Episode #435: Radio Show with Michael Batnick & Ben Carlson of RWM

Episode #435: Radio Show with Michael Batnick & Ben Carlson of RWM


Guests: Michael Batnick, CFA. Michael Batnick is the Director of Research at Ritholtz Wealth Management. Ben Carlson is the Director of Institutional Asset Management at Ritholtz Wealth Management.

Date Recorded: 7/27/2022     |     Run-Time: 1:11:12

Summary: In today’s episode, we touch on the Future Proof wealth festival, which will be in Huntington Beach, CA from September 11th to 14th – all three of us will be there and hope you join us too! We also touch on trend-following, producing content, Twitter, and much more.

Sponsor: Composer is the premier platform for investing in and building quantitative investment strategies. What used to take Python,Excel and expensive trading software is available for free in an easy to use no-code solution. Learn more at www.composer.trade/meb.

Comments or suggestions? Interested in sponsoring an episode? Email us Feedback@TheMebFaberShow.com

Links from the Episode:

  • 0:39 – Sponsor: Composer
  • 2:16 – Intro
  • 2:58 – Welcome to our guests, Michael Batnick & Ben Carlson
  • 9:09 – Meb’s first ever paper (link)
  • 13:20 – Working in finance while also being content creators
  • 20:20 – An overview of RWM and what’s going on with Michael & Ben
  • 21:58 – Rethinking financial conferences and turning them into a festival; Future Proof
  • 27:41 – Meb’s take on trend-following
  • 33:05 – The poor 1H22 for 60/40 portfolios
  • 37:58 – Thoughts on the CAPE ratio and the problems with how people use it
  • 44:50 – Michael and Ben’s most popular tweets and the social media landscape today
  • 50:48 – Don’t Fall For It: A Short History of Financial Scams; Fraud that Meb discusses
  • 53:04 – Investment beliefs they hold that most of their peers don’t
  • 1:01:20 – Movies they’ve watched and books they’ve read recently; How The World Really Works
  • 1:04:53 – Oceans of Grain; Episode #431: Scott Reynolds Nelson
  • 1:06:49 – Learn more about Michael and Ben; Future Proof; Animal Spirits; ritholtzwealth.com



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, my friends. Awesome show today. Our guests for this radio show are Michael Batnick and Ben Carlson, co-hosts of the “Animal Spirits Podcast,” and part of the Ritholtz Wealth Management crew. In today’s episode, we touch on the Future Proof Wealth Festival, which will be in Huntington Beach, California, right down the road from us, from September 11th to the 14th. All three of us will be there. Come along and join us for Broncos on Monday Night Football. I’ll even buy you a beer. Come join me out in the surf. Take you out for a paddle. We also touch on trend-following, producing content in a digital and social world, Twitter, and much, much more. Please enjoy this episode, with Michael Batnick and Ben Carlson.

Michael and Ben, welcome to the show.

Ben: Glad to be here.

Michael: Are we are we happy to be here? We’re very happy to be here. Who am I asking? I’m thrilled to be here. Thank you, Meb.

Meb: For the listeners who aren’t familiar, couple of podcast hosts that run “Animal Spirits…” I was going to do a rate your room, but I think you know Ben is kind of destroying you, Michael. You have a giant purple square. Is, like, is this a piece of art? Is this, like, a weird Banksy modern art in the background? What do you have going on?

Michael: It’s a sound downer. I just made up that word. What is it? What do you… You taking down the sound. It’s a sound remover.

Ben: It’s a sound proofer.

Michael: There it is. My brain’s broken this morning. Sorry.

Meb: You could at least cover it with a, some sort of art, or, like, a Knicks poster or something. So, Ben, Ben gets the winner on the rate your room. Three Stooges. A lot of people probably, you guys, know you guys as the kind of “Cheers” of podcasting, for the young cohort who doesn’t know what “Cheers” is. It’s, like, a show from the ’80s, where a bunch of people gather in a bar, and just talk shop, and you get a look over their shoulder, and listen in on what’s going on in the world. But basically, a bunch of alcoholics, at that point. I don’t know what the modern version would be, of “Cheers,” but it’s really well-done, and surprisingly funny. Surprisingly humorous.

Ben: I’ll take that backhanded compliment.

Meb: Surprisingly… But it’s finance, you know? Like, finance is hard to find that much humor… But you guys do a great job. But that’s not your day job. What’s your … I mean, maybe it is your day job at this point

Michael: It’s kind of part of it.

Ben: Yeah. We used to just get on the phone with another, like, 12 times a day, because Michael lives in New York and I live in Grand Rapids, and we would talk about the research we’re seeing, and stuff that’s going on Fintwit, and what’s going on in the markets. And Josh and Michael were sharing an office. And Josh said at one point, “I’m sick of listening to this. Just, why don’t you guys just take this stupid conversation you have 12 times a day, and make it a podcast?” And that’s what we did. But, like you, Meb, content is part of our business, so you probably get that question too. Like, “How do you run an asset management firm if you’re producing content all the time?” And it’s like, “Well, content is part of it,” right?

Meb: Well, and you guys, you know, your team have two of the kind of OGs. I mean, Barry started blogging, like, when it was on, like, DOS or something. He’s old enough, right?

Michael: In 1982.

Meb: When? When did he actually start…

Michael: Yeah. 1982. No, he started in, I’m going to guess, like, 2005.

Ben: No, it might have been earlier…

Michael: Earlier?

Ben: But he was saying…he said at one point it would take him a half hour to write a post, and then a half hour to code it in HTML, because there was no such thing as WordPress or Tumblr, or any, you know, anything that was easy to create at the time.

Meb: Yeah? He, you know, and a lot of the kind of even the 1.0 version of this was if you look at the so many people that used to write for TheStreet.com, and RealMoney.com, there used to be a columnist conversation, which was sort of the Twitter before Twitter. And yes, you… So, I was a part of this, and you had to write these, your comments, in HTML, which is preposterous, right? Like, I mean, my god. And I actually don’t know if this is well-known. I actually got fired from Real Money, which is funny, because I didn’t get paid. So I just got evicted. Whatever the right word would be.

Michael: What did you do?

Ben: They broke up with you.

Meb: Because, as a quant, you guys know me. Like, I feel a journalistic integrity to cite my sources, instead of just, like everyone does now, just, on Twitter, just stealing them and reposting them. So, often, when I would write something, I would citation it, right, and then, like, hyperlink. “Hey, this is from here. This is from here.” Well, a lot of the research was original research, and so, often, it would cite back to my websites, and they were like, “You’re just trying to drive visitors back to your websites or your blog.” And it’s like, “No, you idiots.” But anyway.

If you look at the roster, the, you know, the old-school magazine-like letterhead, whatever they put at the beginning of all the writers, it’s actually a pretty amazing group of people, but Barry was certainly one of those, and Josh found his own footing in the blogging community too. I mean, does anyone actually visit y’all’s blogs anymore? Do you even track? I looked the other day. I went and looked at my blogroll. Do you remember those? Like, you could write… I don’t know if you guys have those on your website, but you’d, like, list a bunch of sites you also go to? And it was like, two-thirds are gone, I think, at this point.

Ben: Well, you, I was going to bring this up later, but you wrote a post a few years ago about, like, forget about alpha. How about just surviving is half the battle, and I think you equated it to, like, all the, half the bloggers that started when we first did, you started before us, Meb, but half of the people that we used to interact with and have blogs are gone now. And that’s just, sticking around is half the battle sometimes.

Michael: Ben still writes, like, five times a week. I don’t know how, but I think Ben might have the most traffic out of any financial blogger.

Meb: It’s great. Well, it’s funny, because way back in the day, when we used to look into the analytics of this stuff, I haven’t looked in years, but there was a great widget you could put on, and I think Google Analytics does this now, but shows you exactly the specific Google search term that someone used to hit your site at various points in the day. And I would kind of scroll through it on occasion, but just because of the Google algorithms, it was really funny. Like, some of them, it would be like “Bill Gross’ moustache.” And someone googled that and landed on my website. I’m like, “A, why is someone googling this? B, why did it come to my website?” You know, just the optimization. It’s pretty funny though.

Michael: I used to look at my traffic. I’m not embarrassed to admit this, literally, every day. I think it’s probably normal, right? Like, early on?

Ben: When you first start, you have to.

