The Meb Faber Show - Better Investing Folgen

We recently published The Best Investment Writing, Volume 2. The first book was a hit, with MoneyWeek concluding that it “should be on every investor’s bookshelf.” But we made the second volume even better – we expanded it to include 41 hand-selected investment articles, written by some of the most respected money managers and investment researchers in the world. We thought it would be fun to bring on some of the authors so that they could read their specific chapter from the book. That’s what you’re getting in today’s special bonus episode. If you’re interested in picking up a copy of The Best Investment Writing, Volume 2, head on over to Amazon or our publisher’s website, which is Harriman House. Also, know that your purchase would benefit charity, as all writer-proceeds go to the charity of the specific author’s choosing. So, enough from me, let’s let Mike take over with this special bonus episode. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 121, we welcome fellow quant, Pim van Vliet. If you’re a low-vol investor, or having been wanting to learn more about low-vol, this is the episode for you. Meb dives straight in, opening with a quote from Pim: "The low-volatility effect is perhaps the largest anomaly in finance, challenging the basic trade-off between risk and return, as higher risk does not lead to higher returns. Still, it remains one of the least utilized factor premiums in financial markets." He asks Pim to explain. Pim tell us that low-volatility is the biggest anomaly of them all. People have trouble embracing the concept. We’ve been trained to believe that higher risk should be rewarded with higher returns, but Pim walks us through some counterarguments. He goes on to explain that CAPM (Capital Asset Pricing Model) is great in theory, yet bad at describing reality. He tells us that “the reality is high risk stocks earn low returns.” Next, Meb brings up a paper Pim wrote called “The Volatility Effect” and asks Pim to walk us through it. Pim tells us one of the broad takeaways is that low-vol works cross borders (unlike some other factors). It’s not just effective in the U.S. – it’s also been proven out in Europe and Japan. In addition, this alpha seems to be getting stronger now rather than waning as have other factors when their visibility has increased. Meb asks about Rob Arnott and factor-timing/factor valuations. Does factor valuation matter? Pim agrees with Rob in that valuation does matter. If you only look at low-vol, you might end up buying “expensive defensive”. If so, then yes, your expected returns will be lower. That’s why Pim includes a value filter. He looks at “multi-factor defensive”. Pim mentions Cliff Asness and notes that he likes incorporating momentum into his approach as well.  The conversation bounces around a bit: where is Pim finding opportunities around the world now… additional details on how low-vol works across countries, sectors, and asset classes… and how low-vol complements a CAPE approach, pointing toward some effective defensive market strategies. Next, Meb asks about potential biases. For instance, if you focus on low-vol, could that mean you’ll end up with a basket of, say, utility stocks and no tech? Pim tells us that, yes, if you focus purely on low-vol, you could get more sector and country effect. But he goes on to tell us how investors might mitigate that. There’s plenty more in this fun, quant-driven episode – a discuss of the definition of risk (volatility versus permanent loss of capital)… factor fishing and data mining… how low-vol works from a portfolio perspective… Pim’s forecast of the future… and Pim’s most memorable trade. This is a great story, highlighting how an early loss delivered such a powerful learning lesson, that it probably ended up making Pim money in the long run. Get all the details in Episode 121. Learn more about your ad choices. Visit megaphone.fm/adchoices

We recently published The Best Investment Writing, Volume 2. The first book was a hit, with MoneyWeek concluding that it “should be on every investor’s bookshelf.” But we made the second volume even better – we expanded it to include 41 hand-selected investment articles, written by some of the most respected money managers and investment researchers in the world. We thought it would be fun to bring on some of the authors so that they could read their specific chapter from the book. That’s what you’re getting in today’s special bonus episode. If you’re interested in picking up a copy of The Best Investment Writing, Volume 2, head on over to Amazon or our publisher’s website, which is Harriman House. Also, know that your purchase would benefit charity, as all writer-proceeds go to the charity of the specific author’s choosing. So, enough from me, let’s let Leigh take over with this special bonus episode. Learn more about your ad choices. Visit megaphone.fm/adchoices