Auren Hoffman (00:00:00)

Hello, fellow data nerds. My guest today is Meb Faber. Meb is the CEO and Chief Investment Officer of Cambria Funds, which has 14 ETFs and 2 billion in assets.

Auren Hoffman (00:36.563)
He's also the host of the Med Faber Show, which covers investing and global financial landscape. Med, welcome to World of Dazs.

MEB (00:44.27)
Great to be here, long time listener, first time participant.

Auren Hoffman (00:48.779)
Awesome. I love it. All right. Well, okay. You publish this cool list of beliefs that you hold that the vast majority of your peers disagree with. Like, what are some of those beliefs that are like most controversial? Let's just get right into it.

MEB (01:03.654)
Oh man, just cannonballing into the pool, huh? You know, um, I, I kind of live in the macro world, broad investing space and what you hear most of the time you turn on TV, Bloomberg, CNBC, whatnot. Um, people love talking macro because macro is interesting. There's always crazy stuff going on in the world somewhere.

Auren Hoffman (01:05.884)
Exactly.

Auren Hoffman (01:27.571)
like what the interest rates are or, you know, Middle East problems or those types of things. Yeah. Because you sound smart when you talk in a macro, right?

MEB (01:32.21)
Exactly. And in you do and it skews a little pessimistic so that gets that angle. So we started this list because it's 20 strong, I think at this point, but the concept was you sit down at one of your famous dinner parties, and you make this statement with a bunch of people in the industry. So professionals

Auren Hoffman (01:41.512)
Yep.

MEB (01:59.006)
75% would shake their heads or say meb you're an idiot Some are very specific Some are very triggering, but we'll do a couple. I think the one that almost no one agrees with would be and I don't even have a strong opinion on this but

say something along the lines of the Federal Reserve has done a good job. No matter who you are, you either think one of two things. Interest rates are too high or they're too low. The Fed needs to raise, the Fed needs to cut, on and on. Everyone thinks the Fed are just a bunch of idiots. And I have a bit of a conspiracy theorist take, which is I think the Fed just goes to the meetings, they get a six pack of beer,

maybe some White Claws, perhaps, some White Wine, they watch reruns of Seinfeld, and they just peg the Fed funds rate to the two-year bond. And if you pull up a long-term chart of the Fed funds rate versus the two-year, it's like they're twins. Sometimes it's higher, sometimes it's lower, but on average, I think they could just put it on autopilot. So you say that, no one agrees with that one, because you end up on either side no matter what. No one ever is okay with the path of interest rates.

Auren Hoffman (03:14.059)
But they could just put on autopilot. Like what's even the need for them? Like couldn't we just like automate the FED or something?

MEB (03:20.262)
Yeah, I think they should, you know, they get some data nerds like us in there and they probably could. The problem is you get into our world of investing where so much is driven by the animal spirits and you start to get into expectations and if everyone's targeting this certain number does that change things? It makes a fun, it makes a fun behavioral question, but it's great to talk about on TV because you can never disprove what someone said. There's no alternate.

Auren Hoffman (03:35.175)
Ah, got it. Okay. So it has to be some uncertainty in there, you know.

MEB (03:46.878)
uh... reality uh... in the metaverse where we can look so how they raised interest rates on but i'm pretty sure that i was to give most investors a playbook with the path of interest rates i'm not sure what help them i don't know if they would have been better off or not

Auren Hoffman (04:03.355)
Okay. What do you think are the factors that most people just frequently overlook when it comes to their own investment portfolios?

MEB (04:12.066)
Yeah, factors has a special meaning in my world. So if you say factors, it could mean things like P E ratio or on and on. So you got me on the two other things that trigger people when I get on Twitter would be stock buybacks or long-term valuation metrics. But if you mean general factors on what drives investing portfolios, we did an old paper where we looked at like the old,

Auren Hoffman (04:16.785)
Okay.

MEB (04:39.49)
food pyramid from our youth that basically said, when we were kids, you wanted to eat as much carbs as possible. So we're talking bread, pasta, like that was the base of the pyramid, right? Which is probably inverted with, from the knowledge we may have today. And as we talk about that with investing too, and we kind of go, start from the bottom and move up, you know, so much time on the podcast or elsewhere, we're talking about like the final two or three pieces of the pyramid, because we assume that people probably have the basics, right? When and often reality is they actually probably don't.

Base of the pyramid, it's like cooking. My mom is not too far away from you in the South, North Carolina, she was an old school Southern cook. You know, recipe's not exact. It's like by feel, by taste. So if you make chocolate chip cookies, as long as you have the main ingredients, they're probably gonna end up okay. If you leave out chocolate chips, or you leave out butter, or you leave out flour, something's gonna mess up. So we say the starting point, the default for portfolios.

and I promise I get to your question in a second, is you start with a globally diversified asset allocation. And what does that mean? That means global stocks, global bonds, and global real assets. The vast majority of Americans we talk to and investors all over the world, it's true everywhere, do not have that portfolio. They have a highly concentrated portfolio almost always in their own country. So my Brazilian friends do this.

Auren Hoffman (05:41.331)
Hehehehe

Auren Hoffman (06:05.643)
I mean, I would say almost everyone I know is like very weighted toward S&P 500. And you're, what you're saying is that's a bad thing, essentially.

MEB (06:14.146)
So the US is a percentage of what we call global market cap in stocks is about 60%. So the default is you should on an index basis put 60% in US and the rest should be the rest of the countries in the world. But no one does this. The people in the US put all their money in the US. But the crazy thing is this is true everywhere. My Japanese friends, Chinese friends, Brazilian friends, Greek friends.

Auren Hoffman (06:33.351)
Right, people in Japan, but mostly in Japan. Yep, yep.

MEB (06:37.762)
And if you ask anyone in the US over the past 15 years, they're like, amazing idea, it's crushed. I put all my money in US stocks, particularly S&P. You ask anyone in any other country in the world, say was it a great idea to put all your money in Russian stocks or even British stocks? And they say, no, it was a terrible idea.

Auren Hoffman (06:43.048)
Yeah.

Auren Hoffman (06:51.399)
Right. I think China is like one of the worst performing markets in the last five years, right?

