Episodes

Dan Ferris: The 2024 Stansberry Research Conference and Alliance meeting is back this fall in Las Vegas. And for the first time ever, they've extended their early-bird discounted ticket pricing. Which means if you reserve your seat today, you can save $450 off your ticket. Head over to www.vegasearlybird.com to find all the details and get your discounted ticket. The Stansberry conference is truly one of the best business, mixed with pleasure, industry events out there. Past speakers have included shark tanks, Kevin O'Leary, Dennis Miller, and Steve Forbes. And of course, all your favorite Stansberry editors will be there too, including yours truly. I mean, I hope I'm one of your favorites.

I look forward to this event every year. It's great getting the chance to meet our listeners from the show, whether it's chatting during the break, or grabbing a beer at the end of the day, or whatever. So I hope you're planning to join us. It's a great event, go to www.vegasearlybird.com to get your discounted ticket before prices increase. That's www.vegasearlybird.com. So come on out and find me in Vegas and say hello.

Meb, welcome back to the show. Good to see you again, as always great.

Meb Faber: Great to be here, friends.

Dan Ferris: And let's see, where should we begin with you today. I know where we should begin. Let's – I want to, I want to be able to tell people a little bit about your firm, because you guys put out some interesting products.

Meb Faber: Sure.

Dan Ferris: So maybe we could do that just for a few minutes here.

Meb Faber: We're based here in Manhattan Beach, California. If anyone's local, come say hi. I'm looking out the window, I can see the ocean. It's beautiful day. You know, we've been around for a while. So we've been launching ETFs for over a decade, and the firm actually existed pre-global financial crisis. Our oldest fund is over 10 years. We had our 10-year ETF anniversary last year for shareholder yield. We're now up to 14 ETFs, which is crazy. And we're quantitative based. We got about $2.5 billion under management, around 150,000 investors, which is pretty cool.

But you know, we try to exist in this little dark corner of the investing space. We'd like to tell people it's the best time ever to be an investor. Unlimited choice. It's basically investing for free between commissions and expense ratios. So if you're going to be charging more than zero, Vanguard does, or close to it, you've got to be doing something unique, weird or different. And in a world of 10,000-plus funds, people are always saying, you know, goodness, do we need any more funds? There's more funds than stocks, which I usually say, well, there's more words than letters. What's your point?

But we like to come up with ideas that either don't exist, or we think we can do much better quotes, "better or cheaper". And usually they're supported by academic practitioner research. We put out a lot of white papers and books around the topics to educate people. Some are extremely weird and different, and some are a little more plain vanilla, but a little bit of everything in between. We just launched two more in January.

Dan Ferris: All right. My, my favorite idea of yours is shareholder yield, which is – I mean, there's two or three of them, right, or more.

Meb Faber: There's now four. They're multiplying like gremlins.

Dan Ferris: Wow. OK. Well, I know emerging, and small cap, and then just the regular one, SYLD. There's another one?

Meb Faber: Yeah. So we started out with the plain vanilla most basic SYLD, which has over a billion now. It owns 100 stocks, long only U.S. stocks. Then there's FYLD, which is foreign, ULYD, which is emerging, and the new one is the small cap in the U.S., NYLD. And the basic premise, you know, this is a very "Dan methodology"...

Dan Ferris: Oh yeah.

Meb Faber: ... is that we wrote a book on this a decade ago. And we kind of looked around the investing space and said why are there no shareholder yield ETFs? Because it's crazy to me to think that... and this is all like "Buffett 101"-style investing, is like what do you want when you're looking for companies. You're looking for companies with great products and services that are just oozing gobs of cash flow. You want the management to be thoughtful about shareholders, so not just spending it on jets and naming stadiums.

You want the company to probably not be too crazy leverage, and also be trading for cheap, hopefully returning cash to shareholders, all these good things that we want a business. And so shareholder yield starts with the premise of, hey, we want these companies to be distributing high amount of cash flow. So talk – focus on the dividend investing space, time-honored investing strategy, but also incorporating buybacks. And buybacks has been a very confusing area to investors for a long time. But in this cycle, in particular, the key part, so buybacks on any given year really outpaced dividends since the late '90s, but you have to account for share issuance.

And this is the one that I think a lot of people ignore to their detriment. I mean, particularly looking at the tech stocks in the U.S.. So many of these tech stocks are just issuing so much stock-based compensation to the C-suite, to the CEO to employees, usually at the high level, to where that's a huge, it's like a negative dividend yield. Right?

Dan Ferris: Yeah.

Meb Faber: So it's a huge dilution to the shareholders. Buffett knows it's a cost. Most of us know it's a cost. But a lot of people ignore it. And if you do, it can, it can be really problematic for a traditional investor that doesn't use that part of information. So shareholder yield accounts for that on a net buybacks basis. And the good news is, historically, it's been a great factor. And in real-time, it's been a wonderful factor, and happy to get into more of the nuances, too.

