Episode #80: Claude Erb, TCW Group Inc, “It Is Possible That We’re In The Middle Of A Period In Which Gold Becomes The New Frankincense”

Episode #80: Claude Erb, TCW Group Inc, “It Is Possible That We’re In The Middle Of A Period In Which Gold Becomes The New Frankincense”


Guest: Claude Erb is a retired managing director, TCW Group Inc., Los Angeles, who coauthored “The Golden Dilemma,” which examined gold’s role in diversified portfolios and concluded among other findings there is “little evidence that gold has been an effective hedge against unexpected inflation, whether measured in the short term or the long term.” Prior to joining TCW in 2001, Claude was in charge of equity portfolio management, international subsidiary portfolio management, and enterprise risk management for Liberty Mutual Insurance Company.

Date Recorded: 10/26/17     |     Run-Time: 1:04:19

Summary: As usual, we start with Claude’s back-story, but it’s not long before the guys jump into investing, with Meb asking about Claude’s general framework and view of the markets.

Claude tells us there are three concepts that guide his broad investing thinking: first, framing investment opportunities in terms of price/value relationships; second, the concept that no one gives away anything of value for free; and third, the idea that there really is no difference between a successful traditional fundamental approach to investing and a successful quantitative approach to investing.

This leads into a quick conversation about how market wisdom compounds over the years, but it’s not long before the guys jump into the topic of “gold.” Claude and his writing partner, Campbell Harvey, wrote the seminal paper, “The Golden Constant”, which explored the possible relationship between the real, inflation-adjusted price of gold and future real gold returns. Meb mentions how gold elicits far more emotion in investors than nearly any other asset, with different investors having an array of reasons or themes as to why they own gold.

Claude gives us some great commentary on the link between fear and gold, touching upon VIX contracts, volatility, and even Buffett’s and Dalio’s take on gold. The guys continue with the gold discussion, with Claude referencing some of the concepts from “The Golden Constant”. All you gold bugs (and historians, for that matter) won’t want to miss this.

There’s way more in this episode, including a discussion of commodities, various practical takeaways, and Claude’s thoughts on something called “the sequence of returns.” And of course, there’s Claude’s most memorable trade.  What are the details? Find out in Episode 80.

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Transcript of Episode 80:

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.

Meb: Welcome, podcast listeners. Today we have a wonderful show for you. I am delighted at the guests we have today. He’s once been in charge of equity portfolio management, international portfolio management, enterprise risk management for Liberty Mutual, later was Managing Director at TCW, he’s co-authored “The Golden Dilemma,” as well as a whole slew of academic papers we’ll get to today. So welcome to the show, Claude Erb.

Claude: Thanks for the invite.

Meb: Claude, I’m really excited. There’s a lot we’re gonna get into today. Podcast listeners, if you like the topics of sequence of returns and gold and commodities and everything else, this is a great show for you. But we like to start usually with a little background info, a little origin story for our listeners that may not be familiar. So why don’t you give us a quick recap of kind of where you came from and how you got to kind of your…just real quick overview of your career and what you’ve been doing.

Claude: Sure. I was an econ undergrad at UC Berkeley, and I received an MBA from UCLA. I moved on to being a fundamental equity analyst at a firm called Trust Company of the West in Los Angeles. My job was to visit companies, do the kick the tires routine, develop cash flow models, and go through the standard drill of trying to identify situations in which the market price of a company’s stock differed substantially from the fundamental value of its business. There were a lot of interesting people at TCW. There was Jim Craig, a bright Equity Analyst who left TCW to become the Chief Investment Officer of the Janus funds, and guided that firm’s portfolios during the internet boom years. Another was Glenn Doshay, a talented Equity Analyst, who later started a very successful technology-oriented hedge fund. And another was Jeffrey Gundlach, a bright Fixed Income Analyst, who became a very successful fixed income investor both at TCW and at his own firm.

Along the way, I was a deputy chief investment officer of a firm called TSA Capital Management, a firm focused on a quantitative, factor-based, global tactical asset allocation and quantitative factor-based equity portfolio management. TSA Capital Management was founded by Rob Arnott, the guy who, today, is a very big name in the world of smart beta strategies. Our paths didn’t cross at TSA, since by the time I arrived at TSA, Rob had moved on to Salomon Brothers. Today the quantitative strategies that TSA pursued would probably be pitched as smart beta strategies. But at the time, the term smart beta yet to be invented, the investing world was dominated by traditional active management strategies, and references to beta were, at best, boring and, at worst, laughable. I returned to TCW working for Jeffery Gundlach, managing fixed income and commodity portfolios. I’m currently retired.

Meb: Awesome. You know, there’s a lot of common threads. We’ve certainly had a number of…we’ve had Rob on the podcast, and then Gundlach is number two. Jeff Sherman had been a lot of fun. Let’s start broad. So we’d like to hear a little bit about your kind of investing framework and how you think about investing in general before we get into specifics and asset classes and everything else. And, you know, a little bit of maybe your 30,000-footview on things like, you know, I know you’ve mentioned like invest in what you know and talk about a little bit about that, and talk about, you know, the research process. So why don’t you tell us a little more about your kind of overall view and framework for investing in general?

Claude: At 50,000-foot overview level, there are 3 concepts that guide my broad investing thinking. The first concept is framing investment opportunities in terms of price-value relationships. In an overly simplified way, an opportunity is attractive if it can be purchased for pennies on the dollar and unattractive if it can be purchased for dollars on the penny. For a bond investor, it’s possible to compare the market price of a bond, who was the present value of largely known future cash flows. For instance, compare the price of a 10-year U.S. Treasury with the future cash flows of that 10-year U.S. Treasury. And for an equity investor, it’s possible to compare the price of a stock to the present value of a largely unknown future cash flows. For instance, compare the market price of Facebook stock with whatever the possible future cash flows of Facebook might be.

I think the price-value framework can be used with anything. Looking beyond stocks and bonds, it’s possible to think about the price-value relationship of gold, Bitcoin, and anything for which you can find a suitable value proxy. And of course, no simple framework is simple in reality. For bond investors, the exercise is relatively easy because borrowers usually tell investors what cash flows they hope to pay. Bond investors typically are trying to put a value on the known known. For equity investors, the exercise is much more complicated. Equity investors are typically trying to put a value on the known unknown or the unknown unknown.

