The Meb Faber Show - Better Investing Folgen

In episode 138, we welcome Yariv Haim. Yariv begins with his backstory. He had been working for a family running marketing and business development. He was asked to get involved with the investment management needs of the family, and through a path of his own, had gained enough knowledge to crystallize an approach he now follows at Sparrows Capital.  Yariv discusses how he focused on evidence from impartial academic institutions and research, and refers to the strategies derived from them as evidence-based investing strategies. After doing his research, he saw an informational gap in the industry, and it still exists today.  Yariv then gets into 6 core principles 1) return is primarily a function of risk, 2) certain risks attract persistent premium, 3) Diversification works, 4) stock picking and market timing seldom add value, 5) remain invested across the full cycle, 6) costs matter (although it isn’t the only prism to evaluate investment opportunities).  Next, Meb asks about factors and smart beta. Yariv discusses his opinion that Wall Street is a marketing machine, and the term “smart beta,” while it sounds sexy, ends up becoming an umbrella for all things. When asked about factors and when it’s time to stop using them, Yariv responds by discussing resources available, and the importance of doing the homework, and not to invest until you fully understand what you are investing in. As far as favorite factors go, Yariv talked about not having one, and expanded by saying he sees factor timing as a problem. He recommends a blend of factors to clients, starting with the most diversified portfolio, and building tilts.  The conversation then shifts to a discussion of behavioral investing. Yariv talks about how investors are all human beings, human beings are filled with biases and emotions, and feelings of optimism and pessimism can affect the way we make decisions. He finishes his comment by saying he feels that for people who wish to invest on their own, that it is always helpful to have someone by your side who is potentially slightly less emotional about the way your portfolio behaves in the short term.  As the conversation winds down, Meb and Yariv get into socially responsible investing and environmental and social governance themes. Yariv believes it is a trend that nobody can ignore today. He discusses some research conclusions the efficiency of markets and how higher returns investors have earned on vice companies is compensated for the additional risk they bear for owning them. He makes the point that there is more to investing than purely outcome in the form of returns, and that if an investor’s ethical compass steers them in the SRI/ESG direction, it is sensible to invest that way.  The pair then conclude with how Yariv puts all of these ideas together to form investment portfolios.  This and more in episode 138. Learn more about your ad choices. Visit megaphone.fm/adchoices

In episode 137 we welcome the sibling duo, Emily and Morgan Paxhia. Emily and Morgan begin by discussing their backstory, and how coming from a family with an entrepreneurial background influenced their path to start Poseidon Asset Management to specialize in cannabis investing. Emily and Morgan each describe their previous roles and the skills they acquired in their respective industries (Consulting for Emily, and Investment Management for Morgan) that helped them build foundations that transitioned well into asset management. Next, the pair discusses starting their fund, and the journey that included seeking service providers, raising capital, and the many challenges and hurdles they faced along the way. Morgan mentioned that even with all the hurdles, they knew they were on to something and continued to drive forward. Meb then asks about cannabis industry trends and what the space has in store looking forward. Emily covers some regulatory and political issues and then talks about the challenge they will face as a firm as they try to allocate capital before the industry really opens up down the road. Morgan follows with some catalysts that include legal cannabis in California, a number of countries approving medical cannabis, and expanded media coverage. The conversation shifts to the regulatory environment. Morgan talks about the progress that has been made, although state programs are varied, which makes it difficult to see where the standout model lies. There’s also bi-partisan support, New York is looking serious at legalizing, and the environment is moving forward. Meb follows with questions about the investment process and portfolio building, as well as a question on what areas people aren’t thinking about that have disruptive potential. Emily and Morgan talk about looking at the industry by subsector such as ag-tech and technology and being invested everywhere on the spectrum from plant cultivation to end consumer product consumption and that the portfolio construction process leans on a very diversified approach but is very flexible and dynamic. In searching for ideas, they rely on a “boots on the ground” approach to understand the industry and operator dynamics, as well as identify quality teams. Meb then asks about any areas people aren’t thinking about that have disruptive potential. Emily and Morgan respond with 100% industrial hemp as a product that has disruptive potential with almost endless applications. Hear all this and more in episode 137, including the names of some portfolio companies and their most memorable investments. Learn more about your ad choices. Visit megaphone.fm/adchoices

In episode 136, we welcome Steve Romick. The conversation begins with Steve explaining that he hated losing more than he enjoyed winning, and while there wasn’t one event that led him to value investing, he considers his aversion to loss a contributor to being drawn to the value-oriented investment approach. Meb then transitions the conversation by asking Steve to characterize the investment strategy of FPA’s Crescent Fund. Steve talks about the value investing framework as investing with a margin of safety and how it has morphed over the years from being about the balance sheet to now, through technological innovation, the corporate lifecycle has been as short of it has ever been with the most of the density of innovation happening in the past 50 years. Next, the discussion turns to investment framework. Steve describes this team of 11, and how the job of his team is to understand the business and industry first on both a quantitative and qualitative basis. He describes the go-anywhere mandate as a potential recipe for disaster as there are more places to lose money. Steve then discusses looking at equities and debt for the portfolio. In the equity space, they’re looking at two categories, the high quality growing businesses considered “compounders,” and more traditional value investments, where there’s potential for 3 times upside to downside. Meb then asks Steve about Naspers, and Steve follow’s up with commentary about one of the biggest losers the portfolio’s ever had, but reiterates that his biggest concern is permanent loss of capital, and as the holding is still in the portfolio, he’d be surprised if they didn’t make money on it long-term. Meb asks Steve about credit. Steve talks about high yield and distressed debt as an asset class being periodically attractive and one doesn’t need to be there all the time. He explains that the gross yield of roughly 6.5% looks interesting on the surface, but once you consider the history of defaults and recovery, the yield drops significantly to 4.4%, right above the investment grade yield, and it isn’t so attractive. Steve talks about how the fund allows the freedom to seek asset classes that offer value, and that for the first time, they now own a municipal bond. Steve then discusses the small allocation they have to farmland. Meb follows with a question about holding cash. Steve expands by talking about going through the research process, and when there aren’t enough opportunities that meet their parameters, cash results as a byproduct. The discussion then gets into Steve’s background at FPA, and what it was like going through the late 1990s. Steve talks about trailing the market going into the late 90s as valuations appeared unsupportable, but fast forward a few years and he and the team were validated. They allocated to high yield, small cap, and value, and made money in 2000, 2001 and 2002 when the market was down. Meb then asks how Steve views the rest of the world. Steve responds that while it is more expensive generally here in the U.S., it is important to remember that international exposure can be had by owning U.S. stocks with revenue exposure overseas, and that like-for-like companies are trading at similar valuations outside of the U.S. Next, Meb and Steve discuss the importance of managers investing alongside their clients. Steve feels it is important that investor’s energy should be aligned with the client’s interests and holdings. All this and more, including Steve’s thought on the catalysts that could end the current bull market in episode 136. Learn more about your ad choices. Visit megaphone.fm/adchoices