The Meb Faber Show - Better Investing Folgen

In Episode 124, we welcome legendary investor, Howard Marks. Meb begins with a quote from Howard’s new book, Mastering the Market Cycle, and asks him to expound. Howard gives us his top-line take on market cycles, ending with the idea that if you understand them, you can profit from them. Meb follows up by asking about Howard’s framework for evaluating where we are in the cycle. Rather than look at every input as individual, Howard looks at overall patterns. What is the collective mood? Or is it depressed, sad, and people don’t want to buy? Or is it buoyant? Second, are investors optimistic and thrilled with their portfolios and eager to add more, therein increasing risk? Or are investors regretful and hesitant, burned by recent experience? Then there are quantitative aspects – valuations, yield spreads, cap rates, multiples, and so on. All of these variables help give Howard a feel for whether assets are high- or low-priced. Next, Meb asks Howard to use Oaktree’s actions during the Financial Crisis as a real-world example of how an investor could act upon cycles. Howard tells us there are two parts to what happened during the Crisis – what Oaktree did during the run-up to the meltdown, and then what it did during the event itself. In short, Oaktree was cautious during the lead-up. They raised their standards for investments. Why? Howard notes that they didn’t know ahead of time how bad things would be. Rather, they were hesitant because they looked at the securities being issued, and it seemed that every day, something was coming out that didn’t deserve to be issued. This was a tip-off. Then the event happened, culminating in Lehman bankruptcy, and that’s when Oaktree became very aggressive, buying half a billion dollars each week for 15 weeks. Howard tells us that, yes, our job as investors is to be skeptical, but sometimes that skepticism needs to be applied to our own fears. In other words, skepticism also might appear like “no, that scenario is too bad to actually be true.” Meb notes that the challenge is investors want precision, picking the exact top and bottom. But this isn’t really how it works. Meb asks if there a time when Howard felt he misinterpreted a point in the market cycle. Before answering Meb’s questions, Howard agrees that trying to find the bottom or top is a huge mistake. He notes that trying to find the perfect day upon which to buy or sell is impossible. In terms of potentially misreading the cycle, Howard tells us that Oaktree has been perhaps too conservative over the last few years, so they haven’t realized all the gains of the market. That said, he stands by his decision telling us, “anybody who buys or holds because of the belief that something that’s fully valued will become overvalued…is embarking on a dangerous course.” Meb asks how Howard sees the world today. Howard tells us we’re in the 8th inning of this bull market. Assets are highly priced relative to history. People are bullish. Risk aversion is low. He notes it’s a time for caution – but – we have no idea how many innings there will be in this game. What follows is a great conversation about bull markets, what ends bull markets, and how to implement market cycles into an investment approach. The guys touch on investor exuberance… whether markets need to be exuberant for a bull market to end… bullish action despite bullish temperament… the need to “calibrate” your portfolio… and the average investor’s ability to live with pain. There’s so much more in this episode: How Howard’s market approach has evolved over the years… how “it’s not what you buy, it’s what you pay for it that determines whether something is a good investment or bad investment”… Howard’s thoughts on contrarian investing… and, of course, his most memorable trade. This one yielded him 23x. What are the details? Find out in Episode 124. 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 Russel take over with this special bonus episode. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 123, we welcome entrepreneur and renowned angel investor, Fabrice Grinda. The guys begin by discussing their mutual love for skiing, talking about heli-skiing in Canada, powder skiing in Japan, and the steeps of Chamonix in France.  Meb asks Fabrice to recap his background. What follows is a fascinating look at the professional path of a wildly-successful entrepreneur and angel investor. Fabrice’s history involves consulting with McKinsey, building the equivalent of eBay in Europe and South America, starting another company that brought ringtones, mobile games, and wallpaper to the US (and eventually did $200M in revenues), and then consulting for fellow CEOs. Ultimately, Fabrice and his partner launched FJ Investments, which is where he’s currently focused. Meb asks about Fabrice’s investment approach and the frameworks he uses. Fabrice tells us he invests in about 75 new startups each year, mostly seed and pre-seed. He writes smaller checks (about $500K), as compared to the bigger VC firms. He provides us insights into his selection criteria – one of the most important of which is unit economics. The degree to which a founder understands his/her economics is an indicator as to how well he/she understand the business. Fabrice has deployed about $140M to date, mostly personal money. He’s had 150 realized exits on 400 investments, with a realized IRR that’s pretty staggering. You’ll have to listen to get that detail.  The guys hit on a handful of topics next: Fabrice’s experience with Beepi, which ends with Fabrice’s advice to “nail it before you scale it”…. Why investing in the U.S. is often a wiser choice than looking internationally… Fabrice’s preference for investing in marketplace-oriented businesses… And how “we’re still at the very beginning of the tech revolution… we are day one.” Next, the guys talk about the specifics of creating an angel portfolio, with Meb bringing up the phrase “spray and pray”. Fabrice tells us that’s not his methodology. He’s more selective. That said, in private markets, returns tend to follow power law, meaning the top few deals account for most of the returns so it’s important to have some of those deals in your portfolio. Given this, for most people, there’s real value in diversification. Meb asks what lessons Fabrice has learned throughout his experiences so far. Fabrice tells us that if you’re going to invest in this asset class, you need to be diversified. He mentions that if you have less than a certain amount of investments, you’re going to lose money. Another lesson is that investors needs to stick to their guns. For instance, Fabrice has found that his thesis, the company team, the business, and the valuation (deal terms) must all be within his desired parameters in order to move forward. There was a time when he would fall in love with a founder, and would use that as an excuse to slide on some of his other criteria. But doing so sometimes lost him money. Other lessons involve honesty and transparency, as well as the importance of knowing your true value-add. There’s way more in this angel-themed episode: The current angel market, including opportunities and valuations… How Fabrice sees the broader economy and recession risk… How a crypto-hacker got into Fabrice’s crypto wallet… and Fabrice’s most memorable trade. Any entrepreneurs will likely be able to relate to this one. All these details and more in Episode 123. Learn more about your ad choices. Visit megaphone.fm/adchoices