ReSolve Riffs with Meb Faber on Free Money, Unrealistic Expectations & the Short View

This is “ReSolve Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

Our guest this week was none other than Meb Faber (co-founder and CIO of Cambria Investment Management), a well-known quant and prominent member of the FinTwit community. In addition to being an asset manager, he is an entrepreneur and venture capitalist, not to mention host of a popular podcast – and therefore an entertainer at heart. We enjoyed a wide ranging conversation including topics such as:

  • The ‘mental gymnastics’ of contemplating ideas that are likely being ignored by most investors
  • Crowded vs contrarian trades
  • Preference falsification in polling, the role of inertia and the endowment effect
  • North America’s impossibly complicated retirement systems vs Australia’s superannuation
  • Financial education, incentives, and the enormous room for policy improvements

We also discussed the importance of properly framing conversations, especially in the realm of policymaking (Universal Basic Income vs Freedom Dividend), some of Meb’s recent venture capital investments and a whitepaper that’s coming down the pipe.

Thank you for watching and listening. See you next week.

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Meb Faber
Co-founder and Chief Investment Officer
Cambria Investments

Meb is co-founder, Chief Investment Officer and Portfolio Manager at Cambria Investments, an El Segundo, California-based quantitative investment firm. Cambria deploys research driven and rules-based strategies designed to provide valuable protection against the greatest risk investors face: their own emotions. Meb has over 17 years of experience in capital markets and investment management. 

During that time he also authored five books, including The Ivy Portfolio, and perhaps more relevant to today’s topic, Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns in the Stock Market. He routinely publishes research on his blog,, and is now 57 episodes into his superb podcast “The Meb Faber Show.”  But our favorite of Meb’s numerous bona fides has to be this: his groundbreaking research paper “A Quantitative Approach to Tactical Asset Allocation” has been downloaded more than 191,000 times, making it the most downloaded paper in SSRN history.


Mike:00:00:01Hey Meb. Try and relax Meb.  I know this is new for you. This whole podcast, webcast, internet thing. That’s how deep you were in the snow in Japan when you were skiing this year or what?

Meb:00:00:14No. This was in Calgary last time I came to Calgary I took this…Sorry, Toronto I took this photo. It was like the coldest day of my life. I spent like 28 hours in a row in my hotel room. I brought like t-shirt and shorts. So I needed to come back. I was ready to come back this past spring and sure enough pandemic hit, so no dice. Actually for the nerds out there they should be able to…this is hoth, this is from the planet hoth. The star ward nerds.

Mike:00:00:42Nice. Awesome to have you. I will remind everybody as per the usual. Anything advice-wise you hear on here is that it’s not advice you should get advice from a licensed practitioner in your in your neighborhood or someone or don’t know for that matter. We’ll talk about all kinds of neat stuff and we’re going to have some fun and welcoming Mr. Faber to the ReSolve Riffs Thanksgiving edition, afternoon where it’s 10 a.m. in your area of the woods. You’re drinking a coffee I see but there was a lack of steam coming off the coffee. So I was wondering if it was a Johnny Carson coffee. Anyway leave that to-

Meb:00:01:20Two comments. One, my disclaimer is, listeners you should absolutely listen to my advice because I give great advice. Don’t listen to the ReSolve crew.  This is a coffee and Bailey’s, just kidding. It’s too early here. I have a coffee addiction and so I’m like a pot of coffee, a morning guy so it’s problematic and I’m trying to adjust unlike you guys that put like stick of butter in your coffee. Do you guys still do that? That’s the most foul thing.

Richard:00:01:52What’s problematic about it Meb?

Meb:00:01:54I tried it once and spent the rest of the day having a film of butter, it was just like I just felt nauseous.

Adam:00:02:02So what are you telling me is this is jacked up Meb and I can’t even imagine pre-coffee Meb.

Meb:00:02:11Well, I also have a three-year-old so I’ve been up for like seven hours already now. So this is like the whole circadian rhythms. I’m a night person man. You guys record this at like 11 pm or one in the morning I’d be ready to go. So I have like a coffee alternative, it’s like a mushroom mud water, if you’ve tried it’s decent, it’s pretty good.

Adam:00:02:32Is that the four sigmatic or whatever it is from the …

Meb:00:02:35Same umbrella. … different brand.

Adam:00:02:40Do you find it promotes clarity of thought or what are your, what’s your motivation?

Meb:00:02:44I always kind of muddle through life and like a dark cloud. I don’t know that I ever have this clarity of thought that people talk about, clearly-

Adam:00:02:53That’s what always comes to my mind when I hear Meb Faber –  dark cloud.

Mike:00:02:57The Charlie Brown character walking around in his …


Mike:00:03:01Linus. Perfect.

Adam:00:03:03So, Meb you were saying that you might be keen to talk about some things that we believe that most other investors don’t or is that-

Richard:00:03:15First of all does it make sense for us to even introduce Meb at this point? Maybe we just roll into it, right?


Adam:00:03:19Maybe Meb should introduce us. I don’t think there’s anybody who knows Meb who doesn’t-

Richard:00:03:24That’s what I thought. That’s right.

Adam:00:03:25Know us, so it’s unlikely.

Meb:00:03:30Yeah. I’ll talk about anything, you guys know me, you guys want to talk about Broncos, beers, skiing in Canada. By the way listeners if you have any good Black Friday ski deals I have an empty quiver and plan on doing some skiing this year so hit me up if you guys see any good deals. I’ll talk about anything, anything you guys want to roll with. My only idea was much like politics and FinTwit on investing, I feel like so many people hold similar beliefs but what we spend our time arguing about is like that final ten percent or one percent or point one percent. It’s fun, and then we should argue about it because that’s what we get paid to do and it matters but some of the ideas I was looking through some of these polls we do and we talk about, ideas that the vast majority of the investing space. Let’s call it like 75% or more believe that you guys don’t believe and it’s good. I think it’s like a mental gymnastics, it’s a good exercise to work through because we’ve done many of these over the years and people, you start to see the world from a different perspective and it’s often hard to go back once you kind of open your eyes to a certain perspective or you may just say that’s really stupid I totally disagree with that. Anyway, I thought it’d be a fun jumping off point. Do you guys have anything?

Richard:00:04:51I think that’s a great thing. I was just going to say how do that what your information bubble is providing you with is representative of any large sample size or large enough sample size of the investor community out there? That I think may be the starting point to understand whether or not we’re able to even garner that information.

Stocks vs Bonds

Meb:00:05:13Sure. There’s two parts to it. One, I think is just a little bit of guesstimate common sense. So I’ll give you one and this is not what I want to necessarily argue about, but I don’t think there’s a more commonly held investment belief and if you had to pull on Twitter what percent believe this I bet it would be 95 maybe 99% which is stocks outperform bonds over time. I don’t know anyone that doesn’t believe that. It’s like the laws of thermodynamics, like that is ironclad every single person believes that. You could also do a poll, we’ve done a bunch of polls over the years that ask people and obviously my universe will be different than yours but we get to the point where I think there’s a common sense estimate where it’s like 80%, 90% of people believe x, y, z. So it’s a little bit of guesswork but the ones, ideas that I was kind of thinking about are so different and polarizing that you end up on the opposite side. But I agree. You could in a slightly held bubble of people of like-minded thinking but usually it’s the opposite.

Adam:00:06:20Well actually good example that Mike and I were chatting about this. I don’t know if it was online or…Anyways, over the last few days someone posted a chart showing where most investors believe the best opportunity is over the next five or ten years and at the very top of the list was small value and I said here you’ve got all these investors thinking that they’re contrarian being small value investors and in reality is this just a crowded trade, and Mike made the very valid point that, what is the chance that this is just preference falsification. That this is a survey bias and it actually doesn’t reflect where they’re actually positioned or if they are positioned. It’s such a marginal tilt that it’s completely meaningless and so we shouldn’t take too much signal from the fact that the survey says x when their actual positioning may be something completely different than x. Might be even like one minus x. So I think there’s merit in being skeptical about our own assumptions.

Mike:00:07:30Well, I think it’s absolutely the point. If everybody gets to the point where they believe stocks outperform bonds then you would get to the point where assets would be allocated such that stocks may not outperform bonds anymore, and so over what time frame and duration and cycles are those things going to manifest? We were talking last night in our group and I won’t mention names but, some interesting folks there were talking about the fact that their portfolio had a tilt to small cap value which had been put in place years and years ago by someone who is no longer on the head of the investment community anymore. So why are they going to spend time defending the positions of that previous investment committee member? They’re no longer there to defend the position and thus we should just eliminate the small cap value position that’s been dragging the portfolio for so long, So now we run into these complicated dimensions of the actual rubber hitting the road as with respect to what are you going to allocate to? How long can you stand allocating to it while it betrays what’s supposed to be some sort of long-term extra risk premium that you’re supposed to be harvesting?