Dan Ferris: Yeah. So I like this idea because, as you sort of implied there in your description, it's another way to do quality. And you got, like you said, you wrote a book about this, like 10 years ago or something. So you were sort of ahead of the curve on that. But with the ability, though, to take advantage of all that extra cash, right? It wasn't just about quality. It was, OK, quality generates lots of free cash flow, we know that, but what are they doing with it? And to me, we address that in our Extreme Value newsletter. We focus on this a lot.

And you know, every single – in fact, every single stock, we recommend, we have a part of our basic screen are five essential financial quizzes, like what we call shareholder rewards, we can easily return that shareholder yield. So like I said, this is a very Dan way of looking at the world. And I think it's cool that you have, like, you know, emerging and foreign, and – like this cuts across all capitalizations, all jurisdictions. It's a great way, generally to invest.

Meb Faber: Here's the cool part is a lot of the things we talked about, and you've been talking about this for many years, you know, they kind of rhyme. So if you buy high dividend yielders, you get sort of a value tilt, if you just looking at dividend yielders. If you buy cash flow, you get a quality tilt, you know, and we want as many of these concentric circles kind of lining up on the Venn diagram to get us to this final block of 100 stocks.

And here's the cool thing. So if you look at a value strategy, you know, a lot of people kind of bemoaned value strategies over the past 15 years, U.S. stocks, my goodness, 15 a year since the GFC. That's a pretty unique time in history. It's happened before, on a 10-year rolling basis, if you look at the rolling returns U.S. stocks, there's really only been four periods in history that looked like this. It's been the Roaring '20s, Nifty '50s, Internet bubble, and then kind of COVID meme stock era. And that's awesome. U.S. stocks have ripped on the market cap level, the big dudes, right?

Dan Ferris: Mm-hmm.

Meb Faber: But underneath the surface, there's been a lot of these really high quality stocks that look incredibly attractive, in a broad market that us – that we believe looks less attractive. So a shareholder yield basket in the U.S., gives you today, a single digit – and you can type our – you don't have to believe me. You can type SYLD into Morningstar, or other places, that will give you a snapshot of what this looks like. Single-digit P/E ratios.

And here's the hard part though, for most investors, you type in a stock symbol, we owned Apple for almost a decade, and they're a great use case here because they did dividends and net stock buybacks, and were cheap for a really long time. You type something like that into a traditional research portal, and they'll give you dividend yield, but it's hard to find, hey, where's this? Where's this buybacks? Where's the share issuance? You got to kind of dig for it. Morningstar is just starting to add it. YCharts has it.

The stocks on average that make it into our portfolios are around a double-digit shareholder yield. So in a world of, you know, 1.5% S&P dividend yield, many of the companies in the U.S., it's probably 20/80 or 30/70 in terms of dividend yield and net buyback, so it's driven more by the buyback side of the equation. In foreign developed and emerging, which are also single-digit P/E ratio stocks, it's closer to 50/50. So you end up with roughly like a 5% or 6% dividend yield, and similar buyback yield. Culturally speaking, those countries and companies don't do as many buybacks, but that's changing. If you've seen Japan recently. It's been really interesting what's going on in corporate governance around the world.

One more comment, and then I'll pause. A lot of people love to shake their heads, and wag their fingers, at the value investors in the USA, and say, "Well, you guys don't understand you're missing tech stocks. Tech is where you got to be in the U.S.." But I say, look, you know, a quantitative screen is agnostic. We're agnostic as to, you know, size, sectors, we put caps on them. You know, we don't want it to be more than a third of the fund in any jurisdiction. The U.S. has a low tech exposure, not surprisingly. Many of the tech stocks are expensive. Not all of them. Emerging markets, it's the largest sector. And to me, that's really interesting.

But if you go on TV, we're talking about TV coming into this. Everyone's talking about Nvidia all day. Nvidia, Nvidia, Nvidia, you know, there are stocks, semiconductor stocks, emerging markets that have outperformed Nvidia, but no one talks about them because you've got to go dig around in South Korea, which, you know, nobody does anymore.

Dan Ferris: Nobody does. Yeah.

Meb Faber: So there's opportunity everywhere.

Dan Ferris: Great. And another thing I love about this just looking at, I mean, I'm just grabbing a picture of the top 10 holdings on Yahoo. So it could be there could be a better update somewhere. But just, you know, in this time frame, whatever it is 14% of total assets in the top 10, which is like you know, all the all the cap weighted, you know, usual index funds, it's like 25 to 30. And like the top names, Assured Guaranty, Toll Brothers, New Corp, Ameriprise Financial, Auto Nation, Alpha Metallurgical Resources, like, you never see these in the top 10 of anything, you know, which is really cool. This is a whole different subset of the market. And, you know, like I said, I don't know if those are up to date, but it's really cool.

