Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg weekly
Speaker 1: markets podcast. I'm Sarah Ponzac, reporter on the Cross Asset team,
Speaker 1: and I'm Mike Reagan, a senior editor on the Markets
Speaker 1: team and Sarah's trusty sidekick. You didn't come up with
Speaker 1: one this week, so you just We've gone through Hall
Speaker 1: notes and Lavernon Shirlie. I'm I'm out. I guess what
Speaker 1: three weeks with tops? Yeah? Four weeks. Maybe maybe we'll
Speaker 1: get creative next time. Yeah, next week. But anyway, this
Speaker 1: week on the show, worries of a so called second
Speaker 1: coronavirus wave are growing, and questions over the pace of
Speaker 1: the economic recovery abound. With stocks now trading at pretty
Speaker 1: expensive levels, how worried should you be about a fast turnaround?
Speaker 1: Our guest runs a tail risk et that game your
Speaker 1: thirty percent back in March by investing in out of
Speaker 1: the money put options. He share his thoughts, and as always,
Speaker 1: will close out the episode with our tradition, the craziest
Speaker 1: thing I saw in markets this week? Uh? And if
Speaker 1: you saw something crazy by all means, give us a
Speaker 1: call on the podcast hotline and leave a voicemail. The
Speaker 1: number is six four six three two four three four nine.
Speaker 1: Oh and maybe we'll play your voicemail on the show, Sarah.
Speaker 1: I actually, I don't know if you realize this, but
Speaker 1: you cut me off before my crazy thing last week,
Speaker 1: Um because we were going we were all going too long.
Speaker 1: I think you've droned on a little too long and
Speaker 1: had to cut me off, which is fine, Which is fine.
Speaker 1: So that means you have too this week. That just
Speaker 1: fun because I couldn't find one this I saved up
Speaker 1: last weeks for this week. Okay, well, I apologize about
Speaker 1: cutting you off number one, but it betould be really good.
Speaker 1: I think it was actually Cameron His craziest thing lasted
Speaker 1: like it could have been its own podcast of talking
Speaker 1: about the box options in in I'll have to go
Speaker 1: back to listen to it. But anyway, very happy to
Speaker 1: have uh the guests on the show this week. I
Speaker 1: think a lot of listeners have probably heard of him.
Speaker 1: He's a very prolific writer, has written several books on
Speaker 1: the market, a lot of really interesting columns and blog posts.
Speaker 1: On top of all that, he's actually the co founder
Speaker 1: and chief investment officer of Cambria Investment Management. His name
Speaker 1: is meb favor meb. Welcome to the show. Great to
Speaker 1: be here, you're all thanks for having me, dad, fellow podcaster.
Speaker 1: I know a little bit of competition here, uh in
Speaker 1: podcast land. But Sarah met maybe smarter and better looking
Speaker 1: than me, but he doesn't have a hit millennial charming
Speaker 1: podcast co host like like me. So no, no pructure.
Speaker 1: But I really need you to lay it on thick
Speaker 1: this week. All right, well, we'll try it out. We'll
Speaker 1: bring our best. Well, but let's let's start with talking
Speaker 1: about that notion of tail risk and and the Cambria
Speaker 1: tail risk ETF. Boy, this is the year, I think,
Speaker 1: when a lot of people realize the value of tail
Speaker 1: risk hedging. UM. So I'm curious just to hear sort
Speaker 1: of how you develop that product. I know it relies
Speaker 1: a lot on on options, uh put options on the market. Um.
Speaker 1: And I'm surprised to read in one of your blog
Speaker 1: posts recently, uh, how heavily you are allocated in at
Speaker 1: least in your personal investments. So it's tail risk and
Speaker 1: in Cambria as it Well, I correct me if I'm wrong,
Speaker 1: but at as of that writing, it was something like
Speaker 1: in your own portfolio and as far as the firm's cash.
Speaker 1: It was it was something like, you know what, I'm wondering,
Speaker 1: at what point, um, do you sort of balance back
Speaker 1: down out of that? Do you sort of take the
Speaker 1: profits on that? Or are we in the type of
Speaker 1: environment where it makes sense to keep a pretty heavy
Speaker 1: allocation to to sort of a tail risk strategy. So
Speaker 1: coming into this discussion, had we been doing this, uh,
Speaker 1: say in December, would have been much more theoretical than practical.