Meb:00:08:56This is a perfect example and you guys have probably heard me make this analogy but as you think to this stocks versus bonds being the first law of financial thermodynamics the second would be inertia. Once someone allocates to something, your brain changes, you have a totally different psychological approach to that investment and one of the biggest insights that certain marketing people in our world, I think Fisher Investments is a great example of this have understood is the value of a client, because once they’re there it could be a separate account, it could be invest in a position, often the headache of moving like they’re there for 10 years,  they’re there for 20 years unless something crazy happens. But let me give you an example. The stocks versus bonds, 99% of people believe that, but you ask the same people in surveys how long, and there’s survey after survey after survey and they all say the same thing and this one is a good example of survey and how people actually allocate because there’s been countless academic papers that demonstrate this too. You make an allocation to an active manager or you make an allocation to an asset class small cap value, whatever maybe, even beta stocks or bonds. How long do you give that asset class before terminating it or looking for a replacement? And the vast majority and it’s like 80, 90% it’s three years and less, and that’s the time frame most these institutions operate on. They do their committees once a year, maybe once a quarter but year one it underperforms, hey, maybe we’ll rebalance into it, that wasn’t the best timing. Year two like you’re getting some heat maybe some career risks. Year three there’s no chance that person is still around. So I ask people back when we have cocktail parties, so now we’re just drinking mushroom coffee over the internet now. As we talk about this and I used to talk to people say they’d invariably call me complain about one of our funds that’s doing terrible. “Meb I bought your funds three months ago, six months ago, God it’s doing awful.” I’m going to give it a little longer to which I usually respond, man you ain’t seen nothing yet.

This could be way worse and they kind of awkwardly smile and they say, “Okay fine. How long should I give it?” And I say 10 years. They awkwardly laugh kind of look around wait for me to say something else and then I would say no I’m serious, this could easily go three, five, ten years underperforming and now the modern version of 2020, I now say 20 years. And I say this with completely straight face and a complete total honesty and transparency, and the example I give that totally crushes this kind of people’s mindset that’s relatively recent,  in 2020 US stocks had gone not three years, not five, not 10. 40 years with the same performance as long-term bonds. Four decades, the most iron-clad universally held belief in all of investing has stocks outperform bonds, 40 years of not outperforming. Then of course you can take longer periods back in history if you go back to the 1900s and 1800s of 60 years. But you can apply that to anything, gold, small cap value, the Canadian barbell of junior miners and cannabis, everything. And that’s one and people hate that reality. They want results now, they want to allocate and things magically do amazing in the first year, they want that feedback that’s just sadly and or happily for the people that can take advantage of it. It’s not the way it works.

The Yale Endowment

Adam:00:12:47I was on a panel earlier this week with Dan Rasmussen and we were chatting backstage afterwards about the Yale model and about Swenson and Dan was saying, he wrote a paper about Swenson a year or two ago and just sort of highlighting the fact that Swenson’s big call in 1984 was to sell bonds and buy stocks, and of course from 1984 to today the Sharpe ratio on bonds is two to three times the Sharpe ratio on stocks. It was actually this strange pro risk call, he was terrified of inflation and happened to make a big call on stocks when obviously it has been the greatest most sustainable, most efficient bull market for bonds in the history of markets.Mike:00:13:46What’s interesting is he followed that call up with the massive change in 2000 from publicly traded stocks to private equity. He covers it in his books and you can see it through the Yale Endowments allocations they start expanding rapidly to private equity, that’s circa 2000 and they started de-emphasizing US stocks. So he’s made a couple of extremely lucky, timely, thoughtful, however you want to characterize that, made a couple of those very big calls and it is interesting when you talk to I don’t know large family offices a lot of time they feel as though the Yale endowment model is some cutting edge philosophy of investing and it comes back to that talking point that you and I talked about Adam which is okay. Well let’s all write down our three most favorite unique novel strategies that we think are going to  outperform over the next 10 years. Let’s get a piece of paper and obviously the survey will be group dependent on what gets on the paper but then turn to the person on your left, turn the person on your right compare notes, and are you in a crowded trade are you in a trade that’s done epically well. Is it Apple, Google and Amazon, that’s Tesla and Tesla is my new novel idea or is it actually things that are hated, mis-loved, have had no risk premia for a decade or two and are very difficult to own and to be different from everybody else. Are they on the list and how likely is that then able to get through the board approval? Whichever board it is whether you’re an RIA dealing with retail clients or an institutional manager dealing with an investment board. How long will they operate with subpar return, subpar meaning with whatever benchmark that they’ve selected as a potential pacing mechanism.

Adam:00:15:51That’s a good point and it actually is to Meb’s theme highlighting something that we’ve been chatting about recently which is that one of the big myths I think that many investors embrace is that they should be modeling their investment policy after the huge institutions. The big pension funds and the huge endowments. I think that is just ultimately incredibly misguided because the big endowments basically are so large that they have to be the market. They can’t take any active bets that are sufficiently large enough to make a dent in their return stream, so they end up just being the market. They try to move outside of public markets into private equity and infrastructure and venture and et cetera but it ends up just being all tied to pro-cyclical growth. They’re all just equity bets of different stripes and so why would a small investor who has the ability to be agile in their moving their portfolio around strategically or tactically but also has flexibility in their mandate? They don’t have to look like anybody, there’s no committee that’s going to review their results in three or five years and benchmark them against their peer group, they can do whatever they want. They can pursue an absolute mandate or a target return mandate that is very tailored to their specific investment objectives and they can use all kinds of techniques and take strategic active views in furtherance of that objective that aren’t even on the radar of large institutions. So this myth that you should model yourself after Yale or CalPERS or the Norwegian Sovereign Wealth Fund seems just profoundly misguided.

Meb:00:17:45I love picking on these guys too and you guys have probably seen me do it on Twitter and elsewhere because these big institutions in 2020 have an almost near impossible mandate, and you’ve seen the drama that’s gone on with two of the biggest Harvard endowment and CalPERS because you have so many different vested interests. For Harvard, you have current students, you have alumni, you have future students, you have teachers, you have workers at the endowment, on and on and on and the reality is a buddy of mine Peter Ladina who’s based here in LA used to work at Waterline, I think is at Northern Trust now, he wrote a paper years ago that said you can just basically deconstruct Yale into a very simple factor based exposure, add, sprinkle on a little leverage and voila, you end up with Yale endowment returns. Now, you got to give Swenson credit like you guys mentioned that he made those decisions at the time. He made the decisions to have more of an equity exposure whatever it may be that private equity is essentially or essentially small cap value. … wrote a paper about that as well. But Swenson gets a pass because they’ve done well, but going back to our original comments about underperforming, even Swenson the most famous name in all of investing he doesn’t have an infinite pass.

So I keep saying to all these endowments and big institutions I’ve said you should just be managed by a robot, just be done with it CalPERS, your returns are no better than buying the global market portfolio with low cost. You can fire everyone be done with all these expenses and just move on and in many ways the ways that you have to outperform creates even larger fractures because if someone sees to move the needle on a 30 billion or 300 billion endowment like you said, you got to move hard in the paint to something. Yale has less than three percent in US stocks. That’s pretty hard in the paint one way. They get the beta elsewhere.


Meb:00:19:50That creates, looking different and how many people are willing to look different for long enough? Again Swenson can but-

Mike:00:20:00Three years you get to pass for a while.

Jason:00:20:02I forget which one of the endowments it was that we were recently talking about that their great idea to overcome low expected returns in the coming decade or so was to lever up. So was it CalPERS? So at the end of the day they’re just moving from a 60-40 to a 150-60 or whatever the math is I probably bungled that one up but they’re probably just augmenting the beta to the entire market, they’re just getting more exposure and creating more FOMO. So to answer your question Adam why doesn’t the average individual out there who has nimbleness and lack of size in order to generate true alpha? Because his attention span and his ability to hold is probably six to 12 months not even three years, three years is at the far end of that spectrum and he’s just looking to quench that FOMO. So if stocks continue to rise how do we address that? I think Meb you probably might have a thought or two on that.

Future Expectations

Meb:00:21:04I have a thought or two on everything. The biggest cringe-worthy stat of this year for me is the consistent investor estimates for what they expect their portfolio to do and this I mean every survey says the same thing and it’s consistently ten percent per year.

