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Sprinkles of gold dust to maximize success for investors and advisors.

Join us as Podcast guru Meb Faber as he explores investing in the time of Covid, why market cap indexing is bizarre and how to install guard rails for a safe investment journey. Along the way we demystify alien invasions and learn about subsistence on mustard sandwiches.


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About Meb.

Mr. Faber is a co-founder and the Chief Investment Officer of Cambria Investment Management. He is the manager of Cambria’s ETFs and separate accounts. Mr. Faber is the host of The Meb Faber Show podcast and has authored numerous white papers and leather-bound books. He is a frequent speaker and writer on investment strategies and has been featured in Barron’s, The New York Times, and The New Yorker. Mr. Faber graduated from the University of Virginia with a double major in Engineering Science and Biology. You can listen to Meb's podcasts here.

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Rod Heard, Co-founder & CEO of SmartBe Wealth. Art Johnson, Co-founder, CIM & Portfolio Manager, SmartBe Wealth.
Rod and Art investigate the journey from traditional investing to the evolution of the modern investor, exploring the bumps, bruises and victories with each of our guests.

Transcript

Rod: Hi, my name is Rod Heard, co-founder of SmartBe Wealth inc. I'm here with my partner, Art Johnson. And today we are doing an installation of Smart Investment Journeys. We're really delighted to have Meb Faber, uh, on our show with us to join us. Uh, Meb is a huge icon in the U.S. uh, quantitative finance world with big podcast show. Uh, he's also the chief investment officer of Cambria Investment Management. And, uh, manages Cambria's ETFs, uh, separate accounts and private investment funds for accredited investors. Meb is also the author of Meb Faber's Research Blog. Hey MEB. It's great to see you. And we're so delighted to have you on our show today.

Art: Yeah. Welcome.

Meb: You know, I'm a little sad. I'm not in Montreal, but great to be here, nonetheless.

Art: In this new world of media, you're such an icon and it's wonderful for, uh, over the past few years, we've become friends and you been at our conferences, and just the amount of energy and enthusiasm you put into getting the message of investing out to people is, is truly humbling and amazing to me.

So it's a, it's a real treat to have you on.

Meb: I don't know if I've ever been called an icon. It sounds like going to be on an MTV show here in a few minutes, but let's do it!

Rod: We were just talking to Wes. And he said, yeah, in finance, you shouldn't be worshiping the icons. You should be following rules. I thought it might be interesting to, to start.

You do have such a great social media presence and so many people follow what you do. Maybe if you could give us some insights to things that you're learning right now through this crazy time of COVID through all of the political uproar in the States, what are your followers and your clients, and what's your network telling you right now?

Meb: Well, you know, earlier this year, when we were talking about coronavirus and started to do the lockdown, I'm based out of Los Angeles, uh, you know, and it was pretty dark times. I feel like in March, The, uh, we were asking, some people said, when is the next time you'll see some live music and answers kept getting longer and more depressing.

You know, people said the year, 2021, 2022, and so I'm happy to report I actually saw some live music this summer. Granted it was in Wyoming. So a little easier to social distance than most places, but got to see some bluegrass. You know, going back to March and kind of the depth of what was going on in the world.

We had written a series of articles. Uh, it was a four part series. One was called The Get Rich Portfolio. Then the Stay Rich Portfolio, then Investing in the Time of Coronavirus. The last one was How I Invest My Money. But you know, the interesting part about the investing in the time of coronavirus is we started it by saying, look: markets are uncertain. You never know what's going to happen in the future. I laid out a potential bear case in which case, you know, markets were down, let's call it a third at that point. So there's a case where, you know, you could easily make the outcome be down 50 from there. Hospitals were ill-equipped, the virus mutates, it comes back in the fall, all to just the laundry list of new lists of terrible things. Monetary, fiscal policy doesn't work, markets go back down to super low valuations. And then on the flip side as weird as it sounds, you also have to at least prepare for the, the viruses contained, fiscal monetary policy works. And by the end of the year, we're hitting new highs.

Well, that wasn't even the bull case. The bull case has already happened. Like it was even more bullish than the bull case, you know, in markets have a way of always surprising us to where, you know, this year, it was the quickest ever from all time high to bear market ever in the U.S Stock Market. And so things always surprise us.

So the ability to hold sort of two possible different outcomes, uh, as rare as they may be and not go crazy, I think is important for markets because, same thing with relationships, with anything else in our world that you get too attached to one possible outcome and something else happens. Uh, you're setting yourself up for a really big disappointment and in markets potentially catastrophic loss, which is, was in our mind and getting taken out of the game.

