Fill The Gap: The Official Podcast of the CMT Association

Episode 14: Meb Faber, CMT

February 11, 2022 Meb Faber, CMT with Tyler Wood and Dave Lundgren, CMT, CFA Season 2 Episode 14
Episode 14: Meb Faber, CMT
Fill The Gap: The Official Podcast of the CMT Association
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Fill The Gap: The Official Podcast of the CMT Association
Episode 14: Meb Faber, CMT
Feb 11, 2022 Season 2 Episode 14
Meb Faber, CMT with Tyler Wood and Dave Lundgren, CMT, CFA

When not skiing Lake Louise or surfing off the California coast, this month’s guest is helping investors catch the next big wave in the markets. For our listeners not already familiar, Mebane Faber, CMT is the:

-          Author of 5 books and editor of 2 compilations

-          Creator of the Idea Farm – a market research library

-          Host of the Meb Faber Show, one of the most widely received podcasts on financial topics

-          Scores of white papers 

-          and hundreds of blog posts

As the co-founder and the Chief Investment Officer of Cambria Investment Management, Faber is the manager of Cambria’s ETFs and separate accounts. This month’s discussion covers all the tools and processes that drive the investment practice of Cambria including, the guiding pillars of value and momentum. Known for advocating for diversified, multi-asset portfolios, this interview tugs at the challenges of global investing and the home bias that has worked to the advantage of American investors during the past decade. As regimes shift, however, leadership may shift again to ex-US equity markets and alternative assets within the commodities space.

Mr. Faber graduated from the University of Virginia with a double major in Engineering Science and Biology. This background undeniably shaped his investing practice with a firm grounding in the scientific method. Meb is an ardent researcher exploring the persistent anomalies of the market and continuing to discover and explore the nuances of multiple strategies in practice. 

For complete resources visit:

Enjoy episode #14 with our special guest Meb Faber, CMT

Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.

For complete show notes of every episode, visit:

Give us a shout:
@dlundgren3333 or
@_TBone_Pickens or
@CMTAssociation or

CMT Association is the global credentialing authority committed to advancing the discipline of technical analysis in the financial services industry. We serve members in over 137 countries. Our mission is to elevate investors mastery and skill in mitigating market risk and maximizing return in capital markets through a rigorous credentialing process, professional ethics, and continuous education. CMT Association formed in the late 1960s with headquarters in lower Manhattan, NY and Mumbai, India.

Learn more at:

Show Notes Transcript

When not skiing Lake Louise or surfing off the California coast, this month’s guest is helping investors catch the next big wave in the markets. For our listeners not already familiar, Mebane Faber, CMT is the:

-          Author of 5 books and editor of 2 compilations

-          Creator of the Idea Farm – a market research library

-          Host of the Meb Faber Show, one of the most widely received podcasts on financial topics

-          Scores of white papers 

-          and hundreds of blog posts

As the co-founder and the Chief Investment Officer of Cambria Investment Management, Faber is the manager of Cambria’s ETFs and separate accounts. This month’s discussion covers all the tools and processes that drive the investment practice of Cambria including, the guiding pillars of value and momentum. Known for advocating for diversified, multi-asset portfolios, this interview tugs at the challenges of global investing and the home bias that has worked to the advantage of American investors during the past decade. As regimes shift, however, leadership may shift again to ex-US equity markets and alternative assets within the commodities space.

Mr. Faber graduated from the University of Virginia with a double major in Engineering Science and Biology. This background undeniably shaped his investing practice with a firm grounding in the scientific method. Meb is an ardent researcher exploring the persistent anomalies of the market and continuing to discover and explore the nuances of multiple strategies in practice. 

For complete resources visit:

Enjoy episode #14 with our special guest Meb Faber, CMT

Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.

For complete show notes of every episode, visit:

Give us a shout:
@dlundgren3333 or
@_TBone_Pickens or
@CMTAssociation or

CMT Association is the global credentialing authority committed to advancing the discipline of technical analysis in the financial services industry. We serve members in over 137 countries. Our mission is to elevate investors mastery and skill in mitigating market risk and maximizing return in capital markets through a rigorous credentialing process, professional ethics, and continuous education. CMT Association formed in the late 1960s with headquarters in lower Manhattan, NY and Mumbai, India.

Learn more at:


When not skiing Lake Louise or surfing off the California coast, this month’s guest is helping investors catch the next big wave in the markets. For our listeners not already familiar, Mebane Faber, CMT is the:

  • Author of 5 books and editor of 2 compilations
  • Creator of the Idea Farm – a market research library
  • Host of the Meb Faber Show, one of the most widely received podcasts on financial topics
  • Scores of white papers
  • and hundreds of blog posts

As the co-founder and the Chief Investment Officer of Cambria Investment Management, Faber is the manager of Cambria’s ETFs and separate accounts. This month’s discussion covers all the tools and process that drive the investment practice of Cambria including, the guiding pillars of value and momentum. Known for advocating for diversified, multi-asset portfolios, this interview tugs at the challenges of global investing and the home bias that has worked to the advantage of American investors during the past decade. As regimes shift however, leadership may shift again to ex-US equity markets and alternative assets within the commodities space.

Mr. Faber graduated from the University of Virginia with a double major in Engineering Science and Biology. This background undeniably shaped his investing practice with a firm grounding in the scientific method. Meb is an ardent researcher exploring the persistent anomalies of the market and continuing to discover and explore the nuances of multiple strategies in practice.

Enjoy episode #14 with our special guest Meb Faber, CMT



Tyler Wood    0:13

Welcome to Fill The Gap, the official podcast series of the CMT Association posted by David Lundgren and Tyler Wood  . This monthly podcast will bring veterans market analysts and money managers into conversations that will explore the interviewees investment philosophy, their process and decision making tool. By learning more about their key mentors early influences and their long careers in financial services Fill The Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered engineered and refine the design of Technical Marketing.

Fill The Gap is brought to you with support from Optuma, a professional charting and data analytics platform. Whether you are a professional analyst, Portfolio Manager or trader, Optuma provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn

Good morning, David Lundgren and welcome to February 2022. How are you doing my friend? Nice beard.

David Lundgren, CMT, CFA  1:58

Thank you very much. I you know, trying to grow back, get ready for the ski trip that facial protection. It’s good to see,

Tyler Wood    2:04

like four feet of snow in Boston over the weekend, right? I know. I am so thrilled that this month, we get to feature the fantastic interview we had with MEB Faber CMT. We did record this a couple of weeks ago, markets have been going a little haywire since then. But I wanted to ask you, you know, what really stands out about having a person of such high profile on Fill The Gap?

David Lundgren, CMT, CFA  2:26

Well, it actually checks the boxes for us in many regards. I mean, just to reiterate, for our listeners, the purpose of the podcast is to continually highlight the value of technical analysis either as a standalone or as an augmentative strategy to demonstrate the value of the CMT Association and of course to then from there highlight CMT charterholders, who are actually thriving with that charter. And you really can’t go much better than bet favor. I mean, this guy is written one of the most frequently downloaded white papers on tactical asset allocation on the web. He’s got a thriving, ETF business, he’s almost managing a billion dollars with the strategies. And then of course, if you know him, it’s because he’s wildly successful in social media, particularly with his MEB Faber show, which is a great show that I try to watch as often as possible. So he just checks the boxes for us in many regards and what we’re trying to accomplish with this podcast, so it was a great privilege to have them on.