Adam:00:21:23I saw you posted …

Meb:00:21:26This year they broke out the equity markets by country and the US was the highest because the US has been stomping everything else and the US was at 15%. There’s an old great Jason Zweig article about Charlie Monger and Charlie’s talking to one of his buddies and he says, in his literature he says we attempt to get 20% returns and Charlie asks…I’m paraphrasing obviously, Charlie asks his buddy he’s like he knows that’s impossible. But that’s what his investors want to hear. So they’re playing this game that they know..20% returns you quickly become one of the richest people on the planet. You don’t have to compound 20% for long and you become unbelievably rich. So kudos to the people listening that are hitting 20%. The problem comes with expectations. Unless you study history and this is hard we don’t teach personal finance or money or investing in any of the schools in the US. I don’t know if you guys do. There’s a huge gap on understanding just basic personal finance and so just like in a relationship, with your husband, wife, kids, parents there’s reality and expectations and you have a big gap and it doesn’t happen, that creates big problems and so with investing all of a sudden you’re expecting 15% returns? Are you kidding me? And you get a few years of negative or 50% decline or an 80% decline chances you staying the course is zero. It’s an unwinnable problem. Again, I think by the way this is not just individuals. I think institutions are equally as atrocious.

Mike:00:23:02Hundred percent.

Adam:00:23:04It’s because they’re effectively individuals because it’s the individuals that are motivated by … effects. Nobody is genuinely concerned about the long-term welfare of the plan. They’re concerned about the sustainability of their job and their bonuses. I don’t mean that to paint everybody into a corner, I think this is just the natural state of things. We’re motivated by incentives and by the own risks to ourselves and to our families and therefore if you’re going to align incentives so that you’re going to reward or penalize a CIO or an investment committee or a PM based on one two three year performance, then you’re going to have counterproductive activity because you can’t manage returns over a one two three year horizon. You certainly can’t manage returns at that horizon at that size of a fund where you don’t have the ability to take active swings at the market with any regularity. It that this system is set up for failure and I think one of the things if we want to give…keep coming back to Swenson but if we want to give him a pat on the back I think it’s for stacking his board with people that supported his very very long-term objectives. So he wasn’t marking his PMs and his managers to performance benchmarks over ludicrously short time horizons and his board, it wasn’t marking his own performance to short time horizons and it allowed him to effectualize theses that were able to play out over eight, ten, fifteen, twenty years which I think is the ultimate arbitrage opportunity.

Mike:00:24:44He also states in his book that he looks for non-economic maximizers as portfolio managers. Those managers who will stop taking money when their strategy stops working. He states I’m looking for people who are craftsman first and the pride in the work is, that now this is insanely hard to find obviously but he states that as a goal which again…So there’s some questions like in the chat too, given the shortcomings that we’re talking about what does an investor do? What are some of the solutions and Swenson’s, we’re talking about Swenson but these are some of the solutions. You do need to look for strategies and novel areas. You do need to consider asset classes that are diverse and do the yin and yang and zig and zag and you do need to be disciplined and patient and you do need to have a process to understand when a strategy is in a low no return, understanding if that strategy is A broken then sell. B, if not broken rebalance and don’t sell. Just the process of having 10 managers with a 0.5 Sharp with an average vol of 10%. If you fire those managers when they’re down 15%, you will fire 14 managers over 10 years. In the process of firing them during the drawdown you are eliminating those sources of diverse return, so you’re eliminating the bounce back, you’re accepting the risk of those unique strategies that you called and cultivated and included, you’ve accepted the risk and are not going to get the rebound or the return and you’ve reduced the diversification in the portfolio and that’s what happens over and over and over again. Go ahead.

Private Equity

Meb:0:26:37We spent a lot of time thinking about behaviorally what’s the best way to solve this and the one thing, and this was mentioned in the comments that private equity does right and this is I think actually more of a feature than a bug, is you’re locked in for 10 years. Now there’s good there’s bad to this. It’s sort of a wink and a nod and a handshake between the managers and these institutions because they charge ungodly fees. That’s the downside. Now, the good side is that there are products and concepts that I think are beneficial if you look at the annuity space in the United States the problem with the annuities again, ungodly expensive but there’s some and they’re unbelievably confusing. So you think about talking about personal finances challenging, talking about ETFs or the basics of spending and investing, you go through annuities and it’s like 400 pages of disclosures and fees and it’s a mess, but the concept of locking in money, avoiding taxes, low cost allocation is sound say, hey put your money where your mouth is. You say you’re really saving for an event that’s in 10, 20, 30 years, lock it up and we’ve explored some ideas, we’ve talked about I don’t particularly want to launch them yet because I think we’ll get sued, there was the forever fund idea we had which was you invest you’re locked up for 10 years and there’s a penalty. So if you exit in year one it’s I don’t know come up number ten percent all the way down to year ten in which case is zero. So that’s the hey I got to behave part of it. But the carrot and stick part is that that money doesn’t go to the fund manager it goes to the remaining shareholders as a dividend. I think it’s a really fun idea so you get rewarded for other people being morons. Again I was talking to Jason … about it he’s like dude, you’ll get sued.

Adam:00:28:31… for bad behavior instead of death.

Meb:00:28:35…if any listeners.

Mike:00:28:36Canadian insurance policies. I don’t know if the US policies have the same thing but if you’re in a Canadian insurance policy and you opt for what they call dividends those are the lapsed profits from lapsed policies that go to the holders of the insurance that stay longer now. Again as you point out try and figure out, read an insurance policy and all the disclaimers and that’s not in plain language.

Meb:00:29:03We’ll speak very quickly about another area. Again this is for the Americans, I don’t know if you guys have anything like it. Let me know if you do. I think one of the most impactful pieces of legislation of the past decade could be the past few decades in this investment world that 90 plus percent of people don’t know about works to solve this problem, now the problem is, it for the most part has only been available to accredited investors and the accreditation rules in the US are starting to move in the right direction. I still think it’s been wealth-based now they’re trying to do it a little bit of knowledge base. My idea is like just put on online tests, DMV. Let people if they pass it good let them nuke their money. They can already nuke their money and futures options pink sheets stocks Forex like come on. So the concept is this this qualified small business legislation that I think passed during the Obama years that basically says if you invest in a private company with less than 50 million in gross assets and you hold it…And I’m getting this broadly correct. You hold it for five years your gains are tax exempt up to 10 million dollars or 10x your investment whichever is greater. Think about that for a second. All of a sudden to the extent you can put together a portfolio of private stocks and match the S&P. Now, we’re not talking about investing in your buddy’s pizza place down the road and microbrew company or the equivalent in LA would be your buddy’s movie, like those are probably going to be zeros. But to the extent you can at least reasonably match, that creates an interesting alignment. Now you got to do the work, there’s lots of these platforms out there but the extent you have the lock box like you can’t sell those, they may go public one day, they may get merged or bought. 95% of people don’t know about it. I think it’s an interesting hack and there’s other ways to do these things too with ETFs and public market vehicles but people spend very little time on these ideas because it’s hard, it’s a lot of work to understand them and explain them and put them into practice too.

Mike:00:31:12Don’t you think that’s one of the main ideas of why small business is so successful? So when you look at where the creation of wealth comes from there’s a pretty significant chunk that comes from the entrepreneurial nature of a business growing going public in some cases, often being taken out by a larger entity which is we have a business, that capital’s in a lock box, you go to work every day, things get tough you work harder that’s a little bit different in the investing world. You double down, you think harder, you operate the business, you grow that and at the end of a 30-year entrepreneurial journey you have some sort of business, even look at Cambria and the company that you’re building. That is sort of that long-term deferred compounding of growth where you can’t just take it out. You can’t look at the price and say, “hey cash me out for 10% of that or something like that.” So the added tax benefit on that would be I incredible although I do think there would be people who figure out how to gain that .

Meb:00:32:17Yeah. We have a piece coming out that I haven’t published but it’s basically ideas about policy and how to get a system that encourages the broad populace to own stocks and have an interest in closing this wealth and income gap, and so one of the ways you do that is you make everyone an investor and that has a share in the ownership of corporate America. That way everyone’s on the same side. Right now you have less than half the people in the US own stocks, Amazon and Apple you see what’s going on, they’re hitting trillion dollars, super wealthy people are invested in stocks, poor people mainly it’s just their house if they even own that outright and so coming up with policy ideas that get people to reward this concept of entrepreneurship capitalism free markets so that we can all have a stake and cheer for free markets doing well. We can all cheer for Elon as they become a trillion dollar company but it’s challenging.

Richard:00:33:21You’ll never actually get the Fed from the market if you do that. If it was tough before because of the wealth effect because a section, the highest earning section of the population couldn’t deal with the wealth effect when the stocks go down, if you do that for the broad population then forget it.