Speaker 1: And uh the SMP just finished one of the best
Speaker 1: decades ever, put it in the top five or probably
Speaker 1: the past dozen or so decades. Ended the decade at
Speaker 1: a pretty lofty valuation. But if you rewind about three
Speaker 1: years ago, we had written a paper called Worried about
Speaker 1: the Market, It might be time for the strategy. A
Speaker 1: little early. You had the first time in history the
Speaker 1: stock market went up every single calendar month. But we
Speaker 1: what we wrote about in this paper was thinking about
Speaker 1: hedging risks, and we said the first way to think
Speaker 1: about it, and the one that we most traditionally think
Speaker 1: about is US stocks don't take the risk in the
Speaker 1: first place. That's the best way to hedge it. So
Speaker 1: if you have a hundred percent portfolio in stocks, maybe
Speaker 1: you should have eight or sixty and the rest in
Speaker 1: cash and bonds. Second, Uh, it's great to diverse by
Speaker 1: into other sort of investment, traditional things like foreign socks
Speaker 1: and bonds, real estate commodities. So in this paper we
Speaker 1: looked at what historically hedged US stocks and their very
Speaker 1: worst months when they were down like ten in a
Speaker 1: month and during bear markets, and the things you expected
Speaker 1: probably not hedge foreign stocks, real estate commodities didn't. Historically,
Speaker 1: things you expected to help bonds did, but they didn't
Speaker 1: have hugely strong returns. They're mostly flatish. Gold did a
Speaker 1: good job, but not always one time it was down,
Speaker 1: and then the best during the bad times, of course,
Speaker 1: was buying puts. The problem with that is, uh, the
Speaker 1: cost in the good times, right, Um, the same way
Speaker 1: people think about car insurance or house insurance or anything else.
Speaker 1: And so we looked at historically how that worked with
Speaker 1: the portfolio. Now walk forward to it's been uh only
Speaker 1: six months into the decade, but my god, it's felt
Speaker 1: like an entire decade already with with six months and
Speaker 1: you played out in real time, uh playbook from this
Speaker 1: paper and the same exact strategies and ideas that helped historically,
Speaker 1: going back fifty years helped again. And the things you
Speaker 1: expected not to didn't. Foreign stocks, real estate commodities member
Speaker 1: traded negative at one point, with the futures on on
Speaker 1: the oil base and so um. This concept, though, is
Speaker 1: I'm a quant and if you think about markets and
Speaker 1: optimizations and the ideal portfolio, it's so easy to do
Speaker 1: on paper, but when you play it out in real life,
Speaker 1: the very real pain of losing money, waking up every
Speaker 1: day to markets being up down, limit, watching overnight futures,
Speaker 1: that's not something most of us want to spend any
Speaker 1: time doing. And so this idea of adding something like
Speaker 1: tail uh, you know, is almost more from the behavioral
Speaker 1: or psychological standpoint. And you noted my own personal investments
Speaker 1: that seem far skewed larger than than whatever makes sense
Speaker 1: for anyone. In the opinis of the paper. We had
Speaker 1: an interesting thought process experiment where we said, pretend you're
Speaker 1: a financial advisor or an asset manager, anyone involved in
Speaker 1: our world. Um, you're actually probably three or four times
Speaker 1: leverage the stock market, whether you know it or not.
Speaker 1: You have your own personal portfolio. If you're an investment
Speaker 1: advisor or a financial planner. Your clients, uh, their main
Speaker 1: investment is in US stocks. If you're revenue based, if
Speaker 1: the stock market goes down, your revenue goes down. Clients
Speaker 1: panic at the bottom and they tend to sell and
Speaker 1: just can't take it anymore. And then on top of that,
Speaker 1: if you don't work for your own company, uh, you're
Speaker 1: subject to layoffs and downsizing and recessions. So you can
Speaker 1: make the argument because of all your human, professional and
Speaker 1: personal capital are invested in markets, and no one else
Speaker 1: believes this, by the way, so to take that for
Speaker 1: what it is. But the same way an airline company
Speaker 1: would head fuel costs or a multinational company making cereal
Speaker 1: hedgess we it makes total sense to hedge the number
Speaker 1: one risk in our world, which is simply U S stocks,
Speaker 1: and most don't. I do. I'm a little crazy, um,
Speaker 1: but it's a way of if you can just get
Speaker 1: to the finish line and sustain with the rest of
Speaker 1: your portfolio, if some things help you get there, to me,
Speaker 1: it's all worthwhile and the whole, the whole goal of
Speaker 1: all this is to not get taken out of the game.
Speaker 1: If you're at the casino and you lose your bankroll,
Speaker 1: you can't bet, and that's the worst thing that can happen.
Speaker 1: Well on this show, Mab, we really like crazy um.