Meb Faber: We were we were looking – yeah, I mean, the nice thing about an ETF issuer is we update our holdings daily. So we rebalance these shareholder yield portfolios quarterly. And if something goes up way too much, we'll trim it, which happens on occasion. But it's funny, because if you look at some of the names, and I usually don't talk about names. I'm a Quant listener, so these may come out of the portfolio. Half the time, I don't even know when. But if you look at, say, Dillard's. What a boring company. Right? I haven't been to a Dillard's, I don't think, in 20 or 30 years. Maybe more.

Dan Ferris: I don't think I've ever been to one.

Meb Faber: [Crosstalk] Dillard's has outperformed NVidia since 2021. Right? It's at all-time highs now, but people are, you know, and there's – and just so listeners don't think I'm bragging about what we own has done amazing. We'd love to talk about our losers, too. Or said differently, love to talk about ones we missed out on. We held Abercrombie for a long time. Abercrombie. This is like the store of my youth. I can smell the cologne, as if, you know, someone sprayed it with me today. Woods, right?

Dan Ferris: Yep.

Meb Faber: Abercrombie has just mooned in the past year or two. Of course, we sold it like right at the base of when it was getting ready to skyrocket. So we missed that one. But my point being is that the stock doesn't have to be sexy, and it doesn't have to be the one that everyone's obsessed with. You know, everyone, for a long time, it was Tesla. And now it's Nvidia, and maybe Bitcoin, whatever the hot, you know, topic. Back in 2007, it was China and India. So who knows? But you can find these gems that have great performance, compounders.

Dan Ferris: Yes. But that is my point. The big names are getting all the attention, and a lot, a lot of the capital right now, but lots of very good names generating lots of free cash flow with great businesses. And as you point out, high shareholder yields are going – they're cheap, they're attractive. You know, it's really a very interesting time. They're like, if you look at the big indexes, they're at Mega bubble valuations, you know, because of all the big cap names. But if you go down a little bit, you can look around, and you can find some incredible deals. And I think a lot of them show up in lists like the one you have here.

Meb Faber: That's always been the Achilles heel of market cap indexing. Look, market cap indexing, buying the index, always, always great concept because it allowed for low-cost investing. Amazing invention 50 years ago. Its Achilles heel is that when things go nutty to the upside – and this happens on occasion, plenty places around the world. My favorite example is Japan, which went extremely nutty in the '80s, the biggest bubble we've ever seen in stock markets, and it took 30 years. It just recently got back to the peaks of the 1980s.

Dan Ferris: Yeah. That's right.

Meb Faber: Crazy. So when things go crazy, the upside, you put most of the money in the most expensive things, and there's no fundamental tether. So when you have an expensive market, like the U.S. today, it doesn't mean that everything is, right. There's plenty of stocks out there that we think are extremely attractive, and have great characteristics, too.

Corey McLaughlin: Hey, Meb, that's kind of one thing I wanted to ask you about was how you guys – well, first off the point about how you need to dig for kind of shareholder yield. Return and buybacks, I think is an important one that a lot of people don't understand. So first off, that's just great to hear from you on your own. But how do you guys – how do you manage risk within your ETF? You know, you talked about buying, selling, missing out, whatever. Is it all quant-based? Is it, you know, is it just you have a system, and you and you stick with it at all times? Or is there more artistry involved?

Meb Faber: OK. So we're going to – I'm going to break this into two parts real quick. So there's, you know, on a portfolio level, so when we're talking about risk on a portfolio level, you know, we're pretty non-consensus views here out on the periphery. So I think these are actually pretty basic views, but they tend to not look like most investor portfolios. So we believe managing risk, on a portfolio level, is you need to have all of the three main ingredients in some proportion. So global stocks, so everyone just holds U.S... global bonds and global real assets.

Stansberry, almost more than anyone else, talks more about real, real assets. And that means to me, it could be real estate, commodities tips, all these investments that do perform when inflation is higher, or moving up unexpectedly. That's a great buy and hold basic portfolio. And we have three asset allocation portfolios. Now, once you have that, you can do things, like we think move away from market cap weighting toward value. And historically-speaking, one of the ways to lower risk is don't invest in really expensive things.

And the old joke from, you know, we can all remember back in the late '90s was Sun Microsystems, talking about, hey, don't buy companies that are 10 times revenue. And I feel like this bubble, it's like you've got to say, like, 50 or 100 times, not just 10 times. And if you model that out, you invest in a basket of companies that do 10 times revenue, or more, is a horrible, it like underperforms T-bills, like it's a terrible investing strategy. But every once in a while, you get these lottery ticket stocks that go nuts. And people say, oh my gosh, it's just, like, they get distracted and say, OK, well, I should be buying these. And then they lose all their money, and rinse, repeat.

So global portfolio, tilt toward value and quality, you end up being less fragile. Particularly, it doesn't matter most of the time, but when things are going totally nutty. And most of the countries around the world are priced, we think, average, to cheap, to really cheap. There's just a couple of them in the U.S. is one that are on the expensive bucket. And lastly, which is an area that the Stansberry crew talks about on occasion, with my bud Steve Sjuggerud, is trend-following type of exposure. But that starts to get out on the periphery, too. So all those things together.