Meb:00:33:42There’s ways to solve it though and we should have done an idea if this was a drinking session. Each one of us could have put in a word that the first time it gets said everyone had to take a sip of their drink. Mine would have been Fed. There’s plenty of ideas around that that I think are totally reasonable. I think concepts like copying Australia’s pension fund superannuation system is a fantastic system where you’re opt. Ours is so complicated, you opt in you’re forced into it you saved, they love it, everyone in Australia loves it and they have a great retirement system. There’s three or four more ideas we could spend all this time talking about policy but I imagine you guys really talk about investments but there’s ways I think around that. People were talking about universal basic income and I say that’s a horrible marketing angle, it’s like talking about the old school death insurance. Once they moved to life insurance everyone bought it, universal basic income doesn’t check the box in the United States. People have this concept of enterprise and thrift in building businesses, there’s a very negative connotation to welfare and handouts and socialism and communism. Everyone just goes crazy hearing all those terms but come up with something like the freedom dividend or where it’s like hey, you have a stake in the GDP of America or the whatever the country may be, you could tie it to like going back earlier that long-term compounding, every baby born gets a thousand dollars and it goes in some sort of retirement, you get to see it grow. There’s a million different ways I think to solve this but the goal…A few years ago I was very negative many years ago on you see these sort of sentiment indicators, oh my God Ashton Kusher is investing in startups now or GCell’s talking about getting paid in euros like sentiment Topturn

My opinions changed a little bit, you see this culture of trickle down entrepreneurship and startup investing that I think is one of the potential booms of our next generation where silicon valley in my opinion used to be a place and all of a sudden this concept of building businesses through the accelerators through people selling these businesses for 100 million, a billion dollars and then all of a sudden become investors in a million other companies it’s spreading to other countries, you’re seeing it pretty quickly in Africa take root pretty strongly over the past few weeks and some of these big fintech deals. I’m super bullish on that. My point being at its core you want people to all feel part of the system because right now a lot of people just don’t. They don’t feel like they’re part of part of the investing benefits.

Richard:00:36:33Aside from the good marketing angle to overcome the behavioral hurdles and all that fun stuff, I wanted to go back to your original question and to see what your answers are for what the vast majority of people aren’t looking but you feel are good opportunities for the coming years.

Meb:00:36:50Okay. Let me give you a few brain teasers that I think a lot, no one agrees with. If you were to ask people you pull and by the way I had to pay someone on Upwork to search for this because I couldn’t figure out how to find all my old polls and Upwork if you guys haven’t used it it’s the most amazing thing. I hired a guy in Poland to scan all the recipes on the internet to come up with a rankable recipe sorter. So if you guys want to know what the world’s top recipes are I can pass them along. Anyway check out Upwork, unrelated. So I had him look at some of these polls and one of the polls is what do you do with your safe money? Everyone puts it in cash, T-bills like that’s the safest place but in reality if you look at the statistics it’s not. And so on a nominal basis T-bills really never lose money but over a long time period we say what’s the biggest drawdown after inflation and everyone said zero, five percent less than ten percent and the answer is close to half. The ten-year bond had a real drawdown after inflation of I think closer to 60 percent.

But, what most people do with their safe money they put in cash at the bank, well cash in the bank I’m like super high tier bank of America rewards and I get 0.04%. So essentially zero. That a cost each year and we kind of went through a post and showed if you were just willing to go through the exercise of suspending disbelief for a minute that you could do it’s even a 60-40 but better is like a global market portfolio, so call it half stocks hapons half US, half ex US over time and you look at all the metrics. You look at maximum real drawdown, you look at volatility, you look at worst 12 month period, you look at percent of positive months and you find that you can come up and add let’s call it about three percentage points over cash with hardly any more volatility, a lower maximum drawdown similar amount of positive months and similar worst 12 months. So you then make the stretch. You should be investing all of your safe money cash if you want to make that extension. Now no one will do this other than me. I know of one other person that does this by the way and he’s insane, but this is a departure. As you think about things that are safe or not safe thinking in terms of nominal versus real inflation, going back to endowments. Endowments understand this, the two big risks for most people and I may have heard you guys say this, so I’ll give you credit. Two big risks to a portfolio, inflation over time eroding that portfolio or a depression style problem to the portfolio loses 80%. Is that you guys? I’ll give you credit if it.

So that’s an idea. In that world right now obviously I love stock valuations, we believe that foreign markets in particular emerging markets and some of the cheapest countries I’ve been saying this for years so it hasn’t happened yet although it seems to be turning last few months since April maybe. I think they can still do double-digit returns over the next decade, I think the US is going to be facing significant headwinds though.

Mike:00:40:02What was interesting because the funny belief there is I think I’ve told this story before I was at a meeting of portfolio managers with Schiller and someone was talking about the valuations of markets and how are we going to get returns and he simply said what do you mean? The valuations of markets are wonderful Czech Republic, Russia, he went through the list of all the single-digit multiple countries and the whole room giggled out loud and he was being dead serious. He’s like there are fantastic valuations and long-term opportunities, the markets aren’t over, what market. Which market are you referring to? We come back to those behavioral biases, I’m not familiar with it. It hasn’t done well so I’ve got my recency bias, I’ve got my over confidence bias in the current paradigm

Richard:00:40:58Home country.

Mike:00:40:59Yeah. What chance does a guy have?

Adam:00:41:02You mean you don’t want to own any of those things? Why do you think that they’re likely to earn a good return?

Mike:00:41:10Tobacco stocks in 1999 as CalPERS swore off tobacco, ESG oil and gas stocks today. There’s some parallels around.

Sticking With the Plan

Adam:00:41:21I do think that just like returning to the higher order question like why is it so hard for investors to stick to investments or plan or what have you and I think the great conceit that we all know because we’ve lived it through many interactions with investors over the years, the great conceit is that investors are in some way mean variance optimizers. That they actually care about efficient portfolios and I think the reality is…and Eric Falconstein’s got up just an absolutely brilliant paper on this, but I think all the research suggests that in fact the objective function is status seeking, relative status seeking. Like if investors really just want to avoid being poorer than their neighbors and they’re not actually concerned with maximizing their own personal wealth and minimizing the chance of loss, then all of the different optimization methods and portfolio construction methods and asset allocation approaches and all that other stuff that we all support and advocate go out the window. What ends up being the most efficient portfolio is in fact for many investors 100% is US stocks because that allows them to have the least likelihood of falling behind their neighbors who are also invested mostly in US stocks. So I think we’ve got to be humble about what we are targeting for investors. Certainly at ReSolve we always focus on what’s optimal from a mean variance perspective and sort of scratch our heads about why people never actually behave in a way that’s consistent with those objectives but from a practical standpoint all the literature suggests that nobody gives a shit, that everyone just cares about what their neighbors are doing they just don’t want to fall behind.

Mike:00:43:07It’s a great point like that probably is the number one question, what’s the objective function for the investment?

Adam:00:43:17There’s so much preference falsification. Everyone says that yeah they don’t care they want to maximize wealth or they just want to pay for retirement, but that’s bullshit.

Mike:00:43:23… They say that because their friends say that.

Adam:00:43:26Well sure, and they think that that’s what they should be saying and that’s what you want to hear as a professional. But that’s not actually at all what they want and so you need to sort of read between the lines and invest between the lines so to speak rather than trying to take things at face value sometimes.

Meb:00:43:41Preference falsification would have been my second phrase for drinking

Mike:00:43:47Honestly, I would have chosen MMT because as soon as that genie comes open that’s got to be said a million times.

Adam:00:43:55That’s true.

Richard:00:43:57Meb I thought you might go down some Bitcoin or cannabis or some other different path on your out of the box ideas, I guess because cannabis is so out of favor although if you’re reading into the FinTwit space Bitcoin is definitely not a contrarian idea by any strategy imagination.

Meb:00:44:16There’s a couple things wrapped in this. As Mike mentioned every asset class at some point is dear and at other times wonderful –  terrible, it doesn’t matter what it is. Schiller actually wrote a paper looking at sectors as well going back to the early part of the 20th century and there was a period that like boring old utilities traded a CAPE ratio in the roaring 20s of like 60 or something and then fast forward three years they were at five. So you can have a bubble in the most boring stuff in the world and look, the whole point of free markets and capitalism and the way this works, you go back we were sitting around here 1899 sipping tea or champagne, the UK was the biggest stock market, US was second and I don’t think anyone would have predicted the US going from five percent of world market cap to 55 today. You certainly probably would have bet on Germany and France and Switzerland and all these other countries, Argentina. But it was like 75% rail stocks like that’s what your market cap portfolio is. Rail’s now are like less than one percent. They’ve done great, they beat the overall market over that period. Tobacco stocks single best returning industry of all time that’s near and dear to my heart as a partial Winston-Salem North Carolina resident where my high school was named after, I literally went to R.J Reynolds high school so literally named after essentially a tobacco company.