Speaker 1: But like you said, I mean has seriously felt like
Speaker 1: a lifetime. It's as though we have experienced this mini
Speaker 1: cycle in a way, and I've find it very interesting
Speaker 1: at this point in time because I think the fragilities
Speaker 1: in the market have been very clear. I mean, you
Speaker 1: mentioned the days when every single day we were experiencing
Speaker 1: limit up or limit down, and I will be totally
Speaker 1: upfront last Thursday, it was when we got that about
Speaker 1: six percent self in the SMP. I was made to
Speaker 1: temple it out because that's what we do in the
Speaker 1: news industry, a circuit breaker story just in case that happened,
Speaker 1: because we're getting flashbacks of March. But even I mean,
Speaker 1: if you look at different metrics, like the c boat
Speaker 1: puts a call ratio, I'm I'm always so amazed at
Speaker 1: how extreme it is to the downside that people don't
Speaker 1: feel as though they have to protect it against downside loss,
Speaker 1: that maybe people are a little bit scared of missing
Speaker 1: out at this point in time. I mean, psychologically, how
Speaker 1: difficult it is it to get people to grasp onto
Speaker 1: the idea of hedging against downside risk, especially coming off
Speaker 1: of such a forceful rally that we've now experienced. Well,
Speaker 1: there's two points that I think you bring up that
Speaker 1: are really important. The first is, you know, if you
Speaker 1: have a portfolio. What we talk about on these podcasts
Speaker 1: and about investments, it's the sexy part about investments. It's
Speaker 1: talking about you know, what are stocks gonna do? Where's
Speaker 1: gold going? What about inflation? What about the Fed? But
Speaker 1: the whole point is you should have a plan ahead
Speaker 1: of the time. Right, the football quarterback I'm a Broncos fan,
Speaker 1: Peyton Manning goes the line of scrimmage. Uh, you know
Speaker 1: back in the day, he knew all of his options
Speaker 1: that were gonna happen when the defense lined up right,
Speaker 1: and so not having a plan, and then last Thursday
Speaker 1: comes along and all of a sudden, the markets down five, six, seven,
Speaker 1: whatever it was. That's when people start to just totally
Speaker 1: panic and use a different part of their brains. So
Speaker 1: we tell all investors doesn't even matter. It could be
Speaker 1: two bullet points, it could be ten pages like an
Speaker 1: endowment policy portfolio. Have an investing plan, write it down,
Speaker 1: share it with whatever your loved ones are neighbor to
Speaker 1: try to keep you on plan and and and honest,
Speaker 1: because otherwise there's so much um seduction to just do
Speaker 1: really stupid things. And we'll talk about this more more
Speaker 1: in a little bit um. But the challenge also is
Speaker 1: that there is a pretty wide spread right now between
Speaker 1: what most of us experiencing in the real world, in
Speaker 1: the economy and markets. And I said recently, I said, look,
Speaker 1: if you were to go back twelve months feels like
Speaker 1: a lifetime ago last summer and say, look, I'm gonna
Speaker 1: tell you what's going to happen the economy in the
Speaker 1: next twelve months. Unemployment is going to go from four
Speaker 1: to Gold is gonna be up thirty. Oil at some
Speaker 1: point will trade negative in the futures market p M.
Speaker 1: I will go from positive to negative. Interest rates, Oh,
Speaker 1: by the way, the Fed go from two and a
Speaker 1: half to zero. Where do you predict stocks will be
Speaker 1: twelve months from now? And I guarantee you no one,
Speaker 1: no one would have said up ten or about where
Speaker 1: we are right even flat everyone who said down twenty down,
Speaker 1: forty down, sixty down eight um. And so that disconnect,
Speaker 1: I think is is very challenging for a lot of people.
Speaker 1: But again going back to it, uh, the beginning of
Speaker 1: the discussion, having a balanced portfolio and strategies that you
Speaker 1: can at least simulate for last fifty hundred years. Despite
Speaker 1: the velocity at which we had the down draft and
Speaker 1: the bounce, most everything's looked, I hate to say it
Speaker 1: kind of normal, you know. Remember I correct me if
Speaker 1: I'm wrong. But I think is it's safe to call
Speaker 1: you a value investor? Uh, if you were to sort
Speaker 1: of you know, have to pick a real broadbrush type
Speaker 1: of type of label. The two major foundational pillars that
Speaker 1: UM we base most all of our investing strategies on
Speaker 1: our value so again goes back to time at Ben
Speaker 1: Graham and before so a hundred years old and also
Speaker 1: trend following around the same time. Charles Dow been around
Speaker 1: for a hundred years. Both of those are sort of
Speaker 1: the yin and yang of our investment philosophy. We think
Speaker 1: both are are equal contributors to a great portfolio. So
Speaker 1: it seems like a good time to be bullish on value, UM,
Speaker 1: especially you look at the US valuations are are are
Speaker 1: pretty high. Once again, the foreign overseas by ouations look
Speaker 1: a lot more attractive, but it almost seems to me
Speaker 1: that in these times of turmoil that we saw this year,
Speaker 1: it almost seems like growth and sort of large cap
Speaker 1: us growth UM at least the main components of what
Speaker 1: you think of is that cohort. You know, your your
Speaker 1: big internet names, your alphabets, your Amazon's, your Facebook's. They
Speaker 1: almost seemed like a haven, uh in these times. So
Speaker 1: is it a good time to start looking for value
Speaker 1: and looking overseas if there is a lot of uncertainty
Speaker 1: about the macro backdrop or is there that risk that
Speaker 1: that once again valuations be damned, people are gonna want
Speaker 1: to be in those sort of mega cap growth names.
