Episode #30: “Listener Q&A”

November 23, 2016

Episode #30: “Listener Q&A”

Guest: Episode #30 has no guest, but is co-hosted by Meb’s co-worker, Jeff Remsburg.

Date Recorded: 11/21/16 | Run-Time: 1:01:18

Topics: As Meb is back from another series of speaking engagements, Episode 30 starts with a brief recap of his travels. But we hop in quickly, first addressing the election. We’ve had several anxious people write in, requesting commentary on the financial markets now that Trump will be taking over. Meb offers his thoughts, which we can reduce to one word: irrelevant.

Next Meb gives us an overview of a white paper he’s soon to begin writing – a rebuttal to detractors of Shiller’s CAPE ratio. He provides some convincing points on why CAPE can be an effective timing tool. You’ll want to hear this if you’re a CAPE fan – even more so if you believe CAPE is flawed.

After that, we hop into listener Q&A. A few of the questions you’ll hear Meb tackle are:

How does CAPE do as a valuation metric for a stock index when the composition of the index is changing or there is significant dilution?
When it comes to value filters like P/B or P/E, how do you rank metrics which can become negative or distorted when they get too close to zero?
Besides trend following, what other alternative strategies (e.g. long/short, diversified arb, global macro, market neutral, etc.) do you believe are a worthy addition to a balanced portfolio?
Please address living through drawdowns versus using trailing stops. Discuss the tradeoff between minimizing drawdowns versus potentially missing huge recoveries.
What do you think of using CAPE in Frontier markets? And does the 10-month SMA timing model work in these markets?
How do you practically implement the bond strategy laid out in your paper, “Finding Yield in a 2% World”?
James O’Shaughnessy’s “What Works on Wall Street” references an investing strategy that posted amazing returns for many years. Seems too good to be true. Any insights? Wouldn’t everyone be using this system if it really was this wonderful?
Any pointers on how to do your own backtesting?

As usual, there’s lots more, including the common investor sentiment of “I’m waiting until the uncertainty dies down before I put more money into the markets,” Meb’s thoughts on cash and inflation, and the benefits of systematic investing. All this and more in Episode 30.

Sponsor: One Blade

Comments or suggestions? Email us Feedback@TheMebFaberShow.com

Links from the Episode:

Transcript of Episode 30:

Welcome Message: Welcome to The Meb Faber Show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

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Meb: Hello, ladies and gentlemen, this is Meb. We have a Q&A episode. Jeff, welcome to the show.

Jeff: How’s it going?

Meb: We’ve had a great stream of really wonderful guest and we have some pretty awesome ones booked coming up. So, we’ll just start trying to intersperse a few more of these Q&As; because I feel like the feedback questions are starting to pile up. So again, anyone, send us questions, thoughts, feedback at The Meb Faber Show, we’ll answer them on-air. What do you know, Jeff?

Jeff: Well, why don’t you refresh us again on where you’ve been traveling this time? You’re always coming back from somewhere.

Meb: Six states in six days. It started out in Kansas, checking out the farmland, and viewed our wheat field that burned down that now has a burned down combine still on the land. And I don’t really know how you get rid of that. You can’t really tow it.

Jeff: No. I mean that’s got to be there just for reminding you…

[Crosstalk]

Meb: Forever a bit. I will put a picture on the blog. It looks like a Mad Max sort of burned out machine, kind of out of Star Wars. And so, I was in Kansas. It was pheasant hunting for second time I’ve ever done it, and for the pheasant opening weekend, which will be I guess our Christmas dinner meal, a couple pheasants. And then stopped in Colorado to say hi to the family. And then went to New York where we sat on a panel at the Evidence-Based Investing Conference, which was put on by Josh Brown and Barry Ritholtz of Ritholtz Wealth Management.

And actually pretty fantastic conference, you know, mainly because the people that were there, a lot of great speakers, really well-done, had a fun happy hour at a bar afterwards. But I was on the panel with Wes moderated by Michael Santoli, who interestingly enough I met on my first day of my first job ever in New York City. He was interviewing my portfolio manager. I think he would been at Barons at the time. Anyway, so it’s fun to connect again after 16 years.

Jeff: Then I see you’re going to send out links to the various speeches to your Idea Farm subscribers?

Meb: If they’re public, I will. I’m happy to. Sometimes they record them, sometimes they don’t. We should probably record this speech and put it on online as a screencast somewhere anyway. But, yeah, if they are recording them as they should, I’ll find them and dig them up. And then, did a speech at the CFA Conference, which was a big CFA Conference in New York on Thursday. And then down to Richmond to give a talk and then over…I’d stop the night in Charlottesville, my old alma mater, “Wahoowa.” And then up to DC for AAII speech in DC.

Those are four very, very different crowds. You know, the CFA, you have the uber financial kind of analysts, and then AAII tends to be more retiree crowd, and then we had the CMT and CAIA in Richmond, and then the Evidence-Based. So it was huge diversity but a lot of fun. And so, finally catching up on my sleep now back in LA for pretty much the rest of the year.

Jeff: All right, well, welcome back. Let’s knock out some Q&A.

Meb: So, what happened when I was gone? Not much going on in the world, right?

Jeff: Great segue. We’ve actually gotten several listeners writing and they’re wanting to know what your thoughts are on Trump. I mean, there’s a whole lot of hand-wringing out there. And you know, you have said in several blogs and tweets that I believe you think this is relatively inconsequential in the long term. But, why don’t you fill us in?

Meb: You know, we read a lot of articles on this leading up to the election. And one, I think was called…what was it called? It was about something along the lines of what you’re afraid of is probably not what you should be afraid of. But then talking about the election, everyone is worried about the election and what’s gonna happen. And we wrote the article and we’ll link to it, but it was about asset allocation and then, you know, people being afraid of sharks and lions, but really they should be afraid of mosquitoes. And then in asset allocation, people were afraid of what markets are doing but what they should really be afraid of is, or pay attention to is fees and taxes and other things like that.

So, we thought that, you know, leading up to it that the election was meaningless. However, I did correctly predict the election. If you remember, we talked about this many times on the podcast and blog and Twitter. We said the best indicator for who wins the election is simply the stock market, up or down three months into the election. Eighty-five percent accuracy that if the market is up three months into the election, the incumbent party stays in power. If the market is down, the opposition party takes over. And so, we’re writing about this and tweeting about. I said, you know, if Hillary and the democrats wanna win, they better start buying S&P 500 Futures, because the market’s down and this is forecasting a Trump win.

