The Meb Faber Show - Better Investing Folgen

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? -         Should your primary residence count toward your asset allocation and portfolio? -         What do you mean by rebalancing taxable accounts by cash flows? There are many more questions that touch upon topics including currency exposure, tweaks to shareholder yield, and the effects of hefty fees. All this and more in Episode 16. Learn more about your ad choices. Visit megaphone.fm/adchoices

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 managed futures as their core holding. Eric and Meb then move on to the returns of great fund managers like Buffett and Soros. Eric studied these managers with the thesis that they must have done something other investors are uncomfortable doing (which is the source of their long-term alpha). He concludes that this differentiator is actually “underperforming their benchmark.” Eric says Berkshire Hathaway is a “glaring” example. An investor in Berkshire would have underperformed the S&P more than half the time (over various time-periods), but would have made tremendously more money than investing in the S&P. This leads Eric and Meb back to the psychological side of investing, specifically, the pain of relative performance. Meb recalls the Buffett or Munger idea that it’s not greed and fear that drives the investment world; it’s envy. Meb then turns the focus toward playing defense, which leads Eric to tell us how few people realize the impact on their returns of avoiding drawdowns. Avoiding the big losers has more impact on your compounded returns than catching the big winners. In other words, defense is what wins championships. There’s far more: how 80% of all stocks effectively return 0%, while just 20% of stocks account for all market gains… a pointed warning from Meb to listeners about the fees associated with managed future “fund of funds”… and of course, plenty more on Eric’s trend following approach. All of this and more in Episode #14. Learn more about your ad choices. Visit megaphone.fm/adchoices