FULL TRANSCRIPT

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Slava (00:00)

In this episode of Smart Humans, we talk with Meb Faber, who's founder and CEO of Cambria Funds. We talk to him about the market, what he predicts for 2025, the amazing growth the economy and stock market has had since 2009, what it's like to create ETFs and all the ETF options that he has developed for the market. And of course, his predictions for three years out.

Slava (00:51)

Hello and welcome to the latest episode of Smart Humans. I'm excited as always for our guest today. We have a founder and CEO of Cambria Funds. Welcome, Meb Faber to the show. All right, well, we always start in the beginning with the same way. How did you even get involved with alternative investments, investments? How did you get into this world? Where did it start?

Meb Faber (01:02)

Great to be here.

You know, I feel like it's almost helpful for people to say, exclude what's not alternatives, you know, so old school stocks, bonds, kind of publicly traded assets. I come from at least on my father's side, farming background. And so, you know, they grew up as farmers in Kansas and Nebraska. And so if you talk to most people, they would say farming would be an alternative asset, right? One of the greatest assets, you know, in the investing side, there's been for almost forever. But the

You know, like you, I've heard I grew up in sort of that 1980s period of card collecting, comic book collecting. Every time my mom comes to visit me out here in Los Angeles, she dumps off another box of old comics or something that she's kept. And she's by the way, you know, if you know anything about supply and demand listeners, 1980s, know, most of the baseball cards.

are probably gonna be not worth a whole lot because of the supply. I mean, I don't think there's anything I pined more for than a upper deck Griffey rookie as a kid, right? And I see it with my son today, he was talking about Ohtani et cetera. But my mom is the greatest card collector and this shows a little bit about randomness, about investing, but pursuing your interests. She's originally from Winston-Salem, North Carolina. Love Michael Jordan growing up. And so when we were...

Slava (02:19)

89

Meb Faber (02:35)

collecting baseball cards, she was trying to fit in and connect with her kids. And so she would buy some basketball packs. So of course she has one card that's worth probably more than our entire collection being a Jordan rookie, of course. So it goes to show there's a little luck in our world of investing too. So it goes back to these, I think, original roots of farming on one side, collectible on the other side.

Slava (02:57)

So your mom actually got a Jordan rookie.

Meb Faber (03:00)

Mm-hmm. She's got a bunch of bunch of a bunch of collectibles that are worth something. She also had some comic books from I don't know what 1950s or something that were these like old cowboy comic books that look like something you should chuck in the dumpster. But I think same thing or worth more than all the comics I have combined.

Slava (03:20)

love it. love it. And was she doing the the basketball cards just to be in touch with her son just to kind of be able to talk to talk?

Meb Faber (03:28)

Yeah, I mean, you look, you're stuck at for two, three hours at the card shop and your kids are sitting there. What else did I do? Couldn't sit on your phone like you can today. You can only read the newspaper for so long or maybe bring a book. So she would chat with people and you know, she's southern. So she makes friends with everyone within like two minutes. But would but would buy some cards just to kind of, you know, be a part of it. And it's fun. You know, it's connecting on that level.

with your kids too and she of course ended up far ahead of all of us.

Slava (03:58)

That's amazing. So from all that card collecting that you did back then, what's your favorite card today?

Meb Faber (04:02)

man, you know, wow, great question. I mean, the Griffey is the one that really stands out. It's probably not the most valuable, but is certainly, you know, and also my brother who's a little bit older somehow is amassed most of my collection. You know, there's a lot of disagreement about, you know, how they've all ended up at his house, which he, I think, claims are all his now, but the Griffey is the one that is imprinted on my brain.

Slava (04:27)

Amazing. So how do you go from the farm background and Griffey to step by step going to eventually Cabria funds? What are the steps there?

Meb Faber (04:35)

You know, we also grew in the eighties and nineties, one of the great bull markets in history. so particularly in the nineties, I was going to high school and then onto college. And I studied biology and engineering, biomedical engineering in college, but throughout that entire period, probably like the Reddit Robin Hood kids of today, you know, we did it through E trade, was certainly interested in investing. And during that period, we used to joke, and this isn't, I'm not making this up listeners.

You know, we had professors in teaching us engineering classes that would be trading stocks during class, you know, and so I thought I would never see a period like that again in the United States. You know, this very bubbly period, stocks peaked in 1999. I graduated in 2000 and essentially, you know, had a loss decade plus all the way through 2009. And so, but the interest was stoked.