Anyway, so even the night of, you know, when it surprises a lot of people, we in the market was kind of gyrating. We said, “Look, this is… if you’re a long term investor, this is meaningless.” And I can’t tell you how many people, how many conversations I had before the election where people said, “I’m just gonna wait, Meb. I know you have this awesome new investment service. I’m just gonna wait after the election when things are more certain.” And I tweeted this the day after, and I said, “Well, are you feeling certain now?” And that’s the thing. If you look back in investing, there’s always something to be afraid of.

Six months ago, it was Zika, before that it was Brexit, before that it was, you know, a laundry list of things. I mean, if you look back in history, the steady march up the U.S. stocks have done for the past 115 years, almost 10% a year, 6.5% real, right? How many crazy things have we been through? Many, two world wars, Vietnam, Korea, Iraq, you know, all sorts of biological threats. And I mean, pick your poison how many dozens or hundreds of terrible politicians and scandals and terrorism events and everything else. And throughout that time, investments have continued to march on.

And so, it’s one of the reasons we think it’s so important to have, not only an investment plan, but at this point an automated solution. And I actually tweeted this out today, I said, you know, having implemented an automated solution for my own money, I cannot fathom going back to not doing it. I cannot think of a single reason why you’d go back to subjectively managing your money. All it does is gives you gasoline to pour on, like to make mistakes with.

Jeff: It’s also sleepless nights. When you take that burden under your own shoulders, it’s far more stressful.

Meb: We talked a lot about, you know, we published a book that says “Global Asset Allocation.” It says, basically, your asset allocation is not that important, as long as you have one and have a plan. You know, that the things that are important, as we talk a lot paying too much in fees and taxes, but also mocking around with it. And so this sort of eliminates all of the behavioral bias, then eliminate all of them because you could still close down the account or buyer, you know. But it eliminates a lot of the…the more choices you have, the more opportunities you have to mock something up, the higher percentage chance of you mocking it up, you know.

I mean, it’s like if you’re on a diet and you have a refrigerator full of cake and pantries full of Doritos and everything else, you know, why would you do that? But if you buy a bunch of fruits and vegetables, it makes it at least a little bit harder. So, not having the automated solution is essentially incentivizing yourself to do something stupid.

Jeff: That’s also underscores the importance of being very allegiant to your strategy, you know. Because if you have those uncertainties, when the market’s turned against your whatnot and it rattles your convictions, well, you need to sort of be able to look back and say, “All right, well, I believe in the fundamental case for what I’m doing here.”

Meb: Here’s another funny example, too, though, is that you know, we tweeted before this, we said, you know, the most likely reaction to the election being over is that the market is gonna rip in the year end because everyone is so happy this blank show is over, you know, that everyone is just happy, this is done, and we can move on. But there was a lot of research reports that came out including one, I remember from Bridgewater, the largest hedge fund in the world, that’s like, if Trump wins all these global stock markets are gonna go down 10% and gold is gonna rip. What’s happened, right?

U.S. is heading all-time highs, gold went down, exact opposite of what people expected. And so, I have not seen a more universal opinion going into the election than if Trump wins, the market would go down. And when you get things that line up on that side, and again, and this is a lesson for political forecasters, too. I mean, how many times that night or the day prior did you see from all these media outlets 95% chance Hillary winning?

Jeff: No.

Meb: Ninety-five percent chance, I mean, that’s insane in my mind. And so, you know, when you have these really outlier sort of beliefs where everyone is on the same side, that’s when sentiment or you have this contrarian. I mean, contrarianism by definition doesn’t work most of the time. But in really through extremes, it works phenomenally in my mind. I mean, when we talk a lot about the AAII survey, and we use this in our speeches where we say, a survey going back to the ’80s, they ask people, “Are you bullish, neutral or bearish on stocks?”

And we show the averages over time. And it’s stunningly, I mean it’s laughable. You say that the highest value for when people were most bullish on stocks was literally January 2000. The single worst month to be bullish on stocks, and this goes back to the ’80s, in the entire sample. And the same as when were people most bearish on stocks, March of 2009. And so, you start to get this kind of contrarian. And this again, it goes to removing the emotions out of the equation and having automated solution. Obviously we prefer the Cambria Digital Adviser for all the reasons outlined in the training portfolio as well as other papers.

But I’ve publicly stated many times, I think a lot of the global advisers and digital solutions are fine. They’re not ideal for me for a lot of reasons. Buy-and-hold allocation modern portfolio theory is probably better than 90% of what people have. But I don’t think it’s the best way to do it for market cap waiting, not enough in real assets, etc., etc., no trend following component. But anyway, that was a little long rant about the elections.

Jeff: All right, so short takeaway is obviously, things are fine, keep investing, keep to your system, things are fine.

Meb: And my biggest rant, too, and this is, look, I’m pretty apolitical. But you see so many tweets about all the election was influenced, or you know, this race or geography or gender or age group or whatever didn’t show up, or this state pushed the election or whatever. That’s so full of BS. Over half the country, eligible voters in the country didn’t vote. So the only thing that really in my opinion is apathy. I mean that’s what decides the election every time. Over half of the country didn’t vote.

Anyway, well, the good news is we still have Trump around to sponsor the podcast. If you’re in the early days of this podcast, Jeff solicited a few, not to highly-paid artist to record the disclosure. So we had both a Hillary and Trump recording. Can we play the Trump?

Jeff: Yeah, let me tee up Trump real quick.

Meb: You see, he took a little time out from his busy post win to record this for us. So let’s hear what we got.

Trump: Welcome to The Meb Faber Show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Meb: That’s so good. Did you notice [inaudible 00:13:52]?

Jeff: I thought we might get sued. We have to watch out.

Meb: Yeah, right.

Jeff: It sounds like he says, “The graft of investing,” which is even funnier.

Meb: Well, it could have. So, for everybody who’s listening out there, you know, we got this guy off of a very low budget sort of site, and he was trying to go through all these speeches to find the various words that we would need to create this “Welcome.” The best words.

Jeff: And I don’t think he could find some of them, so he would try to cut up on you know multisyllabic words.

Meb: I wonder what he used for Meb.

Jeff: I don’t know.

Meb: Because it sounds like he says Meb. I don’t know.

Jeff: I’m sure, yeah, he cuts up.

Meb: Maybe he did. Maybe he was like, you know one day, it’s like, “You know, I have read this great blog, this investment writer.”