Tyler Wood    3:19

Absolutely. Dave, since you and I started working together with the CMT associations advocacy committee. years ago, we’ve talked about this idea that technical analysis helps navigate the gap between intrinsic value and market price. And I think financial news media has often fallen into the trap of hitting fundamentals against technicals are that they’re, you know, their contrarian views and you could never use them together. And what I love about MEB Faber is that he’s very honest about the titles people throw around. Oh, he’s a quant. Oh, he’s a systematic investor. Oh, he’s, you know, it’ll take them all right. Like it doesn’t really matter what label you put on. But I think what really speaks to his process he posted on Twitter not long ago, right. He talks about the two pillars of his process being value and momentum, right, technicals and fundamentals. And he says using the cape ratio for market timing would have had you out of the stock market since 1993. Missing 961% in Gates, what I love about math is that you know, you you need to understand when valuations are at extremes, but you also need to understand, you know, capturing the large trends and it does that does that extremely well. This interview obviously covered a lot of ground. But one thing I wanted to point out to our listeners is just how integral technicals were in Webb’s early stage of his career. And we talked with him a little bit about the dates where he took the CMT exams, level one in April 2001, level two in April of 2003. So you think about the bottom after the tech burst tech bubble burst, trying to get back into equities. And then as the CMT Association has evolved over the years, we used to offer an option for writing a paper instead of sitting for Level Three exam members Surfing skiing. A man of mystery that he is really doesn’t like setting for standardized tests. And I don’t blame him. But he wrote a really influential paper in 2006, to pass his CMT level three. And he was not too sheepish to share with us that the original title included the phrase market timing. But as you mentioned, Dave, his paper that was in the Journal of wealth management and posted on the SSRN database is called a quantitative approach to tactical asset allocation. He got rid of that trigger keyword market timing, and I think that sounds wastewater

is a very sharp mind and knows what his audience is looking for. But I think no matter what keywords you place on it, looking for those relative trends, appreciating market history, he’s he’s really done a lot with those foundational concepts from the CMT program and from the technical community. So it’s just a great conversation to have with the person who’s been so successful as you point out,

David Lundgren, CMT, CFA  5:56

outstanding. Let’s hop into it. Let’s get into our conversation

Tyler Wood    5:59

with MEB Faber on Fill The Gap

David Lundgren, CMT, CFA  6:07

Welcome to Fill The Gap the official podcast of the CMT Association this month on the podcast Tyler and I are very excited to be joined by MEB Faber. Matt has been a CMT charterholders since 2006, perhaps you’ve read one of his books, or maybe you’ve read one of his white papers, or perhaps you’re invested even in one of several of his ETFs either way, you probably have come across in social media through LinkedIn and Twitter, where he’s a very prolific but informative contributor to the investment dialogue. In particular MEB hosts the wildly popular MEB Faber show on YouTube, which I highly recommend to our listeners. So we have so much to talk about. So why don’t we just get started MEB Welcome to Fill The Gap. Great to be here, guys. Thanks for having me. Good to see you, buddy. Great to meet you for the first time. I hope I’m looking forward to the time when we can meet in person and you know, get around this COVID condition. But it’s good to meet you either way. Why don’t you give us a quick? I mean, as I said I think most of our viewers or listeners have know who you are. But why don’t you give us a quick rundown of your career trajectory, what got you got you to where you’re at. And then in particular, what drew you to the light of technical analysis?

Meb Faber, CMT 7:11

depends who you ask. Some people say the dark side okay, so under a minute graduated university, I was an engineer by a tech guy manage the time at the peak of the biggest equity bubble of our lifetime, the highest equity valuation and history 1999 2000. And not only was it in Internet stocks, but also in biotech, which was my world. And so the original plan was to go to grad school, which I did down the road and worked for a biotech mutual fund, which then proceeded like most sector funds focused on tech and biotech in that period to go down and down and down and down. And so at that point, my path which was originally to be a PhD student, and go down the life sciences route started diverge and that one year off became to two became three hobby became a career and vice versa. I moved out to the West Coast joined up with quantitative commodity trading advisor CTA or CPO, they asked who wanted to open up their a satellite office in Lake Tahoe. I was the first to raise my hand so did a year or two there. I traded my surfboard for excuse me, my skis for a surfboard moved to Los Angeles about 2005 to start Cambria, fast forward. Wow, 16 years later, we now manage about 1.2 billion across a dozen funds, quantitatively paced, and all over the world over almost 100,000 investors. And I think that was under a minute.

Tyler Wood    8:41

Here we go. It’s fantastic,

David Lundgren, CMT, CFA  8:42

as well. All right,

Tyler Wood    8:44

I’m gonna throw a couple of dates at you because I did a little bit of homework. And I found out that you sat for the first level of the CMT program in April of 2001. Ladies, gentlemen, you passed on your first track, then 2003, right, when everybody was hating the market and probably needed to get back in, you finished level two. And then you wrote a paper that got accepted in May of 2006. And you became a CMT? charterholders tell me how does that correspond to what was going on in the s&p Did those dates Did you see what was going on and feel that there was some value to be had from technicals? And then I want to I want to talk about your paper too.

Meb Faber, CMT 9:19

Yeah. So like most students, or recent graduates, I’d had enough we’re taking tests we had read all the material and kind of reluctantly would sit for those tests. But part of the inspiration on a technical analysis side was a to get an appreciation for history. I think one of the biggest benefits of the CMT program is really this appreciation for people that were doing work not just a decade ago, but many decades ago. I mean, we’re talking 1950s 1920s And earlier and so you start to learn about the biggest thing any investor can do is learn market history. And so that was part of it. Part of it was out of a confusion and trauma from watching stocks regardless of their fundamentals in my mind, go down and then go down and down and down, down, down and down, down and then reverse in 2003. And so that led for two, as you mentioned, level one, level two. And with screaming, kicking, climbing came along level three. And the reason that took so long was I really didn’t want to take another test. I enough tests, grad school was weighing on me. And so the CMT program, MTA said, You know what we’re doing away with this potential paper option to opt out of the test. And I said, Oh, hell, no, I am not about to sit for another test. And so I said, What can I possibly write about and turn in an abstract and so probably December 31, at 11:58pm, I sent in the most generic abstract topic I could possibly think about that would hopefully put me in the queue for not taking the test and they accepted it strangely. And the rest is history. This, you know, kind of went on to become oddly one of the most downloaded papers in history, there was a lot of serendipity with that it came before the financial crisis would have protected a lot of investors during that period. We’re happy to get into the paper, but the CMT, avoid test avoidance, whether I knew it at the time or not ended up shaping a lot of my career.

Tyler Wood    11:17

I appreciate the honesty about that taking tests after you have graduated and begin your adult life. It’s tough to go back. So best to do it early. The paper was called global asset allocation. If I’m not mistaken, correct.

Meb Faber, CMT 11:29

You are mistaken, but it’s close. So the original name was a tactical approach to market timing or it but had market timing in the title. I had never published an academic paper before. And so wrote this paper and sent it to about 12. Investing luminaries, you know, if I mentioned these names, you guys would know all 12. And interestingly enough, you know, eight of them, obviously ignore me as a 22 year old 25, whatever I was, at the time, 20 something year old person spamming them, a couple of others wrote really nasty, terrible responses that I kept closed. It’s like the football players that publish like the newspaper or where they’re all the bad press or someone’s talking as motivation. I got a couple of those. I mean, we’re talking like Nobel laureate mean, just kind of nasty responses. But I got a couple of really great offense, right, really thoughtful ones, you know, from people that now manage hundreds of billions of dollars. And really those couple of responses more than all the others combined, but ended up publishing it CMT the name that I changed it to, because no, there’s something about the phrase market timing the triggers, people use, like a dozen phrases in finance that have so much baggage, it’s almost like they’re best avoided. And if we know anything about markets, and investing is the importance of narratives. And so I changed the title to a quantitative approach to tactical asset allocation. It’s a mouthful, but it sounds academic and rigorous, right. And you know, that one was much more palatable to the broad community, I don’t think the technical analysis community cared about the market timing aspect, that’s like a compliment. But for the rest of the world, they would see it as like derogatory, like, you know, that’s impossible, nothing you can do. And then the paper got published, got some attention. But really, once financial crisis hit really became popular, because it worked, you know, and it wasn’t my idea. And the simple part of the paper was simple using a long term moving average, that had been around for over 100 years. Now, back to the time of Charles Dow, you know, talking about these simple ideas. There’s a tail thing, the average, yeah, I mean, I said, Look, you know, we can’t do daily data back, but I want to do monthly, we’ll just do my spin on it. And 10 month is roughly the same as 200. And let’s see if it works. And shockingly enough to me at the time it worked in every market we tested, it didn’t really work the way that I think a lot of people hope that or expect market timing to work which is you’re going to have a magical wand that’s going to exactly time you to market tops and bottoms. But what it did do is it kept you invested for the majority of free market move in any market and then avoided the big nasty downdraft so on aggregate lowers volatility lowers drawdown. And that’s the whole point of investing is can you get to the finish line? You know, with your investing approach and mini camp,