Now, on a buy and hold basis for the shareholder yield funds, you have to accept the knowledge that they're still just long equity. So if the S&P goes down 70%, would I expect this fund to be flat? Probably not, you know.

Dan Ferris: No.

Meb Faber: Now, '99 to 2003, small cap value outperformed the market cap weighed by 150 percentage points. So you can have these times when it, you know, historically, there's a great paper. I don't know if you guys have seen that Rebecca put out called conservative investing. I believe that's the title. I'll send it to you guys. But they modeled out a shareholder yield approach, they didn't call it that, but its shareholder yield, into the 1800s.

And you know, the data back then let's we can all kind of just smile at it. It's not probably the most the most accurate, but it shows that, in general, it's what we expect, that, on average, the high-quality, cheap businesses, they do a good job in bull markets, but they don't keep up with usually the market-cap weight, and you wouldn't expect them to. But in the sideways and down is where they shine, right? Because people say, oh my god, why am I paying 100 times revenue for this? I need to move to something that's actually, you know, real and tangible.

Dan Ferris: Again, not [crosstalk] –

Meb Faber: We haven't had the big one in a while. But yeah.

Dan Ferris: Yeah.

Meb Faber: Hey, Abercrombie and Dillard's can be sexy, too, Dan.

Dan Ferris: That's right. That's right.

Corey McLaughlin: Yeah, Abercrombie used to be, right?

Dan Ferris: The idea of low downside. You know, a strategy with lower downside. In a bear market, people are like, who cares? Right? I'm buying more Nvidia today, most of the time. But then, of course, you know, it's just like sales of Ben Graham books fly off the shelf and bear markets, and people start waking up to strategies like shareholder yield and other quality-oriented stuff, too, because it tends to outperform on the downside.

Meb Faber: Well, it's interesting because, you know, any investing approach, as a quant, who loves to study history, we say it should work most of the time in most of the places. Now, most investors already, you know, have expectations that are totally unrealistic. When you say "most of the time," they think that means every year. And not only every year, every quarter, it should work. Right? But we're talking about batting averages of maybe like half over time. Most of the places, most of the time, around the world.

So the cool thing is you can look at shareholder yield, now, we have a decade plus in the foreign, and almost a decade in the emerging, and say, well, how's it done in foreign developed and emerging? And so all three of these funds have been four and five star funds. Emerging markets is most interesting as something – because sometimes you have an investing style that looks similar to the index, and sometimes it looks totally different. And so in the U.S. right now, it looks totally different. In foreign emerging, it looks totally different, because for a long time, China was darn near half of some of these emerging market indexes. Right?

But China was expensive. You know, China, more than any country has had this sort of totally psychotic Mr. Market shows up, P/E ratios from single digits to double digits. It was 50 back pre-GFC. So agony, ecstasy, euphoria, depression, back and forth, you know. And it's at – China's stock market now reminds me of Japan. It has gone nowhere for 30 years. And it's in single-digit P/E ratios. We own very little China for a long time. Because the stocks on average are expensive. They weren't doing buybacks didn't pay dividends. Right? It's all speculative type of securities.

We've now slowly started adding China. But it's interesting in emerging markets weights, because China, it's not surprising when something goes down 60%, is that the weight in the market, emerging markets has come down? And it's pretty darn close, as India, which the two have tracked almost identically for many years, are almost the same index weight now. Anyway, we started adding a bunch of China. And so that fund has done exceptional with an all-time highs in a world where emerging markets are still, on average, these indices are in a bear markets.

So we have a piece we're writing called, "Are emerging markets at an all-time high, or a bear market?" And it depends. It depends on what you're looking at. It's like looking at small caps and large caps in the U.S., right. The question is it depends.

Dan Ferris: Right. Which countries are you buying? Yeah. When you say if [crosstalk] – when you say that fund, do you mean Cambria emerging shareholder yield?

Meb Faber: Yeah, so it's EYLD. And this is funny because this fund is – this fund, being a value fund, actually owned a big slug of Russian securities when Russia got paused. And as a wonky note to all the listeners, 90% of emerging market funds, Vanguard, BlackRock, everyone owned Russian securities, usually it was pretty small, like 1%. We owned about 12. And so this fund is crazy that it's done so well, despite 12% of the fund essentially going to zero.

Now, the cool part, going forward for listeners, that's marked at zero, for every fund is marked as zero on their net asset value because their paused. You can't trade them at some point. Hopefully, there's peace in Europe. You know, people have a habit of falling out of windows in Russia. Who knows? This all ends. We have peace again in Europe and Asia, and they start trading in the U.S.. Now, they trade elsewhere in the world.

So it's kind of a hidden free call option that the stocks trade again, at some point, which is kind of a cool idea. But that may be 20 – we may be doing this podcast in 2028, 2038. I don't know when that may happen.