Rod: You know, this whole podcast what we're trying to help people on is this concept of, it's not just investing, there's kind of core principles. Of, uh, how we behave or the human condition or not focusing on outcomes that actually lend themselves, not just to a better life, but absolutely are critical to being a better investor. And you touched on one there that I think is really important. Is that how did giving up outcomes make you a better investor?

How do you balance like process outcomes? How did, how did you come to that realization?

Meb: You know, it's interesting. People always want to focus on the buy and the sell. That's the sexy part. That's what gets you on CNBC, but it's probably honestly the least impactful part of the whole investment process. And so as you think about all the struggles with process, you know, I'm an engineer by trade, but it's not that neat and tidy. Yeah. If we could all just put the quantitative systems in a box and, you know, turn them on and walk away, then yeah. Our jobs would be a lot easier, but the challenges are there are very real human emotions.

And I think the alignment of people's expectations with reality of not only history, but the fact that by definition, the future will be worse at some point. And this year is a good example. You know, where history is a great guide. If you look at it 200 years of really modern financial markets and probably 50 with modern floating currencies is that, that sounds like a lot, but it's really not a lot of history, but then to look forward and say, we'll look at some point things are going to be different than what we've seen, but at least we have the backdrop and foundation of what's happened in the past because that's already super weird, you know? So at one point in March, so like, let me give you an example. There is no more single held universal belief in all of finance and investing than stocks outperform bonds over time.

I do not know a single person that I've ever met that does not believe that. And then if you were to ask someone and not just a client, retail, you know, professionals, we love to earn our, turn our noses up, or look down on the individual investors say, they're so crazy. They're emotional now. All the, all the pros I know are just as bad.

And, uh, institutions like we're talking like a hundred billion trillion dollar institutions too. And if you were to say, all right, well, how long should you give an investment? Idea, strategy, asset class, to prove itself, you know, like what's your timeframe. And most people say two to three years, you know, on occasion, you'll get something on, they'll say five years.

And if you're like Warren Buffett's of the world with, with just sorta steel persona, you know, you may have a decade. There was a point in March where U.S Stocks had had the same return as bonds for 40 years, not two or three, not 10, not 20, 40 years. And so, yeah, take this universally held belief and so extrapolate this to: hiring a manager to whatever your favorite asset class is today. It happens to be, you guys must be going crazy. Yup. They're gold hitting all-time highs, uh, and cannabis. That's my Canadian barbell. I joke half the portfolio in cannabis and half and, uh, natural resources. No, but seriously, any asset class is great.

Sometimes terrible. Other times it doesn't matter. It's bonds gold, stocks foreign stocks, you know, all these sorts of things. And so, and that applies to strategies too, but the problem is people's mindset and timeframe. Oh, woefully misaligned.

Rod: You went macro on a couple of those things and the whole premise of quantitative investing and rules-based investing is a look at the history. Do you think that. There's any evidence or any instinct that says markets will change because of what's going on.

Meb: I think you could have ended that sentence with, do you think there's any evidence that markets will change. And stop. Because they'll always change. You know, we, we always joke. That you see all these letters that professional advisors write their clients. And when something wacky happens, they say, it's okay. Clients, you know, we've seen this before, we're prepared for this, but I say the title at some point and really should be it's okay. Clients, we've never seen this before because that's by definition, what's going to happen. You know, at some point we'll see an alien invasion or, uh, you know, Oh, you are in California falls into the Pacific. I mean, I'm thinking I'm sitting on a fault line as we speak. All of these things. And those aren't even like on the unexpected stuff, it turns out we're in a simulation with the Elon Musk.

I don't know. Or are they talking about the other day? Mining for gold in the asteroids, but you know, there's things that are gonna happen that, you know, people don't expect having that mindset, at least lets you prepare, you know? And so a good example, if you prepare for 10% returns, but only get two is a lot bigger problem than if you prepare for 2% returns and get 10. And most people set themselves up for the opposite problem. Well, that's not good advice. That's like eat healthy and go exercise, you know? And nobody, nobody wants to listen to that

Art: For advisors. Like to be humble to say you don't know is very difficult. It's almost like humiliation. Where did you find, I guess, where you got character enough that you could actually get to a place where you could actually say to another person that, Hey, like I just don't know and be okay with that? Like how does that process work? Is that an innate trait in Meb? Because that's, I think that's one of the more disarmingly things that gravitates me to your reading and the various things that you do.