As an example of dealing with the known unknown or the unknown unknown at a macro level, try forecasting cash flows or dividends for the S&P 500. You know that you need about 25 to 50 years of correctly forecasted cash flows just to equal the current price of the S&P 500. But you also know that the further out in time you go, the more likely it is that the constituents of the S&P 500 will be, one, companies you have never heard of, and, two, companies that may not even exist today as a company.

A specific example of the known unknown and the unknown unknown, look at Apple. Steve Jobs returned to Apple in 1996 when the firm was a floundering PC manufacturer. It is unlikely that Apple management in 1996 knew how successful the iMac would be when it was launched in 1998. And it’s even more unlikely that Apple management in 1996 even knew it was going to launch the iPod in 2001 or the iPhone in 2007. From the perspective of 1996, the future cash flow of Apple’s existing PC business was an exercise in the known unknown, the iMac was perhaps a known unknown, and both the iPod and the iPhone were most likely unknown unknowns. To me, and probably to almost everyone else, there’s really no compelling reason to pay more than something it might be worth. I like Peter Lynch’s now clichéd phrase that you should invest in what you know. I like even more the rhetorical chiasmus that you should invest in what you know and know what you invest in.

A second idea is that no one gives away anything of value for free. If you have something of value, such as a car or a house or a Monet painting, you’re unlikely to give it away for free. This is worth remembering when reading traditional or academic research in which p-hacking is endemic or listening to a bloviating public article telling you about a great investment insight. It’s possible that the only idea is given away for free our ideas that have no value. Really compelling free investment ideas are often cleverly reverse-engineered product pitches that exploit investor confirmation bias. The third idea is that there really is no difference between a successful traditional fundamental approach to investing and a successful quantitative approach to investing. One approach typically focuses on price relative to value and the other focuses on risk factors or behavioral characteristics. Both are attempts to simplify the complexities of the known unknown and the unknown unknown into the known known. Because both approaches try to create something of value. They’re a bit like Bitcoin mining. Many will try and most will fail.

And finally, because it takes a long time to learn what is already known and also what is new, traditional fundamental and quantitative investing processes are constantly changing. Buffett went from investing in what he called cigar-butt companies to investing in brands at a reasonable price. Behind a successful quantitative process, there was a lot of turmoil. Today’s model does not look like yesterday’s model, and tomorrow’s model will not look like today’s model. Bismark said that crafting new legislation is like making sausage. You don’t want to see how it’s made. The same holds with investment processes. Change can come about because of an evolving competitive landscape or because of client complaints about perceived challenging performance.

Meb: You know, it’s funny when you think about today. Like, it’s easy for a lot of young people, and I put myself in the same camp, to look back at investment, you know, history and, you know, kind of turn your nose up and say, “Well, that was obvious,” or, “You should have done this at the time,” but so much of knowledge compounds. And thinking back to the ’70s or ’80s, and, you know, even you wouldn’t have access to data or all this, you know, investment papers hadn’t been written in books and knowledge, index fund didn’t even exist until the ’70s, all these things that happen. You know, we often forget the very real human emotion of, like you mentioned, you have this model, but you’re still a human running it. And you have clients and as well as bosses. In many cases, it’s really hard to be a quant in many sense of the word because, often, you know, the market is a challenging place to be.

So tell me, talk to me a little bit about research process in general. I mean, I know you have some opinions on experts. But also, you know, you’ve written a lot of papers and shared a bunch of thoughts, and we’ll get into those in a minute, but particularly thoughts that in many times go against the grain of kind of common investment beliefs. We just published one today. So I know because I’m getting a fair amount of tomatoes thrown at me. But talk to me a little bit about that, you know, your willingness to publish papers, you partnered with Cam Harvey at Duke, as well as a common very close friend Tadas who, listeners, by the way, would be familiars. My morning newspaper, he runs the site Abnormal Returns. But anyway, talk to us a little bit about experts, talk to us about sharing information and why you’re willing to do it, and then we can start to delve into a couple of these great papers of yours.

Claude: I think of investment in research in general as a research iceberg. Possibly 90% is proprietary, underwater, or not public, and 10% is public or above water. The 10% that’s above water is either sell-side research with a literary flare or a quantitative research. Sell-side research is often very readable because it seems like it is written by English majors for English majors and it emphasizes the use of compelling metaphors. Quantitative research, at its best, seems to be an attempt to respond to Kelvin’s observation that if you cannot measure it, you cannot improve it. Quantitative research is largely an attempt to create a better investment mousetrap, a better investment outcome. And public qualitative research is an attempt to convey the broad contours of measurable investment opportunity without giving away anything of immediate value.

In my mind, the world of traditional literary investment research is a world of exploiting any number of the usual suspect rhetorical tricks to win a debate. Red herrings, loaded questions, false equivalency, argument from authority, and you name it. The world of quantitative research revolves around formulating a testable investment question, finding data to measure and test the question at hand, and arriving at a yay or nay conclusion about the investment question. If traditional literary investment research is about dressing for success, then quantitative research is about A/B testing an investment idea to death.

Cam Harvey, Tadas Viskanta, and I have written quite a few papers over the years. Cam is a finance professor at Duke, a former president of the American Finance Association, a researcher at the Band Group, a large hedge fund operation in London, and at Research Affiliates, a prominent smart beta shop in Newport Beach taught us tonight [SP], and we’re colleagues at a money management firm, and as you mentioned, he runs a very popular investment web service. We’ve looked at forecasting equity correlations, the relationship between inflation and equity returns, the relationship between measures of country risk and equity returns, demographics and equity returns, commodities, gold, and a number of other things. In all these cases, we were able to essentially ask a “What drives returns?” question and test whether an outcome was more apparent than real or real. Of course, one question is, “Why share anything?”

Part of the reason was a sense that exposing our research to the wisdom of crowds was part of the process of stress testing an idea. Setting an idea free meant that we might receive some additional useful insight from readers, or we might find that like the authors of “This Time is Different,” we were blind to important mistakes. In a sense, it was a hope that what didn’t kill us would make us stronger.

I mentioned earlier that I find thinking about price-value relationships to be a useful mental crutch. Back in 2012, I was asked about the price of gold, “Why is it so high? Where is it going?” And I thought it would be useful to memorialize some thoughts about gold and subject myself to the usual wisdom of crowd’s bashing rather than focusing on stories about a financial ragnarok or a reprise of the hyperinflation of the Weimar Republic. I wanted to test an idea that could possibly seem equity-like or bond-like, something with a price value flare. This was a real challenge for me. My sense is that equity investors like to focus on how good the future may be, and bond investors like to focus on how bad the future may be.

