The Meb Faber Show - Better Investing Folgen

Episode 35 features one of the original Turtle Traders. “What’s a Turtle Trader” you ask? The story involves Richard Dennis, a great trader from the 1970’s. As the story goes, he made his first million by about age 25. By the early 80’s, he was worth about $200 million. Around this time, the movie “Trading Places” came out (two millionaires make a bet on the outcome of training a bum to be a financial whiz, while taking a financial whiz and, effectively, turning him into a bum). Richard felt he could similarly train a financial no-nothing, turning him into a great trader. Richard’s partner felt it wouldn’t work. So they made a bet. (Though as you’ll hear on today’s podcast, Jerry doesn’t actually believe there was ever a bet.) Regardless, how’d it turn out? Three or four years later, the group Richard trained had made, on aggregate, around $100 million. The episode starts as Meb asks Jerry how he became involved with Dennis, trend following, and the Turtle Traders. Jerry was hooked on the idea of trend following from the beginning. Meb suggests that many people either “get it” or they don’t – meaning they get hooked, buying into the strategy completely, or not. For many people, the philosophy just doesn’t take. Eventually the program ended, after which Jerry moved back to Virginia and started Chesapeake, which basically consisted of a telephone, a quote machine, and his trading rules. Jerry tell us how the company grew and how its trading systems developed. They’ve gone from trading around 20 markets to well over 100 now. Meb asks in terms of conditions, what’s been the most challenging market for Jerry in his career at Chesapeake? His answer – the market since 2008. The conversation eventually steers toward leverage and volatility. Meb says how most people don’t realize how they can tamp down a volatile market through trend following and managed futures. Jerry agrees, and adds that you want to “make the same (volatility) bet” despite different markets, to maintain consistency. Meb then asks why so many investors, retail and institutional alike, have such small allocations to trend following. Jerry gives us his thoughts, pointing toward the inherent bias people have for equities. He also believes most investors truly don’t realize how powerful diversified trend following can be. Jerry thinks people have it backward—they see trend following as an add-on to some other strategy, when in fact, it’s the core. Start with the CTA strategy and maybe add some long-only equities. The conversation then turns toward common investor mistakes, most notably the tendency to hold losses and sell winners short. Simply put, the behavioral side of investing is extremely challenging. This causes Meb to wonder what will happen to the roboadvisors when a bear market finally begins. Specifically, with it so easy to pull your cash out of a roboadvisor (and no live advisor to stop you), how many investors will allow fear to make them liquidate their positions? There’s tons more in this episode, including how Jerry lost 60% in one day, the differences between technical analysis and trend following, the “turtle program” of the future, and the one market that won’t allow futures trading. Do you know which one it is? Find out in Episode 35. Learn more about your ad choices. Visit megaphone.fm/adchoices

It’s a special holiday episode of The Meb Faber Show. We thought it would be fun to combine all the “beautiful, useful or downright magical” contributions from Meb and our various guests into one episode. If you’re one of our listeners who has written in to report how much you enjoy this segment, this one is for you. A quick word – as we move from 2016 to 2017, we want to give a huge “thank you” to all our wonderful guests for having given us their time and wisdom. And, of course, a very special “thank you” to all our listeners. We appreciate your time in tuning in to us, your thoughtful questions and comments, and your overwhelming support. In order to spend time with our families, we won’t be publishing a new episode next week on Wednesday 12/28. We’ll see you in the New Year! Learn more about your ad choices. Visit megaphone.fm/adchoices

It’s another Q&A episode before everyone gets too busy with the holiday swirl. Per usual, Meb has just come back from more travel, this time to Todos Santos, Mexico. He gives us a quick update before we hop into listener questions. A few you’ll hear tackled are: -         I don’t really understand Trend. In order to maximize return, wouldn’t it make more sense to buy below the simple moving average, then hold or sell when above it? I’m just applying common sense – buy when cheaper than average. What am I missing?   -         If you were building an investment strategy for the next 30-40 years, would it more resemble the one found in your QTAA paper, an absolute value strategy (similar to what Porter discussed in that podcast), or your Trinity approach, which is more buy/hold with rebalancing?   -         Have you ever considered a strategy that buys put option protection for equity portfolios when valuations are historically high? You could buy long puts or long puts/short calls to offset some of the option premium.   -         Are recent bond yield increases causing you to tweak your bond allocations in the Trinity portfolios?   -         How does your use of momentum differ from Gary Antonacci’s dual momentum system?   -         I’m a banker, and can’t tell you how many times I’ve heard a variation of “Rates are so low at the moment, what a great time to borrow.” What are your thoughts on the long-term debt cycle, and how would you “time” leverage? There’s plenty more, as several of these questions send Meb into deep, labyrinthine rabbit holes – one of which involves his thoughts on how to educate children about investing. He believes most parents today do it entirely wrong. So what’s the right way to raise a world-class investor? Find out in Episode 33. Learn more about your ad choices. Visit megaphone.fm/adchoices