Soecial Guest: Mebane T. Faber, Chief Investment Officer and Portfolio
Manager
Mr. Faber is a co-founder and the Chief Investment Officer of Cambria Investment
Management. Faber is the manager of Cambria's ETFs, separate accounts and private
investment funds for accredited investors. Mr. Faber has authored numerous
white papers and three books: Shareholder Yield, The Ivy Portfolio, and
Global Value. He is a frequent speaker and writer on investment strategies
and has been featured in Barrons, The New York Times, and The
New Yorker. Mr. Faber graduated from the University of Virginia with a
double major in Engineering Science and Biology.
Financial Repression
"An environment where interest raters are lower than inflation and you
have a low or even negative interest rate environment which helps someone
and hurts someone else. It hurts savers but is good for borrowers and people
who have a lot of debt. The inflation eats away at that debt. It helps someone
like the US government"
"Stocks and bonds like high real interest rates. They typically don't like
low or negative real interest rates". Other asset classes like gold like negative
real rates and have over the last decade, but not so much over the last couple
of years."
Value & Momentum
Faber likes both value and momentum and believes they can work together as
part of a global portfolio, particularly where they intersect. Cambria uses
Shiller's 10 Year CAPE benchmark to look at equities. It is typically around
17 and is now around 27 in the US. It presently shows a lot of great valuations
around the world however momentum has been in US stocks, bonds and real estate. "Right
now we see a lot of opportunity, but particularly abroad".
The "Home Country" Bias
The US is only about 50% of global market cap but most US investors have a
'hometown bias" of having 70% of their portfolio in US securities. Faber has
found that it consistently ranges from as low as 65 to as high as 85%. Meanwhile,
when considered on a GDP basis the US is only about a fifth to 25% and on a
valuation basis is the third most expensive. This would suggest the US has
a headwind, especially after a six year run. An exposure of at least half to
foreign investment seems more reasonable to Meb Faber.
Developed and Emerging Countries
We start with a universe of about 45 countries with reasonable liquidity.
One of Cambria's funds buys the eleven cheapest countries in the world. Faber's
analysis suggests avoiding countries that create large bubbles can be a critically
important when viewed over the longer term because of the size of the inevitable
corrections."
"One of the emotional challenges and why value works is because it is hard
to do."
Classic Mistakes
- "Not Getting Out of Your Own Way!"
- Getting Caught Up In Performance,
- Not Having a Plan,
- Trying to Time Your Investments,
- Realistic Expectations.
- "Not Paying Attention to Fees"
- "Too Wedded to An Investment Style"
- Need to be Asset Class Agnostic