Jeff: We need to make sure that’s not the case.

Meb: He could have been talking about the marathon or the Boston Marathon or Meb.

Jeff: [Inaudible 0:14:36] busy or whatever. All right, all right. Enough about that. Enough about the election, let’s move on. So, the first question that we’re gonna get to is about CAPE. But I know from chatting with you earlier this morning that you actually are thinking about a new research paper, which I find fascinating to figure that you might wanna tip off the readers as to what you’re gonna find before you even get into this question.

Meb: You know, I mean, look, I’ve been writing about CAPE for a super long time. I got so weary of writing about CAPE that I wrote an article called Everything You Need to Know About CAPE that has about 40 hyperlinks to it. So, we’ve said pretty much everything we need to say. Also much like 13F investing, there’s a few areas in dividends probably that there’s such a profound misunderstanding that continues to propagate that I feel the responsibility to weigh in.

And so, I was speaking in this conference in New York, and the whole morning was Aswath Damodaran, who I have enormous respect for. I read all of his blog posts. He’s a professor from NYU, literally wrote the textbook on investing. He has an amazing blog called Musing on Markets that still looks like, it’s I think he’s on like the first version of blogger. So it looks like it’s been designed in ’95, and I hope he doesn’t change because it’s the best old school design. Anyway, even he wrote some articles, and we’ll link to him about CAPE that I thought were, one, misleading, but also not inaccurate, but it comes to the sort of the wrong conclusions. I don’t know. I’ll give you example.

My buddy, Barry, who I love to death, Barry Ritholtz, uses the same example, and I hear so many people say this, and they say, and swear I might have even said this on the podcast, too, I’m not sure. But they said basically, “You know what, CAPE has said that stocks have been expensive since the early ’90s and stocks have gone up, you know, let’s call it 700%, therefore CAPE is a terrible indicator.” And to me, that shows that’s a profound misunderstanding of valuation.

So, for example, let’s say you had a house that you bought at $100,000. And just because it went to $200,000, or $300,000 or $500,000 or $600,000 or $700,000 and someone bought it, doesn’t mean that it was a good investment first of all. So as a thought experiment, we said, “You know what, okay, look, let’s go back to the early ’90s when CAPE first got expensive.” And you could pick a number out of a hat, I don’t care which one it is. But we said, “When CAPE goes above 20,” and that’s not even expensive when inflation is tame. I think when inflation is 1% to 4% CAPE averages around 20, 21 when it’s the full series, it’s around 16, 17.

So, we said, all right, let’s say that you go back to early ’90s. You get out of stocks when they’re expensive, all right. Let me back up. Let me back up. First of all, you wanna compare this to the alternative asset, which is simply bonds. Risk-free asset, right? So, you got T-Bills, you got 10-year bonds, 30-year bonds. So we said, all right, instead of this 700% gain you in stocks, which equates to 9% a year, let’s say you just invested in bonds which is the alternative, bonds did about 6% a year.

So, in order to perform stocks by about 300 basis points, pretty big difference, however, they’d half the volatility. And the big difference about expensive markets, and we’ve showed this, others have shown it. James Montier, GMO, the guys at Star Capital out of Germany have showed that the more you invest, when markets are more expensive, the higher the chance you have of a very large future drawdown. So stocks, by the way, had those two huge bear markets in the 2000s.

Jeff: And you got to factor in that the behavioral aspect. Because anybody talking about what the returns are conveniently kind of forgets. That’s very hard to remain invested when you’re down 50%.

Meb: Right, so stocks, 9% return, 15% vol, essentially 50% drawdown and a sharp ratio of around 0.44. And historically, asset classes gravitate to sharp ratios around 0.2 to 0.3, just for comparison. Bonds did 6% a year, half the vols, so around seven and a half. The biggest drawdown was only 10%, so already one-fifth of the stock drawdown. And the sharp ratio was actually higher than stock sharp ratio. And so the risk-adjusted returns are essentially better. Then if you said 30-year bonds, you actually get up to 8% return, the vol is still lower then stocks, sharp ratio is close, 0.41, and you had half the drawdown of stocks.

So, if you had sat in bonds and said, “You know what, I’m not gonna play the stock game. I wanna sit in the long term bonds.” You had essentially the same return, similar vol, similar sharp, one-half the drawdown. So that’s one right there. So people say, people always think then in valuation in stocks that it’s either you’re in stocks or out. Buts they always forget that you have to do something with that money. You can’t just put it under a mattress. And then a lot of people try to do timing models, right?

And I hate those criticisms because a lot of people say I can’t find a way to use CAPE, so therefore, it’s not a good indicator, and substitute any indicator for CAPE, moving averages, I don’t care what. And my response is always, “Look, just because you can’t find a way to use it doesn’t mean someone can.” And we’ve written about half a dozen articles about using CAPE as a timing mechanism that shows that it works just great. And so here’s an example. And I picked these numbers out of a hat, and we actually published a similar article on this a couple of years ago. I said, “Look, tell you what, let’s sit out of stocks when they’re above 20 and we’ll sit in bonds. Otherwise, we’ll invest in stocks.” A more simple trading system of all time, trades like once a decade.

So, had you done that, remember 9% return in stocks, 10-year bonds are 6%. So if you switch in to 10-year bonds, you improve your returns over the 10-year to another percent and a half, you still have half the drawdown of stocks. If you switch in the 30-year bonds, you beat the S&P 500 because you would have been in 30 bonds the majority of the period when 2008, 2009 happened. You get invested in the stocks. Hold them for maybe a year until they get expensive again, and then exit.

So, you beat the S&P 500 by a percent a year, lower volatility, higher sharp ratio, half the drawdown. So right there, I just gave you a switching mechanism that works just fine. However, that’s not the takeaway, and again, this entire exercise in my mind is asking the wrong question. Because we don’t just exist in a world of… No one has ever asked you, “All right, here’s your opportunity you said. You want U.S. stocks or nothing.” Right? You don’t have to wake up every morning to say, “All right, either gonna buy stocks or nothing.”

So, right there, we showed that an alternative of a bond is just as fine, then we had a switching system, it did just fine. But again, no one is asking you, “Do you wanna invest just in stocks or U.S. stocks or bonds?” The world is nicer [SP]. You can invest in Ken Griffey Jr. Baseball Cards. You could go and invest in Micro-Cap startups on AngelList. You could do all these things with your money. You light it apart, whatever you want.