Speaker 1: It's always confusing to me or curious is a probably
Speaker 1: a better description to listen to people talk about valuation,
Speaker 1: because you always got to ask yourself what's the alternative?
Speaker 1: And is the alternative just buying stocks without any regard
Speaker 1: whatsoever to value UM. That seems like a really optimal
Speaker 1: way to invest, And it turns out that's what market
Speaker 1: cap waiting is. You just buy the entire market. The
Speaker 1: problem with market cap waiting you get extremely exposed to
Speaker 1: big booms and busts, and so a good example is UM.
Speaker 1: We wrote a recent article called the best valuation spread
Speaker 1: in over forty years. And if you look at market
Speaker 1: cap waiting globally, the US is a percentage of the
Speaker 1: world right now is about half. But if you go
Speaker 1: back to the nineteen eighties, Japan was the biggest stock
Speaker 1: market in the world and most peas we use a
Speaker 1: long term tenure p ratio. We call it the KPE
Speaker 1: ratio based on Rob Schiller's work going back to again
Speaker 1: to the time at Ben Graham Um. It's a tenure
Speaker 1: pe ratio adjust for inflation, but the average over time
Speaker 1: is usually around seventeen mild inflation around twenty two. In
Speaker 1: the U S. It's been as low as five and
Speaker 1: as high as forty five in the late nineties. Massive
Speaker 1: bubble in the late nineties. Japan hit a bubble of
Speaker 1: almost a hundred in the eighties. For the older people
Speaker 1: on this listening or the market historians out there that
Speaker 1: recall every cover of magazines, every TV show, every book
Speaker 1: was all about the Japanese business model is gonna take
Speaker 1: over the world. And it's really just the biggest equity
Speaker 1: bubble we've ever seen. We see a different flip flop
Speaker 1: story now and the seesaw has kind of gone the
Speaker 1: other way, where the U S stock market is trading
Speaker 1: at a value of around thirty pe ratio UM, which
Speaker 1: is high by historical stands. There just not a bubble.
Speaker 1: It's not as crazy as the nineties, but it's high
Speaker 1: and future returns expected to be low single digits. Even
Speaker 1: John Bogel said this before he passed away, and so
Speaker 1: it's more about expectations. The good news is the rest
Speaker 1: of the world for and developed is down around the
Speaker 1: high teens, for and emerging is in the low teens,
Speaker 1: and the cheapest bucket is around ten and so um,
Speaker 1: you have this major, major discount, these alligator jaws spread
Speaker 1: between the US and foreign The biggest we've seen except
Speaker 1: four years ago is US Japan. Now here's the funny thing.
Speaker 1: I guarantee you there's a million people listening to this
Speaker 1: that say, no, no, MeV the US deserves a premium.
Speaker 1: It's it should trade it to higher multiple, to which
Speaker 1: I usually respond, well, what do you think the historical
Speaker 1: premium has been? And the answer is actually zero. Over
Speaker 1: the past forty years, US has had no valuation premium
Speaker 1: over the rest of the world um. And so it's
Speaker 1: only really this period post financial crisis. And if you say,
Speaker 1: what is uh US stocks have stomped foreign stocks over
Speaker 1: this period? How much of that has come since two
Speaker 1: thousand nine? And the answers all of it. So you
Speaker 1: have this period it seems like it's lasted forever, but
Speaker 1: really has only been a decade. But it's setting it's
Speaker 1: this regime of US outperformance is setting the stage for
Speaker 1: future underperformance at least the rest of the world. So
Speaker 1: I'd say, yes, barish on large cap in the US.
Speaker 1: Um the good news is the drubbing in Q one
Speaker 1: small cap value, which at some point was down created
Speaker 1: some wide disparities within the market, so you can now
Speaker 1: you can at least find some opportunities within the U
Speaker 1: s but certainly look beyond your shores to foreign particularly
Speaker 1: emerging markets small cap value around the world. I love
Speaker 1: the alligator jaws spread description. It really is a nice
Speaker 1: visualization of what we've seen. But how do you actually
Speaker 1: go ahead then and balance value investing with usage of
Speaker 1: trend following as well? I mean, I would get the
Speaker 1: sense that at least if you're thinking about one asset
Speaker 1: class in particular, let's just use stocks because it's easiest.