Michael: Yeah. So, I don’t look at my traffic, like, rarely ever at this point anymore, but I’ve also, I’ve lost a little bit of a love for writing, and I think it’s not that. It’s just podcasting is, it’s so much easier, it’s so much more fun and delightful and enjoyable, and writing has never been easy for me. It’s always been difficult. And I just prefer talking than writing.

Meb: Well, it hits in a different way, too. I mean, an example is, you know, we used to write academic papers. And academic paper, you submit to, like, a journal. And then it goes through peer review. And if you’re lucky, it comes out in, like, two years. And now, you know, you could just throw them up online and, you know, you get peer review of hundreds of thousands, millions of people telling you how dumb you are, right? Like, that’s the real peer review.

Ben: Was your trend paper your very first paper…

Meb: Yeah.

Ben: …ever wrote?

Meg: And that was actually a happy accident. I didn’t mean to write that paper. But…

Michael: Wait. I don’t know the backstory on this.

Meb: So, I was in my 20s, and wrote a… The equivalent of the CFA designation for technicians was called CMT. And they used to have three levels, just like CFA. But Level III included a lot of material that I consider to be kind of voodoo. You know, it was, like, a lot of… I mean, I’m not…I might offend you guys here. So, apologies, but I was like, Fibonacci, or…you know, all these things that had, like, no real justification, but they’re like, this is… You know, it’s like the Nutraceutical world now. It’s like, “Hey, if you take Ginkgo, like, it improves your brain function. If you take vitamin Q, it’s, you know, protects your heart.” And you’re like, “Well, there’s no real…like, that’s not true,” right? Like, there’s… No. Like, it’s not… It might, but it probably doesn’t. And so, it was a similar situation with a lot of the technical analysis. I’d look at it and be like, “Well, you’re saying this, but, you know, like, there’s no real there there.” That having been said, I believe in a lot of the kind of quantitative TA. On a non-behavioural side, I think it’s a gem.

But a lot of the Level III was garbage, and so, they used to have the ability to write a paper, and pass…skip the Level III. And I was… But then they announced they’re doing away with it, and I was like, “Oh, hell, no. I’m not taking this test.” And so, it was, like, December 30th, I submitted just, like, the most generic abstract. And I, I just put it in something. I’m like, “What can I write about?” I was, like, “I’ll write something about trend.” And ended up writing this paper published in the Journal of Wealth Management, because I was like, “I’ve written it. What do I do now? Like, there’s no point in just sitting on it.” Got published. The timing was right, because it was right before the Global Financial Crisis. It was a simple trend-following paper.

A couple funny side notes, and apologies… My audience has probably heard this, but if you guys haven’t, I sent it to about 10 people that I looked up…like, the Mount Rushmore in my world at that point, in my 20s. Spammed them, essentially, but sent them to people you guys would recognize, and I can name some of the nice responses from, like, Rob Arnott. You know he was just, like, this random e-mail of this shitty paper, first draft, by this, I mean, come on. He was like, “Look, this is, like, a good idea. Like, the math and the quant is there, but, like, this is, like, a, you know, C paper.” Because he’s the editor of “Financial Analysts Journal,” like, the gold star. And he’s like, you know, you can clean it up, and then, you know, it could be a good paper.

And I got some other responses from guys you know, I can tell you later, where they were like, “This paper is worthless.” Like, the exact language. They’re like, “This is the dumbest thing.” Like, on and, just, like, not even, like, constructive criticism. Like, really mean. And I was like, “Wow. Like, you didn’t have to be that ruthless.” Like, you don’t have to be a dick. Just be like, you know, “Not for me. I don’t agree with it.” Like, move on.

Anyway. I got a couple of those. But anyway, that also kind of informed my view of responding to people, you know, particularly the younger crowd in emails over the years, and I try to take the high road if I can. And respond. Anyway.

Michael: So, Meb, so, I… So, as I said, like, I’ve sort of, a little bit lost love for writing, a little bit, like, lost the time. There are not enough hours in the day. You asked this earlier. What is our day job? And Morgan was just in here before, and he was talking to me about how much of my time is spent on content, and helping to manage the RIA. And my schedule is chaotic, my desktop looks like my brain. It’s just sort of messy. And it’s really hard to untangle, and I haven’t really given much thought, like, what percentage of time… Because, at this point, Ben and I have a podcast on Monday, I’ve got one with Josh on Tuesday, then I have another one on Wednesday, and then Josh and I have one at Thursday. So, it is a lot. It’s pretty much seven days a week at this point, or close to it, and I can do, like, because my kids are still young, and there’s still enough hours in the day.

But, you can’t do everything. And so, for me, writing is getting the short end of the stick. And I got to tell you, I don’t really miss it that much.

Meb: Well, I mean, if you think about it, and we talk about this with advisors all the time who are talking about content, like, “You know, I feel like I need to put out a podcast or blog or something,” and say, “Look, this has been going on for 100 years. You know, it used to be giant businesses in our space had been built on content.” Now, Edelman was radio. Fisher was direct mail and magazine. You know, you could go on. Dave Ramsey, whose business does a shocking amount of revenue per year… I think it’s like $300,000,000 or something, last I checked. My New Year’s resolution for the summer, whatever you would call a New Year’s resolution in July, is to convince Dave Ramsey to adopt ETFs versus these mutual funds that he likes so much. But yeah, that’s…we’ll check back in December.

But, you know, it’s just reaching people wherever they are. And so, you know, Michael Batnick, what you touched on, I think, is an important point, which is, you know, things have changed in hitting people where they want to receive content, whether it’s TikTok… It could be holograms in five years. Who knows. But it’s also the attention span is condensed. You know, it’s hard.

Ben: We reach different people through… Like, I think there’s almost a generational thing. Josh was the first one who made a push into YouTube for us. And Michael, I think, maybe I’m speaking for here. You and I were a little more skeptical about YouTube. But we have people who’ll watch the podcast and watch YouTube shows, and it’s more of a younger audience. And then, I have…you mentioned blogs. I still blog a lot. I just kind of find writing cathartic. But I’ll get one or two emails a week from boomers, being like, “Hey, I’m trying to print out your blog. I can’t find the print button anymore. How do I do it?” And then, podcasts, I think, is probably more like a Gen X, maybe, kind of thing, it seems like, if we’re putting people into little style buckets here.

But the thing that I always tell advisors who ask if they should produce content, it’s like, “You have to really like doing this.” Like, we all, before we even got together with Ritholtz, we’re doing this on our own because we enjoyed it and we liked it. Meb, you’ve been doing this for how long? When did you start? 2007 or something, probably?

Meb: Well, so, let’s see. The writing and… The blog and the papers would have been, like, ’06. Maybe books, kind of the same time. Podcast was kind of…you know, it’s funny, because for us, the podcast, we delayed, because we were listening to Barry’s, and kind of the Gen 1. But for the longest time, I was like, I wanted to do, like, a video course. Like, I wanted…in my head, I was like more instructional, kind of like a master class sort of setup, but I was like, “Oh, that’s going to be so much work.” You know, because right now, you can buy a camera, mic, Zoom, and it’s almost plug and play. But 5, 10 years ago, it wasn’t. Like, the…it was kind of, the audio, the technical side was daunting. And so I was like, “Ahh, that’s so much work.”

But then we polled the audience. I was like, “Would you rather have a podcast or a very highly-produced, well-done video?” And it was like 95% said podcast.

Michael: I consider you G1 financial podcast. You were after Barry, but were you before Patrick or around the same time?

Meb: Yeah. It was like version two, kind of, and then, kind of like, it became a little more mainstream. So, we were early, but, you know, it’s funny, because I still think, despite the evolution of the space, I still think there’s a ton of ideas and models that haven’t been really tried in the podcasting space, that I think there’s a lot of opportunity for. I mean, there’s the general conversational, like we’re having, but I think there’s a lot of ideas that haven’t taken hold, and maybe they’re stupid ideas, but…

Ben: We started ours in 2017, and at the time, the joke was “everyone has a podcast, and now these guys do too.” But my thing is, for people who really want to do it, who cares what other people think, or… It’s the same thing with the…remember, we all wrote a book, when we first started blogging right? Everyone kind of had a book to start. Some more than others, but…

Michael: The week before we started, literally, a week before we started, I saw a cartoon in the “New York” magazine that was actually very funny, but it made me feel very self-conscious at the time. It was two people sitting down on the couch, and one of them said to the other, “I’m thinking of stopping a podcast.” And so, I was like, “Oh, boy.” But so, Meb, like, the whole content thing, at the end of the day, we are financial advisors. I mean, Ben and I specifically aren’t. We’re not CFPs. We’re not on the front lines on a day-to-day basis. But this is a business in which you ultimately need to convince somebody that you are trustworthy, and that you are responsible, and that they should hand over their life savings to you. That is no small decision, right? And it’s very difficult to get somebody to say yes.

