The Meb Faber Show - Better Investing

In Episode 122, we welcome investor and entrepreneur, Phil Haslett. Meb jumps in, asking Phil to tell us more about his company, Equity Zen.Phil gives us an example involving a hypothetical employee. This employee owns equity in her private company but wants some liquidity from her stock options. Equity Zen is a platform where she can sell some her shares to a private investor looking to investor in that company, even though it’s not a publicly-traded company. So, Equity Zen is a place that connect buyers and sellers of late-stage, private companies that are pre-IPO.Meb asks about the process. There’s rarely great information on these private companies – for instance, their valuations and revenues. So, what’s the discovery process like on Equity Zen?Phil tells us that once you get registered and create an account, you can browse the available deals. There will be information about the companies based on what’s available from the public domain. Phil agrees there’s often not great information, so Equity Zen tries to provide as much as possible, backing out revenue and growth numbers. They also show a particular company’s cap table, how they’ve raised money over time, and on what terms. Equity Zen works with shareholders to establish their pricing targets. So, buyers will see the specific price at which a seller is willing to do a deal.The guys get even more detailed here – discussing fees, whether a buyer actually holders real shares in the target company or not, what happens in certain hypotheticals, and Phil’s thoughts on “carry” and why he’s frustrated with carry applied to a single investment.Next, Meb asks about the type of companies that end up in Equity Zen’s offerings. Phil tells us they’ve worked with about 110 companies. The valuations have ranged from $500M to $20B, with concentrations toward unicorns. They typically invest in companies that have VC backings. These VCs have their own ideas of exits, which often means nearer-term liquidity is a goal.The guys get a bit broader here. Discussing where we are in the private company cycle, and how that affects the buying/selling volume on Equity Zen. They then touch on the state of the IPO market. Phil gives us an interesting perspective on companies that stay private (despite being big enough to go public) and the effect that can have on employees, liquidity, and morale.The conversation drifts toward what the response has been from the companies themselves. Do they see these private transactions as a good perk, or as an evil process? Phil tells us attitudes have changed over time. Back in 2010, the idea of selling shares was taboo. But today, companies are approaching Equity Zen in order to discuss a process for providing liquidity. It’s becoming a competitive advantage for talent. Phil believes this trend will continue.There’s plenty more in this episode: a new accreditation definition, and what it means for small investors… the best way to build a private company portfolio… what to evaluate in order to find the right companies for investment… whether buyers should be concerned about differences in share classes… other sites/resources that do a good job of education for private, late stage investors… and Phil’s most memorable trade. This one involves the game, Magic: The Gathering.Get all the details in Episode 122. 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 Mike take over with this special bonus episode. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 121, we welcome fellow quant, Pim van Vliet. If you’re a low-vol investor, or having been wanting to learn more about low-vol, this is the episode for you.Meb dives straight in, opening with a quote from Pim: "The low-volatility effect is perhaps the largest anomaly in finance, challenging the basic trade-off between risk and return, as higher risk does not lead to higher returns. Still, it remains one of the least utilized factor premiums in financial markets." He asks Pim to explain.Pim tell us that low-volatility is the biggest anomaly of them all. People have trouble embracing the concept. We’ve been trained to believe that higher risk should be rewarded with higher returns, but Pim walks us through some counterarguments. He goes on to explain that CAPM (Capital Asset Pricing Model) is great in theory, yet bad at describing reality. He tells us that “the reality is high risk stocks earn low returns.”Next, Meb brings up a paper Pim wrote called “The Volatility Effect” and asks Pim to walk us through it. Pim tells us one of the broad takeaways is that low-vol works cross borders (unlike some other factors). It’s not just effective in the U.S. – it’s also been proven out in Europe and Japan. In addition, this alpha seems to be getting stronger now rather than waning as have other factors when their visibility has increased.Meb asks about Rob Arnott and factor-timing/factor valuations. Does factor valuation matter?Pim agrees with Rob in that valuation does matter. If you only look at low-vol, you might end up buying “expensive defensive”. If so, then yes, your expected returns will be lower. That’s why Pim includes a value filter. He looks at “multi-factor defensive”. Pim mentions Cliff Asness and notes that he likes incorporating momentum into his approach as well. The conversation bounces around a bit: where is Pim finding opportunities around the world now… additional details on how low-vol works across countries, sectors, and asset classes… and how low-vol complements