And I was going to grad school after undergrad, but worked during the day at a biotech, excuse me, a mutual fund that focused on biotech stocks. And after, you know, a year or two of that, if you remember the post 2000 period listeners, well, biotech and internet stocks was somewhat of a dual bubble. And most of those went down, let's call it 80 to a hundred percent. And so you had this period where it was like a puzzle, you know, trying to unlock, right? And so the

Plan of finishing grad school and always going back for a PhD in the biomedical engineering world. Just got a little bit further and further away every day and the investing journey became the career and the hobby and vice versa. You know, so I eventually moved out to San Francisco, which was like, if you had to pick one city that would have been at that period in the early 2000s, the epicenter of both investing, but also biotech that, you know, there's a lot of other centers now, Boston and

San Diego, New York, North Carolina. But at that point, know, San Fran was the main one, but I kept getting more more quantitative, worked for a commodity trading advisor. A lot of what we do today, some of the early inspiration happened during that period. Moved down to Los Angeles to start Cambria. This would have been in 2006. Started writing, started publishing, started our investment company, started Managed Money in 2007 and...

Here we are almost 20 years later. You know, we always say the biggest compliment you can give anyone in our world, this applies to both entrepreneurship, but particularly in investing, is you just survive. So we're still here many years later.

Slava (07:10)

and you had to survive the market crash of 2008.

Meb Faber (07:14)

You know, so, oddly enough, this was a beneficial experience for us. you know, I published an academic paper in the journal wealth management, the title really nerdy title, but it was called a quantitative approach to tactical asset allocation. And this paper kind of published what we would describe as a trend following approach to markets. Trend following has been around for a hundred years since the time of Charles Dow. but,

But it was an approach that we simplified and made somewhat tangible for most investors. And that would have sat out the global financial crisis. So that was kind of the first paper that we wrote that gave us some notoriety. And I'm very honest. said, look, had this come out in 2010, nobody would have read it. But a lot of people read it because they ascribe some brilliance to some sort of idea like this when the timing was luck. Now, the approach has merit, we think, in

you know, across all markets and over time, it just happened to be a pretty timely period. actually the financial crisis for us was actually one that was, you know, survivable and probably helped rather than, than hurt.

Slava (08:25)

For those that don't know, what is trend following?

Meb Faber (08:28)

So if you look at markets in general, most markets go up most of the time. And if you try to come up with an investing approach, and this sounds crazy when you say it out loud, you wanna be invested in markets as they go up and you would ideally not be invested in them when they go down. Everyone has that goal, right? But in general, if you look at this long history,

of trend following and there's a good book by Mike by cobell called trend following and details some of the characters in this space. You basically come up with a quantitative approach very simple to say hey how can I be invested in markets and capture the majority of this move and not necessarily get them right you know the batting average is probably below 50 % on positive trades and money making trades but the whole point is the

Let your profits run. So hold on to these winners and all of financial markets are determined by this power law. And I think once people begin to appreciate that, this is true in buy and hold too. And in public stocks, you know, it's something like all the return of the stock market has come from like five or 10 % of the companies, the Walmarts, the Amazons, the Apples, on and on. And trend following, you can apply it a million different ways.

There's, it's like saying Trinfoing is like saying dog, know, a beagle is different than a bulldog is different from a Datsun. But on average, you're trading as many markets as possible. So not just S and P 500, but also the Euro, the yen, wheat, Swiss franc, stocks in Brazil, on and on and on. Some people do it long only, some people short as well.

But the point of this type of strategy is to be invested in markets because the biggest Achilles heel of buy and hold buy and hold is wonderful. We manage a lot of buy and hold portfolios is the drawdowns. And if you look at US stocks, for example, post 2000, S &P only went down by about half, but NASDAQ went down over 80, Great Depression stocks went down over 80%. And so you kind of think about these possibilities where

you have these massive losses and it's really hard to get out of these holes because there's a kink in how returns happen, right? So if you lose 10%, not that big of a deal, you need about what 12 to get back to even, but you keep digging a bigger and bigger hole on the kink happens sort of that like 15, 20%. You you lose 50%, you got to make a hundred percent just get back to even, you lose 75%, you got to make 300%. So trying to avoid these losses, this paper, sorry, long answer.

you know, kind of said, this is a simpler path. It's not necessarily an easy path, but it's one that tries to lower the volatility and drawdowns make it more palatable. And that's the whole point of all investing is just to get to the finish line. If you get taken out by your emotions, you know, how many people listening who are investing in 2009 or 2022 or COVID 2020, you say, I got some losses, I can't take anymore, I'm selling everything. And then those people never get back in and that's unfortunate.

trend following at its core in many ways, buy and hold is a trend following approach, but it's an approach that's been around for a long time and we think has a lot of merit.

Slava (11:51)

All right, so thank you for that. So we'll get to Cambria in a second, but let's hear your thoughts on the various asset classes. So what do you think of all the various private asset classes, whether it's pre IPO venture, crypto, art, collectibles, real estate, private credit, you know, how do you, with your personal wealth, are you still investing into, you know, those collectibles or was that just a kid in your

Meb Faber (12:19)

I'm glad

I'm glad we booked three hours for the show because that that question has a lot but let me give you a quick overview it will surprise me Yep, yep, we it was surprised most Investors to know that the average public fund manager. So you buy a mutual fund you buy an ETF has zero dollars of their own money invested in their fund

Slava (12:27)

But I would love to hear more from your personal allocations though.