And so, what we have discovered, and knew, I think, maybe early on, was people…and this is Josh’s line. People do business with people they like. And so, if we can have some advantage… Nobody has ever said, “Great blog post. Take my money.” Or, “You guys are funny. Take my money.” There’s, you know, there still needs to be serious work and diligence, and making sure you’re competent, all that sort of stuff. But if you could start on first base or maybe even second, it’s a huge advantage.

Meb: But it’s also nice that, you know, one of the challenges with, like, a traditional financial advisor is you get maybe quarterly commentary, or they’ll call you once a year. Or, you can call them, obviously, but, or, you know, you play golf together. And maybe that relationship is very engaged, and maybe it’s not. And some people don’t want it to be, but the nice thing about y’all and the way you have it set up with the content is if people want to opt in on your voice and, kind of, your messaging, they can, and so they can listen to the show, they can read the blogs. They can get kind of as much of the firehose as they want, and I think that becomes, in many ways, the sort of product-market fit of advisor-client fit, of culturally, right? And they may opt out, and they say, “God. These guys really aren’t that funny. They think they’re funny…”

Ben: Well, we also…we also look at it…

Michael: Oh, believe me. We have a lot of people opt out.

Ben: But we also look at it as a way of, it makes our advisors’ time more efficient, because clients aren’t calling them all the time, saying “What do you think about the markets?” Well, if you want to know, go listen to Josh on CNBC, or Josh Michael’s podcast, or our podcast, or Barry’s podcast, and then the advisor can focus on the client and their specific circumstances. So they don’t have to focus on, well, interest rates are rising. What does that mean? You can look at one of our blog posts or podcasts or YouTube videos, and that’s the way that we see it, is that it makes our advisors’ time way more efficient with the client. We’ve had plenty of clients who, when they first come on, they still want to have a little more trust, and I’m thinking of a couple of them specifically that where the first year, we would have multiple calls with the clients every quarter or month, and they’d just pepper us with questions.

I remember one time, Michael, they finally said, “I had all these questions, but you guys are answering them in the podcast now, and I don’t need to come to you all the time and have a call. I can listen to the podcast, get most of those questions answered, and then talk to the advisor about my taxes and estate planning, whatever it is, and that’s the big thing there with the content.

Meb: So, give us an update on the firm, how many folks y’all got, you know, ballpark number of clients, your AUM. I mean, I remember being in the old-school, version one offices, and kind of encouraging Barry on this independent route. I mean, I can’t say I was the one that pushed him over the edge, but I remember being like, “You know, bro. You got to do this. Come on. Make it happen.” And I think everyone’s glad that that decision was made. But it’s come a long way. Where are you guys now? What’s going on?

Michael: Yeah. So, tale of tape, we had our partners meeting on Friday, and we were discussing this recently. Three out of the 10 people that are now part of the company, we’ve added in the last 12 months. So, we’ve added quite a bit of bodies, and we are really, like, obviously, what people don’t see is what goes on operationally on a day-to-day basis. We are a well-oiled machine. And so, we’ve got professional people at every at every level of the organization. We’ve got 1200, 1300 families, something like that. Almost at $3 billion. The market took a little bit away from us, but…

Meg: Congrats. It’s awesome.

Michael: …but yeah. Things are going well.

Meg: Yeah. That’s great, guys.

Ben: And it’s funny, because most of the people we’ve hired have been since the pandemic, and we’re a remote company. And most of the people had met. So, we had a little get-together in Chicago. We did a little operations team meeting in a Cubs game, and I just went down there to be a fly on the wall. And, I don’t know, 75% of the people I’d never met in person. It’s all Zoom, or Slack, or those kind of things.

Meb: We did the same thing, where we had everybody come meet up, and they’re like, “Meb, what’s the itinerary?” I’m like, “There’s no itinerary. I just want you guys to, like, actually be humans, and, like, interact in the real world, as opposed to Zoom and Slack. Speaking of real world, you guys are having a big party/slash conference…

Michael: IRL.

Meb: …coming out soon, in a couple months. Tell the listeners what’s going on.

Michael: So, we are rethinking what a financial conference is. We’ve all been to a million of them, where it’s a ballroom, and there are four dudes on a stage, talking about smart beta, and maybe now ESG, and factor investing. And I think everyone has more or less had their full share. I think we’re all pretty bloated on that format. So what we’re doing is we want this to be in the spirit of more of a festival than a financial conference. So, what we’ve done is we are working with the town, or the city, I guess, of Huntington Beach, which is almost your back yard, Meb, and it’s going to be a festival. So, we’re shutting down a few city blocks. It’s going to be on the beach. There’s no, like, of that pay-to-play stuff. There will be some stage work, obviously, but it’s not going to be stuffy.

The reason why conferences are fun, to the extent that they are any fun at all, is because you get to meet people, you get to hear new ideas, hang out with your friends, grab a cocktail, and that’s what we want to really lean into.

Ben: Yeah, they’re also renting out, like, bars and restaurants, where people can have smaller gatherings, and we’re going to do kind of like live podcasts on this date. Like, Michael and I, we’re doing a live podcast on the stage, and Barry will do one, and some more people. So, we’re trying to do, yeah, do like that, where it’s more fun and so… Because that’s the best part about it now, is just getting together and socializing with people. It’s not the panels people care about.

Meb: We’re also doing a podcast, and can I claim to get dibs on Big Boi, as my guest, before you guys do. There’s some cool talent. You know, I was chatting with y’all’s organizers in Miami, and I said, you know, I was like, “You guys, there’s a…” I’m not going to mention them, but there’s a third-tier investment bank that has an annual conference here in SoCal, that gets great attendance because they have amazing music acts every year. I saw Snoop Dogg play at The Four Seasons, and it was, like, the best show ever, I’ve ever… I was like, “Snoop’s going to mail this in. It’s a bunch of people in suits.” And he just played the best show ever. So, I was like, “Who you guys going to get?” I was like, “Let’s talk about this.” And then, we spent like, an hour, because they’re like… I was like, “How much does it cost, by the way, anyway, for some of these acts?” and they’re, like, surprisingly, some of these are not that expensive. Like, some of the big names are, of course, but…

And I was like, “Well, you know I know…I’m good friends with Warren G’s manager. I can get you Warren G, if you want like a, you know…”

Michael: Regulators.

Meb: Yeah. But, let’s see. Who are the music acts? I saw them. It was Big Boi from Outkast. DJ Stochastic was a multiple podcast guest.

Michael: Is he a technician?

Meg: What?

Michael: Is he a technical analyst?

Man: That’s Jared Dillian.

Ben: Lil Fibonacci.

Michael: Oh, it’s Jared Dillian. I didn’t know that that was his DJ name. Oh, I love Jared. I’m seeing him soon. There’s one that… Ben, who’s the big one that Josh keeps talking about? They play in arenas. Josh..

Meb: Oh. Fitz & The Tantrums.

Michael: Yeah, yeah.

Ben: Yeah, there it is.

Michael: Yeah. I don’t know who they are. But they’re going to be

Meb: And I thought Steve Liesman’s band was playing. Like, the, it’s, like, a Grateful Dead cover band or something.

Ben: I think they are.

Michael: Yes, yeah.

Meb: Cool. Anyway, it’s going to be a lot of fun.

Michael: Meb, how many ETFs are you at now?

Meb: We have 12.

Michael: Am I allowed to ask an ETF question?

Meb: You can ask all you want.

Michael: Okay, so, all right…

Meb: Okay, I know you’ve always wanted to ask this, but it stands for exchange traded fund. Okay?

Michael: All right. So…

Meb: Not electronic funds transfer. And advisors don’t ask me that anymore. It was, 5 to 10 years ago, like, EFT was a common… Like, they were like, “So, like, what is the…?” But I don’t get that anymore. They’re mainstream now.