In my experience, equity types think of bond investors as fearful bores who can only value what is in front of them, and bond types think of equity investors as unhinged fantasists who love putting the value on what they cannot see. Because there is arguably a stock price-value relationship and a bond price value relationship, arguing for and possibly illustrating a gold price-value relationship was an attempt to suggest the usefulness of thinking about price-value relationships in a broad sense. In a way, the idea of exploiting the gold story from a price-value perspective was almost a financial version of, “Can we all get along?” and the real world answer is no but it didn’t hurt to try.

I like Buffett’s comment that you should never ask a barber if you need a haircut. Because one of the possible goals of experts offering free advice is to find another gas station to rob, and you are the gas station. If you watch a hair care or weight loss infomercial on TV, there is a good chance that the cost of the product far exceeds the value of the info or the treatment. Letting someone on CNBC or Bloomberg TV rattle your cage with some superficial research insight may be a good way to shake loose some change from your pockets, but it is unlikely to be of value or creative to you.

Meb: You know, it’s funny, though, because more than almost any investment, you have investors, almost every investor has sort of a theme, you know. We talk to investors and it’s a dividend guy. He’s a guy investing in high dividend stocks, or someone else who’s, you know, a bond muni guy, or I buy Vanguard indexes, whatever the approach may be. But there’s probably no asset that really elicits the emotional response that really gold does in gold stocks and everything surrounding it. And there’s a lot of emotion tied up in it. And I know there’s a lot of famous investors. You know, I mean, we can talk about on one side, you have the Warren Buffetts of the world, and on the other side you have the Ray Dalios of the world, the advocate for gold, on both sides. Talk to me a little bit about the emotional kind of implications, you know. I know that plays in, and then we can kind of get in some specifics on asset management and everything else. But talk to me a little bit about, you know, fear is a reason to own gold or what the implications are there.

Claude: A great place to start exploring the link between fear and gold is to take a look at the Cboe Volatility Index, the VIX Index. There are tradable futures on the VIX Index. It is fairly common to hear metaphorical references to the VIX Index as the fear index. A great potential benefit of metaphors is that they are a literary device used to simplify complex ideas. A risk with turning an investment product into a metaphor is that the metaphor made there no resemblance to the investment product. VIX contract specifications refer to the VIX as an up-to-the-minute market estimate of expected volatility. One reason for this description is that it is possible to define a measure of volatility. If you can define something, you might be able to trade it.

VIX contract specifications do not refer to the VIX as an up-to-the-minute market estimate of fear. One reason is that the VIX does not attempt to define and measure fear. The most popular VIX ETNs lost over 40% per year for the last few years because of the dynamics of equity volatility, specifically declines in the spot level of volatility and the contangoed term structure of volatility. Without a definition and measure of fear, it is hard to attribute the performance of VIX ETNs to the dynamics of fear. Vague and intriguing sounding investment metaphors persist over time because you cannot disprove an idea if you cannot define it.

Buffett preaches invest in what you understand. Invest in what you know and know what you invest in is the same idea. While it is cute to say, “I know it when I see it,” if you can’t define and measure fear, you probably can’t trade it. A challenge of investing in metaphors is suggested by a less than charitable quote attributed to the Cardinal de Retz, a 17th century French cardinal and a proto marketing genius. He said, “Nothing sways the stupid more than arguments they cannot understand.” In our gold paper, Cam and I highlighted that both Ray Dalio and Warren Buffett referred to gold as a fear-based investment, yet they came to vastly different conclusions as to the appeal of gold. Buffett pejoratively dismisses gold as an unproductive, non-cash flow producing, fear-based asset owned by bandwagon investors who believe that the ranks of the fearful will grow. He prefers productive cash flow generating assets such as businesses, farms, or real estate. For Buffett, embracing fear and owning gold is an unappealing investment since the opportunity cost is high of going long and unproductive asset with no cash flows, gold, at the expense of productive assets with cash flows, any productive asset.

Dalio argues that people, and by this I think he conservatively means everyone on the planet, should have a 5% to 10% strategic asset allocation to gold. His argument is, “I believe predicated on the idea that gold is like an insurance policy against the failure of financial markets as well as a perception that democracies have a hyperinflationary bias.” For Dalio, an analysis of financial market history and the dynamics of his economic machine leads him to the view that there was a lot to fear. Who knows on the event that one should fear will materialize, and the best way to prepare for bad times is with a strategic asset allocation to gold? So which fear-based argument is more compelling, Buffet’s or Dalio’s? My sense is that both views are pretty useless. Saying gold is a fear-based investment does not mean it is a fear-based investment. Gold may be a good or a terrible investment, but just as the VIX, it has nothing to do with fear. Gold has nothing to do with fear.

Cam and I felt that one idea to test was Jastrome’s concept of the golden constant. The assertion that the purchasing power of gold stays the same over time, saying that the purchasing power of gold stays the same can be viewed as saying that the real price of gold stays the same. And the real price of gold can be measured as the ratio of the price of gold divided by an inflation index. The paper goes into the usual list of caveats and qualifications. But in 2012, this golden constant framework suggested that the fair value of gold was about $800 an ounce when the market price was around $1,800 an ounce. With about 5 years of 2% inflation per year, the fair value of gold is about $880 an ounce.

Meb: You know, it’s interesting, and we’ll post obviously this paper and all the other papers we talked to you on the show notes, but there’s a lot of great examples I love. Like, in the paper, you’re talking about…you guys go to some really interesting takeaways where you’re comparing the price of military Roman legionaries and centurions to army privates and captains in the U.S. and the great…to try to figure out some sign of growth rates of how to value gold. It’s a tough area. I mean, like you mentioned, there’s so much storytelling involved, and so many people…I actually think a lot of people get in trouble, particularly the equity guys, when they start to talk about macro. Because, you know, there’s…it’s so easy to get caught up in things like QE. And all of a sudden there’s gonna be hyperinflation. And the U.S. is gonna look like the Weimar Republic or we’re turning into Zimbabwe. And fast forward, 10 years, there’s been hardly any inflation. But so, looking at your chart, it’s kind of cool, because the average over time is around four. Is that about right, ballpark?