MEB (06:55.738)
Yeah. And so, you know, you go back to the long arc of history, my favorite investing book, invests. Oh, my God, the name of it, triumph of the optimist, sorry, by Demson Marsh, Don is a fantastic book because it shows the full history of investing in various markets. And it'll surprise a lot of people. US is one of the best performing markets. It went from

not the largest market cap country in the world in 1900, UK was, but went all the way up to 60%. So huge move, but tiny South Africa and Australia were actually better performers.

Auren Hoffman (07:33.459)
And why is like, you know, U S is roughly like 20% of global GDP, but 60% essentially of like market cap. Like, why is it just like just the winners accrue and especially when we like the magnificent seven, et cetera, they just tend to be more global companies or what, you know, why, why is the U S like three times its weight in market cap?

MEB (07:53.891)
the

There's a handful of topics that you've just touched on there. The first is looking at any point in time. One of my favorite tables, and we can send it over to you is a snapshot of the top 10 stocks in the world by market cap by decade. And so right now that sucker is almost all U S right. And particularly heavy in tech. But if you go back at various points in history, 2010, uh, probably had a lot more diversified. China was.

Auren Hoffman (08:15.336)
Yep.

MEB (08:24.74)
was probably pretty well represented. If you go back to the 1980s, it's like all Japanese. So in Japan in the 80s was the largest stock market in the world at the time, bigger than the US. So naturally, yeah. You know, and Japan is such a great case study for so much. I'm actually headed to Japan this week. The yen is struggling, so great time to travel.

Auren Hoffman (08:29.674)
Uh-huh.

Auren Hoffman (08:37.371)
Which is crazy when you think about that today. Nobody would have thought that.

MEB (08:50.454)
But Japan's a great case study because it's not some tiny country on the periphery. It's a top three world economy, top market cap country. And it had the biggest bubble we've ever seen in stocks. So my favorite bubble was 99, right? I was in college right down the road from you at Virginia. And my professors trading stocks are in class. People just going nuts.

Auren Hoffman (09:07.403)
Mm-hmm.

MEB (09:15.714)
And but that was cute in comparison to the 80s bubble in Japan was almost double what we saw in the US But the japanese stock market has now had decades and decades Of no performance since then And again, and this isn't like the 30th biggest country in the world. This is one of the big three so

Auren Hoffman (09:33.363)
And also Japan is very, in some ways, is very different. Like Japan is still doing zero interest rates. You know, so they're still, you know, much more weighted toward like trying to grow versus inflation.

MEB (09:45.898)
Now here's the interesting part is you're starting to see some changes. You know, we manage a number of international portfolios and the culture around governance, how Japanese companies compete and really think about creative destructive has been changing in the past 10 years. So we actually are pretty, I mean, we're quantitative. It's not like I can say like we're waking up being bullish, but the models have been pointing towards Japan looking a lot better.

Certainly than it was 10 20 30 years ago. So we're getting pretty excited and old Warren Buffett uncle Warren has been buying up some Japanese companies too. And that's a that's usually a good sign. Yeah

Auren Hoffman (10:22.079)
For sure. And when you think of like, most Americans, you know, are 100% probably people listening to this podcast are very familiar with S&P 500 and probably most of them own S&P 500 or some sort of like derivation of something very close to that. Like is there just like a simple index that you would suggest of like, okay, here's the simple index outside that isn't talking your own book, but just basically like a global index that everyone uses?

MEB (10:48.358)
Yeah. Let me do a quick one minute deviation. First of all, 2024 best time ever in history to be an investor. There's limitless choice, particularly in the United States. You can invest in tax efficient ETFs for almost no cost. It, you are about a 0.03% cost. Unbelievable.

And if you actually include short lending, that portfolio is probably expense ratio negative, meaning you're getting paid to own this portfolio. And that has its origins 50 years ago and what Jack Bogle, the late great founder of Vanguard, did with indexing and indexing what it used to mean 50 years ago, and this is lost on a lot of investors, so stick with me for a second, is if you're to talk to your...

Auren Hoffman (11:19.09)
Yep.

MEB (11:36.006)
spouse, your neighbor, your child, and say, hey, we invest in the S&P or something like it. What does that mean? And I think a lot of investors, they kind of understand, they say, well, it's the biggest companies. It's like Apple and Microsoft and Google. They say, yeah, but how do you actually weight those? And I think most investors miss that because it's actually just the price of the stock times the number of shares. There's no tether to the actual fundamentals. Does this company have earnings? Is it growing? Does it have sales? What's the valuation? None of that.

which is kind of a crazy.

Auren Hoffman (12:06.131)
And how's it like, is it rebalancing every month, every quarter? Like how are they rebalancing?

MEB (12:08.978)
It's the true definition of market cap weight is you simply own everything. So as a company gets bigger, you own more. It gets, it gets smaller. You own less and market cap is a great way of being average, but what it really enabled.

Auren Hoffman (12:15.455)
Yeah.

MEB (12:25.11)
the huge muscle movement, and this is going back to your question 10 minutes ago, is that it allowed investors, allowed companies to offer investing products for very low cost because you don't do anything. You don't have to rebounce a market cap index ever other than if like M&A or spinoffs or sort of thing. You don't do anything. So if you don't do anything, you don't have to charge much. And that was a huge innovation. But fast forward 50 years where trading is frictionless, mostly at this point.

you can offer other investing strategies that are not market cap weight, because the Achilles heel of market cap weighting, first of all, it's totally fine, okay? Don't take the wrong message here, it's totally fine. The Achilles heel is when you have these boom euphoric bubble periods, so 99, China in 2007, Japan in the 80s, on and on, you can find these periods.

the market cap weighting because it has no tether to fundamentals goes completely bananas. So you end up putting most of your money in the most expensive companies, countries, sectors at the worst possible time. And so in Japan was the largest stock market in the world. If you were a global investor, you put most of your money in Japan when it was 100 PE in the 80s, that's crazy. So moving away from this market cap weight to something that has some sort of valuation focus like a Berkshire Hathaway, Warren Buffett style investing.

is a slightly better way to do it. And you can do it in today's day and age with better, with ETFs that are tax efficient. So international investor, there's plenty of international ETFs and indexes that'll get you to the starting point on, and Vanguard we certainly believe is one of our favorites.