David Lundgren, CMT, CFA  14:12

when I think about the, I guess, interviews, I’ve seen you give IV interviews. I’ve seen up the interviewee the different papers, you’ve read posts on social media, I have a strong impression that you have a very strong valuation sensitivity. Is that true? Or is that something? Is that an impression? You can correct? Yeah, it

Meb Faber, CMT 14:28

  1. And I like to look at the two big pillars for us. And we could go down the market cap indexing, you know, rabbit hole if you want, but really is if you’re going to move away from basic indexing, which is amazing and it’s a totally fine way to invest. The fundies will hate to admit it, but the market cap weighting indexing is a simple technical analysis approach. It’s you invest more as price goes up and less as price goes down. That’s it. It’s like the simple system on the planet trend following it. And it’s fine. It’s trend following and it’s fine at its core and the beauty is in 20 22 you can invest in a global portfolio that for essentially free today, tax fishing ETFs, amazing stocks, bonds, commodities real estate, never been a better time to be an investor. If you’re gonna move away from that the two pillars we really love our value, you know, again goes back 100 years time have been Graham and even earlier. And on the flip side, a real trend following approach which overlaid on either very large asset classes or sectors and industries, I think can be a wonderful complementary approach. And we put the two together, they’re kind of a yin yang, often, not always, sometimes they line up. And to me, that’s really like, the perfect investment. If you can find something cheap and hated that’s in an uptrend. That’s really my ideal. But yeah, those those two pillars are what we build almost all of our investing strategies off of.


David Lundgren, CMT, CFA  15:45

Yeah, I wanted to ask you about that. That was one of my questions for you. Because I, I’ve seen a lot of work done where you test value as a strategy. It does great over time you test momentum as a strategy degrade over time, then there’s quality and these other different attributes that you can test, they all individually stand alone as good, vibrant strategies. But then I think what you’ve done is you’ve actually combined them and my question for you is, do you actually lose some of the benefit of pure momentum, like just take pure momentum as a strategy and pure value as a strategy, put them together in a portfolio as two independent strategies that complement each other? versus actually intersecting them before you put the portfolio together? And then do you not just lose some of the potential big momentum plays with a value plays that you would miss because it’s not an uptrend and things like that?

Meb Faber, CMT 16:26

Yeah. So one of the best beautiful things about investing is if you can find two non correlated investments, now they can be an asset class, and the classic one, everyone understands stocks and bonds, and you find two things that don’t exactly zig and zag at the same time. And the combination is better than either alone. So you come up with this magical amalgamation of these two assets that turn into lower volatility and draw downs because they compound not exactly correlated. And so the extension of that as if you come up with not just two, but maybe 10 asset classes, the bowl of soup in the mix is more Optumal than just two. The problem, of course, a lot of times is the assets are similar when you don’t want them to be such as in drawdowns, or you come up with strategies that have the same components where they’re not exactly correlated. And so you can do that traditionally with value and momentum. And you know, we’d like to describe some of these strategies. So if you say value, and I think we said this in our first book over a decade ago, which was at Madison IV portfolio, we were talking about hedge funds, but just didn’t really any strategy. It’s like saying the word dog, right, like a Great Dane looks nothing like a bulldog, which behaves nothing like you know, a little Yeah, exactly. So while in general, they have four legs, bark, and scratch mine, they’re yours, you know, and they are totally different animals. And so same thing with strategies. And so when you say value, you know, you could have our largest fund is a value strategy that selects long only US stocks, well, that’s going to look a lot different from our Go Anywhere global value fund that invests in countries top down, right, so but in general, they’re both value in the main muscle movement, there’s value, and then you have momentum. And same thing like a lot of these tactical momentum or trend funds, some may be long, only, some may be long, short, some may be long flat, that moves to cash, so they’ll rhyme but not necessarily. Exactly. So then you get into the craft of the decision to even use any of those factors to me is more important than the fact of themselves. You know, I often say you look at any value metric on the US stock market, and it says it’s expensive. You cannot find a single value indicator that says US stocks are cheap, none of them. I mean, you can have a dozen they all say something and that’s all treasuries. Now, we’re just getting into a great rabbit hole, which is Treasuries are a great indicator to demonstrate that the relative attractiveness of stocks to bonds. Yeah, and so the problem so in 1999, when I graduated college and stocks were screaming expensive. The good news is, bonds yielded 5% Right, so you could hide out in bonds. The bad news today, stocks are screaming expensive, bonds yield nothing. And you’re seeing this in the market this year, stocks get hammered on days where bonds are also getting hammered talk about a nightmare for most people. And so that’s a relative versus absolute distinction that I think is going to cause a lot of problems in the cycle and so same thing on on really cheap markets. You know, the indicators in general should say the same thing if a markets really cheap like Russia, and the same thing for trend, it doesn’t mean it doesn’t matter if you use 10 month moving average 200 day moving average, on and on and on. In general, if something’s an uptrend, they should all say the same thing as a downtrend. That’s the main muscle movement in my mind. And so I don’t actually often really care about the exact indicator. I think it’s it’s not as important. So then when you want to combine the value and momentum and trend, very broadly speaking, you do have one of two ways and I actually don’t think matters, you’ll end up broadly in the same place eventually. One way is so for example, we have a fun that does this. You could rank all stocks by value, take the top 50, rank all stocks by momentum, take the top 50 and smash them together, right? That’s one. The other way you do it is rank all stocks by value rank all stocks by momentum, take the average of the rankings and then have a portfolio those portfolios will be different. I think they’ll both be better than a market cap. Anything’s better than market cap weighting. And so I think the craft of how you implement it, you know, there’s a lot of nuance, and it’s important, but I think often the decision to do it in first place, gets you 90% of the way there,

David Lundgren, CMT, CFA  20:40

so Anything’s better than market cap weighting. Then why is it so hard to beat the market? Okay. Wow,

Meb Faber, CMT 20:45

man, this this conversation. I’m glad we book two hours. Okay, so let’s talk about market cap weighting. Because Because market cap weighting used to mean indexing, and vice versa. And that’s no longer the case. But so back in the 70s, a bomb went off in our industry, which was Vanguard, and Wells Fargo and others started offering market cap weighted indexes. And Mark cap weighting is again, going back to a pure trend following system, the only input on this is price, the stock time shares outstanding. That’s it, right? There’s nothing else, there’s no tether to value, there’s no tether to anything else. And so as a stock goes up, like Tesla, it becomes a bigger and bigger part of the market cap, as it goes down like GameStop, Enron, whatever, it becomes less and less. And the beauty of that is you are guaranteed to own the winners no matter what you’re guaranteed on the losers. But eventually they only go to zero and the winners, which end up going up 10 bagger 100, bagger 1000 bagger take care of the losers that is like trend following one on one. And is the whole point of investing, right? It’s this concept of power law investing where it’s like five to 10% of all stocks generate all the returns, McDonald’s, Amazon, Walmart, on and off an apple today. So you have so you have to own those. And so there’s some great stats, a few papers that have published on this. And if you guys do shownotes, we’ll send them over to JP Morgan has won Best and binder has another capitalism distribution is another that it shows the distribution of stock returns where roughly two thirds of stocks underperform the index. So that speaks to why you say it’s so hard and managers underperform because if you just throw darts, chances are that stocks gonna underperform the index, about half of stocks have no rate of return over their lifetime and about a quarter straight up go to zero. So it’s these big outliers that really make the performance. However, the problem with a market cap weighted index is you have no tethered evaluation. So market cap weighted indices, if left alone, expose the investors to booms and busts, meaning you have these bubbles, where price become and this is I think occurring today, price becomes totally out of whack with, you know, a reason what a reasonable investor would pay for a broad market exposure. And this has happened many times in history, we look at long term P E ratios, for example, the US is around 40. Today at 45. In the bubble, on average, the valuation is 17 and low inflation around 22. But it’s been five before and this happens in other countries to rinse repeat every about five years, Japan was the biggest bubble we’ve ever seen had almost 100 in the 80s. And then it’s had no returns for