a CAPE approach, pointing toward some effective defensive market strategies.Next, Meb asks about potential biases. For instance, if you focus on low-vol, could that mean you’ll end up with a basket of, say, utility stocks and no tech? Pim tells us that, yes, if you focus purely on low-vol, you could get more sector and country effect. But he goes on to tell us how investors might mitigate that.There’s plenty more in this fun, quant-driven episode – a discuss of the definition of risk (volatility versus permanent loss of capital)… factor fishing and data mining… how low-vol works from a portfolio perspective… Pim’s forecast of the future… and Pim’s most memorable trade. This is a great story, highlighting how an early loss delivered such a powerful learning lesson, that it probably ended up making Pim money in the long run.Get all the details in Episode 121. 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 Leigh take over with this special bonus episode. 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 Jeremy take over with this special bonus episode. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 119, we welcome entrepreneur and technical analyst expert, Tom Dorsey.Meb begins by asking about a book which Tom claims had a tremendous influence on his entire life. From this, Tom tells us the story of being a young broker, eventually introduced to a book called The Three Point Reversal Method of Point & Figure Stock Market Trading by A.W. Cohen. After reading just the first paragraph, the clouds on Wall Street parted and he saw clearly. In the end, it’s the irrefutable laws of supply and demand that cause prices to change.Meb asks for more details, so Tom tells us how Point & Figure charting was created in the early 1900s. You’re watching the up and down movements of an asset – those movements represented by Xs and Os. You’re looking for patterns in these up and down movements.Meb asks how one goes from charting these Xs and Os into building an actual strategy. Tom gives us an example using just two stocks, Coke and Pepsi. He walks us through how we would analyze the price movements relative to one another to determine which one might be the best investment at that moment. It’s a discussion of relative strength investing.Meb asks if this approach means an investor can totally ignore fundamentals and value. Tom tells us that fundamentals answer the first question – what should I buy? But relative strength answers the question, when should I buy? You can be a value investor, but you may not want to be the typical value investor who buys a value play, sits back, and waits for a long time before other people see that he’s right. Tom would rather get the stocks that are ready to move now. So, he tells us to take the fundamentals and work from there.Next, the guys get into a discussion that bounces around a bit: smart indexing… the beginnings of ETFs at the Philadelphia Stock Exchange (Tom was in the middle of it from basically the beginning)… and how 92% of active managers never outperform the S&P. But this last point dovetails into a broader conversation of whether “the S&P” can beat “the S&P”. The topic touches on the difference between cap and equal weighting, as well as myriad other indexes that might exist within the broader S&P universe. One of the takeaways is that index investing can be harder than you might think. He suggests looking at all the indexes, then using relative strength to narrow it down.Meb asks what the world looks like to Tom today. What areas are showing the most strength? Tom tells us the strength has been in small caps for a few years now. Value has been hurt, which points toward the problem with value – the asset can be down and out, but still not move north as you want it to.There’s plenty more: the various ways to implement a relative strength strategy… Tom’s affinity for selling covered calls… the benefits of automated investing… how Tom’s team is beginning to apply their strategies to crypto… and an upcoming investing forum Tom will be a part of consisting of five market veterans with a collective two-hundred years of market experience.And of course, we have Tom’s most memorable trade. This one involves 10 shares of a certain biotech stock that raced higher and made a huge difference for one of Tom’s friends in need.Get all the details in Episode 119. 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 Elroy take over with this special bonus episode. Learn more about your ad choices. Visit megaphone.fm/adchoices

Episode 118 has a radio show format. In this one, we cover numerous Tweets of the Week from Meb, as well as some write-in questions.We start by discussing articles Meb posted in his Tweets of the Week. These include a piece by Jason Zweig about how your broker might be making 10-times more money off your cash balance than you could make on it. Then there’s discussion of valuations – a chart by Leuthold shows how one measure of US market valuation has matched its 2000 level, and another has doubled it. At the same time, Longboard released a chart referencing a Goldman market outlook that claims “in 99% of the time at current valuation levels, equity returns have been single digit or negative”. We talk about US valuations and when “selling” might trump buy-and-hold.Then we jump to foreign valuations. GMO believes emerging markets are the biggest opportunity relative to other assets in the past 20+ years. Meb clarifies what this really means. Then there’s discussion of home country