But the lessons you learn is that constant is a change and so the beauty of buying the entire market cap index of the world and there’s been a lot of great literature last 10 years on this that I think has opened a lot of people’s eyes. Everyone in private equity in VC understands power loss. You invest in 50 or 100 companies, it’s the one or two Ubers that generate all of the return and that’s hard to get your head around. It’s also true in public markets and so it’s like five or ten percent of the returns of the entire market is dominated by these stocks. So you kind of have to own them, that’s why market cap weighted indexing works historically. You’re guaranteed to own the winners. It’s like two thirds of stocks underperform the index almost half have zero percent rate of return and like a quarter goes straight up to zero. I don’t think it’s optimal or ideal because it overweight’s it bubbles and underweights busts so the examples you give when energy was at thirty percent of the S&P, you had thirty percent of your money in energy. Now that’s two percent.

Mike:00:46:59That’s what gives you the upside though. It’s the market cap weighting that buys more and more and more of it all the way up.

Meb:00:47:06It’s the most beautiful trend following index of all time but on the flip side you have things like Japan where the biggest bubble we’ve ever seen hit a p ratio CAPE of almost 100 in the 80s and just now really essentially last few years breaking out to levels 30 years later. Again this is a top three world economy, once the world’s biggest stock market. The problem with the market cap. The good part, you can go to a cocktail party say I own Tesla, I own Amazon, you’re guaranteed to own the winners, the problem is there’s no fundamental tether to valuation, earnings, sales, so kind of combining the two coming up with any investing approach that will give you the upside of owning the big 10, 100, 1000 baggers which you have to. By the way if you own them individually zero chance you keep those until they hit 100 bagger status. We did another poll where we said people what’s the best investment you’ve ever had and everyone for the most part was up to 10x sort of returns because damn it you invest in something…I mean look at Bitcoin right now it doubles, oh my God, everyone like the world is going to go insane. There’s stocks all the time to go 10, 100X, it usually takes a decade and the problem is these massive compounders is people want to sell them all the way up but anyway indexing …

Mike:00:48:23They also have massive corrections. Amazon had I think it’s more than three 75% plus corrections on the way to where it sits today. So how many of those are you going to sit through to get to where it is there. Some people did but they were Jeff Bezos. So him and a few other insiders but as an outside investor it got a little out of hand in 2000 and how did that you didn’t own like Yahoo, like how did it was Amazon at that time and-

Meb:00:49:01This is why we need to come up with an ETF lock box concept, the generational wealth areas, real estate, farmland, private equity like people get it and they understand this concept, but with public markets it’s impossible. It’s so hard to own things when they go up.

Mike:00:49:22So true.

Richard:00:49:23Meb, shifting gears slightly and maybe this is one other one of the words that is going to bring a drinking behavior here but do you give any thought about the possibility that we’re going through some form of a phase shift in markets or sort of a paradigm shift to use a term that’s beaten to death and how from a systematic perspective do you think about that through your models and how you might approach a new normal, a new reality of maybe central bank forces plus some of these liquidity aspects going by Cory’s liquidity cascades paper, just some of these different forces that appear to be changing market behavior, how do you think about that?

Paradigm Shifts

Meb:00:50:05I have a Tweet thread that I was reviewing prior to this about a year ago that listed a bunch of my beliefs that are not consensus, meaning 80 percent of people, pros don’t believe it and one that I think everyone hates is I’m like, Fed’s done just fine. I mean everyone goes crazy about that but my opinion is look markets, Fed’s been around for over 100 years, central banks have been mucking around with things. We’ve only had a floating currency system for what? 50 years. Like people love to like act like we’ve had like a gazillion years of financial markets to draw conclusions from and I mean it’s not that much time, it sounds like a lot of time it’s not that much time. We love to talk about prior to this year, we had a tweet that said something along the lines of it’s interesting, decade ends often mark inflection points. I said in the 80s was this the biggest equity bubble we’ve ever seen, the 90s was this internet year 2000, the 2000s was the global financial crisis. I wonder what the 2000s or the 2020s are going to bring and sure enough one month in we have a pandemic. So that wasn’t like forecasting anything, it’s just the constant of markets being new every day and so we always talk about a client letter. Every time things go wrong as advisors, we love to reach out to clients say no, we’ve modeled this, we’ve seen this before it’s okay. And I joke that the way it should be written is like it’s okay clients we’ve never seen this before because every day every month is going to be something new. This year fastest ever from all-time high to bear market and boom right back.

So you’re going to constantly see things that no one’s ever seen before. Maybe Bitcoin goes to a million bucks and we move away from a fiat system like it’s possible. You try to come up with the probabilities, I think the biggest problem for most investors is they adhere to a future that they label as certain, that whatever their approach may be and they don’t consider the possibilities. 1917 Russia says thank you very much, markets close. 1949 China says thank you very much, markets close, and on and on and on. You can have government saying nope, short selling is illegal – yada, yada – taking over companies but also on the optimistic side of things that get invented new approaches. So I think the theme of regime change is always constant. I think you will be dealing with weird shit going forward every single day, that’s what makes our job interesting and coming up with possibilities to manage assets that’s, pick your phrase anti-fragile, robust that can just survive. That’s the big part. Not to get carried out, all the gamblers know this. We said on Twitter the other day most investors would be better suited to be less Nostradamus and more Rip van Winkle. Come up with an approach that considers the possible outcomes, and that’s what most people don’t. They say I expect 15% stock returns, that’s going to happen, boom something else happens. I mean look at bonds, bonds is the weirdest if you would rewind 10 years and ask me what does the future look like and you’re like all the sovereigns in the world are negative, that’s pretty weird. You can get a mortgage in some countries negative, I wouldn’t have predicted that. Anyway, my belief is there’s always going to be regime change and you just have to be willing and hopefully set up to survive it.

Mike:00:53:51Dear client something went wrong that’s why you’re getting this letter. And we had no idea that this thing was going to go wrong.

Adam:00:54:01Something else will eventually go wrong and we won’t know about that either.

Mike:00:54:05But some things will go right and we won’t know about those either.


Adam:00:54:10I remember going back to your paper, whatever, 2008 or 2006 or whatever and with your 10 month moving average et cetera. Correct me if I’m wrong but did you have a commodities sleeve in that original paper? I may be wrong on that but either way I’m just wondering like what are your thoughts on commodities because you talked about how a global stock bond portfolio 50-50 international/US whatever was relatively resilient and had very manageable drawdowns et cetera. I think that the worst period was the 1970s. So I’m just wondering like what do you see as a role of commodities or what’s your view on that in a portfolio?

Meb:00:54:58I’m just at this point trying to poke Adam with alternative views that are going to cause him to have a conniption by the end of the day. Starting with the Fed.

Adam:00:55:11I love that…

Meb:00:55:14By the way my opinion on the Fed by the way is it also should just be automated. I think their policy target should be also a robot but that’s neither here nor there. Thinking about by the way one more comment and then we’ll jump onto the paper. Thinking about a comment on going back to the very beginning of our discussion talking about what’s possible and outcomes, Barron’s had a recent poll where they said where do you expect interest rates to be, they didn’t even have negative as a choice. So what would really just drive people insane is US treasuries go negative at some point. Possible probable who knows but just that’s a funny data point we can come back to. So that old paper look, this concept of trend following, we already talked about market cap weighted indexes being the ultimate trend following exposure then applying it to entire asset classes. We picked five out of a hat back then, again I was in my 20s at this point, I was trying to avoid taking a test writing this paper, didn’t want to write a paper and never written a paper before, had to get it in by the deadline December 31st like what can I write about? Let’s pick five asset classes. Five just big ones and it was US stocks, ex-US stocks, bonds, REITs, commodities. Asset class really doesn’t matter by the way and then we’ll get to your concept about commodities, we did a retrospective 10 years later on this paper and it’s been interesting depending as you guys talk a lot about ensembles, about composites any one indicator certainly something like if you apply the 10 month or the daily equivalent 200 a day moving average. You apply to one asset class like US stocks. 1987, 200 day and quicker you were out, you missed it, hallelujah career maker. 200 day or longer you sat through the crash, not as bad as I remember hearing Jim O’Shaughnessy talk about he had a huge put position on the S&P and sold it the day before the crash. It’s one of my favorite stories.

But trend following in general on average and I think 2020 is a great example, it does its job over these long bear markets. We wrote a tangential paper one…of my superhuman abilities is mispronouncing words by the way…This year that no one read because we published it sort of near the pandemic peak, apocalypse was investing at all-time highs and it’s such a fun paper because most people when you think about because markets are hitting all-time highs in January and it was like oh my God this is crazy, but the reality was that you invested all-time highs and you give it a buffer like five percent or something. Does the monthly close within five percent of all-time highs otherwise you sit in cash every single asset class crushes buy and hold. You do a 12 month look back, also crushes buy and hold and the whole concept of trend falling and channel breakout it’s been around since the time of Charles Dao 100 years ago donkey and 70 years ago, this is just not sitting and holding things that go down 90%. You stay in the game and that’s the sort of take away from the paper. Commodities are a little different because as a farmer that I am, as I know you can’t necessarily replicate spot in the world so then you have the financialization of all these contracts with futures then you’re introducing things like contango and backwardation. We’ve had kind of both sides of that discussion on the podcast with people that are like, this is the worst idea in history to invest in commodities through futures contracts and other people that wrote the original papers and said it’s actually a great portfolio diversifier.