Dan Ferris: Right. Yeah, there's no telling. But yes, it is free. You are paying zero for it right now.

Meb Faber: It can't be worth less than zero. That's the good news.

Dan Ferris: That's – we're pretty sure that unless you're using leverage, which I don't think you are. So right. I don't know, Meb, what else you got. This is like, to me, this is like the greatest idea that I know of, of yours. But it can't be your only one, right?

Meb Faber: Let me give you – you know, as we talk to investors today, there's kind of two or three topics. We're like, look, we sent out an e-mail this past fall to everyone. We're like, look, if you're not going to do value now, you'll probably never do it. That's fine. You know, you don't have to do value. But this has been, you know, if you all the big quants, Rob, and Cliff and Grantham, you know, they all show these value spreads. And they're some of the highest they've ever been, not just in the U.S., but globally, relative to market cap weighting. So value looks incredible to us.

And said differently, also, we think foreign and emerging look great, too, in a market ap weight. Most people don't know foreign and emerging anyway. But we've talked about that. A separate thing that I think is also interesting, you know, it was a really weird time in markets for this past decade, in the largest asset class in the world being fixed income. We had an entire period where interest rates were zero or negative. What a weird time to be an investor. Like, I don't remember you guys, when we studied textbooks, they didn't talk a lot about negative interest rates. Right?

Dan Ferris: No. Like not at all.

Meb Faber: And so I kind of shake my head looking back on, and be like, what was going on. And so we just wrote a paper, you know, last year, I feel like the theme of the year was T-bills and chill. All of a sudden, you know, retiree lottery. T-bills went from, you know, essentially zero interest rate to five. So all of a sudden, you can get 5% interest, when before you couldn't get any. So all of a sudden, fixed income is interesting. Again, now we're going to ignore the path it took to get there, and many fixed-income funds, and holdings are down 10, 20 40, 50%. So we're going to ignore that part.

But let's say you're interested in fixed income today. We wrote this paper because there's all stripes of fixed income. If you now want to move away from what we call "the risk-free rate of T-bills" into 10-year or 30-year corporate bonds, junk bonds, emerging market bonds, tips, on and on, and on, mortgage backed, it's always been a head-scratcher to me to say, OK, like, let's apply the value approach in stocks to bonds, and say, why would we – so Mr. Market example. The old Ben Graham, Mr. Market shows up at the door, and he says, "Hey, I've got some junk bonds to sell you." And you say, "Cool." He's like, I'm going to sell them to you. Here's 5% yield." And you say, "What? I can get 5% of the T-bills. Why would I buy junk bonds, and take out all that risk?" And he goes, "OK. Good-bye." Comes back the next day. He goes, "All right. Junk bonds... 3%." And I say, "Are you crazy?"

Dan Ferris:

Meb Faber: "You were here yesterday with 5%. No, I can do T-bills. Go away." Comes back, OK, OK, a week later, comes back, says, "OK, sobered up. Junk bonds, 12%." And I say, OK, well, maybe that's interesting, right? Maybe I'm getting compensated for this risk of investing in junk bonds. Or maybe he comes back the next day. He's like, "Oh, my god, sorry, just got divorced, junk bonds, 18%." OK. And it's the same junk bonds, right, same index. And this has happened in history. You can look at, you know, fixed-income spreads.

So we did we did, as we tend to do, we went modeled some very simple examples. We said, what if going back 100 years, you only invested in the riskier bond categories, when the spread was in the top half to T-bills. So you know, if 10-year bonds were yielding more than a percent or two more than T-bills, which is normal right now, they don't. Right? They yield less, which is called an "inverted yield curve". And it turns out, not surprisingly, you get a better return, usually. You get lower volatility and lower drawdowns, historically, by investing when the spread compensates you.

And doing the opposite, which the corollary in stocks is, you know, paying 10 times revenue for these crazy expensive companies, not surprisingly, on average, it does worse. And so we said, OK, well, why don't we do this as a fund. And the paper is called "T-bills and Chill Most of the Time". It's like two pages. And so we just launched this fund called "T-Y-L-D". And all it does, this is like a Howard Marks distressed sort of fun concept, but quantitative. It sits – the fund sits in T-bills most of the time. And then it looks at, say, 10 sleeves of bonds.

And if any one of those is trading at historically wide spreads, it'll buy them. So if you're getting compensated for the 30-year emerging market bonds, we even include REITs, which are kind of quasi yielding instruments. It'll invest, and it could be 100% invested in these risky bonds, or, like, today, 100% in T-bills still.

Dan Ferris: Wow.

Meb Faber: And so this is called, it's "TYLD". You guys can see we kind of like the "YLD" tickers. But this fun to me is an interesting way, because, right now, two things – one of three things needs to happen. Either T-bill yields need to come down quite a bit to make the spread attractive. All of these interest rate spread markets, the yields need to come up, which means the value needs to go down. The price needs to go down, or both. And that's just not the case right now.