Meb: Certainly as a young person we always tell people the best thing that can happen to young people is to go through the very real pain of losing money. You know, as a young trader, you talk to so many professionals that at some point had an experience where they, they went broke or they took on too much risk, or they just did a long litany of really dumb things. And I was certainly no exception to that. You know, I think I used to live in San Francisco and at one point was, was eating mustard sandwiches for about a year because of, uh, because learning my lessons and licking my wounds in the options market. But markets, you know, have a very consistent ability to humble people, particularly when they think they're really hot stuff, you know, we say that often.

The biggest compliment you can give anyone in markets. And this applies to life too, particularly with entrepreneurs, you know, how many small business owners are listening to this, that man, what a horrible year it's been. We've got a lot of friends in LA. There are restaurant tours and everything else.

Rod: It's devastating.

Meb: The biggest compliment you can give anyone is just survival. And if you look at it, there's like almost 2000 businesses go out of business every week in the U.S. during normal times. And that's just normal. That's free markets, creative destruction. So the goal in financial markets is not get taken out of the building, you know, to keep your bankroll so you can continue to bet.

Uh, and so that's number one, the old Buffet don't lose all your money. The older you get, the more scars you have, but those are good things. Uh, you don't learn anything from your winnings, you know.

Art: When you were on the options desk, did you do it for yourself or were you running a prop book for the company – I'm asking this because I grew up on the trading floor.

My first job a guy was dating my sister and I thought it'd be cool to get me a job as a board marker. So I got into this business purely to nepotism, but as a curious person, I was fascinated. To watch traders because there were guys who would blow themselves up and there were grinders and they're all these different types of things.

And so I imagine you in that option's kind of learning it's that it's another hot house of kind of decision making that I think probably shaped a lot of your thinking.

Meb: High school / college was the late nineties. So the real original OG bubble, the internet bubble was so awesome. I mean, I'm looking over the San Francisco Bay as we speak and so many fond memories of that crazy time, uh, you really didn't have to do anything. You know, I had a, I had the original Robin Hood accounts. I was at E-Trade broker's client and, you know, had it been the seventies and eighties, I probably would've been trading futures, but whatever gave you the most juice at the time and that the nineties was all about stocks, right?

Um, whereas the seventies, eighties was about commodities and futures, trading, corn and oil and everything else was really where he got all the juice. So we often close my podcasts with what's been your most memorable investment or trade. And a lot of people, it's almost, almost, always something really negative.

That's been seared in your memory. And in my case, it was an options trade. Where it was a strangle or straddle. I can't remember it, but it was on a biotech drug, clinical trial and way that it worked out. I had planned it out to where the option probably would have made money no matter what the outcome was.

I thought it was to be negative, but it had worked out because everyone had to hedge their position. And so the option position going into the actual announcement had doubled. So a smart trader would have probably taken off half or some of the bat. And then it got approved and the option was the trade was in the money a little bit, but not a ton. And so the reason for the trade was done, you should have sold the position, but like many people, ah, give it a day or two, see if it continues on and sure enough, the company pre-announced earnings and went exactly back down at the strike price. So you learned a lot of lessons there in that one.

Art: So how did that lead you to thinking about systematic ways to get things right?

Rod: What was a journey to getting you to, so obviously you're an engineer, so you're biased towards numbers and whatnot, but was that the event that pushed you?

Meb: Yeah. I said, I'm tired of going broke. This is terrible. Um, you know,

Art: This hurts. I can't go to the bar that much!

Rod: No more mustard sandwiches. I like that.

Meb: I think, as an engineer, I mean, the way you think, uh, was certainly a curiosity and trying to quantify as much as possible, even with the, the fundamental research was an interest in and as kind of the knowledge compounded as the layers of Amber got added to sort of what I was working on, it just kept gravitating more and more away from pure discretionary and more towards quantitative and quantitative and rules-based and systematic.

I mean, it doesn't have to mean super complicated. I mean, a 60, 40 portfolio rebalance once a year is rules-based and quantitative and that's just fine. I have all the behavioral biases, you know, I'm overconfident I'll take on too much risk. I mean, just go down the list here, any of the famous behavioral books and look at all the biases of like, Oh yeah, that's me.

That's me. That's me. So putting up the guard rails like everyone does in every other aspect of their life, other than investing, it makes sense. You know, why not? Be totally systematic. And I've evolved over the years to have somewhat different opinions than I would have when I was younger about this. But, you know, I think the whole public markets, you set, figuring out your strategies, put them on autopilot, and then just leave him alone. Almost like a saving account. Do the work ahead of time, decide what you want and then just go away for a decade or two. Uh, I think is probably the best advice.