Claude: Exactly.

Meb: And so you have times when it just goes way above all the way up to a ratio of around eight. You know, in the ’70s, of course, when it actually was, you know, it had great returns, then went diversifier, then went nowhere for decades. And then had that run again in the mid-2000s and kind of peaked out, was it like 2011, 2012, and then it’s kind of drifted down since.

Claude: That wiggly line in the chart you refer to is a metric Cam and I used to illustrate the real price of gold. In the paper, we take the price of gold and divide it by the U.S. CPI index. It doesn’t matter which inflation index you use as long as it is an index you want to use. It doesn’t matter if you divide the price of gold by a U.S. inflation index or by the inflation index of any other country. In a metaphorical sense, the real price of gold is gold to CAPE ratio. If the purchasing power of gold is constant, which is a big if, then there should be no tendency for that squiggly line to trend up or down. In the U.S., measures of economic performance, such as GDP and broad inflation, really only go back to about 1936 when the Simon Kuznets completed his work on national income accounts. If you only have an inflation index going back to 1936, it’s pretty tough to make the case that the real purchasing power of gold is constant in the long run unless the definition of long run is redefined to mean since 1936.

So we look at the comp of a Roman legionary and his boss, a centurion. Around 1 AD a Roman legionary received 2.3 ounces of gold a year and the centurion received about 38.6 ounces of gold a year. Fast forward to today, and the gold based compensation of a private and a captain in the U.S. Army is not much different from a legionary or a centurion in a Roman legion. One dimension of compensation we could not capture was bonus compensation. For instance, when Caesar conquered what we now call France, he allowed his troops to supplement their base income by selling into slavery those they had conquered. You make a good point about equity guys you know facing challenges dealing with QE fears or them Weimar Republic fears. I think that highlights one of the problems when, as an equity guy, you go from a cash flow based price-value perspective to thinking about fear. Cash flow estimates may be right or wrong, but at least there is a definition, same with price and value. But things pretty easily turned to mush when trying to incorporate undefined, “I know it when I see it” concepts.

Going back to the Roman Empire perspective, introduces a real “The dog that didn’t bark” risk. There are biblical references to three items of great value: gold, frankincense, and myrrh. Back then, frankincense and myrrh were supposed to be more valuable than gold. Today I think a lot of people would have a hard time spelling myrrh, and neither frankincense nor myrrh are viewed as inflation hedges.

Meb: I don’t even know what they. Are they like spices or aromatics? I don’t even know what frankincense and myrrh are.

Claude: I agree with you. I have no idea what you do with them. The fact that gold is viewed by some as a valuable asset, and we don’t intuitively know why frankincense and myrrh were so valuable, suggests that the value of gold could be based on a foundation of habit and convention rather than on substance. It is possible that we are in the middle of a period in which gold becomes the new frankincense. In the morning, when I see a newspaper in the driveway of a neighbor, I can be pretty confident that the person living in that house is over the age of 50. Young people generally avoid newspapers like the plague. If you saw a rotary phone in someone’s house, you would probably feel pretty confident thinking that the person who lives there is at least 80 years old. My guess is that the average age of someone who cares about gold is probably pushing 50, a bit like the age of a newspaper reader. As far as chasing an investment simile, maybe Bitcoin is like driving a Tesla and gold is like driving a 1977 Cadillac Eldorado. So gold may be facing its frankincense moment.

Meb: You know, it’s fascinating to think about. Because the areas where there’s no valuation, really metrics, you know, you’ve developed some for gold, but a lot of them, you know, driven by storytelling. I’m a trend follower at heart and I love that world. But thinking about whether it’s gold or beanie babies or whatever it may be, and Buffett actually was in the news today because he came out saying that he thought Bitcoin was bubble, but he said, along the exact lines what you mentioned earlier. You said, “You can’t value Bitcoin because it’s not a value producing asset.” So these assets that don’t have cash flows are particularly open to the whims. And the thing that I struggle with, I think about gold, and like I mentioned, the younger people, younger generation, I don’t think cares as much. But the pushback to that is also that, “Hey, look, the two biggest populations in the world, China and India, have a much different perspective on gold than the U.S. might and other countries.” So it’s a fascinating balancing act on trying to figure out what people prefer, but it makes it also really hard.

So what is kind of the…your take away, though? Is it, you’re like, “Look, I don’t care if someone has a market cap weighted global market portfolio allocation of gold of 5%, it’s not my best idea, but I don’t think it’s anything bad,” or, like, what’s kind of your final takeaway? Is it’s something that it’s not really an investment that’s needed, or is it, you could put it in portfolio just to avoid the FOMO of not having, you know, gold in it if it goes up to 5,000? What’s kind of your final…you know, I get the slightly overvalued or…but what’s your kind of final takeaway on gold as far as is it reasonable to put it into a portfolio?

Claude: First, referring to Buffet suggesting that one cannot value Bitcoin, I wonder about that. I agree that Bitcoin and gold don’t have cash flows. And it’s obvious that the value of the cash flows of both Bitcoin and gold are zero. But mental crutches are useful. A crutch to think about the value of gold is this idea of constant purchasing power. And I think a crutch to think about Bitcoin is that it costs money to update the Bitcoin blockchain to be a miner. And the price of Bitcoin can be viewed almost as a credit default swap where the price is the cost of a successful hash divided by the probability of being first and getting the mined Bitcoin.

Second, a demand for gold from China and India could surge in the future and the price of gold could rise a lot. Of course, the China and India FOMO gold tidal wave of money demand stories have something in common with the Japanese tidal wave of money stories about buying trophy [SP] properties at any price back in the 1980s. Tidal waves exist, but they may be less frequent than feared. FOMO trade ideas are interesting. In concept, anything can be FOMOed. And using FOMO thinking, you should probably load up on anything and everything. FOMO thinking seems like it either pushes you in the direction of owning everything, a truly global portfolio of stuff, or it encourages selectively surfing every wave of FOMO opportunity one by one.

Given that, where does gold fit in either a strategic asset allocation or a tactical asset allocation? First, start with some expression of the long-term growth rate of the price of gold, starting with the idea that the real inflation adjusted price of gold is constant. The long-term nominal rate of return for gold is simply the inflation rate. If you’re trying to achieve a portfolio with a positive real return, and perhaps you believe stocks and bonds will have returns greater than the rate of inflation, then it is pretty hard to see a return-based reason to include gold in a strategic asset allocation. I think that a great target strategic asset allocation to gold if zero makes sense. That leaves open the issue of a tactical asset allocation.