David Lundgren, CMT, CFA  23:23

three decades. So it’s been it’s still below that high. So if you break that market cap link,

Meb Faber, CMT 23:27

and now that everyone’s forgotten about Japan, it’s been a great place to invest. And I think it will continue to be a great place to invest for this cycle, you break that market cap link, and invest in anything else, you still end up owning the winners on aggregate, as long as you have enough companies and stocks, but usually outperformed by about a percent or two over time, I think there’s better approaches momentum or value or better approaches. But in general to me, and that’s not to say the market investing is bad, I think it’s fine. It’s just to me suboptimal.

David Lundgren, CMT, CFA  23:59

What do you say to the person who pushes back on the idea that the markets expensive today based on Well, compared to history, because simple math in the composition of the indices in the structure of the economy today? I mean, it’s it’s basically intellectual property is the key driver of asset value today, and you know, on a balance sheet that shows up zero versus back in the day, it was railroads and industrial, etc. I mean, maybe it’s just not a fair

Meb Faber, CMT 24:24

comparison. So we we like to look at all the measures of valuation. So you can use earnings, you can use sales, you can use cash flow, which is the the big one book is really kind of what you’re talking about here. I think, at the end of the day dividends too, you know, we rail on dividends for a lot of reasons, but at some point, you need to get those cash flows paid out right as an owner of securities. And so I’m not saying stocks are don’t own stocks. I’m saying in a world of globalization, you want to be agnostic where borders are becoming increasingly meaningless. You have a situation were foreign markets, if you look at the US at 40, foreign developed as low 24. And emerging is down around 15. And there’s nothing that triggers people more than talking about emerging markets for some unknown reason. And if we learn anything about history, you know, kind of circling back the beginning of our conversation is that every asset class has its time in the sun and time in the shade doesn’t matter if it’s gold, doesn’t matter if it’s crypto, emerging market stocks, value stocks, whatever. And they go through cycles. If you look at the cycle from when I graduated college through the financial crisis, and we were talking about this, and like oh, seven, we’d be having a very different conversation. US stocks went nowhere for a decade, emerging markets absolutely dominated value as a great strategy, real estate on and on, right. And these things, a good example for US stocks, you know, they outperform this decade, they smashed everything they outperform in the 90s. But really, before that didn’t outperform an equal way to GDP way to the world all the way back to I think the 1910s or 20s. Like it was it was a long time. Rarely my look on your question. markets will always change. And the beauty of the technical approach is you know that it shows up in price prices. I think it’s a Ned Davis, quote prices unique that it can’t diverge from itself. Everything else can diverge markets, the US can continue to get more expensive. We say this all the time. Someone’s like MEB. What’s to stop the us from going from 40 P to 60. And this is the 10 year Shiller P I say well, nothing Ilan made find free energy on the Moon or Mars, I don’t know it could keep going up. I mean, it’s happened before the darlings, everyone hates emergent emerging markets now. But in 2007, everyone loved them. The BRICS, India and China were trading in Pease of 40s and 50s, right higher than the US is now and then they’ve had horrible returns since and so it’s sort of a rinse, repeat. It’s hard to be asset class and strategy agnostic. But it’s important if we

Tyler Wood    26:51

could just dive into that example a little further Cape Shiller ratio for the US around 40. You look at a market like Hong Kong equities there, you know, 11 and a half, just in the last couple of weeks. And here we are recording this in mid January, we’ve seen emerging markets starting to catch the bid as the dollar rolls over to in your process or as you’re weighing out the various component pieces. Do you look for a confirmed uptrend in those better value plays those those global allocations? Or do you wait for something to crack in the US market before you move your allocations that value or trend the dominant,

Meb Faber, CMT 27:25

I think this is important, we have three allocation funds. And let me describe them to you. On one end of the spectrum is we have a global asset allocation fund that’s meant to reflect the world you buy. If you were to go out and buy every public asset in the world, you get roughly half US assets have foreign and have that it’s roughly half stocks and half bonds. There’s a smattering of commodities in there too. But that’s a great starting point. And that’s actually been a fantastic portfolio over time. Again, we want to break that market cap link. So we do value and momentum strategies within that. But that’s a good starting point. What’s the problem with buying hold, we have a book called global asset allocation. It’s free to download online where we looked at all the investing strategies asset allocation strategic, which means buy and hold, you know, some of them have 25% and gold, some have none summer 90%, stock summer 25%. And we look how they performed in history. And the big takeaway is that they all did a good job, but they go through different periods of outperformance under performance. But the biggest problem with buying a hold is that it correlates very highly to what’s going on in the real world. So when times are bad, think the global financial crisis, the pandemic, your portfolio is getting smashed to that doesn’t make any sense like your human capital shouldn’t be leveraged to what your portfolio is doing, you should actually theoretically want more money. When times are bad and unemployed. On unemployment, skyrocketing people are losing their jobs, the economy is doing poorly, right? Like it’s a it’s a kind of a backwards way of having a portfolio despite the fact that does great over time. On top of that buying holds tough because people really struggle with losses. And as markets go down and down and down. And theoretically, there’s no floor people, as we know, behave poorly with the behavioral side of losing money. So on the flip side, we have a global momentum and trend fund. This targets the same asset class opportunities, so it can invest in anything and it uses momentum to short those investments, but it only invests in them if they’re above their long term trends. So it can be up to 100% cash and bonds. Not surprisingly to anyone listening to this, that portfolio is positioned very heavily towards risk on inflationary assets. So it owns stocks, and it owns a huge slug of commodities. Not all of them. It doesn’t own precious metals yet, but I imagine if they ever get their act together, it will own those but it owns ag and on base metals. It owns energy and the big thing about the momentum and trend strategy, a great strategy over time. It’s also hard to own. And the reason being is that trend following strategies traditionally have lots of small losers. So the trades you know, you may get whipsawed back and forth. But what you really want is the big winners, you want to make sure you’re invested if an asset is performing, and we did we do polls on Twitter all the time. And we asked people we said, you know, how much do you have in real asset? So real estate REITs, commodities tips, and it’s like nothing most people have it. There’s the Canadians, I think, that are like that Canadians and Australians that are like the outliers, for sure. But everyone else really doesn’t own any. And if you look back to say, you know, they’re very exposed to a specific market environment, if you look back in the 70s, most traditional portfolios really, really struggled. You want sort of that real acid exposure so that the momentum and trend does it tactically. But the problem with that is not the performance of that strategy over time. It’s that it looks different a lot. And so this past 10 years, where the s&p goes up, 15% a year, you look worse than your neighbor. And that’s the worst thing and all of investing. Buffett’s like, it’s not fear and greed, it’s envy. You know, if your neighbor’s making hay, there’s no harder strategy. Now. Trin traditionally does amazing during the downdrafts. So during the pandemic, or financial crisis, trend, falling does amazing so that we come back to sort of this yin yang concept, we call it Trinity, but we put half in buy and hold half and trend all the world assets mix together. And to me, that’s a good way of keeping one foot. You know, in the real world, we want exposure to risk on assets. But also we want that tactical exposure, if it hits the fan, or we have an inflationary shock, that that portfolio can respond.

