Omaha, Process, & Skin in the Game

Every time Peyton Manning steps up to the line of scrimmage he is prepared to audible.  He has spent thousands of hours of film study to get ready for nearly every situation.  So when he shouts “Omaha”, he isn’t panicking or reacting emotionally, he is simply instituting a reaction to calculated probabilities from many years of experience and study.  

The same should be true for your portfolio.  Do you have a plan?  Or do you simply have a portfolio for today, that you will emotionally react to if and when current events dictate?

You should be prepared for the possibility of a 80% decline or 100% rise in stocks.  What would you do with bonds yields climbing to 10% again in the US, or declining to and staying at at 1% for 10 years?  Gold at 400, gold at 4000? Oil at 50, oil at 200? Did the volatility and losses of September and October scare you?  Did they cause you to alter your plan?  Do you even have a plan?

Much like the great book Checklist Manifesto, you should have a written investment plan – what real money institutions call a “policy portfolio”.  I wrote a whole book on the topic (The Ivy Portfolio).  If you promise to write a review I’ll even send you a copy.  The simplest policy portfolio is just the global market portfolio which can be had for about 0.2% through ETFs.  But it doesn’t matter what your policy portfolio is, just that you have one and you can fathom the possible outcomes.  It could be 100% in CDs, or the Talmud, or anything else.  Some like trendfollowing, others, a farm and guns.

 I’ve been in Asia for a few weeks and in general would love to add more to my foreign stock allocation on any weakness or declines.  I have limit buy orders in every 10% down in foreign stocks for the next 50%.  Likely? No.  Possible?  Sure.  But if and when stocks go down 20,40, 60%, I don’t want to be at the line of scrimmage wondering if I will pull the trigger or not.  I have a plan, and my portfolio has a roadmap for any possible outcome.  While I am a trendfollower at heart, I have a (very) long time horizon, and can be aggressive.  Younger investors should relish market declines (hard but true).

In June I sat down to chat with Samuel Lee at Morningstar.  I think it is instructive to illustrate the way I think about process of my portfolio, as many investors don’t think about possible outcomes until they happen.  You can see my broad allocation to public investments below, and I will update again at year end. 


Lee: In a recent blog post, you disclosed the rough breakdown of your personal portfolio. Would you mind disclosing exact proportions for your liquid assets, and why you’ve made those bets?

Faber: I think it is hugely important to have a money manager with skin in the game. In addition, many commentators and portfolio managers are willing to provide you with plenty of advice, but just try getting them to disclose how they invest their own money–impossible! If you don’t believe me, or want to see how much your portfolio manager is invested in his own funds, the filings are public, so you can view them at any time. Next time you are chatting with your advisor or broker, or hear someone giving lots of advice at a conference, ask them one simple question: “Specifically, what do you do with your money?”

My net worth is dominated by my ownership in Cambria Investment Management. Next in line would be farmland and real estate owned with my two brothers. I also hold equity stakes in a few other private companies (including The Idea Farm and AlphaClone). On the liquid side, I have 100% invested in our funds. All of my cash flows simply funnel into these four investments on a periodic basis. My horizon is very long-term and I have a high risk tolerance.

The breakdown is currently:

60% Global Tactical Hedge Fund (private)

20% Global Value ETF (GVAL)

10% Shareholder Yield ETF (SYLD)

10% Foreign Shareholder Yield ETF (FYLD)

The percent allocation in the three ETFs is actually higher than stated above, as the Global Tactical private fund is composed of ETFs. I will be adding to this list as we launch new funds in the coming months. Specifically, my assets in the hedge fund will transfer to the Global Momentum ETF when it launches.

As you can see, my holdings are dominated by foreign stocks, portfolios that can and do have the ability to tactically move to cash (and have a high exposure to real assets), and stocks that are shareholder-friendly and returning lots of cash to investors. I am least exposed to traditional bonds, but for me they are not that attractive at these levels for my time horizon and goals. If stocks experienced a large drawdown of 30% to 90%, I would shift more and more of the allocation to the equity portion. As I’ve mentioned in our new book, I don’t think U.S. stocks are that attractive currently, but I am very positive on foreign stocks.


A New Medium

I have spent more and more time listening to podcasts. They are the perfect medium for chats on investing – really the exact opposite of the 30 second soundbite on TV.  I currently only listen to a few – Ritholtz, Ferris, Altucher, Stansberry, and Covel.  Covel has nearly 300(!) with some of the worlds best traders, money managers, professors, and “other”.  I’m not just saying that because I have been a guest – take a look at a few of the great interviews below and podcast #.  

If you have a particular favorite podcasts I’m missing, shoot me an email!  All can be found on iTunes with the exception of Ritholtz which is Bloomberg Business Radio (but joining iTunes soon is the word).

Kathryn Kaminski (new book with Greyserman ordered) 282
Larry Williams 168
Marty Bergin (CEO Dunn) 222
Robert Aumann (Nobel prize game theory) 269
Vineer Bhansali 281
Mark Broadie 279 (Columbia fin prof; golf science)
Leo Melamed 265
William Poundstone (Author Fortunes Formula) 254
Perry Kaufman 253
Brett Steenbarger 239
Daniel Kahneman 212
John Bollinger 211

Notes from Bhutan

I’ve been spending a few days in Bhutan with my Mom (photo below), and it’s been a truly special trip.  I’ve had a little time to think, reflect, and in addition to committing to writing some more, there will be a few monster announcements coming in a few months, so stay tuned!  A few quick hits below: 

One of the many books I’ve plowed through on the long travel times was Thiel’s Zero to One.  One of my favorite passages revealed that if he could ask a startup just one question before investing, what one question he would ask?