My opinion on commodities specifically is they are probably more amenable to trading than long-term holding although I think they’re fine for long-term holding. I don’t think you’re getting equity returns and if you dis-construct the holdings and we’ll bore everyone to death with this of course, a big portion of that historically has been the collateral yield but I think that’s true with everything and I don’t know that other people believe this but I think a big portion of stocks of bonds of everything, and you in a world of 10% bond returns and it’s not actually the bonds it’s the inflation usually. So they’re tied at the hip. Anyway. So things like gold, again I think the takeaway and why I model my own personal portfolio after a 2000 year old investment strategy based on the Talmud it’s about Talmud.


Meb:01:00:02Talmud see, I don’t know. I can’t pronounce.

Mike:01:00:03I don’t know, I said …

Meb:01:00:04I don’t know either. My wife is Jewish I got to ask her. It’s basically like every man invests a third in business, a third in…I forget what they call it.


Meb:01:00:19Housing. Yeah land and a third in … reserve. I try to model my own personal after that because businesses, stocks, private equity startups, cash reserves sort of concepts and then real assets and most people real assets is their house, but also commercial real estate. The two biggest by the way of the global market portfolio, the two biggest areas that are not well represented I think are farmland and single-family housing. Most people already have the single-hand family house, it’s not diversified they own their house but getting exposure to those two. So however you approach the real assets could be through TIPS, it could be through a combination of all these things, the commodity futures was such a fantastic example of the institution, every three years. You go to these conferences they get obsessed with something, 2005, 2007 oh my God were they falling over each other for commodity exposure and for the most part CalPERS and a lot of these others have now puked it up, they’re like that was a stupid sell. So it’s probably a great time to be buying them. It’s just a little more problematic the execution of it right. You guys all I’m sure are sitting on a pile of gold bars being Canadian under your chairs so it’s a little different but I think the concept of real assets is sound. The execution is a little harder.

Adam:01:01:42Yep. Fair point. On the commodity side too it’s sometimes the construction matters. One of the surprises we just wrote this paper on rebalancing premium but one of the surprises just how diverse the commodity universe is and if you can take advantage of that diversity a little more thoughtfully then you can…even if the actual commodities on average have a zero compound rate of return you’ll be able to generate two and a half percent compound growth just from the rebalancing premium on seven or eight different independent sort of commodity bets over time. So that was an interesting realization and another reason to maybe consider a strategic allocation to the right kind of commodity portfolio and as you say right commodities hedge a certain type of risk but then housing and TIPS and other different asset classes can also play an important role in different types of inflationary environments. So you’ve got to be humble about the bets you’re taking.

Meb:01:02:48Well said. Adam what else can we argue about? We need something.

Adam:01:02:51Yeah. I’ve resisted, you’ve laid a couple of easy ones out there for me but it’s the day before Thanksgiving and we’re such a friendly bunch on the ReSolve Riffs broadcast, we don’t like to get in arguments.

Bitcoin and Startups

Richard:01:03:05I thought Meb was going to pick up on the Bitcoin thread that I dropped a few minutes ago but I got nothing from him maybe-

Meb:01:03:13I’m the only person, I will explain my approach to Bitcoin. I also think I’m the only person on the planet that believes this, that has these four criteria. One, I’ve been a long-term proponent. People have seen me talk about it forever, we used to have “pay with Bitcoin” on our idea farm service like seven years ago as a somewhat broadly libertarian free markets kind of guy I like the concept, there’s nothing I love more that poking fun of my crypto friends because on average they’re absolutely insufferable and so it’s just like I can’t even with them. That having been said and you guys know I write a yearly article I talk about how I invest and for the first time ever bought a handful of crypto this year but lastly I find people insufferable that own it. I own it but I find it incredibly and this is people are going to dunk on me for this endlessly, you don’t understand it whatever.  I find it absolutely and totally disinteresting. I think it’s one of the least interesting things on the planet to me, it’s like a distributed … I get it and I did a Tweet a few years ago and I said something along the lines of, you can come up with bubbles in anything, it was like Pokémon cards, Cabbage Patch Kids, online databases and distributed ledgers like just worked it in there but I also like…Going back to this concept up from an investment standpoint, again my article all-time highs is not bearish. If it’s hitting all-time highs like God bless you own it. Good for you. The thing is like if you were to ask me Meb, would you rather have a portfolio of a hundred amazing startups that are trading at say 10 million dollar valuation that found product market fit, have a million dollars in revenue or changing the world and doing cool shit. There’s companies like building the next commercial space station, companies trying to solve loneliness by connecting seniors with young university age students to help them-

Mike:01:05:25Having what?

Meb:01:05:28And by the way those have the potential to go 100x, a thousand x, like in every possible scenario I want the basket of startups. That having been said, the advice that I give to people because I’m allowed to give advice it’s not my show today, over the years if people just ask me maybe it was two years ago they’re starting to ask again they haven’t asked and they asked two years when bitcoin was at 3 000. They asked when was it 20, they’re asking again now, I say look you want to buy some? Own it as a portion of the global market portfolio which I think around now all the crypto combined is about point one percent. It’s like you want to go wild and crazy by one percent and guess what it ten x’s it’s now ten percent your portfolio. Like it’ll get bigger, good for you. It goes to zero, but this applies to everything like the person that wants to put all their money in Apple I tell them the same thing. I’m like dude buy a little bit but…So anyway that was my short summary. I managed to offend everyone in that by the way.

Mike:01:06:32Yeah satiate your tracking error. It’s a status seeking like all the Hodlers are going to be out there, they’re going to have it all and that’s their group.

Jason:01:06:43Not to mention, he slipped in right into a reference to sugar daddy company startup which-

Mike:01:06:51Oh yeah, I heard that.

Meb:01:06:51No. It’s called Papa. It’s like an uber for loneliness. It’s not that one. It’s one of my favorite ideas, it’s like-

Mike:01:07:02It’s not Papi it’s Papa.

Meb:01:07:04They’ll take you to go get your groceries, they’re having explosive growth, they’re crushing it, you want to go hang out and play chess. One of the biggest problems of the pandemic is that is revealed is a big problem with mental health and loneliness and I think not just with drugs and alcohol but applied to so many different ways and I’ve invested in a ton of startups that are trying to attack that from all sorts of different angles. I love this one as one hey if it ends up being highly attractive 20 year old co-ed boys and girls God bless them, but it’s merely meant to take care of your groceries and hang out. I had something to say and you totally derailed it. What was I talking about? I know what it was. There’s two parts of the crypto story that I love the tease people. One is we have the Hodler ticker, so anytime anybody wants to launch an ETF on the crypto space they can talk to me, but…God what was the other thing? My favorite Tweet of all time and I was poking the crypto community, I was hanging out with Jeremy Schwartz of Wisdom Tree in Switzerland, that sounds so insufferable to say but I was randomly giving a talk in Switzerland, he was in Switzerland, posted on Twitter. He’s like I’m here. So like we went and met somewhere and had cocktails, freezing cold outside, made fun of him because the cocktail he ordered it was like it was like pink and came with a spoon. But I was teasing him and I said I posted a photo of us and I said Jeremy’s here talking about how they’re getting ready to launch a Litecoin ETF. And this was at like peak crypto mania and oh my God the internet just went insane. They were so excited and the next morning Jeremy wakes up he’s like dude you have to tell people that wasn’t true. I’m like I don’t know it’s not true, you guys might launch once. I mean like and if Jeremy’s like trying to like-

Mike:01:08:58It’s over 20.

Meb:01:09:01Yeah. He’s trying to damage control, he’ll be like no he’s kidding and the amount of hate and dms I got from that one Tweet was … Wisdom Tree if you’re listening, I don’t know that you’re not going to launch a Litecoin ETF. So tbd. … just launched one in Europe today. Good for them, who knows?

Mike:01:09:21I know they’re bringing out an Ethereum one in Canada too. They’re launching another got the Bitcoin closed in trust-

Adam:01:09:27They raised a bunch of money in the Bitcoin ETF here in Canada.

Mike:01:09:29Yeah. 60 million.

Adam:01:09:31Yeah. Trades at big premium as usual.