Art: Why I bring it up is in Canada we're not where you guys are in the States, you guys kind of had the RA revolution and now that brought the fiduciary concept in and from my understanding and because the IRAs are fiduciaries, they gravitated to more systematic academic focuses cause they wouldn't get sued in the litigious world. In Canada we're finally on that journey where more actually advisors now becoming fiduciary portfolio managers. And the point I'm making is I'm hoping that the people who are listening realize that there has been this real change in the whole investment industry.

Around these principles and systematic investing. I don't know if it's led the way or been instrumental to these ideas, but exactly what you're talking about. Like. Build processes. And it's gone from this ad hoc business where, um, you know, my original job was a stockbroker, my job was to just sell units of stocks. It wasn't a figure out if that stock was going to do good in a portfolio. When I became a portfolio manager, I had to create outcomes. And just wondering if you can talk a bit about, what's gone in the U.S. and you've been an asset management firm kind of bringing systematic approaches to advisors. How has that changed?

Is that exploding? And you've been in the ETF market. What's going on in the States that you find kind of interesting?

Meb: Wow. That's a lot. I'm glad we budgeted three hours for this conversation. For decades, really, there is a very real push pull in our industry between there's almost like two types of companies. There's the company and this isn't just pure asset management. This is all of finance. Uh, so credit cards, loans, everything, you know, you have the companies that are almost like how much can I charge and get away with it. And the others that are, you know, how can we deliver our services and the best interest of the consumer for as low price point as possible and still run a business, you know, and asset management, historically of the 150 odd industries in the U.S. Has had one of the top profit margins of anything. And so if you go back five decades to the 1970s, You know, there was a very real revolution beginning, which a lot of people confuse as being indexing, which is systematic by the way. But really it was kind of what indexing allowed. And this market cap waiting because you didn't do anything allowed products to be delivered for much lower cost.

Cause there's no effort. You just set them up and let them run. And so over the last five years, you've had a very real trend down in costs and costs, you know, are, are still a very major input into investment success. Now it's not as simple as a lot of commentators may get, which is like you buy the cheapest products available.

And it's not as simple as avoid the most expensive products because there's examples on both sides where there's really foolish cheap products. And there's really amazing expensive products, but it does set a bar, you know, it's like a high jump. Where it's just harder to overcome. If you're charging 2%, 3% per year than if you're charging 1% or less, the systematic sort of people always thought that was the index was the big evolution, but, but really, I think is kind of what it allowed.

Now. That's changed over the last 50 years. Very much still we live in a world where the vast majority of money is sitting in high fee closet indexing funds. So these funds that claim to be active, but don't do anything because they got 50 billion in there. Uh, and they've been sitting there. So in the U S we still have something like a trillion dollars in these asset allocation mutual funds here that are expensive, that are tax efficient. That don't do anything. Now that's a one way street. Eventually it's people as they die, as they get married, pass along assets. That doesn't go back to these kind of crappy products of our parents' generation.

Art: One of the biggest funds in Canada and I won't name the bank but it's got a, I think $7 billion in there basically is a mirror of the TSX 60. It owns 60 stocks. And, uh, and it's 2.1%. Canada is still okay.

Meb: You can name names? I don't mind. This is fine.

Art: Uh, well, I mean, Canada's a really strange place because 37, I think, uh, I can't, there was a research paper that was done, but it's out of the 34 or 37% of our money is still in what's considered a closet index at, uh, at the, some of the world's highest fees.

Can you just explain what a closet index is?

Meb: The good news is because we live in 2020, and there's never been a better time to be an investor in individual or institutional. So you can go and buy the market cap, weighted index, meaning the biggest companies: the Apples, the Amazons of the world, uh, have the highest weight. And that index technically never rebalances. I think people confuse that a little bit, but that is the market that's by definition, that is the market. That is the average of what everyone will get. And you really balanced based on corporate actions, mergers, all that good stuff, new, new entrance IPOs, but, but in general, because it takes no effort. There's zero, almost like 2% turnover per year. That index. You shouldn't really be charging much for it because you're not doing anything else. So you've seen that in reality where Vanguard and all of these funds have the market cap weighted indices for near zero cost. Now that's amazing as an investor and you're going to see the world somewhat barbell.

So you have the free stuff and the things where people deviate and when they deviate, I'm of the opinion that you should really deviate you shouldn't just look kind of like what you can get for zeros. Do you have the funds out there that charge 1%, 2%, 3%, and you pull up a chart over the past 10 years or whatever, and you can't even see the two lines apart?