Speaker 1: If you're thinking of yourself as a value investor, but
Speaker 1: you also want to employ methods of trend following that
Speaker 1: at times that may be flashing different signals. Okay, there's
Speaker 1: a lot on that question. So let's start with what
Speaker 1: we call the global market portfolio. If you just went
Speaker 1: out and bought the entire world of public assets, what
Speaker 1: does that look like. It's roughly half stocks, half bonds.
Speaker 1: Of that, it's roughly half US and half foreign. If
Speaker 1: you look at most US investors portfolios, it's dominated by
Speaker 1: the US. The stock allocation is up around the bond
Speaker 1: allocation is almost always a percent US, almost no foreign bonds,
Speaker 1: despite the fact foreign bonds are the largest asset class
Speaker 1: in the world. So at least getting back to the
Speaker 1: index starting point, the Vanguard die hard. You know, if
Speaker 1: you're a die hard index or, you should have half
Speaker 1: in foreign stocks and half bonds, and almost no one does.
Speaker 1: That's particularly problematic right now because the US is the
Speaker 1: largest stock market in the world, but it's also what
Speaker 1: the out of forty five countries we track, the second
Speaker 1: most expensive. So you're putting most of your money in
Speaker 1: US stocks, and many people in US are putting so
Speaker 1: being valuation mindful, I think is important, and we tell
Speaker 1: people that are crazy like me, you can tilt even
Speaker 1: further away from the global market portfolio into value, but
Speaker 1: at least get back to the global index because the
Speaker 1: same problem, this home country bias happens everywhere. My friends
Speaker 1: in Japan, Israel, UK, Australia everywhere put most of their
Speaker 1: money in their own markets and it's a really foolish idea.
Speaker 1: Now you've got a second topic, which is a little
Speaker 1: more esoteric, which is trend falling. And it shouldn't be
Speaker 1: that esoteric because every single index that's market cap weighted
Speaker 1: in the world already is a trend falling index. The
Speaker 1: only variable they're doing price of the stock, time shares outstanding,
Speaker 1: So you own more of Apple and Amazon as they
Speaker 1: hit a trillion, you own less as they go down,
Speaker 1: So you're already a trend far. Most people just don't
Speaker 1: know it. Um, But trend falling as a methodology has
Speaker 1: been around again as long as value has, and there
Speaker 1: tends to be a lot of misinformation when it comes
Speaker 1: to to be investing in trend falling and so UM
Speaker 1: we've written a lot of papers on this and books,
Speaker 1: but basically, you want to be invested in markets as
Speaker 1: they're going up and have some sort of systematic exit
Speaker 1: as they're going down. It's not going to protect you
Speaker 1: in the five or ten percent moves, but it will.
Speaker 1: It's sort of the forty six moves which we've seen
Speaker 1: in markets in history. I shouldn't say it will, it
Speaker 1: should and so um. But that's very much a different
Speaker 1: psychological approach than just buy and hold buy and hold.
Speaker 1: The problem. The biggest problem with buy and hold it's
Speaker 1: totally fine investing strategy is that everything bad happens at once.
Speaker 1: You've gotta buy a whole portfolio. It gets smoked in
Speaker 1: the financial crisis. It got for the most part, very
Speaker 1: challenged in Q one, So it's very high, highly correlated
Speaker 1: to the economic environment with people losing their jobs, everything
Speaker 1: else going south, and so you're sort of doubling up
Speaker 1: on what's going on in the world. Trend following usually
Speaker 1: does well during those periods, and for most part did
Speaker 1: a good job this year. Problem with trend following is
Speaker 1: the other periods um for the most of the two
Speaker 1: thousand the ads that are sorry. UM. Trend falling wasn't
Speaker 1: great fantastic during the financial crisis. The biggest problem with
Speaker 1: trend falling is you look different, and usually it's it's
Speaker 1: not um great or fear, you know. Buffett says that
Speaker 1: really drives markets, it's envy. And so when the markets
Speaker 1: up thirty percent last year, uh, and all your neighbors
Speaker 1: are talking about vacations and buying new cars and houses, etcetera.
Speaker 1: A strategy like trend folling that may have lagged is
Speaker 1: hard to keep up with, particularly because those can go
Speaker 1: I don't know, two, three, four, or five ten years uh,
Speaker 1: with some disparity in return. So we like to have both.
Speaker 1: It's sort of a guineyang. We probably put more in
Speaker 1: trend folling than any adviser in the country, but we
Speaker 1: like to go half and half technical term. We we
Speaker 1: like to call going have these to use the jargon,
Speaker 1: to use the industry jargon. So you are a true
Speaker 1: Florida woman for picking up on that alligator reference there,
Speaker 1: I I uh, your true color is coming out there.