Meb:01:09:32My favorite way to tease the crypto I’ve listed like nine already is to say, back when people took airplane flights as I would say, I’m about to go mine a bunch of crypto currency old school best crypto currency in the world United air miles, what was it called Mileage Plus and I’m like the good news about this I can actually use it for something like it’s an actual currency. I can fly around the world with. Bitcoin, it’s like impossible to do anything and transact with it. But frequent flyer miles, favorite crypto prediction for the next 10 years.

Adam:01:10:05They’re all going to go on the distributed ledger as you say.

Mike:01:10:11That’s awesome.

Adam:01:10:12Is that it?

Mike:01:10:13I don’t know. Any other hot topics?

Meb:01:10:15I booked four hours, what else are we talking about?

Hosting a Podcast

Adam:01:10:17I had something else I was going to ask you but I was going to let you off the hook being pre-Thanksgiving but I was wondering whether because as a podcast host, I finally have all these conversations and you’re always asking questions and I always wonder, you spend so much of your time as a podcast host and obviously much less time by definition on the other side and I’m just wondering is there anything that you wish that you were asked more frequently or that you never get asked or that you’re dying to talk about that you never get a chance because you’re always on the other side.

Meb:01:10:50I think a good question that to talk to people about no matter what is in a universal one is just kind of like, what are you excited about? What are you working on these days? And you can see people light up about whatever it is they’re into. It could be rugby, it could be coming up with some new recipes, start up. Like who knows what it is. That’s always a fun question to me because it gets people talking about something they may not have even revealed publicly, anything you guys got it behind your brain that you’re working on? Adam usually puts out like a 400 page something other every once in a while with the most beautiful graphics. You guys put out one this year, didn’t you?

Adam:01:11:34Two I think. We put out maybe three. Actually I think we did a portfolio optimization and stocks and then we did a risk parity paper and how to evaluate risk parity strategies and then we an appendix on the rebalancing premium of prosperity strategies. But you said you’re working on a paper, I’m actually super curious to learn more about that if you’re actually interested in talking about it on policy. Like what are the three or four key themes that you’re going to hammer on?

Meb:01:12:07By the way when you guys want the domains risk party and risk parody, I have both. You guys can have them. Risk parity I sold somebody in Switzerland owns it now.

Mike:01:12:18I like risk parity better.

Meb:01:12:20Yeah I do too. Like when it’s crushing it just be like let’s go. Risk parity is on. My favorite thing and you guys as a fund manager are in this boat is ideas that are actionable. Something you can actually put to work. The vast majority of Twitter, not just in the investment world, politics is like people are amazing at the diagnosis. Here’s the problem, rant all day, rant rant. And politicians are incredible at short-term fixes. What they’re not great at is I think the prescription. I got into a big fight a few years ago publicly, was speaking at a university with one of the mutual fund cults and on and on and on about passive and active, oh my God, just like he had some of the right diagnosis correct but the prescription had you followed his advice was that you should fire him and hire someone else because he charged some just insane fee just to do buy and hold. So you always got to be careful between like here’s the problem and then extend it to what’s the actual solution. In a lot of things it doesn’t have to be world changing, it could be something pretty simple. Let me see if I can even find my post. The big white whale for me of course is the education, the fact that we don’t teach personal finance. It’s like 12 percent of schools in the US is so embarrassing that it’s just like I can’t even begin and the way to frame it would be something like money and freedom.

Personal finance barf and people always come back at me and say no it fails, you teach personal finance to prove that it doesn’t work and I say well there’s two problems to that. You’re either teaching the wrong curriculum or the teachers are bad or whatever and one of the benefits of 2020 will be that as education moves online instead of 10 million teachers where some are not great, hopefully some of the best teachers and curriculums bubble up to where everyone can participate. So in many of these cases I post both a public policy solution but also hey, private market I think there’s a massive opportunity for what we call like and we wrote about this like five years ago, Rosetta Stone for investing. You want to teach someone a coursework on how to do the basics of personal finance and investing. Look Dave Ramsey does like 100 or 200 million dollars of revenue per year teaching it and it’s his brand and there’s things he does wonderful and there’s things I disagree with but the possibility is there I think for things like that. That’s one to me that is really-

Mike:01:15:14Isn’t this just an extension of Khan Academy?

Meb:01:15:19Yeah. But look at Master Class, they teach all these courses about cooking and creative and chess, how many there are in personal finance investing? Zero. And on and on and on. So it’s an opportunity I don’t want to do it too much work, you guys can do it for Canada. I don’t want to do it too much work. But someone will solve it and they’ll make billions of dollars. So that’s one, teach money in school and the concept by the way like it’s becoming more and more clear I think too where so many famous artists, celebrities, athletes are all becoming rich, zero of them from their career and you can just go down the list. Kanye, Jay-z, Federer, George …, Ashton Kutcher, on and on and someone should write a book. I think you could even co-op the Jay-z phrase, I’m a business man and profile a lot of these famous because that resonates with people. So many people see the possibility is totally of wealth building is insurmountable. So that’s one. I mentioned earlier this concept of the freedom dividend, again there’s like a thousand permutations on that. There’s another one that I think is interesting. What’s the lottery situation in Canada? You guys got a standard lottery?

Mike:01:16:41We love the lottery. We spend a lot of money, its government owned, it makes a lot of money.

Meb:01:16:48Is it scratchers like Powerball sort of thing?

Mike:01:16:50All of it. And it’s also not taxable. So when you win you don’t pay tax.

Meb:01:16:54That’s pretty dope. Look let’s be honest, what’s the problem with the lottery? It’s a tax on being stupid to be fair but it’s also a tax that’s pretty predatory. It’s predatory on low income people because often if you have no money and you can’t pay the bills like to have the fantasy, you’re never it’s insurmountable you can never get out from under this and like the average person in the US spends like 500 bucks a year on lottery and then the active players or it’s like $2000. So if you were to ask politicians say hey look, this is clearly predatory, there’s some better systems, the reason none of them give it up is the revenue. You mentioned like they’re addicted there’s zero chance they’ll give up that. There’s some other systems elsewhere in the world UK, South Africa that have these concepts of savings based lotteries to where you play the lottery or you put in a deposit. I invested in one called Yatta Savings. You invest and they do a weekly prize drawing and you win anywhere from 10 cents to up to 10 million dollars and they’re not paying you out savings percent which you’re not getting anyway but they use that spread to fund this lottery, so it’s a pretty cool idea that instead of you buy a lottery ticket you may lose 50 cents or I think the expected value like 50 cents. This has actually been hugely popular for decades in the UK. They’ve done this. Prize Link Savings. I think someone could do it where they’d link it to prize link investing. So hey you’re a lottery, you get a ball each night whatever but the remainder balance it goes into your investing account and hopefully it’s something you couldn’t touch. Again these are fintech ideas, I don’t want to do, I would love to see someone do it.

But we have to be honest,  and the problem with a lot of these savings apps that are hugely popular in the US, amazing businesses,  fantastic for VCs. Absolutely atrocious for actual savers, the average account balance on a lot of these is like a hundred bucks and they charge a dollar a month, two dollars a month, three dollars a month so what are you paying for your savings account where you’re paying 10, 20% a year like that’s insane and I get totally ratioed on Twitter if I talk about this. People lose like it’s the exact opposite of what people think. But I think there’s a lot of ideas, they all tackle different parts of this sort of problem that we’re coming out but the big one is we got to get people at least a little bit educated I think. Then lastly is to have systems that nudge you in the right direction.


Adam: 01:19:36So I’ll take not surprisingly maybe the other side. It seems like we educate kids all the way after school on how to eat healthily and they go to phys ed class and they learn how to take care of at least the basics of physical exercise and get outside and go hiking or go walking or whatever and we’ve got an obesity epidemic and a healthcare epidemic in most western countries. Hey man.

Rodrigo:01:20:08Hey guys.

Adam:01:20:10Why would we think, I mean I personally think that one of the greatest policy errors of the last 50 years was the privatization of retirement savings. One of the great things about Australia’s superannuation program is that there are very few choices that Australians sort of they have a program that the government sets up and the default is we’re going to dock your pay and it’s going to go into one of these programs et cetera, and I mean it just seems like you advocate for libertarianism and free markets. I won’t even go there with how inconsistent that is with your views of the Fed policy but like I just don’t think that most people even educated, will have the discipline or mindset or in general to make those active decisions without basically most of them just being defaults.

Meb:01:21:06Okay, let me give you a quick response to that. Hello Rod.

Rodrigo:01:21:09Hey Meb.