So we said, “Look, the whole point of CAPE ratio is valuation.” And again, we even say CAPE ratio is meaningless, you know, just dividends, price book, price cash flow. We publish four variants of the cyclically-adjusted measures on the Idea Farm. I think we do CAPE, cyclically-adjusted cash flows, book and one other, maybe it’s sales, I can’t remember. Anyway, but my point is just simply valuation.

So we take a step back and say, “You know what, I’m not just gonna say on a binary basis, is it best to invest in stocks or bonds in the U.S.? Where’s the best opportunity in the world.” So then we say, “Well, instead of investing just in U.S. stocks, what if we pick the cheapest quartile of global stock markets?” How would that compare? You know, so you took a step back, say, “All right, I’m gonna invest wherever my money is treated best. What are the cheapest markets in the world?”

So you go from that 9% stock return with 50% drawdown to 14% a year stock return since ’93, a little higher volatility, a higher sharp ratio, and a lower drawdown. So, all of a sudden you add 400 basis points of return, so that’s 700% return from the S&P 500, that’s now over 2,000%. And so it dwarfs the choices of just stocks or bonds because it’s the wrong question in my mind. Anyway, so we’re gonna write an article about it, maybe a paper, hopefully we’ll try to keep it short. I grow so weary this conversation. This may be the last time we discuss it.

Jeff: And by the way…

Meb: Zero chance this is the last time we discuss this.

Jeff: By the way, the strategy is having a monster year.

Meb: Finally. Okay, so global CAPE ratios, I mean great year this year. It actually had a good year last year, where the cheap markets outperform the expensive. It was just that the U.S. was one of the best performers. This 2014 was the stinker. But in general, most strategies will have, you know, even if it’s a good strategy, three out of 10 years underperform on average, or that are pretty bad. But it’s good to see because the cheapest CAPE ratio bucket around the world is averaging around 10 versus 23 for the most expensive. So it’s half the valuation.

And again, we’ve said this in its, I think utmost importance is that it’s not just about buying the cheap, and so all this discussion was talking about buying the cheapest, it’s also about avoiding the most expensive, too. So you’ll avoid the things like the U.S. in the late ’90s when it was trading CAPE ratios at 45. You avoid India and China when they are trading the 40’s and 60’s in the mid-2000 etc., etc. The good news is most of the world is pretty reasonable right now, and the cheap stuff is really cheap.

Jeff: Okay, well, thanks for the preview. Let’s move on to the actual questions.

Meb: It was a long preview. It might have been the conclusion and the summary. Maybe we’ll never do a paper. We just say, “Go listen to podcast.”

Jeff: All right, so can you talk about whether using CAPE as a valuation metric for a stock index still works when the composition of the index is changing or if there is significant dilution?

Meb: Composition index is always changing. So you know, the S&P 500 right now is not a bunch of railroads and buggy whip companies from the ’20s. So that’s the whole point of a market cap index. But I think if you reframe the question to, is the 10-year earnings representative of the basket of stocks you are trading now?

So, the anonymous blogger, Jesse Livermore over at Philosophical Economics has written about this, and we’ll link to a couple of post. But it is totally representative as long as the market is big enough. The places you run into trouble, and it’s not necessarily trouble, but it becomes a little more challenging, is when you get to the really small emerging markets or frontier markets. So these indexes that only have say 10 stocks in them, because if a couple of those stocks move or go out of business or bankrupt and you replace them with other ones, it’s a highly different universe.

Whereas in the U.S., you have 3,000 to 4,000 stocks that comprise the index, it’s not gonna matter as much. But for Czech Republic or Greece or Egypt, it does. And so, for 42 of the 45 countries, it doesn’t really matter, for a few of them it does. And when it does, and so we talk about Greece a lot where we say, look, depending on the actual basket that you use for Greece, its CAPE ratio is either two or like negative 30. And the biggest importance there is the basket that you’re trading reflects the basket you’re measuring.

So for example, if you say, “Hey, I’m gonna, you know, do in ascending a price, I’m gonna do a CAPE ratio for biotech stocks, and I’m only gonna pick 10.” Well, you pick 10 healthcare stocks versus 10 biotech, it’s two very different things. And so you always have to measure and then you always have to trade what you’re measuring.

Jeff: You actually just sort of answered a different question. Let me jump down and see if I’m phrasing it exactly how he asked. If you feel you’re already directly answered it. What do you think of investing on frontier markets? Are they suitable markets to apply long term valuation measures such as CAPE? And do you feel that the 10-month SMA timing model could also work effectively with frontier models?

Meb: I think the 10-month SMA works on basically everything. You know there’s not much that it doesn’t work on. The only things that really doesn’t work that great on is super low vol instruments like 10-year bonds or bills. But I think any volatile instrument trend following is a wonderful way to invest.

Two, is that does using valuation work in a lot of these markets? I think so, but again, if you’re dealing with very small markets, I mean Greece, and I tweeted this, I can’t remember at this point. But if you put Greece its entire market treated as a stock in the S&P 500 it’s like the 300th biggest stock or something, to put that into perspective. A lot of these frontier markets, Argentina, Nigeria, or Morocco or even smaller, and so you just got to be careful that what you’re looking at is representative. And you know, we don’t look at stocks down below 200 million market cap.

And the same as in the U.S., you know, if you’re trading this $10 million market cap companies, it’s usually volatile, and valuation I think still works. But, you know, transaction costs become more important and they can be super volatile. So, yes, I think valuation still works in emerging markets, frontier markets course. We don’t trade them mainly for liquidity issues because a lot of our funds, you know, need to be able to scale on to the billions, and so frontier markets, you would be… But again, going back to CAPE, this is something you should only look at once a year or once every two years for valuation purposes, because it takes a long time for this to play out. A good question though is we haven’t looked at, we don’t track the CAPE for a lot of these frontier markets anymore, but maybe we’ll that to the Idea Farm. I think Argentina was so low for forever. We’ll add it to the list of things to do.

Jeff: Would you take like a smaller position size in those if you’re gonna invest, given how mercurial they could be?

Meb: Well, if you’re buying the market cap index. I mean I remember, you’re gonna own frontier markets no matter what. My favorite example is you go buy the Vanguard Global Bond Index, you end up with bonds from Iraq and Kazakhstan and every, well, because they’re a tiny part of the Global Index. But it’s a tiny part.

Jeff: So gonna concentrate though.