Auren Hoffman (14:10.239)
What's the point when someone should even like really care? Like, I mean, if you have a, let's say under a million dollars, investable assets, like, and you spend all this time, you know, you could probably spend that time, like saving money, um, like, you know, getting better deal on your rent or something like that. You could, you could spend more time just like gathering knowledge. You can get more, you know, if instead of getting a 6% raise, if you got an 8% raise, like in some ways, like that would be a much higher return compounding. Um,

MEB (14:38.261)
Yeah.

Auren Hoffman (14:38.419)
Like, should you just focus all you like is, but then at a certain point, like maybe it does make sense. Like, is there a tipping point where it actually makes sense to like, actually really think about your portfolio.

MEB (14:47.818)
Here's the challenge and here's the problem. The diagnosis is correct. If you spend time getting set up and have a good allocation, doesn't have to be perfect. Just a good allocation from the get go. You could do that and not look at it again for 10, 20 years and probably beat 90% of your friends, right? Low cost, tax efficient, global allocation. You can do that in all in one. Funds today, target date funds, all these sort of things. We have a couple. But the key is getting it set up

Auren Hoffman (14:59.752)
Just kind of set it, forget it.

Auren Hoffman (15:05.961)
Yeah.

MEB (15:17.172)
up okay and then second and this is the hardest part for everybody is not mucking around with it right and the problem is we're all human right the euphoria the you know the late great Charlie Munger Warren Buffett's partner used to always say

Auren Hoffman (15:23.408)
not touching it. Yeah.

MEB (15:35.17)
If I've heard Warren say this a hundred times, it's not fear and greed that drives markets, it's envy. So if your neighbor is invested in the Mag 7 last year and is bragging about their vacation to the Maldives and how much money they're making and their new house they're buying in Napa, or they're invested in some startups that hit, you feel that very real FOMO. My favorite real example of this is if you look, they have a sentiment study. They ask investors, are you bullish?

Are you neutral? Are you bearish on stocks? And it goes back many decades. And the single highest bullish reading ever recorded in this study was December, 1999. The single worst time to buy stocks in my entire lifetime. The single most bearish people were March, 2009. The single best time to buy stocks during my lifetime. So the struggle is getting it set up and then...

Auren Hoffman (16:24.155)
Yes, yeah.

MEB (16:29.882)
not doing a bunch of dumb stuff. Now, if you're interested in markets and you, you it's a hobbyist, that's one thing. But we did a post where like how much, the best way to add yield to your portfolio is to not spend any time on it because the amount of your calculator per hour fee, how many hours you spend a week scrolling Reddit, Twitter, not listening to podcasts, because that's hugely value add. But, but, but doing these things, and you actually think it's going to be

Auren Hoffman (16:51.829)
Of course, of course, of course.

MEB (16:57.794)
value added, I think is a stretch. So getting the basic setup, I think is the most important part.

Auren Hoffman (17:03.891)
Now for Americans, most of the people listening here are Americans. Um, you know, U S has a global tax net, uh, nexus. Yeah. You can't outrun the tax man. You got so, so thinking about things that are tax efficient are quite valuable for founders and a lot of people here are founders. Like what would you kind of advise founders to start thinking about outside of just maybe let's say the QSBS, which would be like the more common thing, like a lot of founders think about.

MEB (17:31.018)
I mean, QSBS, we did a poll, it was like what percentage of people, and I have a pretty concentrated audience of professionals, it's like, who even knows what QSBS is, and to the extent you use it, almost no one knew. Now the founder startup community probably knows more. Well, let's start with the basics on the investing portfolio, then we can get to the periphery. And we did a piece on this years ago called Sidewalk Money, which was kind of fun, which talks about things individuals can do. But one was, look,

simply moving from a structure of example of a mutual fund, your standard average mutual fund to an ETF in a taxable count, if you're a stock investor, on average, the benefit is usually bigger than the expense ratio benefit. So the average mutual fund today is still 1.25%. Now you can get them, they're down around 0.1%, but on average, the average one is 1.25%.

And the average ETF is much cheaper. It's roughly half of that. But on top of that, the tax benefit, no one usually cares about taxes till April rolls around, or whatever the deadline is now. But if you think about it, that simple structural, because the ETF tends to be more tax efficient, is about a 0.7.

Auren Hoffman (18:36.085)
Yeah.

Auren Hoffman (18:45.703)
Sorry, just to explain, in the ETF, you only pay tax when you sell the ETF, right? So let's say you've got a gain after five years you sell it, you pay a tax on that gain. Whereas on, if you're owning the S&P 500, you're paying tax on the underlying assets, which could have dividends, could have other things that happen during that time.

MEB (19:05.854)
You're so you're probably so here's the differentiation. You're going to pay taxes likely on dividends no matter what, because they get distributed, but let's say you bought SPY spiders, SB 500 back in the nineties and held it to today, you would have had zero capital gains distributions ever. Because the structure of the ETF does it all in the background. Doesn't matter how much turnover on the fund is.

Auren Hoffman (19:12.735)
Okay.

MEB (19:31.102)
You should have no capital gains distributions on average for that entire period a mutual fund Just the way it's structured if money comes in money comes out They have to buy and sell every day and so then like so last year or a year prior There were mutual funds that were down 20 30 percent and on top of that we're paying out 10 or 20 percent of the fund as capital gains Income and so you had this like double whammy you're like wait I lost money on this fund and I

Auren Hoffman (19:40.457)
Yeah.

Auren Hoffman (19:58.801)
Yeah.

MEB (20:00.496)
have to pay taxes on it. It's a pretty nerdy, wonky topic. The simple takeaway is on average, default to ETFs for two main reasons. On average, they're much cheaper in mutual funds and expenses matter. And second, on average, they're much more tax efficient than mutual funds are.

Auren Hoffman (20:17.011)
Yeah. And not only the more tax efficient, but then you also get to choose when you, essentially when you pay the tax. So you can say, okay, this year I'm going to take the gain for whatever reason. I'm going to, whereas this other year, like that gain might not, might be useful for me, or if it goes down, I could sell and take the loss of that year, whatever it is.