Most asset classes got creamed in September.  Guess one of the only ones that didn’t? Trendfollowers.

Speaking of trendfollowing – that is a system that would have saved your hide in the 70%+ bitcoin drawdown going on currently…


I don’t think many investors realize this, but there are some ETFs that pay you to own them.  Think about that.


70 biotech IPOs this year. Previous peak was 64 in 2000.

Source: CSFB


Investing in the true global market portfolio means at various times you’d have ~35% vs 65% in stocks.  And you don’t rebalance.  Ever.I forget what reminded me of this, but I have this quote hanging in my bathroom in CA:


A good article from an ETF vet.


If you’re looking for a good listen to drink a glass of wine too, try Mandolin Orange – a NC bluegrass band.  I’m having a Druk 1000 as we speak…

This sign is hanging in my bathroom at home, not sure what reminded me of it…

“We have a strategic plan. It’s called doing things.” – Herb Kelleher


I’m Hiring!

If you are an A+ candidate, incredibly sharp, gritty, and super hungry, come join us!  We are looking for:

National Director of ETF Sales

Internal/External ETF Wholesalers

Shoot an email to [email protected]

(Don’t expect an immediate response, out of the country for 2 weeks)

Million Dollar Fintech Ideas

Years ago I wrote about a number of great fintech ideas no one was tackling.  It is great to see people working on all of them!

As an example, I was excited to see Wes build out his tools section of Alpha Architect.  Want to backtest moving average rules on a global portfolio?  No problem:




A summary of some of the various with new firms listed…missing any?

1 – Public Alts newsletter

2 – Quant Backtester

3 – Tax Harvesting

4 –  Investment research boutique focused on private crowdfunded companies

5 – Investment newsletter focused on Best Ideas

6.  Rukeyser Reborn – Barry Ritholtz is in the lead here with an excellent Bloomberg podcast.  Atlucher is great with a slightly different angle.  

7. 2.0 – Yahoo Finance, BusinessInsider, and TalkMarkets seem to be the leaders here.

The Best Investment Newsletter Out There

For those that are not familiar, I run an email service called The Idea Farm.  The goal is simple: sort through the flood of white papers, books, investment newsletters, and general noise to find the 1 or 2 best ideas or research pieces each week.  Honestly, I think the two pieces I mailed out this week have been worth the price of subscription alone.

Starting at the end of the year I’m going to raise the price (a lot) to try and keep the list small, but anyone subscribing prior to January 1 will be grandfathered in at the current rate, forever.  What you receive:

> 1-3 emails per week with the best investment research.  Some weeks zero, some more than 3.

> Free copies of all of my current and future books

> Excel backtester for testing asset allocations and tactical portfolios (will update in January)

> Quarterly country stock valuation updates across CAPE and other metrics

> Hedge fund profiles of my favorite 30 hedge funds to track with stock picks

>Access to all of the archives, updating quarterly

And maybe a sneak peak at the below graphic…The Idea Farm

Poker Table (2)



August Tweets

From @MebFaber and favorites:


Books on the Way

A few reads on the way or on my nightstand:

added one more I forgot: Dual Momentum by Antonacci

Zero to One – Peter Thiel

Millennial Money – Patrick O’Shaughnessy including special offer with lots of goodies here

World Order – Henry Kissinger 

Deep Value – Toby Carlisle

Spy the Lie – Philip Houston

The CAPE Ratio Doesn’t Work

because of “X”.  Market participants love focusing on the details while often avoiding the greater picture.  And almost always they find ways to justify whatever market stance they have. Most bulls are now finding holes in all the valuation metrics the same way most bears in 2008 and 2009 were finding ways valuation metrics were different that time.  They never are.

So, my argument to the CAPE ratio haters – fine, don’t use it.  Let’s substitute in dividends, book values and cash flows, three totally different metrics.  I sent this piece to The Idea Farm the other week with actual values, but below are the rankings for all the countries in the world by the four metrics, and then by an average of all .  Notice anything?  

They all agree.  (For the most part, not exact of course… ) Poor Denmark.


all metrics



13F Investing Doesn’t Work, Right?

I’ve been writing about 13F investing strategies for a long, long, time.  Almost no where else in finance is there more disinformation on a topic.  Honestly, I don’t think the SEC should make funds publish their holdings, but since they do, it is silly to not track what other managers are doing.  

My first article on Seth Klarman was over 7 years ago (wowza).  I used to even write some articles for Forbes print magazine on the topic.  The last time I did I covered Seth Klarman’s Baupost Group.  And sure enough I had a ton of hecklers online and sure enough a few weeks after the post he had a biotech stock get bought out.

Fast forward to 2014 and this summer Klarman owned Idenix which got bought out for a whopping 200+% premium netting Baupost over a billion dollars.

His simple top 10 clone has beaten the market by over 10% a year since 2000, and 10/15 years since 2000.

2014?  Up 50%.

Yep, nothing to see here.  My favorite thing about Baupost though is their holdings are almost always unique.  Many hedge funds simply look like a copycat of other funds.  Equity curve followed by top holdings:

Source: AlphaClone (PS know who else is having a great year? Pershing Square….)


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