Meb: I mean, emerging markets are what, you know. I mean they’re like half of global GDP but only 15% of the market cap of the world. And that’s just emerging, frontier is probably, what, I don’t know, two, five? So you know, even if you… It’s a rounding error. That’s my point.

Jeff: Okay. All right, well, back to non-frontier CAPEs. You often mention value filters, in particular taking the average rankings across a number of metrics like price-to-book, PE, cash flow. How do you rank metrics which can become negative? For example, a PE can be negative due to negative earnings. It can also be tricky when earnings are very low, close to zero, making the PE very high. Any comment on this?

Meb: The way to think about it, so valuation composite is meaning you’re not relying on just one metric. And so some of the reasons to do that is either there’s a structural region like Australia has structural reasons why their companies have a higher dividend yields, the government tax incentivizes companies to do that. So, is it more accurate to use a number of valuation metrics? And I think all of the literature shows that it is. You know, the O’Shaughnessy’s have done a ton of research here, many people have.

And so we use a composite in essentially all of our funds. Use one metric and you can have a very biased picture of the world. When you’re thinking about them ranking, so let’s say you’re ranking the 22 countries in the developed universe, and you rank them on price-to-books. You rank them all one to 22. And then you rank them on price sales, price cash flow.

So, like the question on negative ones, so for price to earnings, if you had negative, I would just add it to the end of the most expensive. So Greece is a good example because even though you use the negative CAPE ratio and ends up being last essentially, it’s still one of the cheapest on the other three. So, it ends up still in the basket of cheap countries. So we’d have to fallout on all this, which is why you use it again, because otherwise… And this is what drives so many people crazy, the thing about valuation, even on the U.S. stock market, they’d love to use one year PE ratios.

ook what happened in ’08 and ’09, I mean no wonder your PE ratio went bananas like it’s insane. You can never use that for a useful determination of anything. So, you know, one of the benefits also of using the 10-year metrics is they average out, they tend to be slower moving, and also a big improvement as they reduce turnover.

Jeff: Hopping to trend here, besides trend following, do you have any belief in any other alternative strategies like long, short, diversified, or global, macro, and market neutral, etc., or has research shown that trend strategy seem to be the only alt-strategy to be worth in addition to a traditional portfolio of global stocks, bonds, real assets

Meb: I mean trend is my favorite. You know, we often talk about there’s a lot of research for trend. It psychologically fits well with me. There’s plenty of strategies that I think work just fine. But you have to take a step back and deconstruct those strategies. And so, whether it’s merger ARB [SP] or a convertible ARM, a lot of them end up looking like just beta from other asset classes.

Here’s an example. So, let’s take convertible bonds, I mean that’s not really a strategy but it’s an asset class. So people will say, well convertible bonds, we’ll say, well, that’s basically just a mix of stocks and bonds. And that you end up looking… So it’s not really like a unique asset class as much as a mix of two others. So a lot of strategies can be deconstructed into, this is just basically a mix of stocks and bonds, or stocks and cash, or leverage and stocks, etc.

And so the challenge of course is that either it’s a systematic process, just plenty that I think systematically as long as you pay at low cost, are wonderful strategies. And you also have to pay attention to taxes because most hedge funds and all strategies are completely run without any regards to tax consequences. And so hedge funds are notoriously tax inefficient. But I think there’s plenty that would work great. But again, it just depends on the exact strategy and what they’re doing.

And my belief is that most of them can be just deconstructed in the systematic rules-based strategies. Trend following is one, manage future is one where you can pay a low cost and access that strategy. And we’re saying at this evidenced-based conference, I said, the beauty of that asset classes that… And what’s so funny about the investing world is you take a step back, and you were to blind the investment returns from different asset classes and strategies, and hand it to an optimizer. Most optimizers would put you like half in trend following strategies. And no one does that because it looks too different and they’re gonna, you know, it’s a career risk.

But in general, trend following is historically one of the best not only absolute returners but also diversifier as well. Yes, is they’re fit to other ones whether a catastrophe bonds. I wish that was a tradable asset class that we could invest in. You know, a number of those like all sort of lending platforms and everything else, yeah, I think that would be great. And this is why we’ve often said there needs to be someone out there writing a newsletter focusing on look at all strategies because there’s so many and often it’s just an excuse to charge too much.

Jeff: I wonder if you studied those over a long time frame such as what you did with your book about looking at different asset allocations and what you found looking at [inaudible 00:34:30] area and what not over the… Was it ’73 that they’re all sort of clustering together and then your attack on fees makes a huge difference. So if you look at all these various investment strategies, whether it’s trend, whether it’s any of the other all strategies listed here, if you took them back three, four, five decades and you were faithful to them and let them do their thing and didn’t trade out of them, would they cluster in the same area?

Meb: You got to group them into the categories. I mean, like we often say that hedge funds are all strategies is like saying dog. You know, I mean, that there’s, a Great Dane looks nothing like a Chihuahua, which looks nothing like a Bulldog. So, global macro looks nothing like long or short equity, which looks nothing like short focus. And so, you know, short focus, for example, should never have a positive return premium. It’s gonna lose money every year, but as an insurance style strategy for the most point, and it’s a question about how little you lose.

But you know, a number of them, it’s gonna suffer from the same problems as active management. I think Wes and I were talking about this on the panel where he said, mostly academic literature shows that hedge funds and CTAs on a gross basis do generate alpha, the problem is they take all of it in fees. And so two in 20, you leave such a slim margin for capturing any of that alpha. The good news is a lot of these are now launching as ETFs and low cost mutual funds for 50 basis points, and that gives you a chance, at least gives you a chance.

Two in 20, I think that historical research… I mean, we wrote an article about this back in 2008, it might have been 2007, where we looked at the hedge fund research indexes, so compared the investible versus the non-investible. The non-investible already has not very good returns. The investible version underperforms that by a four percentage point per year. So you know, on average, the beta or the broad hedge funds base is a horrible place to invest. And don’t even get me started on Goldman’s new 13F VIP tracker. I mean to me, that is a fund that is a wonderful candidate to short and invest in the most popular names across the hedge fund universe, which is exact opposite of anything you would ever want.

Jeff: Popular by what?

Meb: The long/short equity names and invest in the most popular stocks, which if you use a database of…

Jeff: Just by market cap?

Meb: No, what hedge funds own the most.

Jeff: Right.

Meb: Right. And so, if 150 hedge funds all in Apple, then that would be the biggest holding, for example. And all that does is buys you a basket of crowded hedge fund trades, which is then gonna… And first of all, the broad hedge fund landscape, you don’t want the beta of hedge funds. You want the alphas. You want the names that look different. You want the unique names from great managers.