And the cool part, we just announced this about a month ago, is particularly for our new funds, but funds that are smaller, people are usually a little reluctant, and they say I don't want to be investing this fund that just launched. I'll wait until it gets to $100 million, $500 million, a billion. So we just had all of our funds below $50 million voluntary fee waiver. We're going to charge nothing on them until they get about 50 million. So this fund just launched. I think it's maybe like $12, $15 million. But the good news is, there's no cost on it until it grows quite a bit.

So you can T-bills and chill for now. And then when things start to go haywire, which they have a habit of doing and markets, I don't know, . It seems to be a feature, we'll become interested.

Dan Ferris: That's pretty cool. I like that strategy.

Corey McLaughlin: That's a cool one. Yeah. Love the name, too. It's great.

Dan Ferris: Yeah.

Meb Faber: Yeah. Well, so the actual name of the fund is tactical yield. We didn't like we don't like messing with the SEC too much. I didn't want to name it " T-bills and Chill Most of the Time," although it probably raised a lot more money if, if we named it a little more creatively.

Dan Ferris: Yeah. That's a cool idea. The more I think about it, the more I like it.

Meb Faber: Well, you know, I mean, it kind of goes with our theme, you know, the two pillars for us, value on one side, trend on the other, kind of they fit together and this yin-yang, sort of, you know, composite. And as we look around, going back to the topic, like most of my friends in the ETF world, god bless them, you know, they love to chase whatever's hot. And so you're going to see 50 AI funds and 50 bitcoin funds, and on and on, they throw all the spaghetti against the wall. And the sad news is over 10 years, the average mutual fund ETF, so just public funds, half of them close. Half. Like, that's crazy to me.

And so we try to launch funds that we want to put our own money into, I put all my public assets into our funds and strategies. Average mutual fund manager has zero invested in their own fund. And we want them to stick around for a long time. We don't just like cater to what hopefully people want. We actually try to launch funds that we think are wonderful, even if no one wants them yet. And so there's some, there's some that probably, you know, nobody wants except for me. You know, but we'd like to give them, you know, five, 10 years to marinate to see, if see if the world comes around at some point.

Dan Ferris: Yeah, that sounds surprisingly ethical for a fund company, all of that stuff you just said, making Cambria rather unusual among funding companies.

Meb Faber: Well, you know, it's always strange when people go on TV, and they say, "Buy our funds. Buy our funds." And you say, "Well, you don't own any." Like, why in the world should I be buying your fund if you don't own any? And so it's always a thing. We tell investors, this is professional and institutional, too. When a fund manager, or even a financial advisor, somebody's pitching you, and say, "Well, what do you do? You know, do you own these funds?" And if you see him hem and haw for a second say, "OK, if it's good enough for me, but not you, something's amiss."

Corey McLaughlin: Yeah, that's kind of like when you look at companies, right, where the largest shareholder is the CEO or something. A lot of those tend, a lot of the biggest winners have tended to be those companies, right, over time.

Meb Faber: I think I've heard Dan say this, and I'm going to misallocate a quote. It may not be Dan. It may be Porter. I know I've heard Porter say it, too. Where it said there's a lot of reasons the founder, CEO, C-suite will sell stocks. There's only one reasons why they buy them.

Dan Ferris: Yeah.

Meb Faber: Right? And which is they believe it goes up. So we like to be on the side of having skin in the game for sure.

Dan Ferris: OK. So shareholder yield, phenomenal idea. Lots of ways to do it. Tactical yield, between risk-free and riskier stuff, when it's a good idea. Love that. Love them both to death. Meb, would you like if we met in a bar – I usually asked this question at the beginning of an interview. But if we met in a bar, we didn't know each other. We started talking, would you say, "Yeah, I'm a value investor." Because a lot of what you do I know you're a quant guy, but a lot of it is based on long-term value effects. And I thought of this question when you were telling me about, well, you know, we want funds that have a chance of doing something over the long-term. We want to have a relationship, basically, is what you're telling me with your with the fundholders. What kind of a [crosstalk] – yeah, OK.

Meb Faber: So that doesn't mean that I'm going to be drinking Miller Lite, you know, when we go to the pub, you know, I'm still an expensive craft beer guy. So but that having been said, I would rather buy a $7 craft beer than a $20 craft beer which is what they cost at Dodger Stadium, I think.

Dan Ferris: Wow.

Meb Faber: So yeah, look, but the interesting thing about everyone loves to focus on, hey, what's cheap, or what's in an uptrend, or what has a good buyback yield. But in every one of those approaches, or you know, a low cost investing, on and, on and on. Equally as important and every one of those embedded is what you're also avoiding. And so you're a value investor, you buy cheap things on average. Guess what? You're also avoiding the really expensive. If you're a trend follower, you're investing in uptrends. Guess what? You're also avoiding downtrends. If you're doing buybacks, you're buying companies buying back stock, guess what, you're also avoiding the serial share issuers.