David Lundgren, CMT, CFA  31:45

That’d be curious. I have a couple of, I guess, portfolio related questions. And I’d be curious how you think about them? Is it fair to say you’re a quant investor or systematic investor, because there is a

Meb Faber, CMT 31:54

difference? I like both those, I’ll take both those complements, okay. And call me a technician to Fundy I get them all. It’s funny, because if you catch people who are debating me, or trying to insult me, you know, they’ll call me one or the other, which is not their tribe, right. And it’s important as an investor, not just to be, in my mind open minded about asset classes, but also strategies, you know, if you look at something like value value, stunk it up for like, a decade. But I think you have, at this point, one of the best opportunities in 40 years for value within the US, US versus foreign, particularly in emerging market value. But this tactical trend to you know, trend following has its moments, and you’re starting to see that with a lot of particularly the real asset push. So I’ll take all those compliments.

David Lundgren, CMT, CFA  32:41

I still up my portfolio questions, but you mentioned value. And I one thing I did want to ask you is, you know, value has basically been underperforming since I want to say what 2007? Right 2008 That’s when tech basically bottomed relative performance. So my question to you would be, from your perspective, in all the research you’ve done and understanding what drives market performance, why has valued done so poorly in what can you identify in that understanding that would suggest that this is the reason values done poorly, and this is what I see changing? And those inputs that suggest value would do well going forward? I mean,

Meb Faber, CMT 33:11

I think a simple way to think about it is just, you know, markets and strategies have seasons, and we’re all humans involved in markets, and they get excited and despondent and really proud and shameful money. I mean, there’s no other bigger taboo subject than money, you know, in the world, right. And so, these emotions play out on a grand stage and these flows, you know, sentiment follows price. And so going back to when I graduated university, the single highest bullish sentiment in history was December 1999, at the single highest valuation in history, its exact opposite of what you want it to be. And guess what was the most bearish March of 2009? The exact opposite right? You want to be buying hand over fist you know, and so people were pretty bad at being investors you know, in the struggle is you know, what evolved us to survive on the savanna which was running away from the tiger right? You know, no one said hey, let’s let’s run towards it. And so this concept of detaching your emotions, which is why going back 20 years why I became a quant is I have all the biases, you know, like I’m overconfident, I’ll take on too much risk on like all all of them, like 10 out of 10. And so I said, I need to have some rules and some guardrails to keep me from doing stupid stuff. And so looking at something like a factor like value, it’s the underperformance that creates the opportunity. I remember I did a podcast with one of my all time favorite technicians, you know, I can Pora Ralph, and you know, he loves to talk about the distinction between Fundamental and Technical and he was talking about PE and I love we’re talking so much about fundamentals on the technical podcast, but you know, he was ribbing some of the funny guys and he’s like, what’s the numerator in the PE like you spent all day talking about PE and it’s the P that moves right as the price and so if you look at 45 countries around the world in simply do a scatterplot of valuation versus current drawdown. All the expensive new ones are new highs and all the cheap ones are simply just down 60 80%. Right? It’s the P that move you go talk to people in some of these countries and you say, hey, you know, your stocks are cheap, amazing, aren’t you should be really excited. They say, Well, no crap. MEB we know that but we have no money because our markets down 80% Right. And so it’s like a consistent challenge where when markets are all time highs now in the US, and we really actually wrote a paper all time highs by themselves are not bearish. But you have to have a parachute exit at some point.

David Lundgren, CMT, CFA  35:37

But I paraphrase you then the question was, why has value underperformed? And I think is the reason as simple as styles have their seasons, and this has just not been the season? Or can you identify?

Meb Faber, CMT 35:49

So there’s, there’s valid, there’s valid reasons, reasons value has underperformed for the better part of the 2010s that were legit. So a lot of the growth stocks had exceptional earnings. A lot of the US companies had a growth regime that was better than foreign and emerging for the better part of the past decade. But every investment, you know, it’s it’s a coin of and Buffett talks about this he’s like, you know, value and growth, like it’s it’s part of the same animal, you can’t distinguish the two, you can’t just say value or growth, right, an expensive multiple company that’s growing like wildfire, it could be cheap, you know, old cigar, but Ben Graham, that looks cheap, could be really expensive. And so being mindful of that, at the same time, realizing that, you know, you can get to certain extremes. And you know, growth does well, value does well, us. Example, I love to give because I talk on Twitter about this in the US, everyone in the US has a huge home country bias, you know, 80% On average, in the US when the market cap is 50. In the free flow, it’s 50, and even less 60 even less, sorry, you know, everyone puts all their money in US stocks and extrapolates that infinity, you know, and and they have done well. But that’s sort of sets the stage for the next performance, we did a long post that looks at yields, for example. And a lot of the characteristics that are here are not secular bull market starting points they’re really saying

David Lundgren, CMT, CFA  37:20

that Treasury yields are is that earnings, or any jails or dividend yields?

Meb Faber, CMT 37:23

This is opposed, called stocks are allowed to be expensive, because bond yields are low, something like that, you know, it actually walks through that thesis and shows that it’s actually you know, not true. For a lot of macro reasons,

David Lundgren, CMT, CFA  37:37

definitely smell the trap based on the way you set the stage with the title. The funny check

Meb Faber, CMT 37:41

against that, as you say, well, look at the other 44 countries around the world where bond yields were not only lower, they were negative in some cases, and the valuations are much cheaper. So again, value and growth, you know, there was a lot of fundamental reasons that supported the companies, but over the last few years, and you can look at these historical value versus growth sort of setups, US versus foreign, on and on. And they get to certain extremes over time, and then reverse and we’re seeing 9099 percentile and a lot of these currently. So I think for the better part of the next decade. And again, use the trend to tell you when this is just the fun backdrop, but it seems like there’s been a disturbance in the force that you can peg to either the pandemic bottom and 2020 interest rates bottom that summer or the election. And everything seems to have changed since then a lot of the strategies that worked before that have seemed to have flipped, and it seems to be accelerating in 2022.

David Lundgren, CMT, CFA  38:37

It’s funny, I have these two questions, I want to get to what you keep saying things that kind of send me off on down these different paths. But I want to stick on the on the value growth. And because it’s a super important theme for today, we could actually be in the midst of it’s reverse. I’ve been posting on Twitter and LinkedIn quite a bit on that topic myself, is it not fair to say that a value stock, the reason it starts to work is because it becomes a growth stock, because basically, stocks follow earnings. And the reason value hasn’t done while you kind of alluded to it is that it’s been the best economic growth has been kind of a we’ve had a dearth of it around the globe, there’s been pockets of just melee and almost depression around the globe. And even here in the US. At the same time you have these technological revolution that’s driving all kinds of growth and opportunity, which happens to be mostly domiciled here in the US, which is why the US outperform, but there was a period from 2000 to 2007, where growth didn’t do well. And it wasn’t until they had the catalyst of growth. finally returning like there was a point when you look at the value indices, there was a lot of technology in the value indices. And they came out of the value index because they started growing. So is it not fair to say that these this is kind of what I was getting at earlier, these value companies won’t start to outperform until they can actually start growing it if that’s true, what needs to happen to get these things to start growing? Yeah,