Michael: That’s, like, the Chipotle of financial comments.

Meb: Before you ask the question, let me finish off with my Future Proof jokes. So, listeners, we’re going to be there. The Cambria crew. We have at least a booth, if not more. I think we should hold a… Have either you guys surfed before?

Michael: No, never.

Ben: I’ve done the wakeboarding thing before.

Meb: I saw a look of panic in Ben’s eyes as I said that…

Ben: I’ve wanted to try. I’ve done the skimboarding thing before, and not broken any ankles, so, like, I would try it.

Meb: All right. So, you guys are in. I don’t know what day, Sunday or Monday, we’ll organize a Future Proof Cambria surf…learn-to-surf session. We’ll hire some …

Michael: That’s awesome. I’m in.

Meb: …and we’ll hire some local guides, and go out, as long as it’s not enormous waves. Hopefully, it’s nice and mellow. So, that could be fun. Not too early. I know… I mean, we, early enough, but I’m not a morning person. And also, my Denver Broncos are playing Monday Night Football, so I’m going to have to find a restaurant pub that’s sympathetic to the Broncos somewhere, and rent out a spot as well. So, listeners, hit us up. Listeners, by the way, is this sold out, or is there still spots?

Michael: No, there’s still spots. The attendance is…well, I don’t want to say numbers, but there’s going to be a lot of people there. Hey, Meb, is this the best division in football that we’ve seen in a long time, the AFC West?

Meb: I think it’ll be dec. We’ll see. You know, look, I’m, like, you know, all you guys, I feel for you. It’s rough, you know. Consistent Knicks, Jets, all these things in the northeast. So, Broncos, for me, this last cycle had been, you know, every year I’m optimistic and then disappointed. So, now that we got Russ, it’s back on the upswing, so I’m fingers crossed. We’ll see. But it’ll be fun. They got a couple games here in LA. I may go out to see the Raiders play the Donkeys, so we’ll see. It looks like a fun stadium.

So, listeners, if you’re going to go, we’ll be there. The Ritholtz crew is obviously going to be there. It’s going to be a lot of fun.

Ben: Tons of advisors, tons of fintech people. It’ll be…it’s going to be fun.

Michael: All right. So, Meb, let me ask you this. So, I’ve told you this before. I read your paper…probably not…actually, definitely not in 2007. I probably read your paper in 2012, I’m guessing. And it made a lot of sense to me, because I’d been trading by myself, and I was finding it challenging, right? Guessing which way a stock is going to go is not easy. And so, the rules-based nature of it really appealed to me. And in 2013 or ’14, we built a model that was very much influenced, if not outright stolen, by your paper. And I said to Josh…

Meb: Good, because I stole it from Charles Dow 100 years ago, so don’t feel bad.

Michael: I said to Josh, “We should do this. I think we could do it. I think we could do it. I think we should do it.” And he said, “I don’t understand. If this actually works, like, the way that Meb says it does…” Because I had reproduced the results as well. Trust but verify. I said, “Dude, let’s go over it. Like, let’s look at all of the data.” And he said, “If this really worked, why wouldn’t everybody do it?” And the answer that I gave him was, “It’s not bullshitty enough.” Right? It’s too simple. If this actually worked, it’s tough to package, it’s tough to sell, it’s tough to distribute, convince, etc., etc., etc.

Meb: If you ask any quant, any investment bank, any research paper, there is probably…this is my opinion. There is probably no strategy or alternative allocation you can add to a traditional buy-and-hold portfolio that benefits all of the metrics, return, risk, correlation, drawdown, more than a trend-following approach. Now, there’s a million different ways to do it. You could do it with managed futures. You could do it long/short. You could do it long/flat. Doesn’t matter. That’s my opinion. There’s nothing that’ll benefit a traditional portfolio more.

Ben: Hey, let’s… I want to nerd out on trend for a minute, because I’ve been thinking about this. So, I learned a ton from, like, your original paper and stuff you wrote, Wes Gray and his team. Asness and AQR helped a lot, Corey Hoffstein. Do you think… And so, the three of us have done a ton of backtests in our day. And obviously, we understand that backtests are for providing some context and probability to nuance, and it doesn’t help you predict the future, but it can give you an idea of different risk parameters and ranges. Do you think the speed of the markets now has made trend-following a different story? So, I’m not sure if this is true, but I’m guessing. So, in the last, call it, whatever, 30 months, we had all-time highs, into a 35% drawdown from all-time highs, then the market doubled, then now where we are back to 24% or 25% really quickly. So we’ve had two bear markets in less than three years. Does the speed of the markets, because of the Fed and because of information and all this stuff, and obviously, you can say, “Well, this is a one-off pandemic,” but it does seem like markets are moving faster. Does that change how you view some of those backtests at all?

Meb: Short answer is no. The longer answer, too, is I think most traditional investors, not necessarily … on this, but they think in terms of U.S. stocks, bonds, maybe foreign stocks, but, you know, most of the real trend followers, they’re doing managed futures, trade 50, 100 markets. They’re trading carbon credit futures. They’re trading… And this is one of the benefits, too, that, one of the reasons they’re having such an amazing year this year, is don’t forget they can short bonds too. And there’s nothing else in your allocation that really is going to have that sort of exposure. You can rhyme with it with maybe commodities. Usually in an inflation or unexpected inflation environment, commodities help.

Ben: Well, that’s what most original trend followers do, right? Commodities and bonds are the two main ones?

Meb: It’s all of it. No, it’s all of it. And so, here’s the problem with trend. And you can really talk about value the same way. You say, “Look, value works most of the time. It works over history, works in most markets, and it’s a great strategy,” particularly if you look at the flip side, what’s a terrible strategy is buying real expensive stuff. Like, that’s a horrible idea. But it doesn’t work all the time. And it’s the times that it doesn’t work that makes it really hard to own it. Think, I don’t know, the last 10 years, right? You know? Last year, the three of us, February of 2021, shit was just going bananas. Like, I mean, what in the world? It was like, felt like ’99 again, in a different way. And so, those are the times when people like, you know, “Buffett’s lost it,” like, “Value is terrible,” right?

So, trend is similar in a different way. Trend usually works great in times of geopolitical stress, and particularly long bear markets, 2000, 2003, 2008. And then it did F-all for, like, a decade, right? And so, trend-following is having an amazing 2022. You can go do a screen, listeners. Pull up, like, a ETF Screener. Go on Bloomberg. We did a poll the other day. And look at what percentage of ETFs or funds are down in 2022. It’s like 90%. Because stocks and bonds are down, right? Trend followers, on average, are having a monster year. But, it was garbage, probably, for the last decade, and so the problem with trend is the career risk, the business risk, and that you look different, right. And so, people really struggle with that.

And so what people are seduced and try to do is they say, “Well, I want to be buy-and-hold,” or “I want to be trend.” It’s the same thing. It’s like, “I’m a gold miner. I’m a crypto…” Like, they find their tribe, they find their narrative, and they get stuck in it.

Ben: There’s a lot of cognitive dissonance in financial advisors, because we talk all the time, too. It’s hard to get, especially since so many people came up on the, in the last 10 or 15 years, on the Bogle school from Vanguard, which, you know, I consider myself, like, a Boglehead, but it’s having the ability to see that, like, those two things could be complementary is really hard for some investors to wrap their minds around.

Michael: Well, what we say is, is Gene Fama and Bobby Shiller won the Nobel Prize the same year, for diametrically opposed market views. And so, Meb, like you, we think that they are…that there’s room to take the best of what they both do. And the thing that I would say that’s so difficult about managed futures specifically, for the individual investor, is, if you look under the hood… I remember I was listening to a webinar from one of these companies one time, during the lean years. And a lot of the negative return came from shorting sugar, or corn. You can’t explain that to a normal person, right? You just can’t, if they’re like, well, “Tell me, what’s going on?”

And so I agree with you. In theory, it is a great diversifier, but I don’t think that people, and I would put certainly “professional,” like, in this category, can stick with a strategy that can underperform for a decade. I just don’t think they can.

Meb: I agree. And so you just, you were talking about U.S. stocks, right? To be clear. A strategy that can underperform by, under a decade.

Michael: Underperform U.S. stocks.

