The Meb Faber Show - Better Investing Global Asset Allocation - Investing 101 | #1
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Jun 27, 2016 A podcast discussing the global asset allocation model as a foundation for investing, comparing portfolio returns of respected fund managers. Surprising insights on the best performing allocation, alongside Charlie Munger's critique of the investment management business. Exploring historical data, behavioral impacts on stock investing, and the importance of fees and short-term performance in investment success.
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Stocks Win Long Term, With Big Drawdowns
- US stocks have delivered the strongest long-term real returns, roughly 7% annually over the 20th century.
- But those returns required enduring very large drawdowns, including >80% in the Great Depression.
Losses Compound Backwards
- Large percentage losses are exponentially harder to recover from; an 80% loss needs a 400% gain to break even.
- This makes avoiding huge drawdowns a critical part of long-term investing.
The 5-2-1 Rule For Real Returns
- Real returns (net of inflation) are what matter; historically think in rough bands: stocks ~5%, bonds ~2%, bills ~1%.
- Faber calls this the 5-2-1 rule to set long-run expectations.