The Meb Faber Show - Better Investing

In Episode 48, we break new ground for The Meb Faber Show. Departing from our usual world of stocks and bonds, we welcome expert numismatist, Van Simmons. For anyone unfamiliar with the word, a “numismatist” is a rare coin collector.We start where we usually do – with a bit of background on our guest. Van gives us a quick overview on how he got into his line of work. But it’s not long before the guys jump into the world of rare coins, with Meb asking Van to provide a general, contextual overview.Van’s description of the world steers the conversation toward perhaps one of Van’s biggest contributions to the coin collecting community – the creation of an innovative coin grading standard. Meb believes this grading standard was huge, as “not getting screwed” is such a concern for all sorts of investors.Next, the guys cover a few, quick questions – how has coin space evolved over the years… what were the biggest seismic changes… and which demographic Van sees as the most active in this space. But they dig deeper when the conversation turns toward international demand – specifically from China.Van tells us how he bought two high-grade Chinese silver dollars in the late 90s. He found them in his safe two and a half years ago, and wondered what they were worth. He called an auction company and was told that he could have sold them at their last auction about four months earlier for $60-70K a coin (Van actually sold the coins some months later at a hefty price, though not quite this high). And what had Van paid for those coins? $600 for one and $900 for the other.Meb brings the conversation back to U.S. market, asking Van if there is a most famous or most traded coin – in essence, is there a “blue chip” coin?Van tells us one of them would be a 1907 twenty-dollar high relief (a $20 Saint Gaudens). He follows up with more color on the coin’s origin, dating back to President Roosevelt, as well as some interesting trivia on it relating to its high-relief profile. Other coins Van mentions are the 1804 Silver Dollar and the 1913 Liberty Nickel.Next, Meb asks how a new coin investor with a long time-horizon could get started with $10K. Meb reveals this is not an academic question – he actually intends to have Van build him a portfolio with a $10K seed. Meb’s criteria are: one, spread his money around as much as possible, say, up to 5-10 coins; two, he wants to tilt toward beautiful coins; and three, Meb wants coins that have some historical significance. Van gives us his thoughts.The guys jump around a bit before getting onto the topic of counterfeiters. Unfortunately, this can be a problem. Van tells us a story illustrating the danger before the guys discuss how to avoid getting ripped off.This leads into the topic of common mistakes that new coin collectors make. Van tells us that the biggest mistake is buying everything. The hardest thing to do is find someone you trust who will steer you toward great pieces that will hold value.Next, Van and Meb branch out, discussing other collectibles. There’s talk of pocket knives, Native American artifacts, baseball/basketball cards – even a great story involving Meb’s mom and a Michael Jordan rookie basketball card.Meb asks Van as technology improves, at what point does grading become software based, with optical recognition?Turns out, this technology has already been here – and Van was a big part of its creation. But the collecting community preferred human-graders. It’s a fascinating story you’ll want to hear.There’s lots more in this episode: a Mickey Mantle card worth $5M… Milton Friedman (one of Van’s clients) discussing the inevitable demise of the U.S. dollar… and of course, Van’s most memorable story related to collecting. This one involves a long-lost coin that turned out to be very valuable.What are the details? Find out in Episode 48. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 47, we welcome New York Times bestselling author, Ric Edelman.We start with some quick background on Ric, but then jump into the main topic: the future of technology and how it will affect our lives.In essence, the future is going to look far different than what we’ve known. The tendency is to believe that the future will be similar to what our parents and grandparents experienced as they aged. A linear progression – school, work, retirement, death.Ric tells us this is going to change. The linear lifeline is going away. It will more resemble school, work, back to school, a new, different career, then a sabbatical, more school, and so on… Think of a lifeline that’s more cyclical.What’s the reason? Well, we’re going to be living far longer. Technological and health care advances mean we’re going to be far more vibrant much later in life, so this will change everything we know about retirement and our traditional life-paths.The guys then dig into the role that technology and robots will play in all this. Robots are going to eliminate numerous existing occupations. On the other hand, new jobs and skill sets will be created, but we’ll have to go back to school to learn them.Meb ask Ric to dive deeper into this “loss of jobs” forecast, as