Meb: So, my point is… So, no. Any asset, right? You can pull them up all day long. Stocks, bonds, gold, whatever, goes through these periods, and even active managers, go through periods where they underperform for decades. And so, but the unique thing about trend is you’re different, right? Like, 60/40, this year is one of the worst years ever for 60/40. But the people who are managing 60/40 portfolios are not getting fired, because everyone’s doing 60/40, right? Like, it’s, you’re part of the crowd and the well-accepted buy-and-hold beliefs. Now, every quant on the planet, for the last five years, has been saying this is one of the worst opportunity sets in history. Now, you hear the problem. “The last five years.” It wasn’t just like, at the peak, right? They’re saying it this year. I want the beta of trend. Like, I don’t want the alpha. And so, if you look at, like, the SocGen Index, or the Barclays, or any of these, like, I just want…you could buy five of them. It doesn’t even matter to me. Like, buy a basket of them that gives you the broad Vanguard S&P of trend, really, in my mind, and so…

Ben: I think the other reason that the 60/40 managers are not getting fired this year is because, as bad as 60/40 is, and I looked at the numbers too, it’s one, it was one of the worst six months periods for it ever, there’s so much other stuff that people jumped into in the last five to seven years that is doing way worse. Like, everyone became a stock picker, everyone was into crypto, all this, and all this other stuff, tech, whatever, is getting hit way, way worse. So, on a relative basis, you look at it and you go, “Eh, at least I’m not as bad as that person.”

Meb: Yeah. I think that’s fair.

Michael: I think for the most part, if you can’t survive a bull market, specifically, Meb, to your point, a U.S. bull market, as a U.S. investor, you’re not going to stick with that strategy?

Meb: Yeah. Yeah. And so, the challenge is… So, I was going to say, if you, like, did a lie detector test, and blinded the characteristics of a bunch of asset classes, like, trend gets the highest on the optimizer almost always. And so, the problem is you then reveal them, and you’re like, “Oh. Well, I can’t put half in that. That’s crazy.”

Ben: Michael, that’s not nearly as exciting as your wine tasting you did a couple weeks ago. Michael performed a wine tasting, blind taste test for our show, right, to figure out if a $50 bottle’s better than a $10 bottle. Here’s the problem, Meb. He got two different kinds of wine. And the cheaper…

Meb: Oh, he did, like, a Chardonnay and a Cab?

Ben: Yes. The Sharpe ratio on that $50 one didn’t …

Michael: Hey, Meb, can I ask you about the CAPE ratio? Because you…

Meb: Yeah. But hold on. Before we get into that, I got to ask Ben about… I mean, you live in beer country, the best, like, part of the best beer country in the world. You got a favorite from this part of the world?

Ben: Well, I mean, the Founders… It’s seasonal. So, in the summer, you have to drink Bell’s Oberon with an orange. That is, that’s the summer one. All Day IPA is a good one if you’re on the beach, or on the river …

Michael: I thought you’re a pilsner guy. I thought you only drank pilsners.

Ben: I, mostly. But in the summer, I’ll go out a little bit and change it up, but yeah. Grand Rapids, West Michigan area is, we got a lot of good beer. Every time I go to New York, I see the Founders on tap in New York, even.

Meb: By the way, like, this is some pretty ninja-level hosting you guys are doing by somehow coming on my podcast and making me talk 90% of the time. Like, how… I, like, I haven’t even… I have, like, 15 questions we haven’t even got to. So, yeah. So, we…

Michael: All right, fine. Let’s go through it.

Ben: Let’s do rapid fire.

Meb: We can talk about CAPE ratio. Like, you want to talk about it? Let’s talk about it.

Michael: All right. So, here’s my thing on the CAPE ratio. I think we would all agree that generally speaking, you would like to buy stocks when they’re cheap, not expensive. Although, again, doesn’t have to be binary. The problem that I have with CAPE ratio is that it has been rising for the last four decades, and we’ve been above the long-term average 95% of the time, or whatever it has been. So, and I’m not saying that we should start in 1990, right? I’m just saying that, like, should we start in 1820? And our structural components of…it’s so different today that it’s just worth questioning where a company is so much more capital efficient, profit margins are higher, you know, on the back of tech. Like, does it make sense to compare today’s market with markets before the railroad even existed?

Meb: There’s a lot to unpack here. CAPE ratio, for listeners, 10-year PE ratio, adjusted for inflation. I think the CAPE ratio’s actually meaningless. You could use any valuation metric. They’ll say the same thing at extremes, but I like to use CAPE because it’s got kind of a broad understanding. A couple points about this. You know, to me, the way that people want to use the CAPE ratio, I think, is to pick tops and bottoms in markets. That’s the way they think it should work, but that’s not the way that it works, in my mind. And so the fact that… You didn’t say this, but here’s something I hear a lot. Say, “Meb, CAPE ratio was 30.” Twenty-five. Whatever. “On the expensive side, and the stock market went up 50% afterwards. Therefore, the CAPE ratio, it doesn’t work.” And I said…and it goes up to a PE ratio of 40, which is what we hit at the peak of this cycle. And I said, “That’s exactly how it works. That’s a feature, not a bug.”

So, price going up, in the PE ratio, increases the valuation. It’s a claim on all future cash flows. The further it goes up, the lower your likely future returns are going to be. You’re just mortgaging the future. You’re taking returns in the future, bringing them in. And when it’s low, same difference. So, I say, “Guess what?” You know, “This sucker could go to 60 or 100, where Japan hit almost 100 in the ’80s,” right? Like, that’s entirely within the realm of possibility. That doesn’t mean valuation doesn’t work. It means all of a sudden, you’re having this massive bubble, where things are getting more expensive, and it’s getting dumber and dumber and dumber to invest.

I mean, we did a poll on Twitter where we said, “Do you invest in stocks?” and everyone said yes. Said, “Would you invest in stocks if the CAPE ratio hits 50?” and most people said yes. “Would you invest in stocks if the CAPE ratio hit 100?” And it was like a third still said yes, right. Higher than they’ve ever been in history, in any stock market ever. But what’s funny, if you ask Bogle, and he kind of did this original formula, where he talked about expected stock returns. There’s a video we posted recently where he admits to it’s a good idea to do valuation-based portfolio…essentially market timing.

Ben: If you read his last book, he wrote, his, like, biography, he was a market timer. In, like, ’99, he sold a lot of his U.S. stocks and put more into bonds. He went from, like, 50/50 to 70/30, or 30/70. He was a way better investor than people give him credit for.

Meb: Templeton was, too, and they have a simple thing. They were like, first thing you can do is you can just rebalance. So, as the sucker keeps going up, you are continually selling it, right? So, that makes sense. But you can also “over-rebalance.” So, he’s, Bogle, in this video, is like, “Look, if you’re 60/40, and stocks are trading PE ratio of 40, you can go maybe to 40/60.” He’s never like, “You sell all your stocks.” Like, you know, timing it, but he was like, “Hey, you should adjust. That’s common sense.”

If you put the U.S. stock market into four buckets, cheap, expensive, you can say above the long term average. So, CAPE ratio, since the ’90s, averages, like, low 20s. Historically, it was, like, 18. But that also correlates to the fact that it was a low inflation environment. So, low inflation, going back to 1900, CAPE ratio is allowed to be higher. High-inflation CAPE ratio’s, like, low teens, by the way. So if this sucker sticks around, up at 8% inflation, not out of the question that you see that in the low teens. Which is where it was at the end of the financial crisis, by the way. You had a CAPE ratio of, like, 12 in ’09. So it’s not without precedent.

But in the ’40s, in the ’70s, other times of high inflation, you had single-digit PE ratios. But if you go cheap, expensive, uptrend, downtrend, and we can put the charts links on our site, the best is cheap uptrend. No surprise. But second best is expensive uptrend. So, a market that’s expensive, but continuing to go up. Now, the problem is, it flips, when it flips to the worst, which is right now, is expensive downtrend. It’s not a place you want to be, but it’s still positive returns. It’s, like, 2%. Nominal, so, real, it’s negative, but still, it’s not minus 20%. You can add Fed in there, too. So, you can add the trend of interest rates, and it now has, like, whatever that is, 12 buckets or something. But I think it’s important.