Meb Faber, CMT 39:49

there’s a lot wrapped in here. I mean, one of my favorite formulas and it’s basic, I’m glad we kept it to the end because formulas cause people to fall asleep but it’s actually not my formula. It’s John Bogle. Vanguards, you As you can kind of come up with the expectation of, you know, security, but in this case, he’s talking about the US stock market, really with three variables starting dividend yield, earnings, or dividends, growth, and then change in valuation. And so this applies to securities too. So if you have monster earnings and dividends, growth, that’s a huge component. And then the valuation multiples simply what are people willing to pay. And so then you get into this kind of concept of, you know, stocks, where you have a lot of the growth names that were just going vertical in 2018 1920, that have since reversed, you know, and so you look at a lot of demos tweeting that it is, and this could be one of those times when you blink. And a lot of these names are down 4060 80%. And many of them are despite the fact the indices being at all time highs. And so in many cases, you know, did their business change much not really, if you look at a lot of the internet, high flyers and market cap names from 99. So even Microsoft, Cisco were their business over the next 810 years, you know, when up multiples or 10x on some of these metrics, sales earnings, they’re all like, just the business was amazing. But because the multiples so high at the time, the stock had zero returns on the flip side can be true as well. And if you think about this from like countries, or stocks, and this started happening last year, some of these names got to be so cheap, and all of a sudden you had it it goes from a world where the news doesn’t even have to be good. The news just could be less terrible. Absolutely, these companies have been so put, you have to make the big distinguish between the stock and the business. And so you could have, you know, kind of a garbage stock Gamestop you know, AMC on and on and on, but they got pushed down. So far, there’s all this short interest building up that they could go it’s like candling, right? It’s like it was dry, California forest fire and a spark and just boom. And so is it the catalyst earnings often? And look, what do you want in the long term anyway, you want to be investing in kick ass companies who have tons of cash flow run by management, that’s respectful, and they return cash to shareholders over time, you know, this is our shareholder yield concept. This is our largest fund. And that’s what you want. I mean, that’s like buffet one on one level investing and then you got to hold on to them. You know, my favorite part about the TA side is most people when they’re unwilling to hold stocks long enough. So you know, the to really get the 10 100 baggers, which can be life changing wealth, you get a double on a stock, most people hallelujah, I’m selling it. I’m going on vacation on Cancun, baby, you know, but that one bagger is often just the prelude to the five bagger, the 10 bagger, the 100 bagger, and it’s hard to hold those, you know, the Amazon, people love given that example, you know how many people have held it probably like three, because it’s had multiple 5080. And then I think a 95% drawdown at some point, the catalyst can change sometime it’s simply sentiment over time, longer periods, you want the companies that have that earnings growth in killer companies and founders, but sometimes it’s just a matter of the technicals.

David Lundgren, CMT, CFA  43:06

So finally, back to my portfolio questions. So you’re a global investor in an asset allocator. Those are two like wide open worlds. And one of the challenges with global what two of the challenges I think primary challenges with global investing is one of the benefits is correlation or lack of correlation, particularly among asset classes. But that also brings in a challenge with correlation because correlation as a concept is is not static. So you can buy something when it’s uncorrelated. And when a crisis hits, which is really why you typically buy these things for the uncorrelated performance, particularly when one thing is zigging. The other thing is agging. But when you have a crisis correlations go to one, right, so as a global portfolio manager, how do you deal with that? And then my other question is hedging. How do you deal with currency hedging, given that you’re a global investor? So correlations?

Meb Faber, CMT 43:52

So a simple my simple answer is, you know, you go to the ice cream shop, and they say, All right, we got vanilla and chocolate, or you go the ice cream shop and they got well, we got rocky road, we got coconut, we got peach ice cream on on, you know, 31 flavors, right? I cannot fathom why an investor would want to limit their choices. And so despite the fact everyone’s obsessed with Tesla, and you know, Bitcoin, there’s 10s of 1000s securities around the world. And going back to the, you know, Munger quote is you want to fish where no one else is fishing, man, you know, I’m fly fishing. I don’t want to be next to 15 people right in the middle of town, I want to be somewhere where no one else is, and so 75% of the best performing stocks each year outside the US on average. And so with this as a quant, we call this breath, right? You know, we want the choices anywhere. And believe me, I would much rather be the only analyst on some company in Pakistan than the I don’t know the 500 Bank that covers Apple, right? There’s probably a lot more opportunity for inefficient markets, outside of the well covered places and in general, every single piece of research We have a blog post called the case for global investing, you know, the concept of investing in a single country. You asked the other 44 out of 45 investable countries over the past 10 years if that was a good idea, and they would say hell no, it’s not it’s a terrible idea, particularly if you were in Greece or Brazil or but the US has been one of the worst to Great Depression, you know, us went down well over 80% It was one of the worst and and the internet bubble too. So not diversifying, to me seems really foolish. There’s some markets that straight up went to zero in my favorite investing book triumph. The optimist talks about the history of a lot of these markets. So if you’re looking at dividend yielding stocks, if your dividend person want 345 6%, yields, those exists outside the US and we have strategies in our foreign value in emerging strategies that killed like five 6%. And people are always whining, they’re like us, oh, their stocks, yield 1% bonds, but there’s nothing to do. And I’m like, Well, what are you talking about? Look, grab a passport look beyond our shores. So it is, we think this is the biggest value opportunities, Fred in 40 years on the flip 40 years ago, the US was cheap, and everything else the foreign was expensive.

Tyler Wood    46:07

Do you find it difficult to implement, like, let’s say your thesis is, you know, energy is going higher, and Venezuelan equity is gonna be a great place to express this thesis but can’t get access. I mean, what Venezuelan equity market are you going to tap into

Meb Faber, CMT 46:19

dipping into frontier I think it’s tough. I mean, the foreign developed and emerging gets you 45 countries, we did a fun tweet today, comparing us and emerging markets that I think would be a big surprise to a lot of investors. But I think that’s the beauty of ETFs. You know, you can get exposure to a lot of these countries in a way that was never possible 1020 30 years ago, which is pretty awesome. Funny, you say that, because I do a lot of private investing, too. I’ve invested in over 300 Angel startups over the past decade, and one of the best performing is a Venezuelan company. So we’ll see if that maintains. Because, as we all know, Kenny Rogers, right, you can’t count your gains until you cash out. global investing to me is really the only the only choice and we could spend another hour on this as well. currencies are a tough topic, on average, over time, real currency returns after inflation are stable. So us, interestingly enough, has one of the higher inflation rates in the world that could easily if if it stays high, put pressure on the US dollar. But the good news is over time the returns are stable, they may go up and down 20% A year over time, but over the long cycle, 1020 years, you know that they tend to be stable and adjust for inflation, which you know, purchasing power parity works and as a good thing,

David Lundgren, CMT, CFA  47:35

breaking the two concepts back up again. So correlation in instances where you know, gold and the market goes down when you bought them to do the you know, to be uncorrelated. But when crisis hits, and you sell what you can not what you want to and therefore everything goes down is that just something you write through and you don’t really try to address so