What do you think of for people who have Roths and some people over time can get a pretty sizable Roth even if they have a 401k and they're putting the maximum in and stuff like that, how do you decide that you've got a taxable account and you got your Roth? You can invest out of both. You put more tax inefficient things like bonds or something like that in your Roth and then you put less...

you know, more, you know, more efficient things in your tax. Like, how do you think of assuming like, you're just thinking about one portfolio?

MEB (21:05.522)
Yeah. You know, um, we often tell people, they get sort of, uh, analysis paralysis when it comes to all these different accounts and saving vehicles. And if you look at the, the own goals like in soccer, you score a goal on yourself, just the dumb decisions people make that are far more important than the exact specifics. Like we say, get the main things right. So how much you save and invest in the first place, we believe outweighs almost all the other topics.

Auren Hoffman (21:33.468)
Good point. Yep.

MEB (21:34.774)
And in most investors, if you look, are you maxing out your 401k? Are you saving whatever the number is 10, 20, 30% of your income? That usually swamps all the other decisions down the line. Once you have everything in place and not investing in a bunch of hair brain things, then you can start to optimize the tax efficiency. But even then, the challenges is, you know, with various people as you can kind of make the cliche either way, some people are going to be higher income and lower in retirement and some are vice versa.

Auren Hoffman (22:03.423)
Yeah.

MEB (22:04.528)
you know what, I'm gonna move to Puerto Rico. So on average, you wanna be paying less taxes than more. So having things like the higher income type of investments, we have the yield again for the first time and forever in bonds, by the way, which is, that was such a weird period, negative yielding interest rates. But we have yield again and those type of yielding investments, if you wanna put it in a tax sheltered account, you're not gonna be paying taxes on it. But.

There's a lot of variability in this and the hard and fast rules a lot of people talk about I think can get a little Squishy to main keys just save and invest that sucker in the first place

Auren Hoffman (22:42.987)
For people in the tech sector, they've got obviously a job in the tech sector. They're either owning the S&P 500 or they're probably owning a lot of tech stocks. Either way, it's super weighted toward tech. They may even own real estate in the San Francisco Bay area, which is very weighted toward tech. Should that be some concern? Should they start thinking about like, somehow, should where you work be a factor of how you invest?

MEB (23:12.266)
You know, if you think about times past, there were certainly a lot of people who used to invest. They would work at a company and invest their retirement on the company stock, which is an absolutely, you know, you can always show the Amazons or Microsoft or Google's of the world where that was a great idea. But the thousands of other companies that did poorly. I mean, like

Auren Hoffman (23:23.847)
Right, like the Enron scenario.

MEB (23:36.73)
One of the biggest takeaways about investing in stocks, and one of the reasons that market cap indexing work that we talked about earlier, is you own everything, and everything in our world is driven by power laws. So the big, huge winners, my venture capital friends understand this, the startup world understands this far better than my public market friends for some reason, even though they do it every day, is the McDonald's, the...

you know, Apple's these huge multi-bagger, what we call them winners that do 20% a year for a decade or more drive all the return. So it's like two thirds of stocks underperformed the broad index. It's about half don't make any money over their lifetime. And in like a third straight up, go to zero. And so as you think about that, from a retirement standpoint and how you invest your money, the chances are probably slim that you're going to end up with the next Google, right? And so.

diversifying makes a lot of sense. The example we gave earlier is, and it's called home country bias, where everyone invests most of their money in their own country. This is true with bonds too. It's actually true geographically in the US. So not surprisingly, people in California have a much higher tech weighting. People in Texas have a much higher energy weighting. People in the Northeast have a much higher financials weighting. Yeah. So, and this is a topic that I wrote a paper on a few years ago.

Auren Hoffman (24:52.703)
God, so it's even worse. Okay, yeah.

MEB (25:01.526)
This is one of my least read papers. It was called, what is the world's safest asset? Or we did a, during COVID, we did a multi-part series where it was like a four-part series. The first one is how I invest my own money. And it's a sad state of affairs listeners, but the average mutual fund manager out there does not invest any money in his own fund. His or her fund, which is really sad, but.

Auren Hoffman (25:27.591)
does invest any at zero? Okay. Even though they probably get they probably have a no fee relationship with their own fund they still don't invest in it?

MEB (25:29.066)
Any zero, the average on average is zero.

MEB (25:36.542)
you know, it's this in this concept of skin in the game. And I say, you know, but you want, they go on TV and tell, tell everyone to buy their fun. And you say, well, do you own any? So always, I always joke. I said, if you're an investor, ask, say, how much do you own? I put all my public assets into our funds. Um, but then we did a portfolio, uh, an article called the stay rich portfolio and the get rich, the get rich and stay rich. And we were talking about how it's, it's a different mindset. And I said that the struggle with the stay rich portfolio is

Auren Hoffman (25:46.172)
Yeah.

MEB (26:05.854)
you think in terms of like, what is the safest asset out there and how do you invest and starting to think about your human capital. And I said, this is somewhat of a chairlift conversation, meaning, you know, I love to ski, like you're sitting with some friends on a chairlift, nothing to talk about. So you start talking about these weird topics and, and thinking about your risks. And, um,

I tend to be pretty non-consensus on this discussion. So going back to our beginning, where if you look at any asset and you ask people, I would say, what's the safest asset? Most people are gonna say T-bills, or short-term treasuries, money at the bank. And then you got the handful that are listening to this that are the coiners, right? It's Bitcoin or nothing or crypto, whatever. Some people might say real estate.

Auren Hoffman (26:50.375)
Yep.

MEB (26:54.178)
But the challenge is everyone thinks in terms of a nominal world, day-to-day prices, and they ignore inflation. And so if you look at any one asset, it doesn't matter if it's U.S. stocks who have declined over 80 percent, real estate, so reeds, publicly traded reeds have declined that much, commodities certainly, bonds, most people say T-bills, but they've never declined. We say, well, hold on a second. After inflation, they've declined by over half.

