The Meb Faber Show - Better Investing Folgen

Episode 127 has a radio show format. In this one, we cover numerous Tweets of the Week from Meb as well as listener Q&A. We start with Meb telling us about his recent back-and-forth over Twitter with Elon Musk, discussing short-selling. Meb uses this as an example to give us more information on shorting in general, as well as short-lending. We then answer a question we’ve received (in various forms) for years – “why is the S&P (or whatever) outperforming your strategy?” For anyone looking longingly at S&P returns for the last many years, you might want to listen to this one. Next up, we tackle some of Meb’s Tweets of the week. There’s a discussion about mixed valuation signals – on one hand, there’s the Russell 3000, with the number of companies trading for more than 10-times revenue now approaching levels from back in 2000. On the other hand, there’s a tweet claiming that “if history is any guide, with 90% confidence rate of positive correlation, this market is going to deliver between 3 to 4% per annum for the next 10 years.” Additional tweets support both sides so Meb tries to resolve it for us. Then there’s a tweet about the challenges of sticking with your strategy during bad years. It references how the little voice of doubt in your head is all it takes “to turn the hardest resolve into the emotional putty that has destroyed generations of investors.” There are several other tweet topics – how Research Affiliates views the probability of 5% real returns at just 1.5%... how one forecast for private equity is calling for just 1.5% returns while a different private equity manager is trumpeting the asset class’s superior performance… and how marketing is nearly as important as performance and fees when it comes to attracting investor assets. We then jump into listener Q&A. Some you’ll hear include: You often say that over the long term, asset allocation doesn't matter much. However, isn't it important to note that because the nature of compounding, a small difference in CAGR over time can amount to a large dollar amount difference in your savings? What are your thoughts on using leverage with momentum? Do you have any recommendations for someone looking to diversify their trend following sleeve by applying a few different rules? For example, I've been doing 1/3 50-DMA, 1/3 200-DMA, and 1/3 crossover. You speak frequently about the benefit of taking a lump sum and investing now versus later. With current equity valuations (at least US) so frothy, is that still true? I’m wondering about how to take losses and how to determine when it’s appropriate to take one and when it is not. Do you, as a quant, have set rules in place? All this and more in Episode 127. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 126, we welcome entrepreneur, author, and investor, Karen Finerman. The episode starts with an interesting connection – Karen and Meb’s wife both attended the same high school in Los Angeles, and apparently, it’s the only high school in the U.S. with a working oil rig on campus. From here, Karen gives us a brief walk-through of her history after graduating Wharton, heading to Wall Street, where she eventually launched her own hedge fund. Meb asks about the framework she used in the hedge fund as she launched. Karen tells us they were fundamentally focused. Coming out of the savings and loan crisis, there were many smaller banks that had been unfairly stigmatized. Many were absurdly cheap with great balance sheets. Karen was able to take advantage, and developed an expertise in the space. She notes it was interesting how badly the market could mis-price an entire sector. She continues by telling us her strategy was mostly long focused. Her shorts were generally idiosyncratic, intended to hedge the portfolio. Beyond that, tax efficiency was a big focus. Next, Meb and Karen dig into her methodology for evaluating specific investments. Karen gives us the details, mentioning fundamentals, growth at a reasonable price, users that tend to be inelastic on price, and various other details, culminating with a specific example of a company she likes. Meb asks what Karen is seeing now. She tells us she’s a little spooked by the tariff situation. Perhaps a big exogenous risk. She then changes gears, going into details about a specific company she likes – Alphabet – noting what she finds attractive (and where she feels they could improve). But overall, she’s very impressed. The conversation gravitates toward “selling”. After all, buying is generally the easier part – it’s when to get rid of an investment that can be tough. Karen tells us that if an investment hits their target return, they’ll lighten their position. These leads into a conversation about investment theses and how that plays into selling. The years 1999 and 2000 come up, with Karen telling us she feels her group did the right thing then, avoiding getting sucked into the bubble. The new metrics at that time (stocks trading at a multiple of eyeballs) just didn’t make sense to her. She notes there are some similarities today, as there are certain companies that are losing lots of money despite posting growth numbers. This dovetails into a discussion of Tesla. It turns out Meb and Elon Musk shared a few words about short-selling on Twitter on the morning we recorded this podcast. Surprising no one, Elon is not a fan of shorts. Listen in for the details. There’s way more in this great episode: the ETF-ization of investing… Karen’s book… How to address the great investing education problem… and of course, Karen’s most memorable trade – actually, she shares two, a good one and a bad one. On the good side, there was an undervalued convenience chain in which Karen got involved at the right time and enjoyed a nice payday when Diamond Shamrock showed up at the buyer’s table. The bad trade relates to when United Airlines was supposed to go private. Karen didn’t factor in the possibility that the deal would collapse. Just how bad was the damage? Find out in Episode 126. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 125, we welcome famed short-seller and early stage investor, Tom Barton. We start by going way back, after Tom graduated from Vanderbilt. He walks us through his early career experiences which helped him sharpen his business analysis skills, as well as his operational skills. He developed a great understanding of different industries, yet also what it was like to actually work in them. This was the foundation for the short-selling career that was soon to begin. In 1983 Tom went to work for a wealthy Dallas family, and in the process met one of the original fraud short-sellers, nicknamed “The Mortician”. Tom knew nothing about stocks at that point, but under the guidance of his new mentor, realized that his analytical skills aligned perfectly with sniffing out short-selling candidates. He reasoned “isn’t it easier to spot something that’s going to fail than be certain on something that’s going to succeed?” He then began digging into the research, and finding slews of fraudulent companies. What follows is an incredibly entertaining story-after-story of the various frauds Tom sniffed out (and made money on). There was a company claiming it could change the molecular composition of water… one deceiving customers about building-restoration after fires… a biotech claiming it could cure HIV… By the time 1990 rolled around, Tom’s returns were over 80% and he had generated a couple billion dollars. There’s a great bit in here about “The Wolf of Wall Street” (Stratton Oakmont). Tom is the guy who took them down. Related, the “Wolf” himself snaked an apartment out from underneath Meb a few years ago out here in Manhattan Beach, CA. The guys share a laugh over this.  Eventually the conversation morphs from short-selling to when Tom’s strategy changed to going long. It involves managing money for George Soros, and some of Tom’s early long winners. This dovetails into how Tom got into biotech, which is where he’s spending lots of time today. Tom tells us about his introduction into gene therapy, then successes with the company Intrexon. He talks us through some small companies he’s been a part of that have already sold for huge paydays…for instance, one purchased by Novartis for $9B. This is a must-listen for any short-sellers, market historians, private investors, and biotech investors. And Tom’s most memorable trade is a doozy. This one involves buying puts for a hundred and something thousand dollars…which he sold for $13M. These details and far more in Episode 125. Learn more about your ad choices. Visit megaphone.fm/adchoices