Meb Faber, co-founder of Cambria Investment Management, discusses global portfolio allocation, bitcoin ETFs, controversial investing strategies, common investment mistakes, global diversification, tax efficiency for founders, asset safety, ETFs vs mutual funds, angel investing learnings, role of optimism in investing, conspiracy theories, and unconventional wisdom in investing.
Global diversification is crucial to reduce risk and enhance returns in investment portfolios.
Controversial beliefs challenge traditional investing strategies, advocating for unconventional approaches.
Avoid home country bias by adopting a globally diversified asset allocation for a safer investment approach.
Deep dives
The Controversial Beliefs of Medfavor
Medfavor, CEO and Chief Investment Officer of Cambria Funds, discusses his list of controversial beliefs that the majority of his peers disagree with. He suggests that the Federal Reserve has done a good job, a statement that is highly debated. He also questions the need for the Fed and suggests that they could automate their processes. Medfavor emphasizes the importance of avoiding conventional wisdom and encourages investors to think globally and have a diversified asset allocation. He highlights the tendency for investors to be overly concentrated in their own country's stocks, such as U.S. investors being heavily weighted towards the S&P 500. He proposes a globally diversified portfolio as a safer option.
Does the Federal Reserve Really Know What It's Doing?
Medfavor expresses his unconventional opinion that the Federal Reserve may not have a clear strategy in setting interest rates. He jokingly suggests that the Fed simply watches reruns of Seinfeld and pegs the Fed funds rate to the two-year bond. He believes that interest rate forecasting is futile and that investors would not benefit significantly from knowing the path of interest rates. Instead, he encourages investors to focus on broader asset allocations and factors that drive investment portfolios.
The Pitfalls of Home Country Bias
Medfavor points out the common investing bias known as home country bias, where investors tend to have a highly concentrated portfolio in their own country's stocks. He discusses the benefits of a globally diversified asset allocation, which includes global stocks, bonds, and real assets. He highlights how this approach is often overlooked by investors in favor of concentrating their portfolio in their home country, even though historical data shows the outperformance of other countries' markets. Medfavor advises investors to consider a globally diversified portfolio to reduce risk and potentially improve returns.
Reconsidering Market Cap Weighted Indexing
Medfavor challenges the traditional market cap weighted indexing approach and suggests alternative ways to invest. He explains that market cap weighted indexes, such as the S&P 500, allocate more weight to the largest companies, regardless of their fundamental metrics. He argues that this approach can lead to overexposure to expensive stocks during euphoric market periods and underperformance during market downturns. Medfavor encourages investors to consider other strategies, such as valuation-focused investing or alternative indexes, to potentially enhance returns and reduce risks.
The Importance of Setting a Sound Investing Plan
Medfavor emphasizes the importance of having a clear and written investing plan. He suggests that investors should focus on their savings rate and getting a good asset allocation from the start. He discourages frequent tinkering or reacting to market fluctuations. Medfavor believes that having a well-designed plan and sticking to it is more beneficial in the long run than chasing individual stock picks or market timing. He encourages individuals to spend more time on saving and learning about investing rather than worrying about short-term market movements.
Meb Faber is the co-founder and CIO of Cambria Investment Management, which has over $2B in assets under management. He’s also the host of the excellent financial podcast the Meb Faber Show.
In this episode of World of DaaS, Auren and Meb discuss global portfolio allocation, bitcoin ETFs, controversial investing strategies, and little-known financial industry secrets. They discuss the most common mistakes Meb sees in investment portfolios, the importance of global diversification and tax efficiency strategies for founders.
This is a high-level investing strategy discussion, with Auren and Meb diving deep on the relative safety of different assets, ETFs vs mutual funds, and Meb's learnings from angel investing. They close out the conversation with Meb’s thoughts on the role of optimism in investing in startups, conspiracy theories, and his views on conventional wisdom in investing.