So clearly, they didn’t read my book. I’ll send it to them if they want a free copy. But, yeah, I mean, and now, knowing Goldman, who’s Goldman, there’s a good chance they launched this for the pure intention of their clients to short the fund, where they’re like, “Hey, this is gonna be a basket that some morons will buy. But then other people, you can use this as a basket to short.” So it’s a vehicle we can go short the crowded hedge fund trades, and that’s probably a great. So, we use to joke. We said, “Look, we were gonna file for this fund.” Except we had a ticker, CRWD is, I mean crowd. But we’re gonna do it as inverse fund where we short at the most popular names.

Jeff: Still do it.

Meb: I know, we should, right? That’s a great idea. The only holding would be the Goldman VIP, which is one holding and it’s short that. It think it might fail the diversification test but I love that idea.

Jeff: Lose a few friends over there. All right, moving on here. Can you and Jeff please settle the truth about putting up with terrifying drawdowns versus the new commonly newsletter to how to use trailing stops? If you use trailing stops at 25%, you minimize drawdowns but get rid of potentially awesome recoveries. What does the back testing research say about the efficacy of each practice?

Meb: You know, so we talk a lot about drawdowns obviously but also taking risk. And we reference the Bernstein comment, and Buffett has said something similar in our prior podcast where we said, “Look, you kind of had to put people in two different groups. In the one group is people that have enough assets or are wealthy or have enough to live on.” In my mind, you know, Bernstein said it, “Look, you’ve already won the game.” And Buffett has said, “Look, you already have assets. You don’t need to risk those assets.” And I think the biggest mistake wealthy investors make is they put too much of their livelihood at risk. And if you will worry about drawdowns in that group simply have a lot more in cash and short term safe investments.

One, two or three younger person, or if you’re someone who’s looking to build their wealth, etc., you know, obviously we love trend following as a way to hopefully eliminate the far left tail of losing one in any one position, but also in an asset class, 50%, 80%, 90%, 100%. It doesn’t matter if it’s Bitcoin or if it’s a stock or if it’s, you know, look at all this people that had Enron jobs, and then put their own money into the Enron stock in their retirement portfolios. You may lose 20%, 25% from the peak by having a trailing stop or using a trend following exit, but the good news is you don’t lose 100%.

And so I think, I don’t really care how you implement it as an investor. But there’s plenty of ways to use sort of these trend following or trailing stop exits that I think has a large psychological benefit. Because the worst thing you do is take yourself out of the game and go broke. You know, ride something all the way down to zero. I’m a firm believer and positive on it, but if you’re a buy-and-hold investor, look, that’s a perfectly reasonable system. But historically, buy-and-hold investing has had very large drawdowns.

Jeff: To what degree would you try to factor in the relative volatility in drawdown size of individual asset classes into your system? Because clearly, you can’t apply the same variance on commodities as equities or whatnot. I mean, in terms of what you do, how detailed does it get?

Meb: I mean, you know, if using moving average is gonna automatically sort of adjusts, but if you’re referencing say a trailing stop, you know, there’s a lot of ways the vol adjust that. You know, our buddy, Richard Smith, the trailing stop has one that vol adjust I think. I think it’s trailingstops.com or TradeStops, excuse me, TradeStops. But so, yes, so for a low vol stock versus a high vol biotech or whatever, should you have a trailing stop, probably, you know, whether one maybe 10% or 15%, one maybe 40%, I don’t know.

But, you know, trend followers in the CTAs have been writing about this for 40 years. You know, where you say the market like corn doesn’t have the same volatility as a market like the S&P 500, which doesn’t have the same volatility as, you know, soy beans, whatever it may be. And so, vol adjusting it.

Now, you know, how do people actually end up implementing that in their portfolio, they do it different ways. A lot of people don’t scientifically really do it. And even if you look at institutional portfolios, and this is what all the risk priority guys do, right, where they’d say, “All right, 60-40 portfolio U.S. stocks and bonds. It’s 60-40 dollar weighted, but risk weighted, it’s 90-10 stocks bonds.” So therefore, you should have 60% in stocks but 120% in bonds. So to equal out that or you have 10% in stocks and 90% in bonds. So there’s a lot of different ways to do it, you just kind of cut, and I don’t really care which one. But, you know again, I’m psychologically predisposed to trend following and tradings.

We wrote some fun articles on Bitcoin back when it was going parabolic a few years ago, and everyone cared about it. Do you know anyone that uses Bitcoin, by the way?

Jeff: I know a couple of people.

Meb: I don’t know anyone that uses it. I tried to use it a few times. I had it as a subscription option on the Idea Farm and no one ever chose it so I got rid of it. It’s kind of a shame. I was cheering for it. I kind of like the ideas but I’m convinced only criminals and Chinese, people trying to get money out of their country are using it.

Jeff: Well, side note. I mean, I’m curious about this. I haven’t talked to you about it personally yet. What do you think about this whole war on cash thing we’re seeing intensify right now? I mean, India just getting rid of some of their area load, denomination notes.

Meb: Okay, so do you mean, because I think you’re kind of cover everything because a lot of people would term that as the feds low interest rate environment is the war on cash and savings.

Jeff: I’m wondering about a literal taking away, physical currency.

Meb: Well, the problem that I have that’s different than most is, I mean, to me using credit cards is easy. You know, I was talking to my body, Steve Sjuggerud, in this conference in New York, and we’ll get him on the podcast. But he talks a lot about mobile payments and he’s like, “Man, I just got back from China. Everyone uses their phone to pay for everything.” And I said, “You know that’s cool,” but like to me credit cards work just fine. I don’t know. But granted maybe 50 years ago or 30 years ago, I would have said writing checks works just fine.

Jeff: Well, I’m more concerned though about if there is no paper currency, everything is tied up in the banking system. You’ve given away control over your…

Meb: Well, but you got to remember… I mean, your dollar is still tied up in the banking system. You know, it’s worth, it’stied up in the entire system.

Jeff: Sure, yeah, but if it’s gonna explode that way, you know, all hell’s gonna [crosstalk 00:44:25].

Meb: Speaking of the system, here’s a really funny aside. So I was driving to Kansas, and long story short, I couldn’t pick up my guns at my brother’s house. So we were a shotgun short. So I tried to buy a shotgun in Colorado, and I got rejected.

Jeff: Smart guy.