Given our framework, the fair value of gold is about $880 an ounce. The market price of gold is about $1,300 an ounce. As a result gold seems about 47% overvalued. A really tactical approach would go short gold, wait until it hits fair value, and then take off the trade. Depending upon how long the mean reversion trade takes to play out, it is probably a low Sharpe ratio trade.

Another way to think about the strategic asset allocation view is to look at market caps. The returns based asset allocation process says, “Only allocate to those things you think will have attractive returns.” The market cap approach says, “Allocate to things based on how much of it exists.” Say global stocks have a market cap of about $60 trillion, and global bonds have a market cap of about $60 trillion, or use $120 trillion of fixed income in like PIMCO. The estimated value of all the gold in the world is about $10 trillion. During the arithmetic, that suggests that gold is 5% to 8% of total stock bond and gold market cap. That 5% to 8% is awfully close to Dalio’s recommended 5% to 10% gold allocation.

There is one final issue to think about. All the gold in the world is already owned by someone. The current gold owners seem to be pretty happy with the idea of owning what Buffett calls an unproductive asset with a possible long-run real rate of return of zero. If there was a broad-based move towards Dalio’s, 5% to 10% allocation, and if the current owners of gold were unwilling to give up their gold, gold would experience the FOMO trade of all FOMO trades, which would be good for an owner of gold. But, of course, gold would no longer be a play on constant purchasing power.

Meb: You know, now that we’ve lost all of our listeners from Canada, Utah, and China, and India, I say that with a big smile on my face, you know, I think it’s a good lead-in to kind of our next topic, which gets a little bit more complicated quick. And, you know, I’ve read all your papers and have spent a long time in the commodities world thinking about commodity investments, and I’ve kind of seen this full cycle. And, you know, you kind of mentioned gold, despite being 5%, 10% of the global market cap potentially, the fact that if people really started to move in and out of it, the liquidity is one of the reasons why it’s so volatile when you have these huge price swings ditto with the cryptocurrencies.

But let’s talk a little bit about commodities in general, because this is an asset class that I think people really struggle with. It’s hard for them to understand. A lot of people rushed into it, and you see almost every institution now rushing out of it. Talk to me, you wrote a really famous paper that came out back in 2006, and then updated it recently a decade later. I mean, it came out pretty close to the same time. There was another paper, and the two papers were facts and fantasies about commodity futures written by Gorton and his partner, and then yours was strategic and tactical value of commodity futures. I think they even came out in the same issue with Cam Harvey. Talk to me a little bit about this paper, how you think about commodities, and we’ll drill down into some issues and ideas as we go along. But give us the broad overview.

Claude: During the commodity research, it was a lot of fun. As a matter of fact, I have to thank Gary Gorton for launching my interest in commodities. Without a chance encounter with Gary, Cam and I never would have written the commodity paper. I met Gary as a salesman from AIG Financial Products one day in a conference room at TCW. At the time, I was working for Jeffrey Gundlach in his fixed income group. Gary, who was at the time a professor at Wharton, told me a story about research he had just wrapped up with his co-author, Geert Rouwenhorst, a finance professor at Yale. He said that a diversified portfolio of commodities had an expected return of 5%. A 5% real return is generally viewed as a really big deal because it is in the same ballpark as the historical real rate of return for stocks.

In the wake of the tech internet stock meltdown, there was a growing interest among those managing large pools of assets in finding a way to achieve a high real return without just relying on stocks. As Gary explained to me, the source of this 5% real return was a commodity risk premium. The idea was that those who invested in commodities allowed others in the commodity markets to shed their commodity price risk, and the reward for taking on the commodity risk that others did not want was 5% a year. In essence, those investing in commodities were like many insurance companies, like many AIGs. Even though insurance companies such as AIG knew who was on the other side of a homeowner’s or auto insurance policy, the commodity risk premium story suggested that commodity investors could make 5% per year without knowing anything about insurance or who was on the other side of the trade.

According to the research that Gary shared with me, commodities seem to be a necessary and sufficient portfolio diversifier with high expected real returns, low correlation with stocks, and a positive correlation with inflation. The presence of the AIG salesman at the meeting meant that if I was really swayed by the research, I could fill out the swap paperwork and just place a trade for the Dow Jones AIG Commodity Index. So I did what any investor should do. One, I remembered Buffett’s suggestion that one should never ask a barber if you need a haircut, and, two, I did some research. There is a reading research and there is doing research. Reading investment research is like reading those glossy brochures at an auto dealership telling you how buying that new car now is going to transform your life. As Cam and I flushed out our commodity research, I was increasingly drawn to a view that, one, almost nothing in the commodity paper by Gorton and Rouwenhorst made sense, two, Cam and I should memorialize our findings, and three, Gorton and Rouwenhorst were awe-inspiring salesmen.

So what did Cam and I find? When talking about investing in commodities other than gold, the conversation almost always means investing in commodity futures or commodity swaps. While you can buy an ounce of gold or a pound of gold and store it in a closet, you are unlikely to buy a barrel of oil and store it in your closet. A diversified portfolio of commodities is basically a diversified portfolio of commodities futures contracts. For a diversified portfolio of commodity futures or commodity swaps, there are basically three drivers of return: a price return, a term structure or roll return, and a rebalancing return. My sense is that when most people think about investing in commodities, they think they’re playing moves in commodity prices. They think they’re getting the price return, like the price return of oil, wheat, or copper. But it turns out that investors in commodity industries do not receive the price return. What they primarily receive is the term structure or roll return.

And this is unfortunate, because without going into the technical details, the roll return is basically like the dividend yield of commodities. And most investors in commodity indices, in my experience, have no idea what the roll return happens to be. For a broad-based index such as the S&P 500, the dividend yield is about 2%. It has been much higher in the past and it could be zero. For bonds, the yield to maturity for the 10-year treasury is about 2%, it has been much higher in the past, and it could be zero. The few examples of negative yields are probably exceptions that prove the rule.

