Radio Show with Corey Hoffstein: Roaring Kitty, Bitcoin ETF & T-Bill and Chill | #506
Nov 1, 2023
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Co-host Corey Hoffstein joins Meb Faber to discuss a range of investing topics including Bitcoin ETF news, the death of the 60/40 portfolio, T-bill and Chill, the Magnificent Seven, and dividend income investing. They also touch on other subjects such as Roaring Kitty and Meb Faber's job application at CalPERS.
Passive investing has made investing more accessible and affordable, but the success of an investment strategy depends on individual factors.
Dividend investing can be overhyped and misunderstood, with potential trade-offs and tax implications.
While investing has become more accessible, comprehensive financial planning and guidance are still necessary.
The investment landscape should consider a blend of passive and active strategies tailored to individual objectives and preferences.
Deep dives
Passive Investing and the Rise of Index Funds
Passive investing, specifically market cap weighting, has been a popular trend in recent years. However, the term 'passive' has become muddled, as there are now various types of passive index funds. While market cap weighting has been the dominant approach for passive investing, there are other strategies such as factor-based funds and non-market cap weighted indexes. Passive investing, in general, has made investing more accessible and affordable for investors, with low-cost index funds providing market exposure at minimal expense ratios. This has led to discussions about whether investing has been 'solved' or if there is still room for active management. Ultimately, the success of an investment strategy depends on various factors, including individual goals, risk tolerance, and investment time horizon.
The Misunderstanding of Dividend Investing
Dividend investing is often overhyped and misunderstood, driven by the appeal of passive income. Dividends have a strong brand association with passive income and financial independence, but the reality is more complex. From a taxation perspective, dividends can be costly for taxable investors. The preference for dividends can lead to overlooking other more tax-efficient strategies. Additionally, the focus on dividends often disregards the fact that total return, including capital appreciation, is a more comprehensive measure of investment success. While dividends play a role in portfolio construction, they should not be the sole determinant of investment decisions. It is important to educate investors on the nuances of dividend investing and the potential trade-offs involved.
The Increased Accessibility of Investing
Investing has become more accessible and cost-effective than ever before. With the rise of passive investing and the availability of low-cost index funds, investors can easily gain exposure to various market segments at minimal expense ratios. This accessibility has been a valuable advancement, especially for individual investors. It has enabled broader market participation and simplified the investment process for many. However, while the investment landscape has become more accessible, there is still the need for comprehensive financial planning and guidance. Investing should be viewed as part of a broader financial strategy, with considerations for individual goals, risk tolerance, and asset allocation. The focus should not solely be on investment vehicles but also on holistic financial management.
The Role of Active Management and Market Dynamics
While passive investing has gained significant popularity, it is crucial to recognize the role of active management and the changing dynamics of the market. Market cap weighted passive investing has solved a core aspect of investing by providing low-cost exposure to market beta. However, there are other investment strategies and factors that can be explored to enhance portfolio returns. Active management allows for flexibility in asset allocation, security selection, and risk management, which may be important in generating alpha and managing downside risk. The investment landscape continues to evolve, and the best approach may involve a blend of passive and active strategies, tailored to individual objectives and preferences.
The importance of passive investing
The speaker highlights the concept of passive investing and how it can be a simple and effective way to build a portfolio. They mention the idea of putting assets into public portfolios on autopilot and viewing it as a savings or yield vehicle. The speaker notes that while robo-advisors have made passive investing more accessible, some have strayed from the simplicity it offers. They also discuss the misconception surrounding a fidelity study on portfolio performance, emphasizing the importance of not getting in one's own way when investing.
Challenges in finding fiduciaries
The speaker discusses the challenge of finding true fiduciaries who genuinely aim to help investors. They mention a case where Schwab opted investors into portfolios with high cash balances that were not earning any returns. This decision led to a significant fine and raised the question of whether such actions are in line with being a fiduciary. The speaker also points out instances where investment firms failed to make optimal decisions for investors, highlighting the need for better guidance and fiduciary responsibility.
The relevance of managed futures and return stacking
The conversation turns to the concept of return stacking, which involves diversifying investments across a range of asset classes. The speaker discusses the potential benefits of incorporating managed futures, which historically have shown positive returns, low correlation to stocks and bonds, and resilience during economic downturns. They mention the challenge of timing investments in managed futures, particularly in volatile markets. The conversation concludes with an exploration of the modern 60/40 portfolio allocation and the growing interest in managed futures as a diversification tool.
In today’s episode, Corey and Meb talk about whether topics are overhyped or underhyped:
Bitcoin ETF recent news
BlackRock launching Target-Date ETFs
The death of the 60/40
T-Bill & Chill
The Magnificent 7
Dividends
They also talk about Roaring Kitty pitching us to come on the podcast in summer 2020 to discuss GameStop, my never ending job application to CalPERS, and more.
Sponsor: Today's episode is sponsored by YCharts. YCharts enables financial advisors to make smarter investment decisions and better communicate with clients. YCharts offers a suite of intuitive tools, including numerous visualizations, comprehensive security screeners, portfolio construction, communication outputs, and market monitoring. Visit YCharts to start your free trial and be sure to mention "Meb" for 20% off your subscription. (New clients only)
Sponsor: Today’s episode is sponsored by The Idea Farm. The Idea Farm gives you access to over $100,000 worth of investing research, the kind usually read by only the world’s largest institutions, funds, and money managers. Subscribe for free here.
