The Meb Faber Show - Better Investing Folgen

In Episode 84, we welcome investor and entrepreneur, Howard Lindzon. Howard starts by giving us his background. He was a broker who felt the pain of the ’87 crash. In the aftermath, he got the angel investing and entrepreneurial bugs. He’s currently an investor in Robinhood, and he started StockTwits – which you might think of as Twitter-for-finance. He also runs a fund, Social Leverage. Given that Howard has spent plenty of time in the public markets, Meb starts by asking about his public market framework, and how he approaches markets today. Howard tells us that he likes to see which investments are doing well, then try to join in – in his words “classic trend following.” He uses the analogy of the great white shark and the pilot fish. Howard is a pilot fish, following the great white. He likes this approach as “there’s so many ways the markets are rigged that I think it’s best to just follow along the trends.” Howard believes this approach of following the great whites also works in the private markets. Meb asks about something Howard wrote in regards to learning to invest – it was something along the lines of “open an account, lose money, get a mentor.” Howard expounds on that, focusing on how everyone needs a mentor. Howard wants to help other investors through his own writing and advice. He references Millennials, and how he wants to use tools to help them. Meb asks Howard’s advice for people who want to learn to be better investors, and how to find a mentor. This leads to a conversation about Howard’s site, StockTwits. Whereas Wall Street felt that people wouldn’t share quality investment information (just keep it to yourself so only you can benefit), Howard felt that many people would want to share their good ideas. Many of these people do exactly that on StockTwits. So, Howard suggests finding someone there that matches your own investing style and temperament, who has a consistent, good track record, and just follow along. Meb asks which gurus Howard suggests following these days in order to get great information. Be sure to listen to this part to get the specific names. Next, Meb transitions the guys toward private investing. He asks for an overview on the blurring of the lines between private and public markets, and the development of the seed stage being open to individuals. Howard tells us things changed in 2007/2008 – it was “the cloud” that was the catalyst, bringing down the costs of starting a company. He says now we’re in a transition stage where many private companies are actually staying private for too long. He references Uber, saying how it feels a bit late for it to go public, but it’s too big to be private. Meb asks about the realities of private market investing for listeners, noting how some of our pasts guests have had different opinions. Howard has some helpful thoughts you’ll want to hear, but he notes that to be a great angel investor, you need to invest over multiple generations – 20 years or so. You need this time to see an overall crop of investments work out. This leads into a discussion of Howard’s fund, Social Leverage. Howard gives us the details as to what they’re looking for, as well as the fund goals. As always, there’s plenty more, including a discussion of when Bitcoin was less than $1, Howard’s publication, The Peloton, and, of course, his most memorable trade. Not investing in Twitter and Zynga when he had the chance comes to mind. Hear all the details in Episode 84. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 83, we welcome fund manager, Randy Swan, who’s calling in from the Bahamas after being displaced from Puerto Rico by Hurricane Maria. The guys start with Randy’s backstory, which leads into why he started Swan Global Investments. In part due to his background in managing liability risk at KPMG, Randy was interested in a way to diversify away market risk. This led him to develop an option-based market approach called the Swan Defined Risk Strategy (DRS), which might be summarized with Randy’s phrase “always invested, always hedged.” Randy walks us through his DRS methodology, which relies on asset diversification and the purchase of puts to protect against market drawdowns. He gives us more info on the duration of the puts, generally how far out of the money the system targets, and other trade specifics. This dovetails into a discussion of selling options as opposed to buying them. Randy uses selling strategies in an effort to generate positive returns on an annual basis.   Meb asks about the general response from investors, and how they view buying this type of portfolio “insurance.” Randy tells us most people think it makes sense, they just haven’t really been exposed to the idea. Rather, most people are used to hearing only about diversification. The guys then discuss low volatility in the market. Randy gives us his thoughts, mentioning how now is a great time to hedge a portfolio given the low VIX. The conversation touches on whether you can still sell options in this low-VIX market. After all, it might be dangerous if volatility spikes. Plus, with so many investors having adopted a selling strategy in an effort to generate income, is this space crowded? Does it still work? You might be surprised to hear Randy’s take on it. This is a great episode for options-fans and investors wondering how to stay in this market while adding some protection to their portfolios. You’ll hear more on volatility skew… the active versus passive debate (and how it misses the point)… Randy’s broad advice for listeners interested in implementing an options strategy… and of course, Randy’s most memorable trade. Get all the details in Episode 83. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 82, we welcome trader, fund manager, and author, Vineer Bhansali. Per usual, we start with Vineer’s backstory. It involves his physicist-origins, an unexpected move to an assortment of trading desks, and a run-in with the great, Fischer Black. Meb soon dives in, asking about main strategies Vineer uses with his group, Longtail Alpha. Meb reads a quote from LongTail’s website… “LongTail Alpha’s sole focus is to find value in the tails of financial asset return distributions. Either in the left tail as a risk mitigation hedge on multi-asset portfolios, in the right tail to add convexity to an investor’s risk exposures, or in both the right and left tails to produce alpha from convexity and volatility opportunities in a hedge fund structure.” Meb asks Vineer to use this as a jumping off point, explaining his framework, and how he thinks about tail strategies. Vineer tells us that, at LongTail, they believe the probability distribution of returns for asset classes and multi-asset portfolios is actually not bell-shaped. Rather, there are many imperfections and anomalies in the market. And the tails of the distribution are quite different than the central part. While the central part of the curve tends to have many, smaller moves, the tails tend to be dominated by infrequent, large events. With this in mind, the goal is to implement various options strategies to help you position yourself for these tail vents. Keep in mind, there are left tail and right tail events (and a hedged strategy in the middle). Vineer references them all. Meb mentions how, right now, most investors are more concerned with the left tail events. So how should an investor think about implementing a tail strategy? And is it even necessary, given Vineer’s statement in a recent Forbes article: “…people generally feel better when they believe that they have portfolios with built-in insurance, i.e. protection against losses, even though the expectation (or average return) of a portfolio with or without such insurance is the same.”   Vineer discusses the difference between “volatility” and “permanent loss of capital.” What you want from a left-tail paradigm is a methodology that keeps you in assets, serving your long-term benefit. Generally, you want to be invested in the stock market. Vineer tells us the name of the game is to be able to survive the relatively short-but-harsh pullbacks, and even accumulate more assets during those times. Given this, Vineer has a 4-lever framework he uses to help create a robust left-side portfolio. You won’t want to miss this part of the discussion. As the conversation unfolds, you’ll hear the guys discuss how, even though there is some concern about a correction now, the markets are still severely undervaluing the price of a sharp downturn. And option premia are incredibly cheap by historical standards. Meb then asks for more details about actually implementing a left tail strategy. Vineer’s answer touches on understanding and identifying how much exposure one wants to equity risk and inflation risk. Then, there’s the need to understand one’s risk threshold tolerance – the “attachment point” at which you cry uncle, whether that’s being down 10%, 15%, 25% or more. Given this attachment point, an investor could then go to the options market and buy “insurance” at this level, for a duration of time suitable to the investor.  There’s way more in this episode: option selling strategies (instead of buying insurance, you’re the one selling it in order to generate yield)… A great piece from Vineer about selling bonds as a way to hedge your portfolio… How the traditional inverse relationship between market direction and volatility might not be holding up as much (look at Japan recently – surging markets and volatility together)… Vineer’s thoughts on artificial intelligence and “how to beat the machines”… And of course, his most memorable trade. All this and more in Episode 82. Learn more about your ad choices. Visit megaphone.fm/adchoices