Meb Faber (12:45)

And to me that's insane. So we've actually published a piece I update every few years It's called how I invest, you know, and I detail on a broad level how I invest my money and that shouldn't really matter to anyone I put all of my public assets into our funds And so we manage 16 ETFs about 3 billion and so all my public assets are invested our funds and we believe in skin in the game It's crazy to me that someone's gonna go on TV

at CNBC or Bloomberg and say, you should buy my fund. And you ask them and say, well, I don't own any. Like, that's crazy. Anyway, sad state of affairs. So we've published this every few years. I'm due for an update because we've had a few changes. And I kind of describe this as my ski lift conversation, you know, because there's actually a lot of philosophy when it comes to money. It's very personal to everyone. So the first big conversation is let's exclude my company.

So that's whatever you want to call it, 80, 90, 99 % of my wealth. But let's exclude that. And the Idea Farm, which is a media company we have, which is free, by the way, listeners, it's email list that curates top emails, goes out to over 100,000 people. Let's exclude those two companies. Then you say, okay, what does the rest of your wealth look like?

We wrote a book called Global Asset Allocation. It's free to download online. It looks a lot of these investing portfolios over time. And one of the more interesting one was 2000 years old is in the Talmud. And it said, let every investor invest a third in business, a third in land and a third keep in reserve. And the modern equivalent to me is stocks, bonds, real assets. So real estate, farmland, commodities. And that's a pretty tough portfolio to beat.

So if you were to break out what I do with my public just real quick, the global market portfolio, so if you bought every asset in the world, stocks, bonds, real estate, all publicly traded on exchanges, that's roughly half US, half foreign, half stocks and half bonds, roughly speaking. So most investors don't have anything near that in foreign stocks in particular, right? They put all their money in US stocks.

All in on on us no matter what so mine kind of tracks that global portfolio With the caveat that half is in trend following. Okay, so let's put that aside That's the that's what we call trinity strategy. So a lot of people would consider some of the things in there quite alternative But because they're publicly traded i'm just going to put them in the this basket for now We can i'm happy to get into some of those so the rest is

Farmland has been a big chunk for me for a long time, but that is very specific to myself and my situation. Would I own a bunch of farmland had I not grown up with that? Probably not. It's hard to access. It's a pain in the butt. There's modern platforms now like Acre Trader and private funds to do it, but it's not as easy to go buy a blueberry farm on Schwab or Fidelity as it is to go buy some stocks. And there's only a couple farmland style REITs.

or farmland style investments you can make in public market stocks as well. So that's always been a big chunk for me and my home real estate, a very, very large piece. I detailed this in an old blog post called Journey to 100X. For me has been startup investing. And so this goes back over a decade now, but I've invested in almost probably at this point is probably over 400 companies.

which is a lot, but as a quant and again, this, this post, we kind of detailed this in real time over the years. when it comes to markets, you know, often there are insights that are not necessarily unique, but it's like the critical insight. And so the one we discussed earlier is that if you're going to be investing in private markets, in this case, seed stage startups, you have to have a lot of shots on goal.

And I don't think most investors, they kind of get that, but then they don't implement it. And if you're going to go invest in startups and you only do five or 10, when the math says you need probably a hundred, you know, if only one, two, three, four out of a hundred are going to really make all the difference. To me, it makes a lot more sense to do smaller bets, a lot more in number. So I've been doing that for a long time, which has been a lot of fun.

Lot of tax benefits as well. We talked a lot about tax on my podcast where you know investors invest in many types of ideas, but don't really focus on tax and QS BS if you haven't haven't heard of it listeners look it up is one of the Best tax ideas out there for for people invest in early stage companies What am I leaving out on the alt side You know, so I've been a

Slava (17:39)

Yeah, how about crypto?

Meb Faber (17:45)

long-term crypto proponent. You can probably see a hodl hat on my shelf here in the background if you're watching this on on YouTube. You know...

This is going to be a very unsatisfying answer to people, to everyone, because my crypto friends either want to hear, you got to all your money in crypto, or the people that hate crypto say it's scam, it's rat poison, put zero in. My comment has always been, and you guys can go find a 2013 tweet where I was talking about the Bitcoin ETF, you know, as an ETF insider, I was like, this thing is not coming out anytime soon, but glad a lot have today, some of the most successful ETF launches in history.

have been around Bitcoin. depending on how you measure it, sure. There's certainly ETFs that are much, bigger. But as far as ramping up in assets, this has been a category that is certainly a lot of demand. And so my comment has always been to my friends, I said, look, we were sitting down with Bill Sharp talking about this not too long ago, talking about this global market portfolio.

Slava (18:26)

I think the most, the most successful.