Meb: Yeah, no, because I have three felonies. No, just kidding. It’s because the guy passes me a note, didn’t say, because we’re probably on video, but he’s like, California has some sort of rule where you can’t buy a gun in Colorado or something. And so, then my Canadian buddy was allowed to buy it. I mean, how ridiculous is that? Anyway, what are we talking about?

Jeff: It sounds like you weren’t very concerned about the war on cash.

Meb: We just went on from guns to Bitcoin. You know, I mean, to me, I don’t know. Other than collectible, I don’t really have any strong preference.

Jeff: I mean there’s the obvious economy, then there’s sort of a black market economy for… There’s no more cash, and everything is non-taxable, everything is sort of known and in the light, as far as the government is concerned. Yeah, I think that’s their claim.

Meb: Oh, really, using Bitcoin. I mean, I used to joke.

Jeff: I heard though, there’s speculation on how the fed would have to potentially eliminate all alternative currencies like that.

Meb: if you haven’t read the Silk Road story, I think it came out wired, we’ll link to it. There’s already a movie in the works. This one was phenomenally interesting and insane stories I’ve ever read. Have you read it?

Jeff: No.

Meb: About the guy that started Silk Road that eventually got caught. I mean Silk Road was the black market where you could go on there and buy anything, drugs, illegal, like hits to kill people, and everyone paid in Bitcoin. So I used to joke earlier in the days, I was like, so it would be really funny if we find out that the CIA invented Bitcoin as a means to simply infiltrate and track and prosecute criminals and terrorists, right?

But this guy that did Silk Road was this little coder in San Francisco that worked out of a coffee shop and he was making like $40 million a month or something. But was like ordering hits on people and stuff. And they eventually caught him because he was working on his laptop in a library or at a coffee shop. It is ridiculous story. But, anyway, you know, I’m somewhere in the middle. Charlie Munger calls Bitcoin rat poison. So, I don’t see it’s necessary.

But you know, currencies, people always forget about currencies. It’s trust that backs them, you know, so it’s the government’s ability to tax. But also, it’s the military behind it, to enforce it. So, you know, we’ll probably see some old currencies that make sense in the coming years. I don’t think it’s Bitcoin.

Jeff: All right, moving on. Back to bonds here. How do you practically implement the strategy laid out in your finding yield in a 2% world paper? Let’s say you wanted to buy 10-year bonds of the top 10 yielding countries taken from the trading economics website. Do you hold them to maturity? Do you hold them for one year then replace your holdings with the updated top 10 yielding countries? Where do you go if there are no 10-year bonds available?

Meb: All right, that last question is amazing. What do you mean where you go if there’s no 10-year bonds available? Does the world stop issuing bonds? First of all, you just buy your ETF, that’s what I would do. It makes life simple. As an individual, I don’t think you can go out and buy a basket unless you have 50 million or something, like you can’t probably go buy a basket of these government bonds.

What is that website’s name, is it EverBank? There’s a couple of website, is it EverBank, that lets you invest your balance and cash in any global currency deposits. I think it’s EverBank.

Jeff: It sounds like EverBank.

Meb: But it’s gonna probably be short term bills. But in some of those countries, it’s carry but at a lower carry than 10-year bonds. You just buy a fund. I mean there’s a handful of ETFs. It looks an awful lot like an emerging market fund currently because most of the higher yielders are in emerging markets, which ironically most of the cheap global stock markets, there’s a lot of developed in there, largely due to Europe who continues to struggle and act like they want to fall into the Atlantic. But eventually, I think they’ll come around. Yeah, I don’t know why you’d ever bother owing the bonds yourself, unless you’re a large family office or hedge fund.

Jeff: Okay, you mentioned O’Shaughnessy earlier. Here’s an interesting one based on that. James O’Shaughnessy’s What Works on Wall Street book, in it, he described several composite value screens that show impressive back testing performance, for instance the trending value portfolio averaged around 22% over the last several decades. It seems too good to be true. Do you have any insight on using the screen like O’Shaughnessy has described? I’m assuming if it works so well, everybody would be doing it, which would then cause it not to work.

Meb: Well, everyone is starting to do it. By the way, I think he was having a glass of wine and I was having a Victory Prima, this is one of my favorite beers, but Jim and Patrick were both at the conference speaking. You know, I mean, that’s one of the things. So, look, the multi factor approach, I mean part of it, part of the problem of him publishing that book in all the research sense is that is a factor and in equities as a strategy that can get chipped away that alpha because everyone was… So if you go type in a stock name that would show up on a multifactor screen, and you’re gonna see O’Shaughnessy, LSV, AQR, all of the Quant shops own it, because they all have the same PhDs, they all have the same data sets. And it’s not certainly a bad thing. It just means the alpha I think is gonna be lower.

Interestingly enough, post Trump, those stocks which are the good stocks, I mean, I think a plenty of worse ways to invest have absolutely just had a face stripper. They’re going straight up, which is good to see because, you know, our shareholder yield strategies are very similar, I mean that is a value composite that has very high correlations with a high price to cash flow. So that style of strategy has worked very well, and I think it’s poised to do very well going forward because a lot of those multifactor strategies use value. Then value hasn’t done that great in the last handful of years.

Jeff: It reminds me of podcast that are not talking about the relative valuation some of these smart beta factors.

Meb: Yeah, I mean, the flow has change factors. We’ve been talking about it on dividends untill we’re blue in the face. I think I said at the conference that, “Look, if you still invest based just on dividends alone, you’re a moron.” Which might be a little dramatic because there’s again, there’s worse things to do like buying really expensive stocks. But it’s one of the most nonsensical strategies I can think of. So, yes, I think multifactor strategy is totally fine.

Jeff: Okay. We’ll start one down here pretty soon, but this is an interesting question I don’t believe we’ve gotten before. I figured it would be good to get your thoughts on it and see if I can narrow it down here, kind of get to the meat. It basically says, there’s a guy who’s looking to do his own back testing. He’s curious about looking at the historical numbers. And after listening to the Crittenden interview, where you guys talked about survivorship bias and how it invalidated the results, he’s asking about tips on how to do his own back test, and what the caveats are, what to avoid.

Meb: Well, start with Jim’s book. I mean, that What Works on Wall Street is a great treat to you on how to do it. You know, two, try to find a local business school, a lot of those have access to a lot of the software that’s helpful. We did a few post called something along the lines of free data sources that list a lot of places where you can get free data. Unfortunately, a lot of it’s expensive. But there’s many subscriptions and websites you can get access to through local business schools.

