The Meb Faber Show - Better Investing Folgen

Episode 66 is a radio show. We start with Meb referencing the just-published book, The Best Investment Writing, which he edited. It’s a great collection of essays from some of the smartest minds in investing. Check it out. Next, we jump into market commentary, using Meb’s recent “office hours” as our vehicle for discussion. What that means is Meb had some extra time over the last few weeks, so he opened his calendar to his followers, scheduling loads of 30-minute phone calls with various individual investors and RIAs looking to pick Meb’s brain on a variety of subjects. Meb tells us the topics which came up the most often, as well as his thoughts. There’s talk of U.S. equity valuation (and at what level Meb would start selling even before a crash), angel investing, portfolio allocation weightings, and far more. We end with several listener questions. The first involves how Meb views market breadth in light of the growth in index investing; the second solicits Meb’s thoughts on the dangers of ETF investments if the market heads south; the third is at what valuation level the buyback component of a shareholder yield strategy ends up being a headwind. What valuation level did Meb indicate? Find out in Episode 66. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 65, we welcome CTA and commodities expert, Emil van Essen. Meb starts with a fun bit of trivia – if you mesh his and Emil’s name, coming up with “Emil Faber,” can you guess in which movie that name appears? It turns out it’s from the classic comedy, Animal House. “Emil Faber” was the founder of the movie’s “Faber College” and under his statue was his quote, “Knowledge is good.” After Emil gives us a bit about his background, the guys jump into the deep end. Emil trades managed futures, and while most people think “trend following” when they hear “managed futures,” there are other styles. Emil tells us about a style he uses often, spread trading. Emil looks at the term structure in commodities futures contracts. There’s a price for every month going out in time. You can trade the differences between those months (calendar spreads). He also trades relative value and roll arb. Emil likes these strategies because there’s tons of alpha available. Meb pauses to explain a bit for any listeners who are less familiar with all this. He explains exposure to the futures markets, using oil as an example. This leads into a discussion about the growth of commodities markets. Back in the 2000s, commodities went from being just a product to an investment vehicle. So the powers that be created indices and various commodities products to meet this demand. Investments in commodities exploded, driving up prices.  This dovetails into what Meb calls “one of the dirty secrets of indexing,” which is how many indices can be front-run. Meb tells us how, for some 1.0 commodities indices, the slippage was in the order of 3-4% per year. Meb then asks Emil to describe what he looks at when establishing a position. Is it fundamental? Technical? Emil tell us it’s very important that you use both, because “you have to understand the fundamentals because things change.” Next is a great conversation about front-running trend followers. This is something that Emil does. He knows that if there’s a big move, the trend followers are likely all on the same side of the position, so when it comes time to roll the front month, and Emil generally knows when that will happen, Emil takes advantage of the price movement. Meb and Emil then discuss the easiest way to implement this strategy. A bit later, the guys discuss what themes/positions Emil is interested in right now. He tells us how there has recently been a shortage in gasoline, so gas has been running up against crude oil. It’s at high levels now, and Emil thinks it’ll come down. Emil also tells us that he’s looking at grains, the energy markets, and certain metals including platinum and palladium. This leads into a discussion on oil. Meb asks Emil’s take on the industry. Emil gives us some great background on what drove oil up so high, and why it crashed. Then he discusses the technological revolution in oil drilling, the result of which is that the cost of finding and developing oil has collapsed. There are some great details in here which oil investors won’t want to miss, but Emil wraps up this part of the conversation by saying “the days of $80 oil – that’s a long way away.” Meb then asks what areas of commodities Emil likes right now. Emil tells us his thoughts on at what level crude is buy. And he mentions a certain metal which he considers a “no brainer.” You’ll have to listen for the details. There’s way more in this episode: how Emil views gold in light of new cryptocurrencies… A Twitter poll Meb conducted that reveals just how stubborn some investors can be when it comes to selling out of overvalued equities… Where Emil has seen the most investors make the biggest mistakes over his 25+ year career… The dangerous false belief that “we’ve seen this before” in the markets, and how computerized investing is taking us into uncharted waters… And finally, Emil’s most memorable trade (which was a loser that will get your blood racing). What are the details? Find out in Episode 65. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 64, we welcome David Varadi from Blue Sky Asset Management. David tells us a bit about himself before he and Meb jump into investing. Meb starts by referencing a quote from Blue Sky’s website: “Unlike endowments, investors do not have an infinite time horizon. For this reason, we believe that a traditional strategic asset allocation approach based on modern portfolio theory is suboptimal. It makes more sense to adapt to changes in the economic environment. We favor a dynamic approach to asset allocation using market information to guide our investment decisions. Most importantly, we believe that a systematic, quantitative approach is necessary to avoid emotions and biases in decision-making.” Meb’s a fan of all the ideas in that quote, so he asks David to expound and discuss his general market framework. David tells us how it’s easy to be a buy-and-hold investor when market is going up; much harder so when the market is falling – especially when nearing retirement. Significant drawdowns can be devastating. So David tells us that “managing risk is absolutely critical.” Investors need to be able to adjust their strategies to handle a wide variety of market scenarios – bear markets, varying interest rate scenarios, and inflation. And “if you have a dynamic asset allocation, you have the ability to be more in tune with the market regime that is currently going on.” Meb asks David to dig deeper – what are the rules and frameworks in place that make his models dynamic? For David, much goes back to fundamentals, trend, momentum, and volatility. David starts with a strategic allocation that reflects longer-term assumptions. But what’s interesting is how David uses volatility in concert with trend/momentum, helping him know when to be in the market versus cash. Most people think time-series momentum is a binary decision, but David brings probabilities into the discussion. Meb then asks about the challenges a retail investor faces when trying to implement the strategies David has been discussing. A big challenge is tracking error. The more dynamic you are (moving away from buy-and-hold indexing), the more potential tracking error. Another issue is how often you trade. David tells us that the investor has to ask himself what is most important – does the investor want to reduce the drawdown in a 2008 scenario, and if so, is he willing to take the tracking error associated with that? Meb echoes this tradeoff between buy-and-hold versus active. It’s very hard to look “different” than the market and/or your neighbors when you’re underperforming. Next, Meb brings up another Blue Sky whitepaper, this one about retirees and risk. David hits the high points, discussing the challenges of volatility in retirement. There’s plenty more in this episode, including the new areas David is researching… David’s most memorable trade (one involves put options, the other Bitcoin)… And David’s one piece of investing advice to listeners, involving three mental “buckets” for your asset allocation. What are they? Find out in Episode 64. Learn more about your ad choices. Visit megaphone.fm/adchoices