So closet index is someone who says they're active, but really they're moving the Apple weight from 4% to 3%. That's a huge underweight for them, you know, or there they're increasing the weight of IBM from one and a half to 1.75. So in reality, you get really zero potential for outperformance, but you're paying a ton for it. And so what happens often is you have these massive companies that have these huge funds that say they're doing all these things, but in reality, they're not, but they have to say they're doing it to keep the fees coming. Otherwise, people will just wait, which they are by the way they say, look. If you're not super weird and different than we're just going to buy the cheap stuff.

So that's a trend that if you pull up the flows is happening and it's a good trend and that's the way that it should be. Uh, the challenge for most big asset managers, it's a lot safer, warm and cozy to, to not look too different.

Art: Fascinating. I was looking at your books last night and I got into your books by reading global value and, and, uh, it was fascinating.

I went back to that and the Cape at the time. I think when you wrote that was 25 and now we're at 31. And just to give people insight, what the Cape is, is just a, take a 10 year inflation adjusted average of the earnings in the S&P 500. And then you take the price of it and you try to figure out if it's expensive or not, did a really good job in the book of non-inferring that, you know, you can't really make money on Cape, but you know, this is expensive.

And now we're at this time where we're even more expensive. Are we in irrational exuberance Meb? Now, what do you think.

Meb: You look at history of valuations, you know, they're a pretty blunt tool, but one that I think is exceptionally useful. If anything, it gives you a perspective or an anchor or a foundation from which to make your decisions. Otherwise you're just kinda blowing in the wind and going back to market cap weighting, you know, while that is the market. And while you can get it for zero costs, it is one of the most nonsensical ways to invest that. Going back to the aliens we talked about earlier that if aliens came down and said, how do you invest?

You know, the way most people think about investing in businesses or investing in houses or whatever, then you say, no, sorry. We only invest in stocks based on two variables, the stock price and the number of shares they are. And most people say that's crazy. Why would you ever do that? That doesn't make any sense. It's not based on earnings. It's not based on revenue. It's not based on any of that stuff. But that's what market cap weighting is. And I don't think most people understand that it's just based on stock price, right? And size. But size has no correlation to size. Most people think size means earnings, growth, sales, none of them, none of that stuff.

You know, it works because of the power laws of investing. You're guaranteed to own the winners. The massive, massive winners are the ones that give you all the returns. Most stocks are just kind of middling about. No returns going back to what we were saying earlier on, on capitalism and just surviving, you know, it's the, McDonald's the Walmarts, the Amazons that generate all the return, but it really doesn't make any sense cause there's no tether to fundamentals. And so any investing methodology, you can come up with a waiting situation. It doesn't matter. Those all should outperform market cap, weighted indices by about a one or 2% per year. I think over time, almost any of them. And some, maybe do more, some, maybe do less. And so using valuation at least gives you some perspective because no one on the planet would say that buying the us stock market, when it's trading at 40 times, earnings is a reasonable or prudent idea. And yet, if you look back in the history, it traded at 45 in the late nineties, the very peak of the internet bubble. And then you had what many, many years terrible returns and two huge fat bear markets after that. There's no question. It was, is a bubble at that point. And the average overtime is around 17, but the U S has been as low as five as high as 45. But other countries like Japan was I got to 95 and the, and the 1980s, it gives you some sort of just common sense metric. Uh, you know, so the thing about the valuations is as they go up and it's the P in the PE that usually is moving, it's not the E as it goes up. Future returns are naturally going to be lower, but the way you get into high PEs is the P goes up and so 90% of commentators always get this wrong.

And I always, uh, I always kind of smile about it. So where we are now kind of in the low thirties, good news, bad news. U S is one of the most expensive in the world. I think it's the second, most expensive. You don't have to use Cape. You can use any valuation metric. There's not a single valuation metric that doesn't say stocks are cheap in the U S but it's not as bad as the nineties. And there's some pockets of the U S that are actually super cheap, like small cap value now, which at one point I think was down by 50% in Q1. Uh, is, is now a huge spread to large cap over time. So it's not just one market, you know, I think, I think you have a much better opportunity there, but a lot of the rest of the world is cheaper, foreign developed is reasonable foreign.

Emerging is a lot cheaper cheapest bucket of the cheap countries is even cheaper still, but the stuff plays out over decades, long time horizons.