Meb Faber (18:52)

And theoretically any asset fits into this. And if you're an indexer, you go back 50 years, the time of John Bogle and Vanguard, the beauty of indexing is if you have an investment and it grows in size, it becomes a bigger and bigger position of the portfolio. So if you buy, you know, U S stock market index, your Nvidia has gone up and up and up and up and up. Right. And that's great. You own the winners. Same thing is true with Bitcoin. Right. And so at the time,

you know, you got a couple hundred trillion in public investable markets and Bitcoin and crypto in general, I would have tell my friends to say, man, how much do I buy? I say you could put in like half of 1%. And again, no one wants to hear that, right? But if Bitcoin 10 X's, well, guess what? Now you got 5 % of 10 X's again, you got more. So that's the way the global market portfolio works. And so that's been my approach always. I've actually almost all my crypto exposure has been through companies in the ecosystem.

as well as some ETF exposure too. We certainly use crypto ETFs in our allocation strategies and have since inception. So we've been more of a sideline cheerleader than a full on proponent, but it's been certainly fun to watch.

Slava (19:57)

What percentage?

What percentage exposure would you say you have to crypto?

Excluding excluding your two private your two companies

Meb Faber (20:10)

You know, it's single digit, you know, so kind of in line with GMP probably would be my guess.

Slava (20:14)

Got it.

Got it. And then

how about collectibles? Are you actually allocating it all to the...

Meb Faber (20:22)

I got

a lot of collectibles, I don't think they're worth anything. Let me think.

Slava (20:25)

Right, right, but exactly,

are you allocating to it in the last 10 years?

Meb Faber (20:30)

Collectibles let me think about that. I have some I have some investments that are collectible related But actual so I take that back, you know, it's not collectibles per se We did a really fun podcast with van Simmons Years ago about gold collectible coins. So, you know this was talking about a lot of various

Slava (20:32)

or art.

Meb Faber (20:55)

parts of that market, we need to have them back on parts of that marketplace. And, you know, we kind of real time on the show, I think bought like $10,000 worth of various coins and have, you know, locked those away. Gold is interesting. We wrote an article during the pandemic. We write a lot. We put out, you know, dozen, dozens of white papers and books. But we wrote an article and this was targeted gold, but it applies to crypto today because a lot of people get fearful of all time highs or when markets are hitting all time highs, but any market.

There's only two states possible. It's an all time high or some form of drawdown. So if Bitcoin's at 100,000 and 105,000, it's an all time high, whatever the number is, it goes down to 100 or 90, it's in a drawdown, right? And so we wrote an article that says, is investing at all time highs a good idea? No, it's a great idea. And we actually kind of walk through various markets through time, gold being one.

about what if you just bought these with their all time highs and some rules to exit, et cetera. It's a pretty fun paper, but gold is probably, gold and investible coins is probably the biggest, I'm trying to even think on investible collectibles.

Slava (22:10)

Nice, nice. So as a matter of fact, just this past week, Dorothy slippers from Wizard of Oz just sold for $32 million. Imagine that. Yeah, that's a real number. That's a.

Meb Faber (22:20)

Wow. Nice

timing on the with the wicked, you know, launch people a lot of interested in, you know, kind of some of these topics as smart. Yeah. Collectibles, you know, collectibles for me has always been, you know, it's got to be passion driven. You know, if you're going to throw up a bunch of money for some of these things, it ideally would be something that you care about.

Slava (22:26)

Yeah, yeah, not it.

Not an accident.

Meb Faber (22:45)

you know, for me, I, there's not a whole lot on the material side. I like, I like a lot of the concepts of collectibles, but I tend to be driven a little more to the cashflow side of the world, you know, investments that are collectible related, but hopefully we'll, be a business that generates it.

Slava (23:02)

Absolutely. All right, so changing gears here. Open ended question, big question. What do you think of the market? So here, exactly, which is the economy, the stock market, just where we're at, talk about interest rates, talk about jobs, talk about whatever you wanna talk about. You could just take a couple minutes to just take it wherever you'd like.

Meb Faber (23:09)

Which one?

Yeah.

Yeah.

Sure, so most listeners, I'm do a quiz in your head as you're doing this. What do you think the stock market has done since the bottom in 2009? And pause, let y'all come up with an answer in your head. I think most people will respond, man, it's done great, it's probably been a double, maybe a triple.

And the answer is the US stock market has been a tin bagger since 2009. So you had 100 grand, you got a million now, assuming you held it. Just buy and hold indexing. That is a monster return. And if you look back in the long arc of history, we wrote a piece earlier in this year called the bear market and diversification. We said there's only been four periods when on a 10 year rolling basis, US stocks have done 15 % per year and they all have names. There was the roaring 20s about a hundred years ago.

The nifty 50 stock period of our parents' generation. Then my favorite bubble we started with, really the late 90s culminating in this internet boom. And then whatever we're calling today, COVID, meme stock, AI boom as well. And you know, the U.S. stock market has creamed everything else. They've creamed real estate, it's creamed bonds, it's creamed gold, it's creamed for the last 15 years.