And so, you know, hey, I have a low cost investing approach. Guess what? You're not – I saw someone tried to pitch me a private investment, I do a lot of private investing. And someone tried to pitch me a layer of private equity style investment. And traditionally, a lot of these, in these special purpose vehicles, SPVs, will have 20% carry, which is the standard, like, hedge fund, private equity carry. This one had two layers of 20% carry. I said you guys are charging 40%. You're taking 40 –?

So low-cost investing, you're also avoiding the crazy-high-fee type of stuff. On and on. You know, I think so, yes, if you grabbed me, I'd say absolutely, I'm a value investor, but I'm also not a super expensive stock investor, too, which I think a lot of people get lured into the things that, look, you know, exciting, they can talk to their neighbor about.

Dan Ferris: Yeah, you know, that's [crosstalk] – go ahead.

Corey McLaughlin: When you look around now, in terms of, like, avoiding, you know, what, what you're avoiding, and avoiding a, you know, a big loss or something like that. I mean, you have like a pulse on, like, big global trends, you know, different areas of the world, too [crosstalk] your antenna up, you know, you see that is concerning to you.

Meb Faber: As our – oh, concerning. Man, you really that took a hard right at the very end of the question.

Corey McLaughlin: Oh, sorry.

Meb Faber: Well, we'll talk about both. You know, our good buddy, Steve Sjuggerud, he has a phrase. He's like, "I love investing in cheap investments, hated, and in an uptrend." Right?

Dan Ferris: Yep.

Meb Faber: And there's one in particular right now to me. And I did – I love to gauge and probe sentiment on Twitter and other places. And so I did a tweet about emerging markets. And I said, emerging markets, 85% of global population. And if you ask this next one, most people get way wrong. It's over half of global GDP. So I think it's closer to 60 to 65% now. U.S. is only 25% of global GDP. So, and then I said, it's 10% of market cap for stocks. And most investors in the U.S. own about 2%. So it rounds to zero.

And man, people just, like they just went on and on and on about how awful emerging markets were, which is really interesting to me. I like hearing that. I like hearing things, because emerging markets again, they're cheap, they're hated, they're in an uptrend. Lots of countries around the world are finally catching up and breaking out, which is exciting to see this broad base breath. As far as what's gotten me concerned, I'll give you one. You know, I think the biggest thing that equity markets have a giant disdain for is inflation. And so we had this period where inflation went nuts, and then we've now conquered it. And everyone's confident that that's been on its way back to 2%.

But it doesn't feel like it's necessarily conquered, in my mind. I think that's the assumption. And so my worry, if you say I had to worry about something, would be that inflation is a little stickier, and hangs out up here, or even starts to increase. I mean, you're seeing a lot of commodity markets go a little nutty. Gold's at all-time highs. You have a lot of global-concentrated trend followers that have been around for decades, that posted 20 to 40% up months, in February this year, because they own things like cocoa, on and on, that have just been going kind of vertical.

So you know, if you see oil, and other inflationary inputs start to creep up again, you know, the average long-term 10-year ratio for stocks, over time, is about 18. When markets are mellow, inflation is chill, it's like 20 to 23, or 35. We're at 35 in the U.S., so it's expensive. But the average multiple when inflation is north of four is low teens. So long way from here, not 18, like low teens. So but I think is that the most likely outcome? No. I think inflation hopefully just hangs out down around three. But it's possible.

And if it is, to me – we're not even mentioning, who knows with elections, and everything else going on in geopolitics. I don't know those. But for me, the inflation is the one that would be the most painful to potential stock investors.

Dan Ferris: Yeah. And even at three, you know, it's not terrific.

Meb Faber: But you know, we did it we did a whole paper that no one read during the pandemic talking about investing at all-time highs, you know, so you see things like gold, and people are often fearful at all-time highs. Say, oh my gosh, it's, you know. But in reality, it's actually usually a great time to invest. I mean, there's only two states for markets. It's either all-time high, or it's in some form of a drawdown. And markets spend most of the time in drawdowns, right, like it's just definitional.

And so things like gold being at all-time highs, you know, most investors, Stansberry crew excluded, you know, have very little gold or real assets style investments, but we think that plays an important role in portfolios.

Dan Ferris: Yeah.

Corey McLaughlin: Yeah, I just read about this today. You see gold, all-time highs, semiconductors going crazy, inflation numbers.

Meb Faber: Corduroy pants are back from Abercrombie. I wonder if they even have corduroys anymore.

Corey McLaughlin: Yet, inflation is slightly higher. And the market ripping higher, or turning kind of higher, and the Fed promising rate cuts at the same time. And all of the – and the economy surpassing expectations all at the same time. It's hard to believe that inflation won't stick around higher, to me, too. I don't know.

