The Meb Faber Show - Better Investing Folgen

In Episode 46, we welcome Real Vision TV co-founder, Raoul Pal. The guys start by going over a bit of Raoul’s background. Raoul started his career by running equity and equity derivatives at Goldman Sachs. Through this, he learned the macro investing world. He then joined a hedge fund, managing its global macro fund before retiring at 36 on the coast of Spain. But it was then that Raoul decided to start a research service, the Global Macro Investor, aimed at large, institutional players. However, in 2008, Raoul realized the ordinary investor had been let down by the system and financial media. So, in an effort to help, Raoul founded Real Vision TV with Grant Williams. Real Vision features the smartest guys in the world teaching you how to invest, what their best ideas are, and so on… After this background, the guys jump in, with Meb asking Raoul about his overall investing framework. Raoul tells us this whole game is about probabilities. To invest successfully, we look for times when the odds are in our favor. So, to look for these times, Raoul developed a system based on the business cycle – with a focus on GDP, as asset prices are moved by economic growth. The model relies heavily on findings from ISM reports (Institute for Supply Management). Raoul tells us that when looking at ISM numbers, it’s not just the level that counts, but also the rate of change of those levels. Overall, this model helps forecast S&P levels, bond yields, inflation, world trade… basically everything! So, what is it saying now? “We’ve got to expect a recession this year or next year, or if we’re at the wild extremes, the year after that.” Meb brings up stats from Ned Davis, tying ISM levels to market returns. He says how last year, it appeared that ISM levels were rolling over, but then they steadied and now are a bit high. He asks Raoul what it means for us now. You’ll want to hear Raoul’s response, which includes the possibility that asset prices may weaken soon – while bond yields may suffer significantly. Meb then points to Raoul’s call of a potential short trade in oil. Raoul tell us that this is the largest speculation in oil – ever. Way too many people went long, and this speculative positioning is too far ahead of the actual business cycle. He says oil is maybe $10-$15 too high right now. It’s coming close to being a perfect trade setup. Oil could hit as low as $30. Next, the guys discuss great opportunities around the globe. Raoul points to Cypress. Greek stocks are still hammered too. He says the upside could be huge – potentially 10x your money. Meb agrees, mentioning his own study about markets that have gone down big, or stayed down for many years. The upside is often spectacular. The conversation then steers toward one the biggest emerging macro story in the world – India. You’re going to want to hear this one. It’s a fascinating story, and Raoul gives us actionable investment ideas. Next up – Bitcoin. Raoul gives us a quick primer on Bitcoin and blockchain technology. He tells us that many people are confused as to what, exactly, it is – currency? Investment? Raoul gives us his thoughts. There’s way more, as this episode is packed with great content. The guys talk about Google’s and IBM’s prospects as investments… artificial intelligence… making money entrepreneurially rather than through investing… and Raoul’s most memorable trade – it’s fascinating story involving the South African Rand that you don’t want to miss. What are the details? Find out in Episode 46. Learn more about your ad choices. Visit megaphone.fm/adchoices

In Episode 45, we welcome one of the most often-requested guests for our podcast, Gary Antonacci. After a few minutes on Gary’s background, the guys dive into Gary’s “Dual Momentum” research. To make sure everyone is on the same page, Meb asks for definitions before theory. “Relative momentum” compares one asset to another. “Absolute momentum” compares performance to its own track record over time, also called time-series momentum. Gary uses a 12-month lookback, and compares his results to the S&P and other global markets. In essence, you’re combining these two types of momentum for outperformance. The guys talk a bit about using just one of the types of momentum versus combining them, but Gary tells us “You get a synergy that happens when you use (Dual Momentum).” The compound annual growth rate applied to the indices is 16.2% dating back to 1971, compared to the S&P’s 10.5%. And the reduction in volatility and drawdown is under 20% compared to 51% for the S&P. With the basics of Gary’s Dual Momentum out of the way, Meb decides to go down some rabbit holes. He asks about the various extensions on Dual Momentum. It turns out, Gary says you can introduce some additional granularity, but not a lot. Almost nothing really improves the current version of Dual Momentum substantially. (And in case you’re wondering, you can go to Optimalmomentum.com to track Gary’s performance.) Meb then brings up questions that came in via Twitter. The first: “What sort of evidence would be required to convince Gary that Dual Momentum won’t work in the future?” Gary tells us that because the evidence for Dual Momentum is so strong, the evidence against it would have to be strong. We would need more than a few years of underperformance, and instead, a full market cycle of underperformance. But more importantly, he’d want to understand why it would underperform – for instance, perhaps everyone decided to become a trend follower, squeezing out the alpha? Gary quickly ads that such a scenario will likely never happen due to our behavioral tendencies as investors. The next Twitter question: “What are your thoughts on doing something alpha oriented versus just dropping into cash and bonds when you’re in a downtrend?” Gary says shorting doesn’t work because of an upward bias to stocks. Meb agrees, saying that shorting actually amps up risk and volatility, but doesn’t really add to risk-adjusted returns. Next, Meb brings up a post Gary wrote about commodities – are they still a good diversifier? The idea is that markets and their participants change over time. Gary thinks passive commodities have changed over time. And while they were a good diversifier to a stock/bond portfolio before, everyone has started doing it, which changed the nature of the market, reducing the benefit. Gary also mentions the risk of others front-running you. Meb chimes in, agreeing – you’re going to want to hear this back-and-forth. There’s tons more in this episode: moving away from market cap weighting when using Dual Momentum… Dual Momentum applied to sector rotation… sports gambling… our tendencies to stray from our investment plans… and Gary’s most memorable trade – hint: it involves an options blow-up. What are the details? Find out in Episode 45. Learn more about your ad choices. Visit megaphone.fm/adchoices

Last week’s solo “Mebisode” was met with lots of positive feedback, so we’re going to do one more in this format before we return to interviewing guests. Therefore, in Episode 44, Meb walks us through his book, “Invest with the House, Hacking the Top Hedge Funds.” Picking stocks is hard—and competitive. The most talented investors in the world play this game, and if you try to compete against them, it’s like playing against the house in a casino. Luck can be your friend for a while, but eventually the house wins. But what if you could lay down your bets with the house instead of against it? In the stock market, the most successful large investors—particularly hedge fund managers—represent the house. These managers like to refer to their top investments as their “best ideas.” In today’s podcast, you will learn how to farm the best ideas of the world’s top hedge fund managers. Meb tells us who they are, how to track their funds and stock picks, and how to use that information to help guide your own portfolio. In essence, you will learn how to play more like the house in a casino and less like the sucker relying on dumb luck. So how do you do it? Find out in Episode 44. Learn more about your ad choices. Visit megaphone.fm/adchoices