Interestingly enough if you go back to 2000, it's it's been beat by things like reits and gold But the last 15 years has been a particularly special time for US stocks now US stocks if we look at like a long-term PE ratio, we like to use 10-year P Rio P ratio in 2009 they were down in the low teens. Well today they're knocking on 40 and The highest it's ever been in 99 was 44. So on average

They're expensive. So what right if you look back in history and try to characterize the US stock market into four quadrants Cheap expensive uptrend downtrend. The best is a cheap uptrend not surprising and But second best is an expensive uptrend, which is where we are now So the markets expensive but it's going up. The problem is when it kind of rolls over into an expensive downtrend That's the worst historically. So there's there's kind of two ways to play this the first being

Within the U.S., you can tilt away from the big mega cap, mostly tech, expensive companies to what we would call value quality. We like to use the phrase shareholder yield. So companies that are generating a lot of cash, paying out that cash to shareholders through dividends, net stock buybacks. That looks great. So you're talking like single digit P E ratios, really quality companies. That looks fine. So underneath the surface, foreign stocks,

and developed and emerging also look great, but foreign has gone nowhere relative to the US for 15 years. They were also trading super cheap in March 2009, but they just haven't had that expansion that US stocks have. World of opportunity in foreign and emerging as well. Now, the US stock market is a percentage of the world is approaching two thirds 70%, which if you put

your money in the US stock market, it's 10 times the size of any other countries waiting. Japan is like 5%. You know, and so, but you got to think back listeners, us isn't always the largest stock market in the world. In the eighties, it was Japan and Japan's the biggest bubble we've ever seen. They hit a long-term P ratio of almost a hundred, but then Japan's stock market went nowhere for 30 years. This is a top three world economy, top three world stock market. It's not some tiny, economy or stock market. So

I think on average is the US stock market returns are likely to be muted on the big indexes like S &P, but elsewhere, value, quality, foreign, emerging all look great. Problem is the market gods love to humble all of us. I would have said this exact same thing at the beginning of the year and guess what? US stocks are up 30%. So going back to the trend following portion of this, and by the way,

My largest fund is the US stock market fund. got over a billion three in that. it's not that I'm just talking my book. You know, nothing would help us more if US stocks just went up forever. But, but definitely it's they're expensive at this point.

Slava (27:50)

So what would be some of your, the comparison of the low teens PE to the 40s now, that's a great context for what would be some predictions you would make for 2025 given that we're kind of like a year end show.

Meb Faber (28:06)

Yeah. I'll give you two. The first is in, know, these things tend to play out over five, 10 years. So who knows, but, but certainly diversifying globally to me makes a lot of sense, away from these expensive companies, historically investing in companies trading at 10 or a hundred times revenue is, has been a pretty bad idea on average. underperforms T bills. So it's not, not a great place to be.

But every once in a while you'll have this face ripper where the expensive stocks just kind of go to the moon. So that's one, two, having that exposure to foreign and emerging, having exposure to real assets, which we haven't really talked that much about, real estate, could be commodity equities, tips are a great investment, all those in a diversified portfolio. The one oddity for me, fixed income is very strange. In a world where you have 5 % ish T-bill yields,

but then the entire rest of the risky curve, corporate bonds, junk bonds, emerging market debt, 30 year bonds, on and on and on, you get very little, in some cases, no to negative yield spread versus T-bills, which again, has historically been a very poor idea to take on all this risk when you have no margin of safety. So that to me, I'm a huge outlier there. I don't know a whole lot of other people that believe that.

So that's one in particular that I think either the entire risky bond yield curve needs to move up or T-bills need to come down or both before that normalizes.

Slava (29:43)

Got it. So we kind of skipped over real estate when you mentioned farmland for yourself, but do you hold real estate for your own portfolio as well? Beyond just, you know, your own home or whatever?

Meb Faber (29:54)

Yeah, yeah,

we got a house, you know, we got a this farmland, which I'm actually sold a piece currently, it hasn't closed yet. But farming, real estate is somewhat my nightmare. As an operator. You know, I get that people do it, I understand the concepts, the 1031 exchange on and on and on.

but actually managing it is a huge pain in the ass. And a lot of people were good at it. That is not me. I would much rather invest in a publicly traded REIT ETF. We manage one. I would much rather invest in a company that professionally manages farmland. We've done a bunch of podcasts with some of those. know, it's just, it's a lot of work. And, you know, if anyone's been on a farm, you realize things are always going wrong. Same thing with real estate, know, pipes, spurs, toilets, on and on and on.

So I'd much rather get my exposure through someone else dealing with the hassle, but but I think as a investment it's one of the best there is farmland real estate both in the same category and farmland of the global market portfolio of assets the two biggest pieces missing are farmland and private single-family housing neither of those are captured effectively through public markets you can get almost everything else through public markets, but

But those two in particular don't get a lot of exposure.

Slava (31:22)

So your suggestions for next year though is get more foreign exposure and get more real world asset exposure, potentially through real estate or farmland.