geographic sector bias, whether the VC market is in a bubble (Meb tells us about some bad behavior he’s beginning to see in the space), and how the American savings rate is pretty grim.We then get into listener Q&A. Some that you’ll hear Meb address include: Are momentum funds just camouflaging another factor? For instance, if Value became the “in” factor, wouldn’t Momentum pick it up, so Momentum would then just look like a Value fund? Assuming the U.S. economy does not enter a recession in the near future, the Shiller PE’s 10-year earnings average will soon consist of all economic boom and no bust as the depressed earnings of 2008 and 2009 roll out of its calculation. How useful is a CAPE that only includes a period of profit expansion? Regarding your global value strategy, have you ever tested the strategy using relative CAPE ratios versus absolute to determine country allocations in order to avoid countries with structurally low CAPE ratios? I've never heard of a 401k plan offering ETF options. Is there a reason logistically, legally, etc. that prevents 401k plans from offering ETF options? How do I structure my portfolio for a 4% yield, after tax? I like your shareholder yield strategy, but if I get capital returned through buybacks and share appreciation, how do I get monthly income without selling shares and triggering taxes? I just don't see how I can implement a monthly income plan with this strategy. All this and more in Episode 118. 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 Ehren take over with this special bonus episode. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 117, we welcome entrepreneur and wealth advisor, Steve Lockshin. At Meb’s request, Steve walks us through his professional background in the financial services industry. It’s an interesting story, reflecting how wealth management has changed over the decades.Meb picks up on a term Steve used in describing his early years – “producer” (referencing an advisor) – making the point that if advisors were expected to produce revenue to the degree that “producer” was their name, it pointed toward a potential conflict with the client’s goals. Steve agrees, noting that the conflicts of interest in the business are challenging. He offers us an example using a mortgage payment scenario. If a client allocated capital toward paying down a high-rate mortgage rather than toward funding his equity portfolio, that debt paydown would benefit him, yet would decrease the advisor’s AUM, hurting the advisor’s personal revenue. Given this, the advisor may not be incentivized to make recommendations that are always in the best interest of the client.Meb asks for more details about Steve’s fee structure at AdvicePeriod, and why it was set up that way. Steve walks us through the details, noting that their fee structure largely emanates from the value they bring. So, their fees are always clear and capped.This bleeds into a conversation about an advisor’s biggest value add. Meb wonders if it’s estate planning and tax issues, or if it varies. Steve answers by first referencing portfolio construction, asking a question – if we take the top quartile of advisors, what does Meb think they’d produce, over a 20-year period, in true alpha above the market? Meb answers, basically 0%. Steve agrees, noting portfolio construction is not the real source of advisor alpha. Instead, he points toward taxes as a huge source of real value. He concludes saying “Turning that tax dial is a huge return for clients” and “We think the estate planning and tax planning levers are the most important levers to push on for clients”.The guys bounce around a bit here, discussing high advisor fees, and how the industry was able to hide them for years… the biggest problems Steve sees with new clients when they bring over their portfolios… and how the general advisor/client process works. But from here, the conversation turns toward how one might find a great wealth manager. It’s challenging, as laws prohibit client testimonials, and as Steve says, most clients don’t know which questions need to be asked. He gives us a few examples of good questions: What will your fees be if I tell you that you can’t use any of your own funds? How often would we meet? What software will you use? How much access to information will I have? What’s your transparency level? Next, Meb asks how things look going forward on the investment advisor side. Steve tells us that as soon as info becomes accessible and digestible by investors, we’ll see people behave differently. We’ll keep seeing fees come down, and transactional fees will go away. And when moving your entire account from one group to another becomes a matter of just a few mouse clicks, we’ll see a massive shift.Meb asks when we’ll see an “automated Lockshin”, meaning when will wealth management become automated? Steve thinks it’s far closer than people think. He references Google Duplex, which is basically a computer speaking to us, yet fooling the human on the other end of the phone into believe he/she is conversing with another real human.There’s way more in this episode: Steve’s favorite private investment right now… how tax planning is the biggest alpha generator out there but doesn’t receive the emphasis is deserves… how the industry goes out of its way to complicate things for investors… Vanguard Life Strategy Funds… and of course, Steve’s most memorable trade.What was it? Find out in Episode 117. Learn more about your ad choices. Visit megaphone.fm/adchoices