Anyway, the whole point of valuation, to me, it’s all well and good to buy the cheap stuff. Great. But you’re also avoiding the really expensive. When you talk about career risks, there’s nothing that’s worse than something goes down, like, 80%, right? Like, you don’t want that. And so, I think I may have said this on Barry’s podcast, but we have an article about this, but it was like, let’s run through this mental example. 1993, Seth Klarman was talking about stocks being expensive, right? I said, “Let’s say you use CAPE ratio, and you got out just when it got expensive. Not even really expensive, just above average. And you only got back in when it was below average.” I was like, “You would have underperformed the market by, like, 1000%.” Like, some enormous number. I said, “However, most people always assume you just go into nothing.” I said, “What if you instead sat in bonds?” Right? You have to put the money somewhere. You would have done just fine. You almost kept up with stocks by moving to bonds in these period. Part of that’s because bonds did amazing, right. But, if you said, “There’s a third choice. Let’s move into the rest of the world,” so, it’s cheaper stock markets, you would have crushed the S&P, right?

So, just, the mindset is really not about CAPE. It’s about just finding value and avoiding …

Ben: Meb, you should know that Michael has retired from blogging about CAPE, like, six times. He is a Brett Favre of the CAPE ratio. He just can’t quit it.

Meb: Nothing generates more negative engagement than that. I had a… My god, I had one in January, where people would just went fuckin’ nuts. And it actually had no opinion. It just stated, like, a stat. And people went crazy. And the best part is, because my bio doesn’t mention that I’m an investor. It just mentions, like, books, podcasts. Not my day job. And everyone’s like, “Who you going to listen to? Like, this podcast host?” Like, “He doesn’t know what he’s talking about.” Anyway, but that’s quiet, now that stocks are down 15% or 20%, or whatever they are. It’ll get really quiet when they’re down 40% or 50%.

I got to ask you guys some questions, dammit, because I’m tired of talking. But, speaking of, I was going to do a jumping-off point, now that we’re talking about Twitter. You guys’ most popular tweet, do you know what it is? For either of you? By the way, who do you think holds the crown for most popular tweet, because I know the answer, Ben or Batnick?

Ben: We’ve both had some… I don’t know. I wouldn’t know.

Michael: No idea.

Ben: I didn’t know…

Meb: The answer is Ben. Well, so, like, you can do all sorts of, like, advanced search in the Twitter bar. So, if you say “from…” And by the way, the “from” thing is, like, the most useful, because you can search a specific person, including your own timeline, because now you have a diary of all your tweets. But say, “From: @” …

Ben: I bet it had to be some really, really dumb, sarcastic tweet I did. I’m sure it’s not anything

Meb: Oh, they are. They are. And then you can say “meb_fabers,” and I did, for you guys, 5000, because you…

Michael: so, what was it?

Meb: Well, I’ll tell you both of you’s most famous, then I’ll just read a market-related one, because I think your most famous are neither market-related. Ben’s most famous, with 24,000 likes, was, “I can’t wait to cut the cord and simply subscribe to Netflix, Disney, Apple, Prime Video, HBO…” on and on and on. A little snarky tweet. “This will finally help me reach my goal of becoming

Michael: Twitter is so dumb. It’s not even a good tweet.

Meb: It’s great. I think it was tweet.

Ben: It was ahead of the game. It was, before it was funny. Come on.

Meb: Yeah. Yeah, it was, this is two, three years ago. So, timely. Let’s do a recent one. You had a recent one that did well, June 13th. “The Fed needs to raise rates as quickly as possible to tame inflation by sending us into a recession, where they can then cut rates to save us from recession.” And I think that’s great. Like, the macro commentary you hear in the day-to-day is, like, it just makes your head spin. It’s always so negative. But it’s sneaky funny, guys.

Then we’ll go over to Batnick, who’s not as popular. But his number one was…

Ben: Was it the pie chart?

Meb: No. That’s up there, though. The market cap…it was a good one. Did you have to type… Oh. Okay, so, we’ll link to that one, too. Number one was Feb 2021, height of the mania. “Charlie Munger doesn’t get it. From Nicholas, 22, owner of .19 shares of Tesla.”

Ben: That’s not bad.

Meb: And that’s funny, because at the time, like, that was the…like, people, that…you probably got a lot of hate on that one.

Michael: I am getting very disillusioned with Twitter. I am, I just, I hate it.

Meb: It sounds like you’re just mad that Ben has slightly more popular tweets. And then you had another good one. Any time you bring the bitcoiners out. “Berkshire has $145,600,000,000 in cash. $0 in Bitcoin.” That was a good one.

Ben: Here’s a thing that I’ve realized with Twitter, though. Because obviously, Meb, you’ve had the replies, too, from people that just get you so worked up or whatever when you see them, whether they’re negative. or they take what you say out of context. I honestly think having children has made me just care so little about what other people think about me that I, it’s easy for me to mute or block or ignore now. Whereas in the past, when we first started this, it would, like, ruin my day to see someone say something mean about me, or “Hey, you were wrong. You’re an idiot.” Now I honestly really don’t care unless I truly value that person’s opinion.

Meb: Yeah. You know, I, children may be it, and it may also just be practice, like, you’ve had this slap, like, 1000 times at this point, and we actually, I started keeping a document recently, called “Meb Hatorade.”

And it’s a lot of, like, the really, you know, mean mean girl tweets over the years. Or emails, or comments. And it’s, you look back on them, and, like, most of these are actually pretty funny. Like, I went on CNBC the other day, Batnick will appreciate this, where they were like, “Have fun losing money and your hairline.” That’s like, that’s pretty good. Pretty good.

Michael: Yeah, no, that sort of stuff doesn’t bother me, when they’re like, like, making fun of how you look. Like, whatever. That is what it is. But it just, it’s gotten very mean-spirited, and what Twitter rewards these days is dunking and threads, and both of those things are gross to me, so… Eh, thread aren’t gross. I just …

Meb: Well, but you also, like, and this is a classic, as we talked about content earlier, as we talk about reach, and, you know, growing your business. You know, you talk to any celebrity, like you guys, with a ton of followers, and, you know, it’s a double-edged sword, right? Like, you start to get to a certain level, and I think Naval was talking about this, and he’s like, the Twitter experience with very few followers versus a lot is, like, totally different. So, like, what Elon Musk sees, or some of these people with millions of followers, is a very different experience.

Ben: I made the mistake a couple weeks ago of doing a stupid, sarcastic reply to one of Elon Musk’s tweets, and I know why he thinks there’s so many bots, because I replied to it, and I shouldn’t have done it, and I got 100 bots replying to me, on his…

Michael: I’ll never turn into a fortune cookie, life hack tweeter. I just, like, I… It used to be… So, I’m not complaining, because Twitter’s been a wonderful blessing for me and my career and all that sort of stuff. But absolutely, the experience has changed for me. I’m afraid to tweet.

Meb: Yeah. The…

Michael: I’m afraid, dammit. That was my Sylvester Stallone impression of Rocky III.

Meb: Ben, it’s funny, because, like, I commented on a thread the other day. About a year ago, we mentioned a… I got, I think there was a Instagram ad that I had, that was, like, a financial marketing. I was like, “This is clearly a fraud.” And I tweeted it. And everyone’s like, “Yes. This is clearly a fraud.” And I was like, you know, I thought this is just some, you know, dude in Croatia or Guam or something, just, like, you know, trying to do some scam.

Michael: It was Seth Klarman.

Meb: It was a $250 million fraud based out of Texas. And it got busted, like, a week later. So far, no whistleblower cash coming my way. But we’ve actually reported two billion-dollar plus ones that the SEC declined to, whatever you call it, investigate.

Ben: I wrote a book about financial scams that no one really read, but it boggles my mind how many people… I just heard a story the other day about my mother received a text message saying, “Go enter your information here, but don’t call anyone, because if you call someone about it, they will have your information.” And of course, it was, like, a crypto scam. And they stole, like, $30,000 from her. And then that night, she’s like, “You know, wait a minute. I think, actually, the reason they told me not to call anyone or contact my bank is because this was a scam.” Oh, are you sure? Like, you’d think the amount of information we have would make it easier for people to see through that kind of stuff, and it only makes it harder in some ways.