Meb Faber (31:29)

Yeah.

So it at least move towards the global market index. So no one's going to do this, but you know, you should only have about a third in us stocks. I mean, excuse me, two thirds of your stock exposure. A third should be in foreign. If you want to round, could say 60 % us 30 % foreign, 10 % emerging. Nobody has emerging market stocks. to me, that's the starting point of where you should allocate. And then if you use valuation, certainly I would move away from the S and P to things like value quality, shareholder yield.

is much more thoughtful in my mind.

Slava (32:01)

What's an example of an emerging country?

Meb Faber (32:04)

So China, India, Brazil, on and on, those countries would be in the index. There's about 45 really investable countries in the world. Some of them on occasion will move in between, developed would be like Japan, Canada, UK, and then Argentina and things like Greece will kind of move in and out depending on what's going on in the world.

Slava (32:07)

Got it.

Got it.

So I know you've already mentioned a little bit about Cambria funds, but why did you start it? Give us the context. I know you already told us 16 ETFs, 3 billion assets, Like the trend following, give us a little bit more as to what is it that you're doing? What is it that makes you different?

Meb Faber (32:38)

Mm-hmm. You know what?

It's the best time in the world in history to be an investor. You can have limitless choice. You can open an investing account, pay no commissions, no fees. You can buy a bunch of ETFs that trade at darn near 0%. And with short lending actually have a negative expense ratio. You're getting paid to invest. Like what an amazing time to be an investor, but it's also hard, right? You go to the grocery store and it's not just one or two types of cereal now. It's 10,000.

And so within that, there's a lot of predatory people and there always has been in financial services that, you know, are going to try to seduce you into ideas, concepts that, you know, are not thoughtful and, you know, really trying to just, you know, extract as much rent as they can. So when we're trying to launch funds, we try to only launch funds. have 16 ETFs that don't exist. And if they do exist, it's something we believe we can either do quote much better, which I get is a lofty goal.

or cheaper than what's out there. It has to be something that's backed by academic research, so either ours or someone else's. They're all quantitative, rules-based. It has to be something I want to put my own money into. So a lot of my friends in this world, they'll chuck as many ideas against the wall, see what sticks, and if one or two hit, great, regardless if they're thoughtfully designed or not. So we'll put out a book or a white paper to accompany every fund. We're launching a new fund next week.

So that'll be number 17. But again, most of our funds look like nothing else out there or there's nothing quite like it. For good examples, our three biggest funds are based on this concept of shareholder yield. And that's attacking, we wrote this book called, Shareholder Yield, A Better Approach to Dividend Investing over a decade ago. We just put the new second edition online and you can find the free PDF as well. But the concept was that all these,

funds and investing approaches that are targeting dividends are doing it wrong because they're ignoring stock buybacks, which are now a bigger part of how companies distribute cash to shareholders since the 1990s. And a big part of this cycle too is not just the stock buybacks, but the flip side share issuance. I how many tech companies have we seen that just issue a massive amount of stock-based compensation to invest, to the C-suite, to founders when that's a huge dilution. So if you don't account for that,

It's a huge problem. So we detailed this in the book. There's no other shareholder yield ETFs out there. We now have five and they've done really well over the ensuing years. We have one in foreign developed and emerging market. It's in small cap and large cap on and on. But that's a good example of something where we look around and say, Hey, this doesn't exist. We want to put it out and want to put our own money into it.

Slava (35:27)

So if I want to invest with you, do I have to be an accredited investor or can I just be a regular retail investor?

Meb Faber (35:32)

You can buy one share. That's like 25 bucks for some of these. Some are a little more, you know, and a lot of the brokerage has got fractional accounts. So you go on Schwab or Fidelity or wherever you keep your money and buy these just like any other, any other fun.

Slava (35:45)

Awesome, so what's the biggest one you mentioned?

Meb Faber (35:47)

SYLD, which is about a billion three, been around for over a decade.

Slava (35:52)

S Y L D

Meb Faber (35:54)

And that owns a hundred stocks, rebalances once a quarter, US stocks only. And it's looking for stocks with those cares. On average, the stocks coming into the portfolio have a double digit shareholder yield. So cash dividends plus net stock buybacks. A good example, historically would have been Apple. We owned Apple from 2013 to 2020. Now we use valuation filters too. So Apple eventually got kicked out because the stock got too expensive according to our models. We don't want them to have a whole lot of debt.

What's interesting about this approach is that it's sector agnostic. So in the U S we don't have that much tech exposure. We've owned a few like PayPal and eBay recently, but on average it's an underweight. And so people are like, Mab, you're a value fund, you're missing it. You don't get it. And I say, well, part of the problem in the U S is again, these, these CEOs are issuing so many shares through a stock based compensation, our emerging market fund, which is EYLD.

tech is actually the largest sector. Now, there's a lot of reasons for that. Partially, emerging markets have just done much more poorly, so a lot of the stocks are cheaper. But it's not that this approach, people always assume value isn't a growth approach, but it's not true. It's just it's avoiding the really expensive companies and the companies that have to have cash flows, which at the end of the day is the whole point. It doesn't matter who you are. Eventually, you got to generate those cash flows.