And so you end up saying, okay, well, how do I think about building this safe portfolio? Well, the first thing you want to do is not put all your money in one risk. And the vast majority of people put that all that money in one risk, which is the S and P essentially, or, you know, even worse targeting their own, um, exposure through equity investments and a lot of startup founders are certainly, um, uh, exposed to this. And it turns out.

Auren Hoffman (27:29.459)
Yeah.

MEB (27:48.99)
And I can't say prove because that's not something you can say in my world. You can demonstrate that a globally diversified portfolio is actually safer than sitting in T-bills. And so by volatility, by maximum drawdown. Um, and, and we were talking about this before the last couple of years. So listeners, if you own a bond fund, there's a good chance that sucker is down 10, 20, 50% in the last couple of years. And a lot of people don't know this, right? They think bonds differently.

And that's a lot. And if you think about, that's because interest rates have gone from zero to five. But a globally diversified portfolio has done great. And so we said a lot of people are gonna start to think about this with their safe money.

Auren Hoffman (28:19.327)
Mm-hmm.

MEB (28:32.866)
Personally, what do I do with my cash if I have to save for an expense in 10 20 30 years kids education, etc but also corporate Treasury and Then what do they do with their money and then all of a sudden you saw the Silicon Valley Bank all that stuff go down last Year and people really started to rethink. What do they do with their safe money, but it's a good I think healthy exercise to have to think about

this concept of mentally bucketing, all right, this is sort of my get rich portfolio and this is sort of my stay rich because it's a conclusion that, and this is actually what we do at Cambria, we actually invest our quote safe money and don't just put it in T bills, which I don't know really anyone else. I think Michael Saylor had the same exact thinking and diagnosis, but then he took a hard left and said, all right, you gotta put it on Bitcoin. He took a hard right and say globally diversified, which by the way,

Bitcoin is a percentage of that global market portfolio too.

Auren Hoffman (29:28.459)
Speaking of Bitcoin, I mean, what's probably the biggest news in the ETF world has been these Bitcoin ETFs. Is that a big deal? Is it a small deal? Like, where do you come out on that?

MEB (29:38.27)
I've been a sideline cheerleader. I haven't had a whole lot of involvement Other than I love to joke I had a tweet on Twitter X back in 2013 and back then I was like there's no way an ETF is coming to market anytime soon All my friends are spending millions on legal fees, but I said I'm willing to make a bet with anyone that ETF spot Bitcoin ETF comes to market. Let's do dinner I prefer sushi and then I used to just re-up that

Auren Hoffman (30:04.947)
Sorry, in 2013, because in the beginning of 2013, I think the price of Bitcoin was like $50 or something like that.

MEB (30:06.646)
23rd, I used to re-up that bet every year.

MEB (30:12.658)
Yeah, I was like, there's no way it's coming to market. Like the regulators are just not going to allow it. But then over the last year or two with my friends in that world, they're like, it's getting pretty close. Look, I, I'm, I have a really unsatisfying take on this for everyone because there's the Bitcoin lovers and the Bitcoin haters, and it's going to be equally unsatisfying to both.

People will come up to me over the last decade and say, man, I'm thinking about putting some money in Bitcoin or whatever, Ethereum. What do you think? And I say, hey, look, the starting point is the global market portfolio, which we mentioned earlier. If you just buy every public asset in the world, every public stock, every public bond, every public trading real estate, and then commodities too, what do you end up? You end up with a portfolio that's roughly half stocks and roughly half bonds.

and it's globally diversified. Foreign bonds are actually a bigger asset class than US bonds are. And that's a round, let's call it rounding 200 trillion. The two things that are missing from that are single family real estate and the rest of the world, as well as a lot of farmland, which we talk a lot about in the podcast. But of that, Bitcoin.

let's call it maybe half a percent of the world market cap. I say, all right, you want to put Bitcoin or portfolio. You know, if your portfolio is a hundred grand, you can put in, what is that 500 bucks. No one wants to hear that. They either want to hear, I got to put in half my money or I got to put in none or short it, you know, right? Like in people, the binary way of which people think about any investments is really dangerous. We always say.

Auren Hoffman (31:34.719)
500 bucks. 500 bucks.

Auren Hoffman (31:40.264)
Yeah.

MEB (31:49.826)
going habsies, very technical term, is a thoughtful way to think about it. So for us, you put in half a percent and it goes up 10x, God bless you, now you have five percent.

MEB (32:03.314)
pausing I got a sorry I had a notification my camera was wonky but it's back so you're at a half percent it goes up great now you have a five percent a ten percent twenty percent and it goes to zero it's not that big of a deal so thinking in terms of that I think market cap default is useful although most won't go that route

Auren Hoffman (32:06.897)
Yeah.

Auren Hoffman (32:27.419)
There are scenarios where all of a sudden something becomes like an overweight. Let's say you're an early Bitcoin person and you put, you had a high conviction, you put 1% and now it's 15% of your portfolio or something and you're like, I don't know what to do. I don't know if I can sell and take the tax loss. I don't know how I can deal with that. What do you suggest somebody wants that are overweighted somewhere?

MEB (32:53.946)
Yeah, there's a lot of behavioral biases we have as investors. There's a lot of wonderful writers and books on this topic. And I have all the biases, which is why I'm a quant. I'll take too much risk if you give it to me. I'm overconfident. My favorite analogy here when talking about positions to investors is they say,

If you ask investors, and we love to do polls on my Twitter, and I say, do you have a written investing plan? It's like 90% do not, and if not more. And I say, it doesn't have to be complicated. It could be on one sheet of paper, it could be on one index card, it could be, I invest in the global portfolio, I rebalance once a year, boom. I try to contribute 10% of my earnings to savings. It could be a 20 page document, I think CalPERS is like 300 pages, but it doesn't have to become, but why is that useful?

Auren Hoffman (33:28.073)
Yeah.