Meb: I mean, so, we have a compliance program that sends us, it’s actually obnoxious, but we get, like, two fake emails a day. And they’re usually pretty obvious, but some of them are actually, like, getting to be, like, pretty good. But there was one that Ramit Sethi tweeted the other day, that was Tai Lopez, and I don’t know Tai Lopez from anyone, but it’s an Instagram ad, and I’m going to read it. We can post it. But it says, “Do you want a deal that pays $3000 per month on a $200K investment, with equity upside?” And there’s variants of it, with the different numbers, but it’s, basically, it says, “Do you want $20K dividends per year?” Preferred dividends, with this investment. And I’m like, you definitely can’t say that. Like, that’s not…

And then, so, I onboarded, and I called, and I talked to, I don’t want to say one of the dumbest people ever, but a particularly not bright salesperson. And I kept asking questions. I was like, “So, you guys guarantee, like, 20% dividends? Like, can you send me, like, a fact sheet, or, like, some docs?” And they were like, “We require an NDA.” And I was like, “What? Why? That doesn’t make any sense.” I’m like, “I’m not signing an NDA.” I was like, “How does this work? Do you have some historical results?” He’s like, “What do you mean?” I’m like, “Well, you’re advertising 20% dividends. Like, can you, like, demonstrate that you send out…” He goes, well, he’s like, “Well, it’s up to 20% dividends.” And I’m like, “Well, so, it could be zero? Like, it doesn’t say that in the ad.”

So, anyway, I mean… But, so, now, that I, like, liked or commented on the ad, I now get it everywhere. Everywhere. All day long, I see Tai Lopez ads for 20% dividends, so, SEC, if you’re listening, I expect to not see this come August. Come Future Proof, we won’t be seeing this.

Ben: Sounds legit.

Meb: All right. Questions for you guys. Hour two, we now need to ask you guys questions. What is an investment belief that you guys hold…I have a whole thread of mine, we’re up to almost 20 now, that the vast majority of your peers do not hold? So, 75%. So, if you said this, you’re like, “Okay, no one at Future Proof, they vote, going to be like, no one agrees with me on this. So, I have a whole slew. You guys have any?

Michael: Ooh, 75%. That’s tough.

Ben: That’s a high hurdle rate.

Meb: Tell you what. I’ll read a couple of mine while you guys think.

Ben: Okay.

Meb: I got to go find it, though. Hold on.

Michael: I mean, I don’t know if 75%, but how about this? People at Future Proof, I’d say 75% of the audience might disagree with this. I still believe that cryptocurrencies, whether it’s DeFi or whatever, will have a bigger impact on the future than people think. I’m not, I don’t know where the prices are going, but I do think that the use cases that are inconceivable right now, and completely ludicrous and silly and dumb, I think there is a there there.

Ben: I bet you’re right that there’s 75% of people are skeptic at this point…

Michael: Yeah.

Ben: …about that.

Michael: Yeah.

Meb: And do you think that’s just the mood right now, with a lot of the, kind of, exchanges, brokerages, scams on the periphery?

Ben: More than anything, crypto is, it makes way more sense for the prices are up than it does on the down. You could say that about the stock market in some ways, but I know some people who think the stock market becomes more exciting when it falls. I don’t think many people think that about crypto. It almost has to have higher prices.

Michael: Oh, because, at this point, especially Bitcoin, it is a faith-based asset. It doesn’t really do a whole lot. So it makes a lot more sense. You get a lot more positive feedback when it’s going up versus when it’s falling, obviously.

Ben: How about this? My hot take on investing? This is more of a hot take than it is a true investment belief. I think that, like, 80% of the most legendary investors were right place, right time. Because we have not seen anyone come close to approaching some of the returns that, like, Marks or Buffett or some of those people had in their day, in the last, like, 10 to 20 years. The only people who have had ridiculous returns have been in something like crypto, and that was essentially a lottery ticket.

Meb: You know, this applies to just the stock market, too, and, you know, starting date, ending date, right? Like, the very different experiences people have. Like, again, you guys love to talk about, “Now do Japan.” But if you go talk to Japanese over the past couple decades, like, buy-and-hold investing’s, like, it’s not a thing. Right? Like, they don’t think that way.

Ben: So, I’ve yet to hear a good explanation from people, beyond the fact that they just have a high savings rate, and they need people to take care of their families of… If the U.S. stock market went nowhere for 30 years, would you not think that everything is in ruins? Like, the Japanese economy, and the people, and the unemployment rate’s still low, is still doing just fine. I need, like, a really long profile written on how they could have such awful returns in the stock market and still seemingly everyone’s doing fine.

Meb: Part of it is, like, rubber band right? So, they hit this CAPE ratio, bringing it back, almost 100, and biggest bubble we’ve ever seen in any market. Like, we’ve seen a few others that have gotten to, like, the 50,60 level, but nothing approaching Japan, which is also the largest stock market in the world at that time. And so, part of it was just never real, right? Like, it’s just this paper wealth, like a lot of, you know, private equity investments over the past few years. It just got too high. Then it came back down, right?

Part of it, I think, is this distinction between the real-world economy and, like, of financial markets. And so, a lot of the discussion in the past few years is talking about, like, net, average household net worth relative to GDP, and some of these metrics that, you know, if you’re market-based and you have exposure, and I think you guys have talked about this, like, you go back to the 1920s. Like, no one owned stocks, really.

Ben: It was, like, 1% of the population during the Great Depression. It was a very small amount of the people in the country.

Meb: And so, I think the question is, and this applies to the business versus stocks, too. Like, you go back to 2000, and you look at some of the companies like Cisco and Microsoft, and their business over 20 years, like, did amazing, and the stocks often went nowhere, because the stock just got too expensive. But so I think the same thing applies. Like, there’s the economy, and then there’s just financial assets. And for many people, too, like, it, yes, is it a drag? But a lot of people would be like, it doesn’t even break a sweat.

Ben: True. Well, yeah, I guess you could say in America, 90% of the stocks are held by 10% of the population, so it really just impacts one group of people the largest.

Meb: Yeah. That’s probably the best thing you could do to narrow the wealth and income gap is just have a nice 80% decline

Michael: How do you have a list of 20 beliefs… I don’t know, you must have thought long and hard about this.

Ben: Is this a blog post?

Meb: No, it’s a…

Ben: All right, you’re going to have to turn this into a blog post for us.

Michael: It’s a lifestyle.

Meb: Well, I tell you what else came up when I was trying to find it was, what do you think the single number one most universally-held investment belief by professional investors is?

Michael: Buy low, sell high.

Ben: That’s pretty good.

Meb: Ben, you got anything?

Ben: Most professional investors I’ve dealt with think that they can outperform the market.

Meb: Oh, really? That’s interesting. That’s a good one.

Ben: If we’re talking investment managers.

Meb: Yeah, it’s a weird…like, that’s a weird, like, you know what would be a fun podcast would be, like, the “Lie Detector Podcast,” is like, you, like, plug people in, and be like, “All right, I’m going to ask you some questions.” And it might have to be anonymous, like the voice box, and the, get, like…you know, like, behind a screen.

Ben: How much of your net worth do you really have in index funds, even though you run a actively-managed mutual fund?

Meb: Yeah. And then, like, ask some questions like “Do you really believe XYZ?” And, like, I think a lot of people, like, the answers would be surprising.

What’s everybody talking about in your shop now? What are all your clients, what’s on their mind? What’s on your mind? What are you guys working on? You got any new books coming out? You got, Ben, your six more blog posts this week. What are you writing about? What’s going on interesting in your world?

Michael: You know what I think’s coming? I think that we’re going to hear, and I saw one article written about it, but I think it’s coming. The unwind in the private markets. I think you’re going to start seeing a lot more stories of CEOs that cashed out in early 2021, where the companies are now out of cash.

Ben: Oh, okay. So, they sold a piece of their business and they cashed out, and now their business is in trouble, and there’s… I could see that.

Michael: I saw a headline today that there was that one Tiger-backed company that raised at a $3 billion valuation is now out of cash. AKA, they’re done. I think you’re going to see more articles coming out about that, but where CEOs sold.

Ben: That’s a pretty good call, because there, I think there was a lot of crazy stuff going on in VC startup land, where people were just doing anything they could to get into certain deals. Yeah, that’s a pretty good call. How about a boring take? Bonds are going to become more exciting for people. If you can just earn 3% on something really safe.

Michael: If you could just lock in negative 5%?