Meb Faber: And this is the nice thing about trend following is that it kind of gives you the win. Right? I mean, you can go back 100 years one of the most basic signals is you can put it in a quad box. Is the market cheaper, expensive, is an uptrend or downtrend? And by far the best quad box historically is cheap uptrend. Market does like 20% a year. But the next best one is an expensive uptrend, which is where we are now. So you know, so things are still going well. But that's sort of like the yellow flashing light. It's when it goes from expensive uptrend to expensive downtrend is the worst quadrant. Like, you want to be there. It's a dark, scary place. So if and when the market does roll over, you know, that is sort of a red flashing light to start to think about, hey, you know, these really crazy expensive companies, everything else, you know, you don't want to own them then for sure.

Dan Ferris: It sounds like a plan to me. Expensive – expensive and in a downtrend is a scary place, isn't it? It's like my nightmare.

Corey McLaughlin: Yeah, with 2022. Yeah.

Dan Ferris: Yeah.

Meb Faber: Well, and that's where all the volatility tends to cluster to. You have people use a different part of their brain when they're losing money, when they're making it. Right? It's that flight response. You're not opening your statements. You're not checking Robinhood 40 times a day. You're not telling your neighbor how smart you are for buying Dogecoin. You know, it's on and on, and on. It's like you don't want to talk about investing. You're getting margin called. You're selling your timeshare in Cabo, and on and on. If you can even sell them, I don't even know if you can sell them. You're stuck with it. But you'd like to.

Dan Ferris: Yeah. Right. You are stuck with it. There are companies that like go around, you know, telling people, "We can help you get rid of your timeshare," because everybody wants to get rid of [crosstalk] –

Corey McLaughlin: Yeah, I hear those radio ads all the time.

Dan Ferris: Yeah. It kind of tells you something about timeshares, doesn't it? Just don't do it in the first place. So Meb, let's do our final question. Because it's, I think it's a good question. I keep asking it, and people keep enjoying answering it. I hope you don't remember what it is because it works better that way. But the question is the same, final question on this podcast is the same for every guest no matter what the topic, even if it's a non-financial topic. And by all means, if you've already said the answer, feel free to repeat it. And the question is simply: if you could leave our listeners with a single thought today, what would that be?

Meb Faber: I'm a I'm a religious listener of y'all's podcast. But I also am, like, I'm a computer that turns off every night. Like, basically, everything I heard, I just flush out of my memory cache. So I don't remember the question. But let me tell you something, you know, we are talking, we have some really fun guests on our podcast coming up, but one you know, I'm looking forward to because he has such a great quote, is Ken French, and that's the half the Fama-French, you know name, Chicago professors.

But he talks about investor's time horizons. So all of us, particularly in this TikTok age, you know, time compressions have been just smashed. What used to be an investor's time horizons – I am long-term investor, and maybe that meant decades, and now they say they are, but it may mean not even decades or years, it's like weeks, quarters months, right? And so he has a quote that he says: "An investor," and no one, even in the professional institutional world believes this, I think, "An investor that draws inferences from one, three, five, or even 10 years of an asset class, or active strategy is crazy."

You know, and so, but how many listeners, how many people would sit around and say, "Oh, wow, like I, you know, I need to know what – I want this certainty. I want to know what's happening now." So the takeaway to listeners is, hey, have a written investing plan. None of you do. So I'm not shaming you. But just write something down. Take it – here's your assignment. Take out a piece of paper, a yellow pad. It doesn't even have to be over a page. Just like here, here's my plan.

And it can be I'm going to buy 10 of Dan's compounders, rebalance once a year. God bless you, that's it. It could be I'm going to do a diversified portfolio, I'm going to, you know, do this, that and the other, here's how. But when you don't have a plan, as we all know, when it comes to diet and exercise, you know, I'm going to go watch March Madness today, and probably order some nachos, and you know, have some non-value beers. But having a plan, and a framework, it least keeps you have an anchor, you know, you have a framework from which to then work off of.

And I think, talking to many investors, who don't have a plan on the daily, you know, like I mentioned, we have 150,000 investors, I'm sure some are listening, it causes the most problems by far, because you're trying to wing it. And winging it, in investing, is not a good fortune cookie to have, you know, I'm just going to buy this, and see how it goes, is one of the worst ideas. Not just for when times go bad, because that's hard, but also when times go good. You buy one of Dan's stocks, and it doubles, then all of a sudden, you're like, woo-hoo, you know, like I'm I made it.

But every 10 or 100 bagger was once a double, too So you have to think about how you're going to deal with these not just bad problems, good problems. Sorry. That was a really longwinded answer, guys. But I think it's important to have an investing plan to think through these potential crazy markets. Because if we know anything about markets, is they're not going to be boring.

Dan Ferris: Have a plan. It's good. Yeah. You're not the only one who's who has said that on the show. It's a great message. So thanks for that. And thanks for being here, Meb. It's always a pleasure to talk with you. We should do it more often.

Meb Faber: Awesome. Thanks so much, guys. Come see us in Los Angeles. We'll take you out on a surfboard or a coffee as well.

Dan Ferris: Yeah, will do.

Corey McLaughlin: Thanks, man. Enjoy the nachos.

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