MEB (33:43.294)
It's useful because if Bitcoin goes to 500,000, you pull that thing out and you say, okay, this was my default. Here's how I can maybe deviate from this or think about it. But most people are just winging it. And it's important not just from the standpoint of when you're losing money. So you buy a stock at 100, it goes down to 80. Well, that was dumb, I shouldn't have listened to my neighbor.

goes, I'll just sell it when it gets back to a hundred. Well, then it goes down to 50 and you're like, oh, I'm never talking to that person again. It goes down to 20. There was no point selling it. Now it goes to zero, right? It's also useful on the flip side. You buy a stock at a hundred, it goes to 200. You're like, oh my God, I can't believe I'm making so much money. I'm thinking about this vacation to the Amalfi coast, you know, or I'm thinking about this new Tesla I'm gonna buy on and on. But every 10, a hundred bagger,

Auren Hoffman (34:12.498)
Mm.

MEB (34:37.834)
was it once a double, right? And so thinking in terms of how you're gonna deal with not just the losers, but the winners is hugely important. And so this is why we often say, learning history is table stakes for investors because it gives them expectations on all the weird stuff that's happened in the last 150 years. With the knowledge, it could get weirder, right?

Auren Hoffman (34:39.356)
Yep.

MEB (35:03.282)
And so thinking, hey, the Russian stock market's paused. Well, that's happened before. Um, you know, certain market China is down, like you mentioned, what, 60, 70% now. Well, that's happened before. And so you have this base case to work from and thinking in terms of the things that do great, we become emotionally attached to our investments. You don't believe me listeners. Pause this, walk out to your garage. Look at all the junk you got in there.

And think, hey, if I cleaned out my garage, there was a flood and the garage was empty. Would I go buy all that stuff again? Of course not. No chance in the world, but investors become attached. We all become attached to what we own. And that creates a problem, which is the emotions get in. And then that fractures all of our logic and reasonable reasoning.

Auren Hoffman (35:40.168)
Yeah, of course not.

Auren Hoffman (35:56.827)
Now on angel investing, you've made a lot of personal angel investments. I think you've made it over 250 in the last decade. What are some of the big learnings there?

MEB (36:09.578)
Okay, so there's a lot. So, you know, when this started, I've kind of publicly documented this on the podcast and on the blog. You know, my day job is managing ETFs. We got over a hundred thousand investors, but I like to learn about other topics on our podcast. We talk about investing in Kazakhstan or farmland investing, investing in Africa, all these topics. But from the standpoint of an area that I don't know about,

I like to start small, but also have some skin in the game. You know, it reminds me of Warren Buffett used to talk about, hey, I want to track this company. I'm going to buy one share in their stock. That way I get an annual report every year and I'm forced to read it. And it keeps you engaged. So when we started this a long time ago, I said, look, this is an area I don't know much about. And I would like to learn a lot. And I know my style, it's like teaching, you know, where you...

you were forced to learn and pay attention. And if I'm using real money, which is painful for me to lose, I'll pay more attention. So I said, all right, well.

If I lose all my money, I'm gonna do this for say three, five years, if I lose all my money, I'm okay with that. If I break even, great. If I match the SMP gravy, if I make money, wonderful. But I'm gonna consider this education and tuition. And I'm gonna start to learn. And everyone I know in this world that gets started has this massive temptation because it's fun and exciting where they just want to cannonball in, right? You see a couple of deals, you wanna put all your money in.

And I said, look, I'm going to space this out over five years. I'm going to place a lot of small bets and learn and realize I'm going to make a lot of mistakes. But this concept of these power laws, and we have a piece on our blog called Journey to 100X that has a lot of links and resources. Again, because public markets, this is true as well.

MEB (38:08.006)
and start to understand the goods and the bads. And we've seen a lot of it. I tend to tweet about a lot of the bad behavior too. But yeah, I think it's up close to 350 companies now. Might even be knocking on 400. But it.

Auren Hoffman (38:21.127)
And some of them are just like, okay, you're in like some angel list syndicate and you put a really tiny amount in and stuff or

MEB (38:26.214)
Yeah, so you know, you can you can start this we tell listeners, there's a handful of the platforms. Angelist is probably the biggest We funder and then there's some esoteric ones that focus on specific areas like agriculture and then there's also a lot of direct ones Jason Calcanis has one

And traditionally the model is these syndicate leads will bring a deal that is, is a VC deal. So it's an actual round that maybe Sequoia or other groups are doing, and you end up paying a carry for that opportunity. Um, to me, uh, if I tell people, I say, sign up for every possible syndicate you can, and you don't have to start investing like you can just kind of paper invest for a year.

Understand the lingo, understand some of the links that these investors may have incentives that may not line up with the end investor, on and on and on. And just start to wade in. You don't have to dive in head first.

Auren Hoffman (39:31.443)
Yeah, and a lot of this, I think it's like the minimum check size may only be a thousand dollars or something. So it's a lot more accessible for most people.

MEB (39:36.088)
Yep.

MEB (39:41.374)
Yeah, and this is true with public markets too, resist the temptation that feel like you have to be all in or all out and come up with a plan. Say, look, I'm going to do this for five years. I'm going to write 10 checks a year, roughly a thousand bucks a year and try it out. And maybe after two years, you're like, this is too much work. For me, it's been hugely beneficial because it does two things. One, it helps you kind of look around the corner to public markets.

It's helped my business a lot because we see companies and ideas that we can incorporate and use, and there's been a ton of those over the years. And it's infinitely optimistic. So going back to my world of public markets all day long, it's just pessimism and negativity. This one, every company is, well, not every company. Some are just like, you know, not that exciting, but others like, you know, changing the world. We're doing cool stuff. You have to be the naive optimism of a founder because the reality is most of us fail. You know, it's like.

Auren Hoffman (40:32.532)
Yeah.

MEB (40:41.208)
you have to think you're going to be one of the special ones, which it's hard, as you know.

Auren Hoffman (40:46.791)
Now, I love asking founders how investing made them a better CEO, but for you, I want to really ask you how podcasting has made you a better investor or has it?

MEB (40:57.182)
Yeah, so the first academic paper I ever wrote came out in 2007 in the journal Wealth Management. This is also the only academic paper I've ever written, part of which is because the academic process, which seems to be in the news a lot recently.