Slava (37:19)

Absolutely. So any other predictions or things you want to share about where the markets or the economies or stocks or anything is headed for 2025?

Meb Faber (37:30)

Yeah, so on the trend side of my hat, so if you look at my brain, value is half trend is the other half. And we're probably the biggest outlier. When you talk about alts, most people would assume that trend following is definitely an alt. But we're probably the biggest outlier of any investment advisor in the country as far as how much trend following should you allocate to your buy and hold portfolio. And for us, it's half.

Some people put in five or 10%. And the good news, you can buy trend following funds. We manage a handful of them. GMOM is one. We just launched a new one, Managed Futures ETF. But the concept being as a companion to a good buy and hold. So you're buy and hold, you got stocks, bonds, assets, you got a global. The biggest problem with that is you're just sitting on your hands during the bear markets and your portfolio is highly correlated to your human capital and what's going on in the world.

So think back to 2009, unemployment shooting up, economies going in the tank, companies are failing. The last thing you want is your portfolio to be going down 20, 30, 50 % too, right? And like theoretically it should do the opposite. And so trend following historically does a great job during times of crisis. It's the other periods like now where the S &P has been romping and stomping where you don't look as good. And we all know the worst possible thing

as an investor is to be underperforming your neighbor who owns fart coin or whatever they may own. And it's challenging for people to underperform, particularly underperform years in a row. But trend falling to me is the best possible thing you can add to a buy and hold diversified portfolio.

Slava (39:14)

Nice. So we all try to learn from our guests what you listen to, what you watch, what you like to read. Can you give me some examples of things that we can try to be like you?

Meb Faber (39:24)

Yeah. So this is a struggle I've had for a very long period and it's only gotten worse for most people. And that is this flood of information. And we actually started the idea farm, this email, we curate top two or three articles each week. It's targeted kind of professional investors, but you'd be a hobbyist investor that really is interested. Top two or three podcasts each week, some links. We do it for free. It goes out to, I don't even know now a hundred, 150,000 people.

But that was born out of my frustration. Thankfully, I have someone running it now. It's not me doing it anymore because they do a much better job. But this concept of curation to me still hasn't really been solved. mean, you guys do a good job in a very specific niche that that's the whole point is like, I don't need more discovery and information. I need someone to curate to me. Hey, here's here's what you should be looking at. So within that, I listen to a lot of podcasts. It's the end of the year. So we'll be doing kind of our annual.

On Spotify, we have a list that goes back five, six years of maybe the top podcasts of each year in the spirit of the holidays and the new years and reflecting. that's a lot of fun, but is, mean, there's never been a better time. Listen, some of the greatest investors in the world hop on the mic for half an hour, an hour. That's pretty cool. And the good, the good thing with me, you guys can speed me up to two X speed. talk so slow. So there's no loss of fidelity or information. If you go really fast with me.

Slava (40:48)

Any specific podcast or any specific book or article or newsletter that you suggest beyond the things you mentioned?

Meb Faber (40:55)

You know, we listen to, listen, I mean, I have probably over a hundred in my feed on average. And so this has also been one of my big struggles is you could have, say, let's say you listen to Tim Ferriss. Well, not all Tim shows are great, you know? And so the fact that you can't rate the episodes has always been a big struggle for me because maybe there's one episode that's exceptional, but some of the other ones are kind of only okay. So to me, having that curation is huge.

As far as books, let me think. We're getting ready to put pen to paper for a new coffee table book on the history of investing, which should be a lot of fun, hopefully out next summer. And so we've been doing a lot of historical research into stock markets from 1600 and starting in 1800. And there's a lot of books on the history of capitalism that William Bernstein has written a bunch of these. I love the economic history of a bunch of them. Capitalism, American history.

Slava (41:31)

Nice.

Meb Faber (41:52)

by Boo, what is his last name? Srivansanastan, I can't even remember, is an amazing book. Demodaran has a great new book out as well recently. Yeah.

Slava (42:07)

Perfect.

So our final question, we call it three years out. We'd love to hear one prediction for the public markets and one prediction for the private markets, which you think today is gonna perform great three years out. So private markets obviously means it's not in the public indexes and public means that it is. So what two suggestions do you have?

Meb Faber (42:25)

Sure.