Meb Faber, CMT 47:52

we wrote a paper called worried about the market, maybe it’s time for this strategy. And we looked in this is, I don’t know, 567 years old now. And you guys can find all of our white papers on either my blog MEB Faber or Cambria investments. And this paper said, look, it’s US stocks take a dirt nap, they go into a bear market, they crash, whatever it may be, what helps, and we looked at a lot of the traditional things people diversify into so foreign stocks, bonds, real estate, commodities, gold, and all the things that I would expect not to help didn’t. So foreign stocks didn’t help emerging markets didn’t help. Real Estate didn’t help commodity is it’s like a random coin flip. If gold shows up and helps or not, on average, it helps but sometimes it really doesn’t help. It’s like your crazy cousin Eddie’s showing up at Christmas. You never know which one, you’re gonna get the eggnog, Eddie or so. Bonds help on average. But will they continue to hedge from a low yield? Maybe not. And the pandemic, the sovereigns in a lot of European and other countries didn’t help, right? Because they were negative yields already. And so we say, well, goodness, what helps then, and there are some active strategies that help I would not expect value to necessarily help. I wouldn’t count on it. In 2000 2003, it helped 2008 It made it worse, I would count on trend following on average, it helps if it’s a sharp crash from all time high, it won’t, but on average, it helps. And then the most obvious but creates its own problems is a tail risk strategy that buys puts on the market. Our second largest fund does this that has its own tail to tail risk ETF that has its own problems, which is it’s an insurance type of costs. So on a yearly basis, you’ll probably lose money when it hits the fan that should help and so I think there’s a way to cobble together all of these in a holistic manner where you have some of all these different assets on a buy and hold basis. You have some trend following and we have probably a greater trend following exposure than any advisor in the country’s or Trinity default is half in trend and then can sprinkle on some other things that will help like tail risk and value to in a way. So the pandemic was a great out of sample use case, the exact asset classes that we published in the paper that didn’t help didn’t help in the pandemic. And the ones strategies that did historically did help. But the beauty of the buy and hold and trend part is like q1 of the pandemic, like Oh, my God, thank the world for trend following because it seems like this zombie apocalypse, like the world is turning into World War Z. But then we did a post in March 2009, which we said investing at a time a Corona that we talked about potential pass for and I said, there is a scenario where we’re hitting new all time highs by year end, and everyone’s like, that’s crazy. That’ll never happen. And so then you said, Thank God for buy and hold because you had that rebound, right? The trend following is slow to respond. It’s never going to get those We’re the fastest ever from all time highs, a bear bear market and vice versa. People love to be all in and gamble and speculate because they have something to cheer for. I have nothing to cheer for him a Broncos fan. So you know, next year but but on average, people like that. And so this being half in each they actually I don’t think actually like but I think it’s a much better robust investing approach because it gives you a blend of the possible outcomes and survive, right.

Tyler Wood    51:17

One of the great philosophers also of the Southern LA area described life as a series of strikes and gutters. And so with Geoffrey Lubao skis worldview in front of you, how does it match up with your experience of the perseverance that it takes to run money be a portfolio manager, and that dirty word that we talked about at the beginning market timing, do you take any discretion in terms of weighting between these? How do you work with rebalancing? Or do you increase the frequency of rebalancing and these funds when the proverbial s hits the fan?

Meb Faber, CMT 51:46

You know, like Peyton Manning, I can’t. I’m using the Broncos in the past 10 years. But Peyton, you know, when he was quarterback, he comes to the line of scrimmage. He can call them audibles. But you know, they spent days weeks months preparing for that moment, he doesn’t just roll up the line of scrimmage and say, Let’s just wing it, right. So to me, you want to have an investing plan. Most people don’t. Ideally, it’s written down and systematic. You can do some things at extremes that I call in, we touched on this in that post that I was referencing in March 2020, where I said, you know, you can do things like over rebalance or calibrate but what you want to avoid is the waking up in the morning when your emotions are affecting you and saying, all right, we got to go all out of stocks into bonds, because, you know, I’m feeling a turn here, you know, I don’t like what the Feds doing, or we got to get into Doge because it’s the future, you know, you want some systematic guardrails. And so to me, my nightmare is mucking around with things you want to be mindful of that this time is different inputs. And so I think that is a very real consideration. But you also want to avoid the emotional creep, because that’s where the fractures come in. That’s where your biological brain is really working against you. So we try to program it in ahead of time and think about the possible outcomes. And then just let it let it run on its own. And the beauty of rebalancing is you’re kind of consistently always coming back to target of where you want to be. And by the way, I have my favorite cocktail chatter, comment is that people will come up to me and you know, ask about how long of time horizon do you need? How long the runway for any asset class Strategy Fund, usually they’re grumpy about one of my funds, one of my funds is always underperforming. That’s having 12 is always something to complain about, say how long you know bought it last summer, it’s underperforming? How long should I give it? I used to say 10 years. And they laugh. And now I say 20. Because I say there’s no more universally held belief in all investing than stocks outperform bonds. And during the pandemic, we had a period where stocks didn’t outperform long bonds for something like 40 years for zero. For decades, an entire lifetime of investing for the universally most held. sacrosanct belief stocks outperform bonds, I don’t know a single investor that doesn’t believe that, by the way, and here we are 40 years, but you can’t wait six months for some strategy, you know, from I get out of here,

David Lundgren, CMT, CFA  54:10

but like, maybe address something in relation to that, because I know you said already that you value, the idea of like you think about the expectancy formula, how often you win times how much you win when you win, minus how often you lose times how much you lose, when you lose, put those two things together, you have a positive experience, you should do it, wash, rinse, repeat, it works over time, because you have big winners, but also just as importantly, you also have small losses. So that’s no matter who you are, no matter what your timeframe is. That’s that’s a formula that we all have to go through. Warren Buffett has to face that, you know, I’m sure he doesn’t think like that. But at the end of the day, you can you can assess his returns through that formula. And I think we can all agree that that’s an important way to think about investing, but then as an allocator, who’s looking at value or looking at maybe having a 10 year horizon and you know, give this thing 10 years before you know be willing to sit through a 10 year period of analysis. formance How do you rectify that statement with the expectancy formula with the expectancy formula would say, Okay, it’s not working right now, trend following tells me to not be in a right now. So I’m going to get out as one of those small losses and allocate when it starts to trend again, because that’s what that’s ultimately what’s going to make a success of my my decisions not sticking with something for 10 years. How do you reconcile those two things? Well,

Meb Faber, CMT 55:21

the beauty is I hedge, I have both right. And so in that Trinity concept, you know, I like to have the buy and hold with tilt. So it consistently will be refreshing into the cheapest assets around the world, you know, and hold those assets for long periods. And then on the trend stuff, it’s just go anywhere you want, baby you want to be and commodities amazing you want to be but it’s systematic, you know, it’s not me having to return those dials. And I don’t know, if commodities are going to outperform for a month or for five years. None of us know, of course, that’s the future. It’s uncertain. And I like that. And so I often tell people, I say, Look, if you forced me into a desert island choice, and I had to pick one strategy for the next 10 years, on an absolute basis, I would pick emerging market value stocks, I think they’re gonna cream US stocks for the next decade, if I had to pick something that will outperform no matter what happens in the world, like on a risk adjusted return basis, I would pick this sort of trend following momentum and trend because it’ll adjust Right? Like if we go into a deflationary spiral, and there’s a I, I don’t know, if aliens would be bullish or bearish, I go back and forth on that, but depends on what planet they come from, right. But if it’s a deflationary spiral, you’re going to want different assets than, you know, certain types. And so the beauty of not being wedded to one approach, I mean, the biggest this applies to relationships, it applies to marriages, it applies to friends, your career when there’s a mismatch between expectations and outcome. That’s where the real problem is, I mean, most of the institutional studies of last few years show investors in the US expect about 17% returns on their portfolio. The problem is not that if they get you know, 17 returns, which is crazy. It’s what happens when they get zero and they plan their whole life around that right. That’s where that’s where people sell in oh nine that can’t take any more loss on my money. And so you have to have sort of in my mind, I like diversifying the bets. I don’t want to be all in on gold miners, or cannabis or Doge or anything else. Like I want to appreciate this my my approach and assets. I appreciated

Tyler Wood    57:27

your posts on pensions are all looking for 8% returns. But what if it’s zero covering that same topic?

David Lundgren, CMT, CFA  57:33

Given that we are speaking to the master allocator? And the big question is crypto, digital currencies, etc. Number one, do you consider them established enough to actually label them as an asset class? And if so, are you currently recommending an allocation to crypto? How do you recommend and they invest in it? What’s the percentage? What’s the best way to do it?