Auren Hoffman (41:09.588)
Hehehe

MEB (41:18.666)
you know, is a very long and antiquated process. Like my paper went behind a paywall, all this just nonsense. And I said, you know what? I can post a paper online and I'm gonna get feedback instantaneously that this, how stupid this is or how great people replicate it. Like it's instant, other than having to wait for a year to have four people read it. And it just is a process that seems out of date. And so,

Um, content for me and being able to come up with ideas and publish them over the past 15 years has been, um, essential. Now, part of that is because we were bootstrapped business and couldn't afford to, uh, pay out to hire a lot of people or to advertise or to market. Like we had to bootstrap it. And so, you know, in the early days, it was blogs and white papers and books. More modern has been podcasting and, um, Twitter and who knows what else next. But, um,

It helps you, as you know, refine your process and think about what do you really believe in not, and that as you test things, sometimes it causes you to change your views. And I've changed my views on a lot of things over the years, um, as, uh, as the markets have kind of, um, developed and podcasting for me more than anything. It's just been fun because you can just ring someone up and say, Hey, you know, I'm interested in, we did a whole series on investing in space companies, uh, kind of before it was, I think hot.

And then we did a whole series on investing in Africa. A lot of the emerging market startup system, I think is incredibly interesting at an inflection point over the past five years. I think most of my top 10.

best performers have been ex-US at this point, which is crazy. But more than anything, it lets you test your views. And as we know, with social, people let you know very quickly one way or the other, how they feel about it, which has been, I think, useful too.

Auren Hoffman (43:18.611)
Yeah, one of the things I love about the internet is like, you can quickly learn when you're wrong, when you're like people off, they'll let you know. In fact, some of my best engagement things on the internet have been things that are completely off. Those are the ones that get the highest engagement, not the things that are really interesting or, you know, are on that are out there.

MEB (43:37.694)
And to the young people who are thinking about or nervous to start or start publishing things, we always say, just start publishing. You learn to develop a thicker skin. We have a lot of friends, particularly for my female friends, the world can be a pretty cruel place on social. And we say, look, in the moment, it often can be hurtful, but fast forward a year or two and some of the comments are actually really funny. And so I say a very cathartic way to go about it is to get a Google sheet.

Anytime somebody says anything really terrible or troll, just throw it in the sheet because it's kind of like a washing your hands feeling and you forget about it. You don't have to respond to it and you don't reflect on it over the years. And we did a tweet when we passed 2 billion in assets that over the years had just marked all the milestones, but with troll comments that people had made, you know, about

Auren Hoffman (44:28.392)
Hehehehehehe

MEB (44:30.662)
about me specifically, but our firm and ideas and everything is kind of keeping receipts. And it's a much more cleansing feeling and way to go about it than just getting all angry at some cartoon avatar on Twitter.

Auren Hoffman (44:46.547)
Yeah, because it but it is hard, right? I mean, you need to either need to attack it the way you are, which is kind of like with humor or something. You need some sort of strategy to attack it because the comments can be very hurtful. And and they will if they if they even have some idea of who you are, they'll figure out how to hurt you in a way that can be hurtful right

MEB (44:56.066)
Yeah.

MEB (44:59.372)
Yeah.

MEB (45:06.322)
Yeah. Yeah, for sure.

Auren Hoffman (45:11.203)
Now, you know, I've heard you say that travel is really the only way Americans understand currency prices. With that in mind, what countries would you recommend our listeners travel to this year?

MEB (45:23.922)
Um, so there's nothing better than an investor can do, uh, besides studying history than to actually travel.

because you start to learn a great deal outside of our own borders. And so the cultural aspect aside, certainly, we love talking about Japan on the podcast, A, because I love to ski there, and that's a big secret. I feel like I should stop talking about it. But I say it's a fun fact that most people around the world don't know that Japan is even a place really to ski, but Japan, again, going back to their 80s boom,

Auren Hoffman (45:49.768)
Hehehehe

MEB (46:01.906)
has more ski resorts than any country in the world, which I think surprises a lot of people. And on top of that, it gets, right, more than the US. It's like 500. Now, a lot of these are little mom and pop ones, of course. And I think we've done about 20.

Auren Hoffman (46:06.739)
It has more ski resorts than the US.

Auren Hoffman (46:13.371)
Yeah, but those are fun to stay at, you know.

MEB (46:16.758)
Yeah, exactly. And the onsens, the sushi, the ramen, and on and on great, the nicest people in the world. But it goes back to the 80s when they had this huge economic boom. And like, you know, I'll do happy hours with traders and investors in Tokyo. And you talk to them and the concept of like a buy and hold investing strategies is totally foreign. They're like, why would you buy and hold stocks because they don't go up?

Right? Because their stocks haven't gone up. And so, you know, this discussion of a very, everyone tends to extrapolate their own experience with markets. So if you talk to someone in any other country about what investing has been like, you go over to my favorite example. I have said this many times on the podcast, but going down to Columbia and South America, I was there at a particular time, I think in 2014, where their market was really expensive.

Auren Hoffman (46:42.854)
Hehehehe

MEB (47:09.59)
but everyone's bullish and the money is pouring in and you can never foresee a time when stocks will go down. And here they have gone down a ton since then and now they're really cheap. But if you go to a place where stocks are super cheap, usually that's cause they went down 60, 80% already and you tell someone that and they say, well, that's obvious. No crap, man, I know that, but we have no money. Like all my money has gone down. But you talk to people and.

other countries. So anyway, so all right, countries. If you're in Japan skiing, come say hi, Konnichiwa. And then, you know, I have a few on my to do list that I haven't been to or spent time in. But the US dollar has certainly been very strong and on a purchasing power parity basis.

It's definitely overvalued. It's not totally crazy, but towards Japan is one of the bigger Spreads in a way to the old Big Mac index a good way to look at, you know how to think about currencies I've never been to Africa. So that is high on my list of places to go. I have a six-year-old

Auren Hoffman (48:07.849)
Yeah.

MEB (48:18.902)
So we took him to New Zealand. My niece is in vet school there. So we ran around New Zealand, which is like a young kid's playground. It's like the best place in the world to take a six-year-old. So high on my list, I've never been to Africa. I would really like to spend some time in some countries in South America. I've never been to Brazil or Uruguay, which may be a Christmas time. But open ideas. I am a...