it’s a common source of concern for many people.Because of computers’ increased capacity, robots will be able to do jobs that humans do – and not just “factory line” type jobs. Any jobs that are repetitive in nature are at risk – which means white collar jobs too; for example, certain types of legal work. As another example, did you know that computers are already writing news articles? There’s a program that currently writes sports stories, and apparently, readers can’t tell the difference between a human and computer author.Ric tells us “According to Oxford University, 47% of the occupations in America will be gone within 15 years.”So what can you do to protect yourself from being replaced by a robot?There are 4 skill sets that will give you an edge: thinking, managing, creating, and communicating. These four things will be the most difficult for computers to do.The conversation bounces around a bit before the guys dig deeper into how working has changed over the years – and how it will continue to change. This leads into a conversation contrasting the “New York model” with the “Hollywood model.”In essence, the New York model is “one job.” You do a given thing with same people for the same customers for decades. With the Hollywood model, you have a group of people who come together for one project, though they’re likely working on multiple projects at the same time. You’re using your skills in a wide variety of activities at the same time. We’re moving toward a Hollywood model.There’s way more in this episode: behavioral challenges for investors and the role that an advisor should play in helping… an irrevocable trust, created by Ric, that’s helping parents save money for their children… the challenges facing Social Security given our much longer life-spans… Even why personal finance isn’t taught in schools, despite being one of the most critical skills our kids should learn.So why isn’t it taught? Hear Ric’s thoughts in Episode 47. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 46, we welcome Real Vision TV co-founder, Raoul Pal. The guys start by going over a bit of Raoul’s background.Raoul started his career by running equity and equity derivatives at Goldman Sachs. Through this, he learned the macro investing world. He then joined a hedge fund, managing its global macro fund before retiring at 36 on the coast of Spain. But it was then that Raoul decided to start a research service, the Global Macro Investor, aimed at large, institutional players.However, in 2008, Raoul realized the ordinary investor had been let down by the system and financial media. So, in an effort to help, Raoul founded Real Vision TV with Grant Williams. Real Vision features the smartest guys in the world teaching you how to invest, what their best ideas are, and so on…After this background, the guys jump in, with Meb asking Raoul about his overall investing framework. Raoul tells us this whole game is about probabilities. To invest successfully, we look for times when the odds are in our favor. So, to look for these times, Raoul developed a system based on the business cycle – with a focus on GDP, as asset prices are moved by economic growth. The model relies heavily on findings from ISM reports (Institute for Supply Management). Raoul tells us that when looking at ISM numbers, it’s not just the level that counts, but also the rate of change of those levels. Overall, this model helps forecast S&P levels, bond yields, inflation, world trade… basically everything!So, what is it saying now?“We’ve got to expect a recession this year or next year, or if we’re at the wild extremes, the year after that.”Meb brings up stats from Ned Davis, tying ISM levels to market returns. He says how last year, it appeared that ISM levels were rolling over, but then they steadied and now are a bit high. He asks Raoul what it means for us now.You’ll want to hear Raoul’s response, which includes the possibility that asset prices may weaken soon – while bond yields may suffer significantly.Meb then points to Raoul’s call of a potential short trade in oil. Raoul tell us that this is the largest speculation in oil – ever. Way too many people went long, and this speculative positioning is too far ahead of the actual business cycle. He says oil is maybe $10-$15 too high right now. It’s coming close to being a perfect trade setup. Oil could hit as low as $30.Next, the guys discuss great opportunities around the globe. Raoul points to Cypress. Greek stocks are still hammered too. He says the upside could be huge – potentially 10x your money. Meb agrees, mentioning his own study about markets that have gone down big, or stayed down for many years. The upside is often spectacular.The conversation then steers toward one the biggest emerging macro story in the world – India. You’re going to want to hear this one. It’s a fascinating story, and Raoul gives us actionable investment ideas.Next up – Bitcoin. Raoul gives us a quick primer on Bitcoin and blockchain technology. He tells us that many people are confused as to what, exactly, it is – currency? Investment? Raoul gives us his thoughts.There’s way more, as this episode is packed with great content. The guys talk about Google’s and IBM’s prospects as investments… artificial intelligence… making money entrepreneurially rather than through investing… and Raoul’s most memorable trade – it’s fascinating story involving the South African Rand that you don’t want to miss.What are the details? Find out in Episode 46. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 45, we welcome one of the most often-requested guests for our podcast, Gary Antonacci.After a few minutes on Gary’s background, the guys dive into Gary’s “Dual Momentum” research. To make sure everyone is on the same page, Meb asks for definitions before theory. “Relative momentum” compares one asset to another. “Absolute momentum” compares performance to its own track record over time, also called time-series momentum. Gary uses a 12-month lookback, and compares his results to the S&P and other global markets. In essence, you’re combining these two types of momentum for outperformance.The guys talk a bit about using just one of the types of momentum versus combining them, but Gary tells us “You get a synergy that happens when you use (Dual Momentum).” The compound annual growth rate applied to the indices is 16.2% dating back to 1971, compared to the S&P’s 10.5%. And the reduction in volatility and drawdown is under 20% compared to 51% for the S&P.With the basics of Gary’s Dual Momentum out of the way, Meb decides to go down some rabbit holes. He asks about the various extensions on Dual Momentum. It turns out, Gary says you can introduce some additional granularity, but not a lot. Almost nothing really improves the current version of Dual Momentum substantially. (And in case you’re wondering, you can go to Optimalmomentum.com to track Gary’s performance.)Meb then brings up questions that came in via Twitter. The first: “What sort of evidence would be required to convince Gary that Dual Momentum won’t work in the future?”Gary tells us that because the evidence for Dual Momentum is so strong, the evidence against it would have to be strong. We would need more than a few years of underperformance, and instead, a full market cycle of underperformance. But more importantly, he’d want to understand why it would underperform – for instance, perhaps everyone decided to become a trend follower, squeezing out the alpha? Gary quickly ads that such a scenario will likely never happen due to our behavioral tendencies as investors.The next Twitter question: “What are your thoughts on doing something alpha oriented versus just dropping into cash and bonds when you’re in a downtrend?”Gary says shorting doesn’t work because of an upward bias to stocks. Meb agrees, saying that shorting actually amps up risk and volatility, but doesn’t really add to risk-adjusted returns.Next, Meb brings up a post Gary wrote about commodities – are they still a good diversifier? The idea is that markets and their participants change over time. Gary thinks passive commodities have changed over time. And while they were a good diversifier to a stock/bond portfolio before, everyone has started doing it, which changed the nature of the market, reducing the benefit.Gary also mentions the risk of others front-running you. Meb chimes in, agreeing – you’re going to want to hear this back-and-forth.There’s tons more in this episode: moving away from market cap weighting when using Dual Momentum… Dual Momentum applied to sector rotation… sports gambling… our tendencies to stray from our investment plans… and Gary’s most memorable trade – hint: it involves an options blow-up.What are the details? Find out in Episode 45. Learn more about your ad choices. Visit megaphone.fm/adchoices

Last week’s solo “Mebisode” was met with lots of positive feedback, so we’re going to do one more in this format before we return to interviewing guests. Therefore, in Episode 44, Meb walks us through his book, “Invest with the House, Hacking the Top Hedge Funds.”Picking stocks is hard—and competitive. The most talented investors in the world play this game, and if you try to compete against them, it’s like playing against the house in a casino. Luck can be your friend for a while, but eventually the house wins. But what if you could lay down your bets with the house instead of against it?In the stock market, the most successful large investors—particularly hedge fund managers—represent the house. These managers like to refer to their top investments as their “best ideas.” In today’s podcast, you will learn how to farm the best ideas of the world’s top hedge fund managers. Meb tells us who they are, how to track their funds and stock picks, and how to use that information to help guide your own portfolio. In essence, you will learn how to play more like the house in a casino and less like the sucker relying on dumb luck.So how do you do it? Find out in Episode 44. Learn more about your ad choices. Visit megaphone.fm/adchoices

Exploring a strategy combining value and momentum factors in stock selection for market outperformance. Discussion on managing risk through offensive and defensive tactics. Insights on reducing volatility and enhancing value in long only strategies.