Speaker 1: We had an alligator behind our house supposedly the other week.
Speaker 1: So alligators are in front of mine, top of mind
Speaker 1: for me because I don't want to run into it.
Speaker 1: So i'd widger you have one behind your house probably
Speaker 1: right now if it's Uh, I wouldn't be surprised. Uh.
Speaker 1: You had a really interesting hosts recently talking about how
Speaker 1: you invest your own money, and I think this is
Speaker 1: you know a lot of I've seen a lot of
Speaker 1: these pie charts of masset allocation. I think yours is
Speaker 1: my favorite I've ever seen because there's some small slivers.
Speaker 1: They're like comic books, less than one percent. I guess, um, crypto,
Speaker 1: and your rational for for awning crypto is I think
Speaker 1: the best rationale ever. It's basically basically so that your
Speaker 1: your crypto friends don't don't badge to you to death
Speaker 1: about owning crypto. And and I tend to agree with that,
Speaker 1: you know a little little bit in case it goes
Speaker 1: up a million percent. But the really interesting thing to
Speaker 1: me is the farm land at thirty six percent. And
Speaker 1: I know you've talked about this on your own show
Speaker 1: a little bit, and you've written about the rationale for it. Um. Obviously,
Speaker 1: for those of us out there who can't go and
Speaker 1: buy a farm, is there a way to sort of
Speaker 1: get invested or what is the optimal way in public
Speaker 1: markets to sort of get exposure to farm land in
Speaker 1: the US? So um as everyone thinks about their portfolio
Speaker 1: and this is what people spend like of their time
Speaker 1: on UM. We wrote a book called Global ASTs Allocaction.
Speaker 1: It's free to download on our website. Check it out UM.
Speaker 1: And we did a fun study where we looked at
Speaker 1: all the different Guru ASCID allocations and down at risk
Speaker 1: parity UM permanent portfolio all the way out right, and
Speaker 1: we took them back to the seventies and we did
Speaker 1: a horse race and saw said, how do these portfolios perform? Well,
Speaker 1: it turns out they're all pretty darn similar, And it
Speaker 1: actually doesn't even really matter how much you have in
Speaker 1: these allocations, as long as you have some of the
Speaker 1: main ingredients, some global stocks, some global bonds, some global
Speaker 1: real assets. The exact percentages didn't matter. And over time,
Speaker 1: actually what mattered with that portfolio the most was how
Speaker 1: much you paid to implement it. So if you paid
Speaker 1: really high fees like mutual funds, really tax inefficient h fees,
Speaker 1: you you removed any possible spread between the performance of
Speaker 1: the best and worst performing allocations. So the whole goal
Speaker 1: with your allocation on the public side, put that baby
Speaker 1: on autopo isot. Let it be rules based. Let it
Speaker 1: we're in the background, be done with it and spend
Speaker 1: no time on it. And I know a lot of
Speaker 1: people that's not something they want to do. But in
Speaker 1: my view, it's reality. And so mine is actually modeled
Speaker 1: on a two thousand year old investing strategy and it
Speaker 1: was in the Talmud and it said, let every man
Speaker 1: put a third of their money in business, a third
Speaker 1: keeping reserve, and a third in land. And so that's
Speaker 1: what mine actually looks like. And so farmland, you know, again,
Speaker 1: that's something UM it's it's more from from my family. Uh,
Speaker 1: my old man side of the family grew up in
Speaker 1: Kansas and Nebraska, so it's more of a connection to
Speaker 1: that part of the world. It has been an actual
Speaker 1: fantastic performing asset class over the years, highly non correlated
Speaker 1: to everything else going on. The problem. As you alluded to,
Speaker 1: it's really hard to allocate to UM. It's probably the
Speaker 1: single largest asset that's not included in the global market
Speaker 1: portfolio through public securities, the other being single family housing
Speaker 1: around the world. Uh, although that's starting to get securitized
Speaker 1: a little more. I think it's a big business opportunity.
Speaker 1: By the way, if you're listening to h to come
Speaker 1: up with some farmland ideas. There's a few portals we
Speaker 1: featured on the podcast that that talk about investing in
Speaker 1: farms and in smaller chunks as well as private funds. UM.
Speaker 1: I would love to see a lot more development there.
Speaker 1: Ours is really just because you can go right around
Speaker 1: on a on a a TV and shoot guns and
Speaker 1: I don't know play, but you'd think there'd be more
Speaker 1: reats farm reats. I don't know, there's only like one
Speaker 1: or two, uh, and would love to see people developed that.
Speaker 1: I think it's a billion dollar idea for the right
Speaker 1: enterprising person. Who would have known that the TOMLA had
Speaker 1: such great investing strategies. Right, Oh, that's great. That's uh.