Auren Hoffman (48:47.3)
All right. Okay, cool. A couple more personal questions for relief. What is a conspiracy theory that you believe?

MEB (48:48.467)
Yeah.

MEB (48:58.294)
Um, wow, that's a great question. My, uh, my answer earlier on the fed is, is a humor one, but, um, is one that I think is, um, not that far off from reality. You know? Um, I think, I think.

we think about everyone in our world having defined ability to forecast the future. And so the amount of time that people gravitate, like, you know, flies, um, to these forecasts of what is the SMP going to do this year, where bond's going to go with the full knowledge that it's going to make no difference. Like, that's the crazy part of like this whole forecasting and looking at the Fed or their dot plots, and then looking at how wrong they are.

Auren Hoffman (49:39.475)
Hehehe

MEB (49:45.35)
every single time, you know, I think it shifts the investors' perspective. We have a quote that we say, it's better to be Rip Van Winkle than Nostradamus in our world, where meaning you invest, you have this great portfolio, you forget about it for a while versus trying to divine the future. Now, that having been said, you know, I run an active management business. Like our goal is to try to outperform. And so it's weird coming from that starting point. But I think

Auren Hoffman (49:59.134)
Yeah.

MEB (50:14.962)
I think if the Fed watched Seinfeld drink some pale ales and just peg the two-year, I think that would not be a bad thing.

Auren Hoffman (50:26.451)
Alright, last question we ask all of our guests. What conventional wisdom or advice do you think is generally bad advice?

MEB (50:32.722)
Oh, there's so much. Oh boy. I mean, this is essentially my entire 20 lists. You know, I love to poke a lot of the big boys in one of my current favorite targets. There's a lot of these giant institutions around the world. CalPERS is my local favorite, where they spend countless amounts of resources, millions and millions, hundreds of millions of dollars on...

Auren Hoffman (50:36.371)
Hehehehe

MEB (51:02.006)
this effort to manage their portfolios, not just with people, but particularly with fees. And on average, and we've written articles about this, we said one many years ago called should CalPERS be managed by a robot? Should Harvard be managed by a robot? On and on and on.

And the evidence shows that they would probably be better off and firing everyone and buying a bunch of ETS and that's not popular. And I jokingly on Twitter apply for their chief investing officer role because they get a new CIO about every other year for the past 10 years. I think it's actually more than that. It's like the Carolina Panthers head coaching job is just a... And there's so much drama situated with this and how much better would it be?

Auren Hoffman (51:38.976)
Yeah.

MEB (51:48.562)
you know, to just move on and make this systematic. And so I just found out Friday that they declined again to interview me for their CIO job. So we're gonna launch a publicly traded fund ETF that is gonna target, say, CalPERS and all these big institutions and say, all right, here's your investable benchmark now. Can you beat me? Because if you can't,

Auren Hoffman (51:56.959)
Hehehehehehe

MEB (52:18.674)
you know, you got a lot of constituents to answer to. And I think this particular cycle, this late stage private equity world of what they used to call leverage buyouts.

is everyone is hoping this is going to be the savior for a lot of these investment institutions and I think there's some setting up for quite a bit of disappointment there but you know here we are in 2024 the US stock market's a little bit expensive so we'll see but I think the CIO job is not going to be mine again.

Auren Hoffman (52:55.815)
for these big pension funds or endowments and stuff like that, like they're getting wine and dine, to get Super Bowl tickets to whatever. It'd be very hard for them to just say, hey, we're giving up our job. We're going to go do something else. Even though they may get paid less than they would at another kind of asset management, more for-profit institution, it doesn't seem like,

It doesn't seem like your idea is ever gonna stick. It doesn't seem like it's gonna have the political, even though they're probably, like, the public would be better off, the pensioners would be better off, the endowment would be better off, et cetera.

MEB (53:33.342)
You know, the, um, the challenge is their CIO role. CIO role is not.

an investment role. And that sounds funny because the I in CIO is investment, but it's really more about being a politician and being able to craft a narrative to all the various constituents about why you're doing what you're doing because there's so many invested parties. The problem with that is you end up with so much, almost like, what are those, like Rube Goldberg machines to just come out with something on the end, which is just a basic portfolio.

Auren Hoffman (53:48.636)
Yeah.

MEB (54:09.485)
It's kind of a mess. So it actually would be my worst nightmare to be CIO there, of course.

Auren Hoffman (54:12.359)
Yeah. And also in some point, like if it's an endowment for a big university or something, then like whatever, like I'm okay with that because it's just that is going to be suffer. But if you're actually managing money on behalf of pensioners, then you really do have a, they're relying on this money to retire on. And then you really do have a responsibility to those people. These are not usually wealthy people, these pensioners, right? They're...

um, you know, uh, clear middle-class folks who really are relying on this to, to retire. And if you, if you significantly underperform, um, then these, these people are really going to suffer.

MEB (54:52.65)
I mean, it's funny because you mentioned the endowments, like my very first book was on the endowments and you've seen Harvard and Yale who have been incredibly successful for many decades. So going back 50 plus years and Yale really being the gold star for this, but Harvard really seeing the challenges of this model for the past decade plus where the students when times are good, all these different people complain about how much everyone's making and the Harvard, all these different places investing

be investing and then when it's not making good returns, everyone's like, we need to be making higher returns. And so you've seen on Harvard all the downside of this struggle of a lot of people being involved in the model versus Yale, which has had a pass because they've just done so exceptionally well and it'll be interesting to see in the post, David Swenson is really the goat of the endowment management world, whether they'll be able to sustain this sort of model in the future because it's not, it's not easy.

Auren Hoffman (55:27.004)
Hehehehe

Auren Hoffman (55:43.432)
Yeah.

Auren Hoffman (55:51.111)
All right, this has been awesome. Thank you, Mebfaber for joining us on World of Dazs. I follow you at Mebfaber on Twitter. I definitely encourage our listeners to engage with you there. This has been a ton of fun.

MEB (56:02.494)
Hey man, it was great. Look forward to seeing you in the real world, particularly at one of these dinners.

Auren Hoffman (56:07.207)
Yeah, yeah, or on the ski slopes in Japan.

‍