Episode 42 is a remote podcast with Meb calling in from Hawaii. Fortunately, the roosters in the background aren’t loud enough to interfere...Though this is a Q&A episode, it’s slightly different in nature. Rather than discuss listener questions, we’re experimenting with using some of Meb’s “tweets of the week” as our topics of conversation. It’s a way of getting inside Meb’s head a bit more. We’d love your feedback, so love it or hate it, let us know how we can make this format (or any, for that matter) better and more beneficial for you.Some topics you’ll hear covered in this episode include:-         How do you know when your market strategy has lost its efficacy, versus when it’s simply having a rough stretch, yet will rebound?Details: One of Meb’s tweets suggested “After you read Buffett’s new letter to investors, read this,” which pointed toward his post about how Buffett’s long-term returns have crushed those of nearly everyone else, though he’s underperformed the market in 7 of the last 9 years. This brought to mind a question which Meb asked Ed Thorp: “When do you know when a strategy has failed, versus when it is time to remain faithful, as reversion to the mean is likely about to happen?” The Thorp answer was generally, “Do your homework so you know whether your drawdown is within the normal range of probabilities, or something unique” We push Meb on how a retail investor is supposed to do that.-         With the VIX hovering around 11, is Meb considering buying LEAPS?Details: If you’re not an options guy, don’t worry. Meb takes this question in a slightly different direction, discussing low volatility and options more in a “portfolio insurance” type of way. You buy insurance on your home and car, right? Buying puts at these low volatility levels has some similarities to buying portfolio insurance.-         The last time stock market newsletters were this bullish was Jan. 1987. To what extent does this level of ubiquitous optimism get Meb nervous?Details: Lots of indicators seems to be suggesting we’re far closer to the end of this bull market than the beginning. Of course, that doesn’t mean it’s going to happen tomorrow. You’ll hear Meb’s take on various indicators and what he’s taking away from them right now.-         Newfound did a study, finding that the 60/40 model is predicting 0% through 2025. What are Meb’s thoughts in general?Details: Meb is not surprised by this prediction. He’s discussed future returns based on starting valuations for a long time. But if you’re somewhat new to the podcast, this is a great primer on how Meb views potential returns of various asset classes going forward.There’s plenty more, including something Cliff Asness referred to as “deeply irrelevant,” how advisers can excel as robos continue changing the investment landscape, Meb’s experience at a recent Charlie Munger speech, and Meb’s issue with Tony Robbins.What is it? Find out in Episode 42. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 41, we welcome Doug Ramsey from Leuthold. Meb is especially excited about this, as Leuthold publishes his favorite, monthly research piece, the Green Book.After getting a recap of Doug’s background, Meb dives in. Given that we’re in the Dow’s second longest bull run in history, Meb asks how Doug sees market valuation right now.Doug’s response? “Well, that’s a good place to start cause we’ll get the worst news out of the way first...”As will surprise no one, Doug sees high valuations – believing that trailing earnings-based metrics might actually be underestimating the valuation risk.This prompts Meb to bring up Leuthold’s “downside risk” tables. In general, they’re showing that we’re about 30% overvalued. Across no measure does it show we’re fairly valued or cheap.Doug agrees, but tells us about a little experiment he ran, based on the question “what if the S&P were to revert to its all-time high valuation, which was on 3/24/2000?” That would mean our further upside would stretch to about 3,400, and we’re a little under 2,400 today. Doug summarizes by telling us that if this market is destined to melt up, there’s room to run.Meb agrees, and makes the point that all investors have to consider the alternate perspective. While most people believe that the markets are substantially overvalued, that doesn’t mean we’re standing on the edge of a drawdown. As we all know, markets can keep rising, defying expectations.The conversation then drifts into the topic of how each bull market has