When it comes to this commodity dividend yield, this roll yield, the yield could be minus 10% or plus 10%. There is no magic zero bound. As has been the case since around 2008, the roll yield has been negative. Continuing with the dividend analogy, a negative roll yield means that an investor is basically paying a dividend, not receiving a dividend. If the commodity dividend is negative enough for enough years, an investor’s commodity portfolio will likely lose a lot of value. When the commodity dividend is negative, the three most dangerous of words are, “Stay the course,” and the best course of action is to bail.

Additionally, just as de Leon never found the Fountain of Youth, Cam and I never found any evidence of Gorton and Rouwenhorst commodity risk premium. We did find that Gorton and Rouwenhorst commodity risk premium could have been a payoff to a rebalancing return. The possibility size and the math propping up the rebalancing return concept were addressed by a mathematician by the name of Bob Fernholz, who founded an equity firm called INTECH, which mines the rebalancing return.

Meb: Here’s the beauty of this paper. So this paper came out in the mid-2000s. And for the younger listeners, you know, I’ve been going to these institutional conferences, retail conferences, everything for almost 20 years now. And, you know, everyone gets caught up in whatever the hot theme of the day is. So, in the early 2000s, mid-2000s, it was the endowment model and how to diversify because in the mid-2000s the things that really diversified were, of course, commodities, real assets, REITs, of course, a lot of those didn’t even have bear markets 2000, 2003. You know, the next thing that became important was the BRICs. And then after 2008, it was tactical asset allocation, risk management. Last few years has really been the search for yield. Who knows what it is now? Smart beta, everyone paying as little as possible for indices. But do you see the flows?

And the really cool thing about this paper, it says everyone was excited about commodities. Tons of money was flowing in. Almost every institution, pension fund, endowment, was starting to make big allocation at commodities. But unlike a lot of asset classes, I think the phrase used earlier of “Know what you own” really is particularly important with commodities, because you’re not going out and buying a bunch of oil and storing it in tankers, or wheat. You’re actually using commodity futures. And, like, what Claude was just describing, it gets a little more complicated. Because you have essentially the collateral yield, which is like t-bills, usually. And this roll yield, which a lot of investors just assumed was gonna be positive because it had been historically, but it’s certainly not guaranteed. But the beauty of your paper is that it kind of said, “Hey, look, you need to think about these things.” And then sure enough in the decades since, as flows change factors or change asset classes, commodities have had a pretty terrible return for a lot of that period, particularly for the people that allocated indices not really knowing how they worked.

Claude: I don’t wanna seem like a Buffett fanboy, but he is fond of saying, “Invest in the things that come naturally and easy to you.” He will talk about what he calls a fat-pitch in baseball. Pitch, there you will have no difficulty connecting with and hitting out of the ballpark. The optimistic spin on this view is that maybe everyone has the possibility of doing well. If they wait for those things, they can do well. And avoid those things, they can’t do well. So someone can be the LeBron James of gold or of commodities, but not everyone can be number one. There are a lot of investment opportunities but you have to trust and verify. If someone tells you something, you might as well trust them, but you have to verify what they say since the trust may not be warranted. You also have to trust in your own abilities to think creatively and then verify your own work to make sure you’ve not fooled yourself.

Kenneth Rogoff, the author of “This Time is Different,” is an example of a brilliant economist who trusted but didn’t verify some of his own results. The idea that commodities have a really powerful fixed-income-like characteristic led us to launch a number of commodity products. We launched a long-short beta neutral commodity term structured portfolio and something called a collateralised commodity obligation. The performance was good. The details are insignificant. The idea is that the way to operate in your circle of competence is to do your own research. You don’t ask others what you should think. You ask others what they think out of curiosity, but you think independently.

Meb: And so I think, is it safe to say, and correct me if I’m wrong, would an accurate representation be that, look, Claude doesn’t hate commodities, but it’s rather that you need to be very thoughtful about how you structure them? And, you know, so your opinion of kind of these generation two, generation three commodity indices, whether they’re long, short, or just sort of optimized based on roll yield, or momentum, or trend, are those products you think viable or better than kind of the first version? Or what’s your kind of general takeaway?

Claude: Potentially better, but you have to trust and verify. Given the disappointing performance of what are usually called first generation commodity products, the existence of second, third, and nth generation products is an understandable, reasonable, and encouraging response. There are at least two issues to think about. The first issue is that the new generation products are based on a historical analysis of returns. If the first generation was about saying a collection of mediocre exposures were supposed to be really attractive in general, the new products are about saying that historically, there were some pockets of opportunity that were less mediocre than the rest. So the new generation products are just back tests of what didn’t really perform poorly. Regardless of how you feel about back tests’ indicators of future performance, to move to new and improved means that the investable size of the market is smaller than in the past. Say the overall market consists of 50% crummy assets and 50% great assets. Once you learn about the distribution of assets, you’ll only want to own the great assets, and the market opportunity will be much smaller than before.

The second issue is, who is dreaming up the new and improved products? Say you go to a restaurant and get food poisoning, will you ever give the restaurant a second chance? You may not give up on restaurants, but most people will never give the Ptomaine Tavern a second chance. A challenge with all of the new generation products is that there are only so many swap dealers. So in reality, you have to go back to the same provider that made you sick. Investors are basically saying, “I know he duped me last time, but this time you’re really telling me the truth, all right?”

Meb: My favorite quote was, with regards to that, is someone, a young hedge fund manager to ask Julian Robertson of Tiger Cub Fame said, “What’s your best advice to, you know, me starting my fund?” He said, you know, “Be lucky. Have a great first year because everyone will think you’re brilliant.” So with a lot of these products, you know, it’s funny because you see the full life cycle, where I go to the conferences now, and commodities aren’t even on the agenda. You know, no one’s talking about commodities, all these pension funds are puking them up, a lot of them have had multiple down years in a row. And so, for at least from the long-only side, it’s interesting because, you know, who knows, it could be a better opportunity. We love commodities from the standpoint of an allocation, but, again, a lot of what we do tends to be trend following, which is a little bit different.

One question I’ve always struggled with, and I don’t know if you have an answer to it, or thoughts, or not, is, you know, you can kind of pinpoint…you mentioned gold as a percentage of the global marketplace, maybe 5%, 10%. Is there any way to think about commodities at all? And in that way, a lot of these aren’t assets that you can really store, like wheat, there are more inputs, or oil. Is there any way to think about commodities if they were a part of the global market portfolio or you can’t at all?