So I have a bit of a contrarian streak in me. And in my very first book we wrote called the idea, Ivy portfolio, we looked at what happens when you have large asset classes that go down multiple years in a row. It doesn't happen that much. So think US stocks going down 2000, 2001, 2002. Usually it's a great time to invest. And if you condense that to more concentrated sectors or industries,

you can have and you can look this up listeners go on the French Pharma database, download it for free. You can look at stock indices going back to 1920s. Two best indices in history by the way listeners are tobacco and beer. So it speaks to something. It's not some tech sector, know, it's what fulfills human desires. But you can also look at industries what happens when they go down.

many, many years in a row. And so we used to do this annual feature called, you know, who's getting coal in their stocking this year and what industry has gone down like five or six years in a row. And over the years, the past 10 years, it's been a lot of, or country stock markets, it's been a lot of natural resource type of ideas. It was coal stocks, it was uranium stocks, it was gold mining stocks, all of which have since rebounded over these periods, a number of foreign frontier emerging markets.

This year, think it's probably the most concentrated sector. I think it's gone down like six or seven years in a row. Cannabis has been totally forgotten, tossed in the dumpster, and it's done absolutely atrocious. So usually to me, that's some fun places to start to dig around for some interesting, we've managed a cannabis ETF, which is tiny, not surprisingly. But to me, that's a fun place to dig around. You know, have places...

many foreign and emerging markets that have gone nowhere for 30 years. I know it's not popular, but if you look at a place like China, stock market's done nothing for 30 years. Excuse me. So if you look at emerging markets, again, forgotten, abandoned, average investor, Goldman says of their stock portfolio puts 2 % emerging markets, and then emerging markets as a percentage of the global market cap is 10%. And it's always fun to listeners.

Think what do you think emerging markets are as a percentage of GDP? They're a majority. US is only a quarter of world GDP and yet the stock market is two thirds. And so we love emerging markets. Again, I would lean into value and quality there as well. I think that's an exceptional opportunity for the next two to three years.

Slava (45:12)

So give me one specific ticker that I could buy on my Robinhood account.

Meb Faber (45:17)

EYLD would be our favorite, highly concentrated shareholder yield. I mean, then just get exposure through Vanguard, VWO, doesn't matter, any of the broad indices. And if you hate China, it's a broad emerging markets exposure, index-based. Again, the problem with that, there's a lot of investors, whether or not you think China is investable or not. My friend Perth Toll runs a fund.

Slava (45:20)

But that's, but it can't be your own book. So it will be one stock.

What is what is what is what is VWO? Sorry, what is VWO?

Meb Faber (45:46)

that excludes the dictators. So it's called the Freedom ETF, FRDM. I mean, I think it's a billion dollars as well. That's a good fund for the people who want to lean away from certain types of political FRDM.

Slava (46:01)

Sorry, FFRDM, got it.

And then that's the public. going after emerging markets will be your private investment that you would suggest, like a pre IPO, a crypto art, a collectible asset, real estate market.

Meb Faber (46:16)

Yeah.

I think the.

Feels to me like the IPO market is about to smash open. There's so many private companies that are lined up that have just been kind of sitting on the sidelines for a really long period. It feels like that's about to open, but who knows? You always got to be careful. We were warning investors real time on the challenges of SPACs as that entire...

boom happened and we said, historically speaking, the average return of SPAC is minus 70%. And sure enough, they didn't disappoint. So of course, be careful in this go round as well. You know, I'm going to say something that on average, imagine no one has any exposure to in a world where real estate and REITs to me are quite expensive. You're not getting a lot of funds from operations. You're not getting a whole lot of yield.

I think farmland is one that is a great diversifier. Again, you're probably going to be holding it for seven, 10 years, but a consistent cashflow generator. can build a portfolio of different geographies, different crops. I think it's a thoughtful way to go about investing. Again, it's not going to be probably a 25 % a year type of investment you're targeting, but then again, most, most hard.

Slava (47:35)

Amazing. Meb, thank you so much. We covered so much information from starting with the farming background from your dad's side to your mom jumping in and collecting cards and finding Michael Jordan to getting onto E-Trade and being able to do the day trading, which was amazing. Starting KBREA funds in 2006, getting into trend following and really making it a thing. Now you have over $3 billion in assets and 16 ETFs about to open up your 17th. You talked about how you diversify across different asset classes and

Obviously talk about the public, how you get more into emerging, which was super interesting. You like also the real estate. The fact that you also have your own in terms of farmland, 400 startup investments was incredible. You like some crypto, but not over your head in it. The fact that since 2009, stock market is up a 10 bagger. Most people don't even think about it that way. And we have, like you said, we have our own roaring 20s and it needs a name. you know, listeners tell us the name, what's it supposed to be called? The P ratios used to be as low as the teens and now it's over 40s.

crazy. And you suggest we should have foreign exposure for 2025. You suggest we get into real assets, which is super smart. And the breakup between 60 % US 30 % foreign and 10 % emerging really great feedback. You have an awesome ETF S Y L D, which is your biggest one with 100 stocks giving off dividends and buybacks. And of course you gave us some awesome picks for some content. And the three years out we got the emerging markets VWO

FRDM and of course Farmland in Private. Thank you, Meb.

Meb Faber (49:04)

been a blast. Thanks much.

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