different characteristics. Meb wants to know how Doug would describe the current one. Doug tells us the mania in this bull market has been in safety, low volatility, and dividends. Overall, this cycle has been characterized by fear – play it conservative.The guys then bounce around across several topics: small cap versus large cap and where these values are now… sentiment, and what a difference a year makes (Doug says it’s the most optimistic sentiment he’s seen in the last 8 years)… even “stock market returns relative to the Presidential political party” (historically, democratic Presidents have started office at a valuation of 15.5, leading to average returns of 48%, while republicans have taken over at a valuation of 19, which has dragged returns down to 25%). The bad news? Trump is starting at very high valuations.Next, the guys get into the biggest problem with indexing – market cap weighting. Leuthold looked at what happens to equities once they hit 4% of their index. The result? It becomes incredibly hard to perform going forward. It’s just near impossible to stay up in those rarified market cap tiers. So what’s the takeaway? Well, Doug tell us that he’d bet on the 96% of other stocks in the S&P outperforming Apple over next 10 years.This episode is packed with additional content: foreign stock valuations… value, momentum, and trend… the Coppock Curve (with a takeaway that might surprise you – higher prices are predicted for the next 12-24 months!)… The best sectors and industries to be in now… Why 2016 was the 2nd worst year in the past 89 years for momentum…Finally, for you listeners who have requested we pin our guests down on more “implementable” advice, Meb directly asks what allocation Doug would recommend for retail investors right now.What’s his answer? Find out in Episode 41. Learn more about your ad choices. Visit megaphone.fm/adchoices

We’ve had some great guests recently, and have many more coming up, so we decided to slip in a quick Q&A episode. No significant, recent travel for Meb, so we dive into questions quickly. A few you’ll hear tackled are:-         Some folks talk about how the inflation numbers are manipulated by the government, and how the calculations have changed. Is there any merit to this? -         What is your opinion on market neutral strategies? If you had to build a market neutral ETF, what strategy would you use? -         Your buddy, Josh Brown, indicates that a significant portion of valuations, specifically CAPE, are the confidence in the stability of the stock market, which will justify high valuations here in the U.S. This makes intuitive sense, but I’d like your thoughts. -         Have you given any thought to the application of a trend following approach over a lifetime? Specially, use buy-and-hold when younger, but move to trend as one approaches retirement? -         Based on your whitepapers, you’ve indicated that trend following is not designed to increase returns, but rather, to limit/protect your portfolio from drawdowns. If this is the case, how does an increase in the allocation toward trend in your Trinity portfolios correlate to a more aggressive portfolio? It seems if “more trend” is supposed to reduce drawdowns, it should be found in Trinity 1 instead of Trinity 6. -         Have you done any research on earnings growth rates compared with CAPE to get a more accurate indicator of expected returns? For example, while the CAPE for many countries in Europe is low, their growth rates are also considerably lower than the U.S., which could justify the lower CAPE as compared with the U.S. Your thoughts?-         Does your “down 5 years in a row” rule apply to uranium, or is it too small?As usual, there’s plenty more, including a listener wondering why Meb didn’t challenge Rob Arnott on a discussion topic during Rob’s episode, why Meb is in a cranky mood (involves auditing), and a request for more gifts of tequila from listeners. All this and more in Episode 40. Learn more about your ad choices. Visit megaphone.fm/adchoices

Legendary self-made man Ed Thorp shares his upbringing during the Great Depression, mischievous pranks, and journey from gambling to Wall Street. He discusses developing a successful blackjack strategy, the importance of risk management, achieving stable returns through hedged securities, and navigating investment challenges. Ed also talks about the writing process, defying the odds, investments, call options, and pursuing happiness over wealth.