Claude: The two methods used to think about allocating to gold can be used to think about allocating to commodities: returns-based approach and a market-cap approach. From a returns-based standpoint, Cam and I pointed out that the return driver that determines whether an investor will have a positive or negative experience is what we call the commodity dividend yield, roughly the roll return. In general, when the yield is positive, commodities will have an okay return. And when the yield is negative, commodities will have an unattractive return. So tactically, investing commodities when the yield is positive, and avoid them when the yield is negative. Strategically, I think the commodity yield will on average be zero, so that suggests a zero strategic allocation.

A surprising result of our research is that over, say, a 10-year time horizon for a diversified portfolio of commodity futures, there seems to be no relationship between the price return and the return from commodities. This is because, at least in the past, price returns and what we call the commodity dividend yield have been negatively correlated. So, what one return driver giveth, the other takes away. It would be nice to believe that a strategic allocation to commodity futures. It was a bet on rising commodity prices. It is a nice belief for which there seems to be no support. To put these returns-based tactical and strategic views in perspective, it is worth noting that Morning Star published a return-based commodity research piece that was part of a marketing push by PIMCO to gather assets under management for its commodity mutual fund. That joint Morningstar and PIMCO research advocated that investors with moderate risk tolerance, whatever that is, should allocate more than 20% of the portfolio to commodities.

Another way to think about commodity allocation is the market cap approach. Searching Bloomberg and a few other sources for all the commodity products that exist results in a combined market cap of about $200 billion. This is smaller than the market cap of Facebook. This is interesting in a number of ways. If global equity market cap is about $60 trillion and global bond market cap is about $60 trillion, then commodities are less than two-tenths of 1% global market cap. Many investors will say that any allocation less than 5% is a waste of time because really small portfolio positions typically don’t contribute much to portfolio return. A natural response from a commodity portfolio manager could be, “Sure, there may be only $200 billion of market cap now, but it could be $2 trillion or more in the future.” In order to reverse engineer a 5% allocation to commodities, you would need a commodity market cap in excess of $6 trillion. And to get to Morningstar’s 20% allocation, you would need a commodity market cap of about $30 trillion. Obviously, this bouncy house idea just blow up assets and the size of the market grows could also work for anything else: stocks, bonds, or real estate.

Meb: Yeah, it makes sense. I was thinking, you know, when we talk about real assets, there’s a lot of offshoots that are pretty interesting, and particularly some aren’t that easily turned into investable products. You know, when you think about the commodity space, think about farmland, you know, is one type of asset. And I don’t just mean the raw farmland as something that probably keeps up with inflation, even though it’s had a monster run in the last 20 years. But something is actually like productive farms. And I think there’s only one publicly traded read that does farmland. So if you’re a product developer, by the way, of these one of these big shops, that seems to me like be a great opportunity to launch a bunch of farmland, publicly traded products that could invest in those. But I don’t know that there’s… Anyway, we could talk about that for a whole another two hours. I wanna get to one more topic before we leave. Any last thoughts on commodities before we switch over, Claude, or are we done here?

Claude: Just the idea that there’s plenty of tactical opportunity but not much strategic opportunity.

Meb: Well, maybe it’s the perfect opportunity now after we’ve seen such a huge run-up in Facebook in the FANG stocks. We do a long commodity basket short FANG. We’ll see. We’ll have you back on in two years. We’ll see how the long commodity short FANG stock portfolio went. Talk to me, you know, I know you’re retired in general, whatever that means these days, but you’re still working on some inserting ideas. I’ve heard some of the ones that you’ve been thinking about. And one I would love to touch on is a topic that I think is really…has a lot of practical applications and would be interesting to a lot of listeners because it is what they implement in their life. It’s real-world possibilities, whereas a lot of people probably won’t be investing commodity futures, maybe a lot of people listening would think about, you know, sequence of returns. And why don’t you talk to us about the ideas you’re kicking around there and what you’re thinking about in that space?

Claude: If I was an internet entrepreneur, I’d probably say something like, “Understanding and mastering the sequence of returns will democratize and empower investors to achieve higher returns.” Since I have no idea what that means, I will simply say that I think the sequence of returns issue is probably the most important issue most investors face. In the 1980s and the 1990s, it was common for many advice givers to say that asset allocation was the most important decision one could make. Later, it turned out that the popular Brinson, Hood, and Beebower asset allocation research was so popular because it was so misunderstood by so many, just as, of course, Rouwenhorst commodity research was so popular because it was so misunderstood by so many, and just as so much smart beta researchers probably so misunderstood by so many. There may be nothing new under the sun. But with absolutely no hyperbole, the sequence of returns is the real deal. This is an issue that Tadas Viskanta and I have worked on, and we have a paper that we will post on SSRN.

I first became aware of the basics of the sequence of returns issue after reading a piece by John Bogle, the founder Vanguard, in which he characteristically belittled investors in general for buying high and selling low, thus insuring poor investment outcomes. Bogle cited evidence from a firm called DALBAR that during a certain period, the U.S. stock market had a roughly 20-year annualized return of about 12%, the average equity mutual fund had a return of about 9%, and the average investor in the average equity mutual fund had a return of about 2%. So the average equity mutual fund underperformed by 3%, and the average investor performed by 10%.

Bogle has since distanced himself from the DALBAR data and embraced findings from Morningstar that essentially say, “Mutual fund investors buy high and sell low, but they underperformed by 2% to 3%, not 10%.” Morningstar refers to this under performance as an investor return gap reports investor dollar awaited fund returns and generally embraces the idea that the investor return gap is due to bad investor behavior. Bogle is widely respected, and some of his fans refer to him as Saint Jack. But as soon as I saw that Bogle was quoting Morningstar, the same organization that recommended an impossible to achieve 20% macro consistent allocation to commodities, I thought maybe there was a lot less to this buy high and sell low diatribe than meets the eye.

Plowing through background info, I found what I think explains a lot of the observed investor return gap, the sequence of returns. The sequence of returns is a bit like riding the tide in the Bay of Fundy in Canada. Average mean water level does not change, but because of the tide, the water level is never average. At any given time, an anchored boat is typically rising over time or falling over time. The sequence of returns simply says that there are tides and returns. Average returns may not change, but sometimes returns are rising over time and sometimes returns are falling over time. And these tides and returns affect the returns of most investors.