Speaker 1: I hadn't heard about that. That's pretty awesome. Well, one
Speaker 1: more paper of yours, mat, I want to ask you
Speaker 1: about before we get to sharing the craziest thing in markets,
Speaker 1: and that is one of your white papers that you
Speaker 1: wrote called all time Highs A good time to invest, no,
Speaker 1: a great time. And you started off with this Beatles
Speaker 1: analogy about UH one Records executive who basically turned down
Speaker 1: the chance to sign the Beatles because he said that
Speaker 1: groups were going out, especially for man groups with guitars.
Speaker 1: UM and saying, well, the Beatles obviously did great. You
Speaker 1: can kind of apply that to the stock market as well,
Speaker 1: and I think it's a really interesting concept that I
Speaker 1: was hoping you can kind of just briefly walk us
Speaker 1: through the findings of that study and how people can
Speaker 1: actually apply that to their psychology and they're thinking when
Speaker 1: they're thinking about making investments, So what does that strategy,
Speaker 1: what would that stay to do right now in these conditions, Well,
Speaker 1: you can kind of walk around the world on all
Speaker 1: the different assets, but foreign stocks you would certainly be
Speaker 1: in cash US stocks depending on the index in day
Speaker 1: and time of day. I don't even know what markets
Speaker 1: are doing today, but this only looked at it once
Speaker 1: a month, you know, so it would be uh um,
Speaker 1: you know, I would be much more predisposed to the
Speaker 1: twelve month in the all time highs like I mentioned, um,
Speaker 1: and then others like real estate and and commodities. Depends
Speaker 1: on the commodity. But again it has a high correlation
Speaker 1: with our old paper, which just used simple moving averages.
Speaker 1: So to be as usual, it's a mixed bag. But
Speaker 1: you want to be invested in most markets most of
Speaker 1: the time. But again, the problem with this system is
Speaker 1: not uh really the system itself, it's can someone follow it?
Speaker 1: And the same thing with buying hole being so hard
Speaker 1: is people are so tempted just to fiddle around and
Speaker 1: muck with it and and uh try to turn the
Speaker 1: dials that they end up destroying any potential benefit of
Speaker 1: it in the in the first place. To follow you
Speaker 1: follow your own rules, I guess is the bottom line? Sarry.
Speaker 1: You know, the one rule we have on this podcast
Speaker 1: is you have to deliver the craziest thing you saw
Speaker 1: in markets this week. So man, let's start with you.
Speaker 1: What is the I know it's been a very irrational
Speaker 1: samee market these days. Hard to find anything crazy. Um,
Speaker 1: I don't know if people can hear the start has
Speaker 1: in my voice over that, But what's the craziest thing
Speaker 1: you've seen these days? As usual? I'm not a great
Speaker 1: rule followers. I'm gonna give you at least two. The
Speaker 1: one was this story, um, Buddy Jason's wide had written
Speaker 1: at the Journal where he said, the last person to
Speaker 1: receive a Civil War era pension, her name is Irene Triplet,
Speaker 1: just passed away and it was for her father's service
Speaker 1: in the Union Army, which seems like such a um
Speaker 1: impossible scenario. But just as a reminder that you know, history,
Speaker 1: particularly here in the US, uh isn't it is as
Speaker 1: long as most of us um typically think about. Second,
Speaker 1: that's amazing bananas right, um, you know. On and then
Speaker 1: on the uplifting side, uh, we recently had a dive
Speaker 1: in the ocean to the deepest and longest dive ever,
Speaker 1: which is cool, it gets lost in the noise of
Speaker 1: everything else going on. And then on the really depressing side,
Speaker 1: uh was we saw Fidelity publish some statistics about how
Speaker 1: their customers behave during Q one and there was some
Speaker 1: really depressing realizations and one that was the worst to
Speaker 1: me was that, uh, their investors that were aged mid
Speaker 1: sixties sixty sixty nine, almost a third of them sold
Speaker 1: all their stocks in February to May. And you know,
Speaker 1: that just illustrates so clearly why you have to have
Speaker 1: some sort of plan um, you know, and and approach
Speaker 1: because otherwise it when things start to go insane, it's
Speaker 1: a you know, these these sort of behaviors are are
Speaker 1: hard to recover from. That's atually, and you know, and
Speaker 1: Fidelity gives you that sort of granular data of what
Speaker 1: their customers are doing to an extent, you know, the
Speaker 1: the whole narrative we've heard and Stay's already written a
Speaker 1: lot of actually written a lot about this is how
Speaker 1: these Robin hood uh and through seemed to have been
Speaker 1: the world's greatest market timers. But that really goes to
Speaker 1: show you that that's not shown the entire situation of
Speaker 1: sort of the individual retail investor that is said, I'd
Speaker 1: love to know what that union army pension fund was
Speaker 1: invested in the talk about no pension crisis. They're right, yeah,
Speaker 1: well they should have bought a few stocks. It's would
Speaker 1: be uh, people with a lot of money right now,
Speaker 1: all those old railroad stocks you bought back then with uh,
Speaker 1: all right, all right, I'll give you mine. Mine's uh.
