – more of a trend approach where objects in motion tend to stay in motion? Also, how would an investor act upon this using a tail-risk hedging strategy involving puts? There’s plenty more and a handful of rabbit holes in this radio show episode, including investor sentiment, the name of Meb’s new child, how to avoid value traps, and yes, as the title suggests, the cheapest countries in the market today. What are they? Find out in Episode 53. Learn more about your ad choices. Visit megaphone.fm/adchoices