Art: As an American, you've always preached global investing. Americans do have exceptionalism and various things like that. And we're all have hard, uh, bias to our own countries. And do you still believe in global investing, uh, has anything in this change in the S&P dominating so much change any of your principles? I pretty much, this is a loaded question, but like, what does someone do with high Capes and do they just keep slugging away here? You know, what are your thoughts on what people should do?

Meb: You avoid them. Uh, that's what you do. Well, the, the, look, the, the, the simple answer, I think if people applied a framework of buying businesses, rather than stocks, it, the narrative starts to make a lot more sense. If you've traveled the world, if anyone's traveled the world and you magically think your country is somehow much better entrepreneurship, you've clearly never been to India or China. Or Brazil or Russia or Mexico or Japan anywhere, you know, there's fantastic entrepreneurs all around the world. And the vast majority of billion dollar companies are outside the U.S and they're not in the U.S. U.S. Is only a quarter of world GDP. Um, but like you mentioned, every country in the world, people love to put most of their money in their own country, which is a very foolish mistake.

It's concentration risks that is almost universally not rewarded. And even in the U.S. The U.S. had an amazing decade this past decade. The U.S. stock market has only outperformed a global average or GDP or market cap weighted over the past 120 years, like two or three times. It happened this decade it happened in the nineties. And before that, you had to go back to like the twenties. That's not normal, that's not the standard, you know, great example. I love people are always talking about. The U.S. Cape versus the rest of the world. We assume the U S should have a higher value because of all the silly arguments people make. Um, what do you think that historical premium is?

And the answer there is, there is no historical premium for the last 50 years. They have the same valuation. It's right around 22, they say, well, yeah, but U.S. stocks have outperformed foreign for going on 70 years now by like a percent a year, which doesn't sound like much, but then it compounds over that time, the same amount of mouth. Oh, how much of that has come since 2009? And the answer is all of it. So, you know, you've had this alligator jaws where at the bottom of the financial crisis, everything was cheap, low, uh, low teens and plenty countries trading in single digit Cape ratios. And then the U S simply has had a big multiple expansion over the past decade and the rest of the world hasn't.

And so there's plenty of countries trading at single digit PE ratios right now. And, and many that are just kind of normal valuations, but the U.S. is not one of those. Let me be clear. It's not what I would characterize as a bubble or crazy. There's some names and some pockets that are bubbly. Uh, but at the market as a whole is not terrible. It's just going to be muted returns. I mean, John Bogle, before he passed probably one of the most sober sane people on the planet and the biggest proponent of buy and hold investing. He said U.S. stocks probably do 4% for the next decade. It's, it's hard. I think for people to square right now, with everything that's gone on in the world, I think you would expect, you know, particularly for the U.S. stock valuations to be average or below average.

So anyway, makes sense to diversify around the world, you know, as a global market, if you just bought the entire world, the U.S. has only half. Uh, then if you GDP or evaluate, it's even quite a bit less. So I, I think the starting point is the global market portfolio. And then from that. Uh, you can tilt towards value or all the litany of factors that make a lot of sense value being probably my favorite. That seems altogether more reasonable.

Art: Interestingly we had just done an analysis on one of our models in Canada over the period did 15%, the U S did 12% and international did 11%. And I can tell you going into before I looked, I was 100% it's gotta be the U.S. You know, and it's, so that's why investing is so hard and humbling. And then my other brain kicks in and I go, well, that makes a heck of a lot of sense, because guess what? Canadian stocks are pretty darn cheap. And I guess the point I'm, I'm really glad you raised it, that for most people, and I think almost pretty much everyone, a significant amount of their money, which is trying to preserve and grow their wealth. Should be in a global portfolio. Uh, there are many different ways to do that, but just take the kind of craziness of trying to chase countries or asset classes in that and build a really good global portfolio. It's a, it's a great kind of battleship approach versus a speed boat and for financial markets.

Rod: Yeah. One of the questions that brings to my mind is, um, you know, we're really interested in the human behavior side of things and in particular, quantitative strategies are often hard to hold. Our buddy Wes is always on about no pain, no gain. I'm interested in your perspective from two points, you've got a very large social media presence. So of all the people in our universe, you touch a lot of people. And then in your practice, um, you've been running quant for a long time and you you've been doing it well. How do you get people to stick to these strategies? Or are there things that you're doing that are helpful that, um, other advisors or other individuals can lever off of to help themselves, um, get into these winning strategies?

Meb: Can't wait for you guys to turn this into a transcript. And, uh, we started getting crawled by the web, but about me touching a lot of people.

Rod: Thanks for that.