Ben: Well, I think people are going to just… There’s, eventually, the big institutions are going to say, “What are we doing here? We can just get 3% on this in short-term bonds. Let’s move some of our money there for the time being.” And I think people are going to start getting a little more risk averse, after we saw this huge explosion in risk for two years. Risk-taking.

Meb: Bonds are interesting. I wrote a tweet the other day where I was like, you know, who has the nuts? Who’s got the cojones to go out and buy zero-coupon bonds right now, which are in a historic, it’s like 50% drawdown. If you look historically, bonds, 10-year, 30-year, are near max drawdowns for the past, whatever, 120 years. That’s a hard trade to probably want to put on, you know. Because it’s betting on, I mean, it feels a little more reasonable now than it did a few weeks ago, but a couple months ago, commodities and everything was just going nuts, and, like, thinking about interest rates coming down was very anti-consensus. Now you’re hearing the recession talk, and a lot more, kind of, worry about growth, and I think that, it feels a little more comforting. But think about that possibility. Yeah, I think bonds, that’s a good one.

What else is on the brain, guys? What are you excited about? Before I start asking about movies and books, your favorite podcast question.

Michael: You know, let’s just talk about movies for a second. Unless, Ben, you have anything else?

Ben: No.

Michael: So, I saw a movie last night, that, Ben, I’ll probably repeat the story on “Animal Spirits,” because our audience will like it. Ben often says that I don’t like coming of age movies. And I think that’s probably mostly true, although I would have to fact-check myself there. I saw a movie last night that I haven’t seen since it came out. I was six years old. Made no sense for me to watch it at six years old, but it was a coming of middle age. “City Slickers.”

Michael: So, “City Slickers,” 1991, Billy Crystal, which is hard to picture now, because, just, whatever. He was one of the biggest, most bankable stars in the world. The first 60% of that movie was incredible. There’s a lot of fat at the end. It made no sense. But that was good. I totally, it was just three guys. They’re, like, turning 40, and they’re like, “Shit. I’m never going to look this good. I’m never going to feel as good. I’m never going to, you know, my income is maxing out,” and it’s like a midlife crisis…a little bit early to have a midlife crisis. But, I’ll tell you what. At my age, it made a lot more sense to watch it at 37 than at 6. And, you know, it was fun. The movie was fun. It’s very watchable.

Meb: Have you done this yet? Batnick? You hit the horse trail yet? We kind of did this during the pandemic. We hit the road. We spent a lot of time in Wyoming and Montana.

Michael: No, but it felt real, Ben. On the podcast as we’ve, Ben and I were talking about, like, stages of life where you spend the most time with your partner, your kids, your friends, whatever. And, I don’t know. I’ve just been thinking about life, and the meaning of it, and living it, and that movie hit at a good time.

Ben: Having kids makes you so much more sentimental, doesn’t it?

Michael: Yeah.

Ben: I am so much more sappy than I was pre-kids.

Michael: Yeah.

Meb: Yeah. My sister-in-law has a great story. They’re from LA. This is a very LA moment, but they have a story where they were at a movie. I’m blanking on the movie. And she was young, so, I don’t know, 4, 5, whatever age. And, no comment on their parents taking them to this movie, which was clearly inappropriate, but there was sex scene, and she, at one point, blurts out during the movie, she was just like, “Mommy, they’re humping.” And the entire audience starts laughing. And directly in front of them, a man turns around, and he’s like, “Wow, that’s a precocious child.” Billy Crystal, in the theatre, in front of them, so… Very LA moment.

Ben: Pretty good.

Meb: Ben, what are you watching?

Ben: I got a book for you guys. It’s called “How the World Really Works.” I can’t remember that, someone, one of the podcast listeners gave this to me, and it’s interesting for this year because it’s all about the importance of…a lot of people, especially with the ESG stuff, and climate change and all this stuff, are saying how fossil fuels are just the worst thing that’s ever happened to us. And this book makes the point that fossil fuels are one of the biggest reasons that we had so much progress in the last 100, 150 years. And it’s almost weird that it’s a contrarian take. And obviously, it looks at both sides of this. But it also just shows how without some of this stuff, with electricity, and oil and gas and stuff, we never would have… And it shows how much easier it is to work a farm these days, because of the machinery, and how few man-hours it actually takes to actually produce the stuff that gets to our grocery stores. It’s very interesting. I think it’s almost, like, a contrarian take at this point.

But I’m someone who is not handy at all, but just listening to, like, how this stuff works, and how stuff gets built, and how stuff moves around the world, I think the pandemic has reminded us how important that whole behind-the-scenes thing is, of supply chains, and materials and commodities, and all that stuff. It’s pretty good book.

Meb: We did a podcast recently with an author of “Oceans of Grain,” a professor from University of Georgia, but he’s basically talking about the role wheat had played in history in kind of shaping a lot of trade. You know, the rise and fall of empires, and continuing to this day, obviously, with the Russia/Ukraine mess, and everything that Europe is going through, and the stresses it causes. You know, ag prices, and ag, you know, with the Middle East and Africa, and other places, Arab Spring. But the energy one, man, you talk to people in Europe, and, you know, we get people in the Twitter replies, they’re talking about, they’re like, you know, “My gas bill went from 1000 to 5000,” you know, or things where they’re like, this is, like, insane.

And the narrative of, like, nuclear and not… On bringing this back to the ETF space, I was, when, I think VanEck was the coal ETF. They closed it. I was like, “Jan, I would have taken it over. Send it my way, man.” And so I was joking to the team the other day. I was like, “We should launch a coal ETF with the exact same ticker.” Just put it right back out there, because people forget, the beauty of ETFs is not just that you can gain the exposure from the long, but if you don’t like it and you don’t want it, you can short it, too. So if you’re a ESG…you know, and you’re like, “I don’t want coal in my portfolio. I’m going to short this sucker,” it gives you that choice, whereas otherwise you don’t have it

I don’t have anything for you guys. I started watching a show that’s kind of a “Black Mirror.” “Love, Death, and Robots.” Have you guys heard of this?

Michael: Mm-mm.

Ben: Mm-mm. What’s that on?

Meb: I don’t know. We have no TV connections at my house, because we’ve been renovating, and I’m finally home. And it’s kind of been pleasant. I’ve had no TV for, like, six months, so, kind of enjoyed it. I’m not sure I want to go back. But it’s like a “Black Mirror”-esque sort of show. It’s good, though.

Gentlemen. I’m excited to see you in the real world.

Michael: Yeah, likewise.

Meb: Future Proof. Listeners, go sign up for the conference. Ben and Batnick promised they would buy you two beers each if you mention “The Meb Faber Show,” and they will hold good on that.

Ben: Not an IPA. I’m not an IPA guy, so, sorry. I’m not going to lie…IPA.

Meb: No, I’ve moved away… I loved IPAs. They give me the worst hangovers, and I’ve kind of moved back to pilsners…

Ben: Too hoppy.

Meb: …or hoppy…I have hoppy pilsners. I could drink, like, a session IPA or a pale ale. But it’s rough at this… I don’t know why…why would I was ever attracted to those IPAs? IPA revolt? So, they’ll buy you two beers, not IPAs. They will go surfing with you, so we’ll figure out what morning, Sunday or Monday, probably, and then you have to all cheer for the Broncos. I was going to wear my new whale shirt today, but it’s packed away, sadly.

Ben: My daughter had soccer camp today, and I bought her one of our Noob Whale T-shirts. And she had to wear blue. That was, like, her team’s color today for soccer camp. And I told her to put, just, here … blue shirt you have. And she’s like, “Dad, I can’t wear your merch. Everyone’s going to make fun of me.”

Meb: Huh, your merch. Isn’t that going to be great when you guys eventually become, like, the “Life is Good Company,” but for merchandise? So, I asked you guys, a few years, like, how’d this clothing business get started? This is where we made it.

Ben: Just animals for kids.

Meb: All right. So, Future Proof. If, “Animal Spirits Podcast,” go take it a listen, and if they want to talk to you about y’all’s day job, what’s the website? Where do they go for that?

Ben: ritholtzwealth.com.

Michael: That’s right.

Meb: Gentlemen, it’s been a blast. Thanks for joining today.

Michael: Thank you, Meb. This is awesome.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcasts. If you love the show, if you hate it, shoot us feedback at themebfabershow.com. We love to read the reviews. Please review us on iTunes, and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.