For instance, a rising tide of returns boosts the returns of those saving periodically for retirement, and the falling tide of returns reduces the returns of those saving periodically for retirement. For those in retirement spending down a portfolio, the title impact of returns is reversed. For spenders, a rising tide of returns reduces returns, and a falling tide of returns boost returns. Savers and spenders will have different outcomes even if they invest in the same portfolio, product, or fund. And the return that savers and spenders achieve will not be the return of the underlying portfolio, product, or fund.

In our sequence of returns paper, Tadas and I have a simple and easy-to-read illustration of the difference between an asset’s return, a saver’s return, and a spender’s return. From 2006 to 2016, the total return of the S&P 500 was about 6.88%. That’s the return achieved by someone who made a single investment in 2006 in the S&P 500. The amount invested does not matter. If someone’s starting to save for retirement by making the same periodic payment at the end of each of 10 years, say, 2006, 2007, all the way up to 2015 would have achieved a return of 10.67%. The reason is that there was a rising tide of returns.

One way to measure the tide of returns is to look at the correlation between periodic returns and some unit of time. If you use annual returns, then look at the correlation of annual returns with the time units you’re looking at. For instance, the years 2007, 2008…

Meb: [inaudible 00:58:04].

Claude: …on up to 2016. The correlation between roll returns in time was about 0.30.

Meb: That’s hard, that’s hard advice. It’s like telling someone to eat less and exercise more.

Claude: [inaudible 00:58:12] savers compared to spenders. The spenders, depending on the number of nuances, received a return closer to 2%. So a saver looks like a genius and a spender looks like a moron, but the returns have nothing to do with investor behavior, intelligence, or skill.

Meb: Okay, this is an interesting area. Is there any sort of general takeaways? Like, say, okay, I’m a spender or I’m a saver, how should I alter my allocation to, you know…is there any, like, ways…is there any kind of practical to dos I should be doing or takeaways from this that I can implement? Or is it just something to be aware of?

Claude: Sure. The takeaway for a saver is that if you asset-allocate to an assets return, you’re making a really big mistake. If you happen to be a spender and you asset-allocate to an assets return, you’re making a really big mistake. In fact, the only people who should asset-allocate to an assets return are people who are not savers or spenders.

Meb: I think the bigger challenge in my cohort is that most of the young people I know should be savers but they end up being spenders anyway. It’s the personal finance issue more than an investment issue. It’s hard to curtail the spending side. It’s funny you mentioned Jack Bogle because I actually tweeted out today, his new version of his…I highly recommend his “Little Book of Common Sense Investing.” But it’s funny because he comes out and he takes his very simple equity equation, which is to, you know, kind of give you expectations of future 10-year stock returns. And in the book, he says, “Look, you know, I expect U.S. stocks to do about 4%.”

And that’s a fascinating takeaway from someone who should be incentivized to be saying, “Yeah, stocks are gonna do 10% a year like they did historically because I run the largest asset management business on the planet.” But in reality, he’s like, look, the chances are they’re gonna return less. And, you know, the general…one of the biggest takeaways beyond having low expectations is save…spend less and save more. But that’s hard, that’s hard advice. That’s like telling someone to eat less and exercise more. It’s a little more challenging to be compliant with.

Claude: That’s pretty good point. There are no easy answers.

Meb: Well, there’s two comments here. One, you know, the DALBAR I think was, in the early days, is certainly a very seductive, easy thing for investment managers to propagate that study and to share it because they came to the conclusion that, “Hey, you know, we’re necessary. And individual investors are crazy. And look how much they underperform, so therefore you should hire me.” And, I mean, I’m guilty of circulating that certain study in my early days. But the Morningstar, you know, a lot of the perf on dollar-weighted versus time-weighted, you know, kind of shows a lot of that flow chasing performance. And, you know, as a public fund manager, we certainly see it all the time, where the better performing funds will have asset flows. And there’s a lot of news lately that came out on this whole kerfuffle with “Wall Street Journal” and Morningstar in the star ratings and all that stuff. But people, you know, historically have been very challenged. And this isn’t just retail. This is institutions. There’s a lot of academic papers that show that a lot of the institutions will chase returns too to managers. But it’s hard.

And so it’s interesting to see you talk about, you know, the financial planning side and the advisor because there’s so many nuances that I think software will help with, you know. And I think over the next 10 years, this human-assisted, software-based sort of development will be, 10 years from now, will be light years better than it is today. Because there’s so many nuances and complexities. It just makes it tough. So, yeah, it’s interesting. I mean, even stuff that is simple for financial advisors, think about tax loss harvesting gets more complicated with various tax rates over time. And if you’re a young person, you should actually be taking, say, tax gains now. There’s so much to it that I think it’s a lot of opportunity to software space.

Claude, I would love to keep you on for a few more hours but we got to start to wind down here. It’s a beautiful, hot day here in Los Angeles for us both. We got one question we always ask our guests, and it is, would love to hear what your most memorable, and this could be good, it could be bad, it could be either, both, your most memorable trade or investment you’ve ever had.

Claude: Just being in the right business at the right time.

Meb: I thought you were gonna say you hedged your gold paper by buying a bunch of gold bars and putting them under your bed.

Claude: That’s what I should have said.

Meb: Yeah, that’s right. Well, you know, it’s funny. We think a lot. It’s interesting. There was an article the other day about a local grocer who bought a bunch of Amazon stock because he wanted to hedge his business. And it’s funny to think about a lot of people out there in the money management business, we wrote an article we were talking about hedging the money management business because, if you treated our revenue, it’s essentially a long call option on equities, you know, or if you’re a bond shop, it’d be bonds, too. But thinking about all these ways to hedge but I was laughing thinking about that. Claude, it’s been a blast. Thanks for taking the time out today.

Claude: Thanks. It was a pleasure.

Meb: If people wanna find your writing other than our show notes and googling it, is there any place they can go to keep up-to-date? Do you have any sort of homepage or blog page or…

Claude: The best place to look is SSRN.

Meb: Oh, yeah. It’s a great repository for free papers. We will link to everything we talked about today that we can find and more in the show notes. But Claude, thank you again. It’s been a blast.

Claude: Thanks, bye.

Meb: Listeners, thanks for taking the time to listen today. We always welcome feedback, questions to Meb and Jeff at feedback@themebfabershow.com. And as a reminder, you can always find show notes and other episodes at mebfaber.com/podcast. You can subscribe to the show on iTunes. And if you’re enjoying this podcast, please leave a review. Thanks for listening, friends, and good investing.