Meb:01:21:09By the way I might compliment you guys on your choice of microphones. I’m not going to say that they have a particular aesthetic but they do. I don’t know where you grew up. I grew up eating fruit loops for breakfast, I grew up with the food pyramid in the United States which said you should base your diet on 17 different carbs per day and then at the very top is like whatever you do don’t eat red meat and we’ve learned over the course of history that’s probably not correct. I actually did a Tweet the other day it was like which was the biggest lie of my childhood, as a child of the 80s. And it was like the war on drugs essentially like sugar is great and fat is bad. What was the third one?

Mike:01:22:02Santa Claus. Santa Claus …

Meb:01:22:05No I said lie. What are you talking about? Those things are totally true.

Mike:01:22:11Says the guy with a three-year-old. Fair enough.

Meb:01:22:15But we actually wrote a paper on this about essentially the investing pyramid and I said it’s funny and the beauty of education and knowledge is it compounds and particularly with the internet is it gets revealed. So 50 years ago how would our parents’ generation have invested? First of all they wouldn’t have, most people didn’t but had they had a broker at Dean Witter or E.F. Hutton, they would have bought a handful of stocks, paid some ungodly commission account, they probably would have bought some CDs or some sort of bonds but it was different. The average mutual fund was like north of two and so I think things get better over time. So I think having the dual balance of a basic education and we haven’t even gotten into student debt. A 17 year old, I don’t know if you guys remember being 17 but last thing I was capable of deciding was whether or not I should be taking on $200,000 and future liabilities with no framework. I could talk to you about calculus all day long because that’s what we were taught, but anyway, I think there should be a basics and then align that with systems that, the incentives and the knowledge is set up in kind of the best interest and the opting in of the…I think it shouldn’t be private. My God and I don’t know how you guys have it, but retirement in the US is the most complicated. There’s IRAs, there’s sep IRAs, there’s 401k. Like who could possibly figure that out? I’m a professional I can’t figure it out, anyway. So we kind of agree and disagree.

Mike:01:24:01I think healthcare too. The one thing that as a Canadian that getting into dealing with the American RIA network and just the amount of gray matter that has to be put to the idea of health care is absolutely mind-numbing and so the pandemic to me is also created, there are some things that the government should be highly involved in. They don’t optimize well when the free market’s involved, pandemic management behavior, management of health resources, management of the society based on that. These are these are some topics so that’s why Adam changed my mind on the idea of pensions, the shared risk, the simplification, superannuation, these things there should be a good base if you think about a Maslow’s hierarchy of needs with respect to your financial obligations and then what a society should obligate you to provide for yourself, you get a long way in a behavioral management. The superannuation, it’s simple you got three or four choices and you don’t have the one of the choices that you don’t have is not to participate. So the other thing that I’m picking up from the things that you’re really excited about Meb is this idea of creating a community. I think that’s something that is right through this. Everything you’ve talked about is okay creating communication whether it’s happiness, creating that opportunity for groups to come together and share their experiences in these sort of common themes, is that on purpose? Is that just something that you’ve come to from a value set or is that something you’ve sort of thought about explicitly as you’re wandering through the world on the Meb journey.

Meb:01:25:55Well, I think the first way the odd takeaway is vast majority of people should spend zero time on their investing, set up a plan, we talk about this we say what percentage people have a written investing plan? It’s usually around five percent and it doesn’t have to be complicated, it could be three bullet points, it could be 20 page policy portfolio but you even actually have a plan so when it hits the fan and things like 2020 happen you don’t have a fracture. I’m sure you guys know just as many people as I do that sold this year and will probably never buy again or sold in 09 to never buy again, it’s on and on because they don’t have a plan. But once this stuff is set up I don’t think people should be spending that much time mucking around with their investments and we love to debate all day and if it’s a hobby that’s fine.  I’m like look if you’re a hobbyist you like investing because it’s interesting, God bless you. There’s cooler things in the world. But we’re odd ducks in that sense and we do this for a living but at least having the tools to be equipped as smiling as you were talking about kind of platforms and communities’ successing back the days of like Raging Bull, Yahoo message boards, Twitter now. So you get the little benefits but also the cesspool too. But the biggest problem and the big muscle movements of what really matters, save and invest in the first place, we do the Venn diagrams I bet most of us would probably agree with most of the big things that really matter over time, but I don’t know the ideal solution for the delivery or the curriculum but I think most of us could write it down on a napkin and come up with something that would work.


Mike:01:27:49… Sorry go ahead Rod.

Meb:01:27:52Rod you’re not allowed to speak this time, you just got to stand there.

Rodrigo:01:27:56I just had to come in, I’d have to come in and talk about that insurance, not insurance policy but the lottery ticket idea. Really lottery ticket idea superannuation is all about using the behavioral tricks that we can get for people to do the right thing. My father…one of the things that I think in the US I need to get in here because somebody has an idea of a startup they should be doing this. In the US it’s similar to improve. Healthcare is a thing that a lot of people just don’t have and they don’t want to spend the money for it and yet everybody buys a lottery ticket. So my father actually ran a company group for a few years where it was a weekly lottery ticket that came with an insurance policy attached to it. A health care policy attached to it and so he was deliberately giving everybody health insurance while also gambling on trying to win that lottery. It’s just a brilliant idea and it was an instant success. The other thing superannuation’s improves the same thing. Nobody’s saving in Peru. Everybody has their house and then the rest of it they’re spending it, being forced to save. And one of the key things is to give enough freedoms, it’s not just about you have five risk portfolios, you have five different providers that the government has approved to provide you five risk portfolios. So there’s that kind of illusion of choice  and they all pretend to kind of compete against each other, they’re slightly different but there is some choice there. So I think the success here of the school is to really couple that education with the right incentives as Meb has said. We know much more now on the behavioral side than we ever did and we’re not using the tools as well as we should.

Adam:01:29:44I think there’s … the actual messages that we should be teaching. That’s the other thing. Like as everyone was sort of saying well the inverted pyramid and whatever. I don’t know that there’s enough, there’s any more consensus on what the right savings and investment plan is for everybody it as there is on the optimal food pyramid. There’s that-

Rodrigo:01:30:04Saved something

Meb:01:30:08Well it works for real estate. I think most people can identify with that. Real estate is not a huge wealth builder because it’s a magical asset class it’s fine, it’s because people…it’s forced savings you would otherwise spend. We all hedonically adapt. If you’ve got money laying around like most people are going to spend it. Real estate they get like it’s a house, it’s a home, it’s forced savings every month, it’s just a little harder when it applies to everything. But you talk to anybody in Australia about their supers, they love them, they’re like this is amazing, this is great.

Adam:01:30:42We’re big fans too.

Mike:01:30:43Cool. Well that’s 90 minutes. You guys want to do another 90?

Meb:01:30:48Maybe want to drink. That maybe this podcast instead of drinking throughout it’s like drives you to drink.

Adam:01:30:54Yeah. That was the ultimate goal. That’s why we insist on drinking throughout so that by the end you’re sated.

Mike:01:31:00You loosened up exactly.

Meb:01:31:03I have a whole bullet point list of things to talk to, to rile up the crew. We didn’t even get to him. So I have to do it again.

Rodrigo:01:31:11 I didn’t know that you have the URL “risk parody”


Meb:01:31:19Make an offer.

Rodrigo:01:31:23You have that. You have risk parodty.

Meb:01:31:24I do.

Rodrigo:01:31:25Oh my God.

Meb:01:31:26I used to have risk parity.

Rodrigo:01:31:30I love it, I might pick you up on that.

Mike:01:31:33That’s awesome.

Adam:01:31:33We’ll submit a private offer on a that.

Mike:01:31:38Well what do you think guys?

Rodrigo:01:31:42Happy Thanksgiving Meb.

Meb:01:31:45I hope all of you take at least minimally effective vaccine and get to come see me in Los Angeles shortly and hang out and hopefully get to join you guys back in the cold north either for some turns or you got to whatever that Thai place was I want to go back just for that Thai restaurant. I hope they haven’t gone out of business. Please tell me they haven’t.

Mike:01:32:07They’re Pai, they’re still there. My daughter lives a block from there so they’re still-

Jason:01:32:13They’re opening a second one up in Davisville.

Adam:01:32:15So there you go. Three restaurant recommendation. P-A-I, Pai, if you go to Toronto and you like Thai food that is the place to go. Best place.

Mike:01:32:22Is the box.

Jason:01:32:24And the March for the Fallen, Meb maybe next year it’s back on.

Meb:01:32:31Yeah. We did one here local in LA this year remotely. I think 2021 I think everything’s moving the right direction. I’m optimistic. I always sound like a pessimist but at my core I’m a big optimist.

Adam:01:32:42I always feel like you sound like such an optimist actually.

Meb:01:32:45Wow. Thank you. I’m passing that recording on to my family friends.

Adam:01:32:53All right, thanks.

Mike:01:32:54Thanks gentlemen.

Jason:01:32:55Happy Thanksgiving men.


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