Meb: You know, the one the most important thing with investing that I've come to appreciate over the years. As, um, the importance of narrative and people, Warren Buffet is, is so wonderful about this, to where he has his like 50 stories that report or asks a question like he's got his joke, his story, that frames it in a way that sounds like a, you know, a fuzzy old grandpa, but, you know, in reality, he's like one of the biggest, you know, sharks, that'll probably rip your face off, out there. Um, in terms of, of deal making and everything else, but, you know, framing the narrative, I think is the most important thing. So let me give me an example. Well, you know, we talked about timeframes and horizons and we'll all we have 11 funds. We have people all the time emailing us. So in any given day, week, month, quarter, year, decade, some of those are going to be doing poorly to terribly and others will be doing great to wonderfully.

This year is no difference. And we'll have people come up to us. What used to be cocktail parties, but now as emails or phone calls or tweets.

Rod: Zoom gatherings.

Meb: Yeah. And say, Meb, I bought your fund, whatever a month ago, a quarter ago, a year ago, it's down or it's doing crappy or it's, whatever it is, you know, I'm going to wait until it gets back to, you know, I'll give it a little longer. You have any thoughts? And I said, Oh, it can get way worse than that. You think that's bad? This can go down like 80, this could go down 50%. And I can envision a scenario where this would go down 80 and still be a viable choice. I, and you know, they kind of laugh, like thinking I'm joking. I'm like, no, I'm serious. You know. When people ask me, Hey Meb, I'm going to allocate to a fund of strategy and asset class, anything, not even ours, you know, Hey, I'm going to buy gold. I'm going to buy stocks. I'm going to buy cheap Cape countries, whatever. How long should I give this before I, you know, I think I can come with a reasonable determination that it works. And I used to say a decade and they would nervously laugh. And now I say 20 years, I'm a hundred percent serious in that. Go back to the example I gave on stocks versus bonds. Not a single person that thinks the bonds outperformed stocks over time. But in reality, they just went through a 40 year period where they didn't outperform.

So yeah. So yes, we spent a lot of time trying to educate. I think it's still, um, always a challenge. And this goes back to at least in the U.S we don't teach personal finance, certainly not investing in school. That's like 12% of high schools teach it. Um, and so even just the basics of money, getting a mortgage, credit card debt, buying a car, uh, is everything. People are just interest rates, you know, compounding it's a shame and, and, and, and it's really unfortunate, but, uh, so, so investing is like a whole, you know, it's level 201, 301. And so if you don't have the self-initiative or the family or anyone to teach you that. It's hard to have that foundation. And look, I mean, how many of us at 18 and 16 were really well prepared to deal with the prospect of taking on $200,000 of student debt and where are we saving and investing? You know, I just, I gave a talk in Ireland last year where I basically gave this example. I was like, look, you guys are getting ready to go on spring break. You're probably going to go to Ibiza. You budgeted, I don't know, a thousand euros for it. I was like the alternative, you could go camping, save that 1000 euros and put it in a stock account. And in 25 years, it'll be worth 10,050 euros. By the time you retire will be worth a hundred thousand, a hundred thousand euros.

You don't do anything. All you have to do is just put it away and forget about it in the lockbox. Um, what awesome wise decision. I said on the flip side, you probably should go to Ibiza because it'll create a lifetime of memories and it'll be fun. And you're only 18 once and yada yada, uh, but that's the constant trade off, and it's not just with a thousand, it's every everything you buy and invest in. The whole goal is in my opinion, to come up with a systematic approach with as many nudges behavioral safeguards, you know, the, the auto enrolments. Putting in something where you put it in account, you don't touch people frame, I think retirement accounts, target date funds, um, all those sorts of things in a different way.

They do their brokerage account or bank account. So framing investing like savings to me, I think is, is one that is, uh, makes a lot of sense to people. It's hard to get over that hurdle, but once you do, I think it changes the mindset.

Rod: Nice. So we've got about five minutes left here. Meb, is there anything that you wanted to talk about?

Meb: Yeah, but not in five minutes. Uh, we use a lot of football references cause I grew up at Denver Broncos fan and, and talk a lot about, you know, having a plan to me, the vast majority of investors pro or retail alike, don't have an investment plan, uh, particularly a written one. So it doesn't have to be complicated. I mean, it just could be something you write down same as like with the diet, you know, you share it with your loved ones, your kids, your partner. And say, you know, Hey, um, can you help keep me compliant with this plan? You know, and, and such that when the world's going crazy in March, all of a sudden you weren't selling everything and running for the hills, you know, it's, it's, uh, a concept that you try to come up with all the various outcomes, and whatever that plan may be.