Meb Faber, CMT 57:52

Sure. So I love to tell people, the global market portfolio is a great jumping off point because it keeps you tethered to the global GDP economy of the world. It’s an incredibly diversified portfolio. And it’s really, really hard to be in history, by the way, it probably outperforms most institutions. So if you assume the global market portfolio is around 200 trill, there’s a couple assets that aren’t included. So farmland and single family housing, to not have great publicly accessible stocks or ways to accept to invest in those. But really, other than those two, you know, crypto, then accounts for let’s call it I don’t know, half a percent of that, right? Maybe it’s a percent who knows what’s going on today are between when this gets published. So I say you want to you want to use that as a starting point, put in half a percent. And I think most people, their portfolio, they don’t like to hear that, because what they want to hear is I need to put in half or zero, right? Same thing with US stocks, they’re going to go to the moon or they’re going to crash, I need to invest in Tesla, it’s going to go 2000 or 200. But the reality is you have a nuanced approach where you put in that point five, and ideally, you could do it in a basket of them for low cost, but there’s no way to do that currently, which is you know, absurd that crypto revolutionising the world, but the fees are make that 70 is broker’s bucket shops blush. But I’ll give you a trade idea. And this isn’t investing advice people. It’s more of a commentary than I think it’s instructive. I think if you did want exposure, there’s a really interesting, fun structure called the closed in fund. That is my favorite excuse to talk about efficient markets because they can trade a premiums and discounts and net asset value and some of these will oscillate between premiums and discounts. The Cuban closing fund is my favorite example because it actually doesn’t even own Cuban stocks, their own stocks exposed to the Cuban economy, supposedly, but it’ll regularly go between 50% discounts and premiums. The problem with that, of course, is that often the discounts and premiums there’s no necessary catalysts to close those so they could sit at a 20 Present discount for the next decade. And the problem with most closing funds is they’re stupid expensive, they charge like 2% a year, many of them so because they were pushed traditionally through the wire houses a lot of these conflicted exposures anyway, there’s a closed end fund focused on Bitcoin GBTC currently trades at a 25% discount to NAV it’s expensive against you don’t want to hold it for long periods, but there’s opportunity, particularly if bitcoin gets worked, meaning it goes down from 40, something 1000 to 3020 10. And you want to dollar cost average down, you could just put in limit orders all the way down. But more importantly, the discount will probably blow out. I don’t know if this will happen, right. But for someone who wants exposure, the problem, of course, is that you’re then stuck in it, they’re trying to convert it to the ETF structure, in which case that discount would immediately go to zero, because ETFs have a creation redemption arbitrage which keeps them near net asset value. So I think that’s a potential way to do it. This fun used to trade at a 50% premium. Again, not investing advice, but it’s a potential something to look into. We wrote about closing funds in our very first book, you know, the some of these hedge funds like Pershing Square third point in the pandemic version got to I think a 40% discount to NAV was one of the best performing funds in the world. There’s some tax issues. So talk to your CPA look into it. But it’s a fun, inefficient part of the world that is interesting. So I tell people they can dip their toe in, but it’s money you can afford to lose like anything like any investment. We did a long thread this week on, you got to be a great loser. If you’re an investor, any investment can decline 50 to 100%. So try not to go all in on your favorite hot coin.

Tyler Wood    1:01:31

I practice being a loser all through high school MEB. So I think I’ve got to go.

Meb Faber, CMT 1:01:36

I mean, it’s your now that’s the perfect proving ground to be an investor that most markets spend. There’s only two states of a market. It’s all time highs and drawdown and the reality is all about 80% of the time, in some form of drawdown, which you just got as part of it. It’s a feature not a bug

Tyler Wood    1:01:54

man. As always, it’s so great to see you every time you come talk to the technicians of the world. There’s a lot more conversation about the intersection of TA and fundamental analysis. And I think the whole world is starting to recognize that you can use those two, you know, as complementary tools and bring them all together.

Meb Faber, CMT 1:02:10

No one excited to do it in the real world. Guys, this has been a blast for sure. Yeah, talk until my voice gets hoarse. But we’ll love to see everyone in the real world hopefully soon. Hopefully,

David Lundgren, CMT, CFA  1:02:22

I still have a million questions for you. So you have to come back for another episode. Anyway. So

Meb Faber, CMT 1:02:27

I would love to next time you meet in Banff. Hey, God, let’s do that.

Tyler Wood    1:02:33

Thanks, man. We’ll talk to you real soon. Thanks so much.

Hello, listeners of Fill The Gap. February is an incredibly busy month, the CMT Association and I wanted to touch on a few highlights for all of you who are interested in attending events and seminars. Right now. We are hosting Mike Zuccardi talking about technical analysis for advisors in the financial planning community. That’s part of the educational web series and by the time this podcast airs, you’ll be able to tap into the video archives and watch that presentation from Mike. I also wanted to mention the Latin American chapters of the CMT Association recently held a financial services seminar and I wanted to give a big shout out to Juan Fernandez under his Trujillo, Manuel to lecture and also Yvonne Sherman of Argentina and Eric Conrad’s of Chile, who have just done an incredible job throughout the Latin American region and Spanish speaking countries to bring technical analysis to the forefront both at universities, local societies, as well as employers in the region. For those of you up north, the Canadian Association and affiliates with the CMT Association are hosting a broadcast virtual event on February 15, at 12pm. That’s going to feature my good friend Javid Mears a CMT CFA, who is over at Canaccord Genuity, giving us his technical outlook on the markets not just from the Canadian perspective, but across all asset classes and global indices on February 17. It’s a doubleheader we’re actually featuring Jeffrey Hirsch, from stock traders Almanac, talking about cycles and seasonality, all of those recurring patterns and what we can expect in the back half of 2022. That’s going to be on our educational web series at noon, as well as Mark Newton CMT, who’s fun strats new head of technical strategy, working with Tom Lee and the gang over there he’s presenting live to the New York chapter has a virtual event. Anyone is welcome to tune into those and you can find out more information under learning and events at CMT. Lastly, I want to mention a couple other international events that are coming up this month later in February, the Hellenic the Greek and United Kingdom chapters of the CMT Association are going to feature the second in a series of presentations from Dr. Howard Bandy on the quantitative methods that he has developed over his illustrious career. That event begins at 7pm Eastern Time 5pm GMT. Be sure to tune in for that second session and check out the video archives for the first three Integration By Dr. Bandy last month, also on the roadmap for events at the CMT Association, I’m know many of my friends are excited to get back to three dimensional networking and live in person events. This year 2022, we will be bringing back the symposium as a live hybrid event, which means that for those of you who wish to travel and be in person, we will make that available, as well as the online virtual portion. The symposium will be held on April 28 and 29th in Washington DC at the National Housing Center. It’s a new venue for us and one that is really well equipped for televised broadcasting. And they’ve done a lot of that work. And we’re really excited to bring just the best in the industry in terms of technical analysts, money managers, institutional traders and investors, macro strategists you name it. Be sure not to miss those two days on April 28 and 29th. In Washington, DC, or wherever you have an internet connection. But lastly, I want to mention that the CMT program is coming up the June 22 administration is going to deliver those exams June 2 Through June 12. And if you’re considering any level, if you’re progressing on to level two or level three, or you’re just considering getting started for this June’s administration, I want to encourage you to register now you can reserve your preferred testing date, time and location. But you can also save $200 on your exam registration by making that early decision on or before February 14. Consider giving yourself a little Valentine’s present and set your career on a new path by pursuing the CMT designation. For those of you who are members in good standing charterholders or Complete Professional members. I also wanted to mention that our board of directors nominations period is currently open. We are seeking directors at large to join the global board of directors in elections that will place those folks into seats beginning July of 2022. A lot more information in this month’s edition of technically speaking, and more information on our website. But for all members of the CMT Association consider serving on the board of directors and putting your hat in the ring through that nominations process, which is currently open. Thanks so much for joining us this month with our interview with MEB Faber CMT of Cambria investments be well stay safe and we’ll see you back here next month with Ian McMillan CMT Fill The Gap is brought to you with support from Optuma. In addition to candidates study of the official CMT curriculum, Optuma provides a full video course on all of the material that candidates need to know for each level of the CMT exams. Each course is broken up into modules, ranging from 15 to 45 minutes, depending on the complexity and length of the topics being covered. Learn