Speaker 1: We're giving a lot of props to the journal this
Speaker 1: week mind minds from a journal story last week actually too,
Speaker 1: and it's talking about this research done by some professors
Speaker 1: that uh U, C l A and TAL Berkeley, and
Speaker 1: they looked at the performance of analysts earnings estimates when
Speaker 1: the analyst shares her first name with the CEO of
Speaker 1: the company, and crazily enough, if the analyst shares the
Speaker 1: first name the CEO of the company they're earning estimates
Speaker 1: are more more accurate um than someone without the same name.
Speaker 1: And I think one of the theories was that, uh,
Speaker 1: if the CEO shares a name with an analyst, maybe
Speaker 1: he's gonna be uh more likely to to take his
Speaker 1: calls and give him some heads up. I don't know
Speaker 1: how that all works with regg f D. I don't.
Speaker 1: I don't know how that maybe this this study predates
Speaker 1: regg FD. But Mad, if you, uh you find it's funny,
Speaker 1: that's a problem I would never have. I don't run
Speaker 1: into too many other maps. So I was gonna say,
Speaker 1: if you can find a company with the CEO named
Speaker 1: mav I, I gotta be a lot of mics out there.
Speaker 1: I should. I should really get my cf A and
Speaker 1: get into this. Uh all right, Sarah, I think men
Speaker 1: gave us some stiff competition here with a less Civil
Speaker 1: war pensioneer being paid. But let's hear what you have.
Speaker 1: What's your craziest thing for the week. So I'll stay
Speaker 1: right off the top. I don't. I don't think I
Speaker 1: can keep up with that, so Mad, I'll give it
Speaker 1: to you. Uh. But a little bit of self promotion.
Speaker 1: I wrote a story this past week on the website
Speaker 1: robin track dot net um. Really interesting story but also
Speaker 1: just a little bit crazy. Um, the amount of interest
Speaker 1: this site that tracks Robin Hood users is seeing. So
Speaker 1: before this year I spoke with the creator of it
Speaker 1: um side story. He's twenty three, he built it while
Speaker 1: he was in college. Robin Hood actually flew him out
Speaker 1: to interview and he didn't get the job. Now all
Speaker 1: of a sudden his websites blowing up. But he said
Speaker 1: that before this year, on average day get like two
Speaker 1: or to four thousand users day. Now he's getting up
Speaker 1: to fifty thousand users a day. He says that we
Speaker 1: could check um the I p s of websites visiting
Speaker 1: and scraping his site, and he said there's evidence that
Speaker 1: hedge funds like d E Show and Points seventy two
Speaker 1: are all scraping his data. Uh so this pretty crazy
Speaker 1: the amount of interest there is in what retail investors
Speaker 1: are doing right now. Um. But also that he's twenty
Speaker 1: three year old guy who built this website in college. Uh,
Speaker 1: didn't get a job with Brodhead and now all of
Speaker 1: a sudden he's like blowing up. Alright, sir, that is
Speaker 1: the the self promoting nest thing of and craziest thing
Speaker 1: of the week. I'll take it. I'll take good pretty good,
Speaker 1: and it was a really good story. I recommend everyone
Speaker 1: checking checking that one out. Um, but boy, I think
Speaker 1: we do got to get headed to MEB with the
Speaker 1: Civil War pensioneer. That's a pretty good one with that
Speaker 1: side MeV. We will absolutely give you the w this week.
Speaker 1: But Mad Favor, thanks so much for joining the show
Speaker 1: this week. It's been great. Let's do it again, guys.
Speaker 1: Thanks absolutely What Goes Out. We'll be back next week.
Speaker 1: Until then, you can find us on the Bloomberg Terminal,
Speaker 1: website and app, or wherever you get your podcasts. We
Speaker 1: love it if you took the time to rate interview
Speaker 1: the show on Apple podcast so more listeners can find us.
Speaker 1: And you can find us on Twitter, follow me at
Speaker 1: Sarah pont Sack. Mike is that Reaganonymous. Our guest med
Speaker 1: Favor is at med Favor, and you can also follow
Speaker 1: Bloomberg Podcasts at Podcasts. What Goes Up is produced by
Speaker 1: Jordan Gospore and the head of Bloomberg podcast is Francesco Levie.
Speaker 1: Thanks for listening, See you next time.