Look, if you're a gold bug you want to put all your money in gold stocks, God bless you. I'm fine with that. But you know, coming up with a plan on how to approach that. When the times get tough, I think is the most important thing. Cause otherwise you're just fine. You know, people love to invest by just kind of shooting from the hip flying blind and that, that gets almost everyone into a lot of trouble.

Art: People really confuse speculating and investing. They think actually, cause it's. It's pretty, it's like paid, uh, Ibiza is like speculating. Like there's a lot more fun. Right. And, uh, investment to actually is kinda like what Buffet says, pretty boring. It's not the same game is going to, it's not speculating. And I think that's one of the disservices is that a, the industry has kind of promoted, speculating, and it's fun. Right. And, uh, and that's a real tough one. So.

Meb: And that's, you know, it applies to, again, the biggest institutions in the world, but all the drama that's happening right now with CalPERS and others, you know, we've written a lot of articles, should CalPERS be managed by a robot, should hardware be managed by a robot and having these systematic approaches where they just buy a bunch of ETFs or just, you know, very simple systematic strategies, probably in a beat, the vast majority of them. And you don't have all the drums I'm associated with it and all these conflicts of interests and everything else. And that's going to be a trend, I think over the next two decades, you'll see. The real big money institutions move in that direction probably slowly, but, but eventually, because it's, it's just, it's too insurmountable of a challenge for most of these guys to, to do it the other way.

They end up, uh, getting themselves in so much trouble and doing really foolish things consistently, you know, it's over and over again to the point where the boards are just going to be like you guys, this is, this is crazy the way we've been doing this. I mean, this made sense in the 1960s. It doesn't really make sense in 2020.

Rod: What are you looking forward to most in the next month?

Meb: Wow. We narrowly avoided a fire tornado in Tahoe and now like half a California's, you know, I, my, my voice is sore because of the smoke. I'm avoiding just normalcy, but we got an election coming in the U.S. so that there's no chance of that in the next three months. I think that the smartest idea to be, to go back to Montana and Wyoming and Colorado where we were. And just hide out. You mentioned Wes. Wes' outpost in Colorado perhaps. The funny thing about markets and what's going on is they're consistently surprising, you know, back in 2017, I don't think anyone would have predicted in the U.S. stock market that would have been up, uh, for the first calendar year in history, up every single month. And then you have 2020, or there's a pandemic that just was a whoosh down whoosh up. I, you know, I mean, who, who had that on their bingo card? Uh, I would just like a little calm and quiet, uh, but you know, that's, that's not markets where he is so well, I'm an optimist, despite all my grumpy, uh, valuation discussion.

I'm an optimist. I spend a lot of time with private angel investing as well and see so much innovation going on. Uh, so many wonderful things happening in our world. It's hard to filter out all the, all the junk we hear on the various media outlets. But, uh, but the reality is everything is, uh, getting, uh, getting to be a whole lot better. So I'm happy. I'm optimistic.

Art: The one thing I'd like to maybe tell people is I almost view this back to markets being at record highs as if your portfolio didn't look very good in March. 13th. You've just been given a gift to maybe readjust. And, uh, I would really emphasize that, you know, go back it's, it's gonna be really hard mentally to go back to how you felt on that day. And, uh, and, uh, you've got a second chance here. If you felt that there was a real problem with your portfolio and you got really scared or your, you were taken on too much risk that you couldn't handle. I would really encourage people to kind of set themselves up, but this is going on. And then except the fact that this market could go a lot higher and that decision may not look great, but it wasn't built for that. It was built for you to survive what happened back in March.

Rod: Thanks Art. If, if I took things away, I think first and foremost, 20 years is not a long time. I think Meb you're really trying to frame us into a much longer time horizon as we think about our money. And we think about trying to. See it grow over time. I really liked your concept on, on guard rails. We, we do it in so many other aspects of our lives to set ourselves up for success. Quant strategies, systematic rules based transparent can help us with the guardrails. And I also, uh, a partner, uh, an accountability partner, your spouse, a friend, an investment advisor, someone that can keep you on track, uh, seems to be super simple, uh, yet difficult to execute, but great advice to our listeners.

Uh, you can find Meb at Cambria Investments or on his podcast, as he had mentioned, uh, he is, uh, a prolific content creator and a trusted, transparent source for great advice. And we're really honored to have you on today, Meb. It's terrific to see you.

Meb: Yeah, let's do it again sometime!

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