But then it’s a question of what are you looking to test. So on one end it could be index level trend following strategies, in which case, you can get a lot of the data free. On the other end, it’s stock factor-based, and that’s a lot harder. So to do the really back to the ’60s, which is the modern era, factor-base is kind of the databases being legit. You know, you’re gonna have to have fax set, which costs like 70 grand a year. But there’s a handful now where you can do it for maybe a decade or two, we use to portfolio one, two, three, there’s no one called Blood Hound.

Again, and even some of those in the early days were survivor bias, or they’d forgot that like I think portfolio one, two, three in the early days didn’t include dividends, which you know, just invalidates everything. Zacks used to have a survivor bias database, which I was like, how can you, you can’t even… I was doing some the other day, because people… Someone sent me his series, like here’s the series net of dividends or no dividends. And I was like, “Well, can you send it to me with no price changes either?” You know, I was like, what’s the point? I mean, it’s totally useless information. So, you got to be really careful now, so write questions, otherwise you’d come up with stuff that is totally nonsensical.

So, it’s not an easy path and there’s no… And so like another example. Let’s say you wanna go test to manage future system. I mean that’s even more complex because all of a sudden, you have 50 markets around the world that trade on different exchanges and you have to roll the futures. It’s seemingly simple sounding question but it gets complex pretty quick.

Jeff: Okay. There’s one last question here that’s basically asking about keeping a percentage of your wealth in cash right now and how that ties an opportunity cost. I think frankly the short answer of what is asked is kind of it’s relative to you in financial situation. But it has meat, wanting to ask you a question about inflation, because that’s one of the issues he references in the question.

You know, I’ve heard a lot or I’ve read a lot recently about how, you know, Trump’s policies might be stirring up inflation. We could be sitting here at the cusp of that right now. Do you have any thoughts on that? I mean, I guess we’re still serviced earthly low or inflation is so low right now that even if it does take up, that actually could be positive for things?

Meb: I think we’ve been sitting on the cusp with a major inflation for about 20 years. Ever since inflation was tamed, for the last 20 years we’ve been hearing. You know, ever since Japan, is a good example, you know, ever since their bond yield went below 2%, it hasn’t gone back above. I don’t see… I mean you have to at least fathom the universe where we sit at this low interest rates for a decade where they go back up, you know. I don’t know, you have to plan for both.

I have no problem with cash. In fact, I think most investors have far too little cash, they take away too much risk. And so cash, and when I say cash I don’t mean deposit sitting under your mattress, I mean, at least earning short term bond yields. So we talked about it where, you know, we talked about maximal interest, where instead of your money sitting at the Bank of America earning zero, you could have it rotate and be protected up to 250 grand I think. And so it’ll put it in various bank accounts at different accounts that earn a percent. So right there, you found a percent that you didn’t have before in cash or short term CDs or immunities, whatever may be.

I have no problem with cash, because here’s example I gave at this AAII. I said, look, let’s say you’re doing a buy-and-hold asset allocation. And we just gave the example where we said, all these allocations cluster within one percentage point over time, etc. yada, yada, and you do whatever it was, let’s call it 5% real over the last 3 years. Are you gonna know what’s the different? So, if you look at the optimizers and you take the surveys, and you look over 50 years, you know, the compounding charge. You say, well, if you compounded it 10% versus 7% you ended up with 20 million instead of only 2 million, whatever it may be.

And again, what they neglect to show is you had to sit through two, three, four, really large drawdowns to do it and most people don’t. So the beauty of cash is I tell people, I said, “Look, are you gonna know what’s the difference between 5% real and 4%? or even 5% and 3%?” Yeah, you may notice it 30 years, 40 years from now if you make it that far. But the question is, will you notice the difference between 5% and zero, and zero being the case where you sold at the bottom and never invested again because you couldn’t take losing half of your money.

And how many people did that in 2008, 2009? How many people at the beginning of the podcast said, “I was gonna wait until after the election and never invest,” or in 2008, they pulled their money out and I have talked to you so many investors that sold at the bottom in ’08, ’09 and have yet to reinvest. You know, they said, “I’m just waiting to get back in. I’m just waiting to get back in when things go down.”

And going back to the whole point of systematic investing process is, I don’t see why there’s any other way, why anyone would ever do it opposite. But remember we had Porter on and Porter has a huge chunk in cash. I think it’s totally reasonable. But, you know, again I think you should put in short term interest bearing investments that are protected, etc. Don’t just put it in a suitcase. But it gives a massive psychological benefit of never being all in. So many people have this desire to be all in stocks or all out. And in reality, you know, if the market goes down, and this goes back to how to start investing, too, where people will say, “Okay, Meb,” they’ll come in here and then say, “All right, well, I’m gonna get to work. Do I put it all in now, or should I just wait a month? Or how shall I do it?” And I say, “Look, I don’t care.”

If markets in these portfolios have positive expect return, that says you should put all of it in now. And that’s our default. However, I’m totally cool because I understand psychological hindsight that if you put it all in now and a month later the market goes down and you’re pulling your hair out, gnashing your teeth saying, “Oh, my God. I should have waited a month. That was so stupid,” or whatever. Then, hey, dollar cost average over the next five years. I don’t care. Whatever eliminates that hindsight bias is totally reasonable.

So there’s a lot of irrational choices that are actually more reasonable that are actually more rational than the irrational choice if it helps you to stick to your plan. There’s like a Rumsfeldian quote there.

Jeff: I like the word Rumsfeldian.

Meb: Rumsfeldian. What was it like, all the known unknowns, known, knowns, unknown, unknowns?

Jeff: Yeah. All right. That’s it for now. To wrap it up, it’s been a while. Take us out of here, man.

Meb: Cool, look, everyone, have a wonderful Thanksgiving. I’ll be here in LA. We got some really fun guests coming up. I think Mark Yusko will be next on the podcast. And then Christmas time. So, send us any suggestions you have, any guests that you wanna hear, any feedback for the podcast, send it to feedback@themebfabershow.com. And Jeff will write them up and ask the questions for the next Q&A.

As a reminder, you go guys find the show notes and other episodes at mebfaber.com/podcasts. You can subscribe to the show on iTunes, Overcast, Stitcher. If you’re enjoying the show, hey it’s the holiday time, please go leave us a review. Thanks for listening, friends. And good investing.

Photos of the destroyed combine on Meb’s farm:

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