Episode Description
Join us as we discuss finance and investing with Mebane Faber, the Chief Investment Officer at Cambria Investment Management.
All right, and we're off. Welcome to the next edition of Lumida Non Consensus Investing. I'm thrilled to be joined by Meb Faber. So Meb is someone I've tracked for at least 10 years. You know, I think it might've been, you You're alpha clone paper and you've published quite a bit of research. We'll get into that.
And you've also launched a variety of ETFs, uh, and, and Meb is also a non consensus thinker. He's looking at, you know, names beyond mag seven and different ways to express that through like shareholder yield, uh, and other kinds of factors. So we're going to get into a bunch of topics, including around like, do hedge funds add value?
Does alpha cloning work? Uh, market trends, you know, mag seven versus the four 93. Uh, is, has passive indexing broke markets? I know, Meb, you've been interviewing Michael Green and some others around this topic too. I want to get your take. Is value investing dead? Uh, and which ETFs you're excited about? I know you, you know, the ETFs you track, ETFs you're launching, uh, and also rules that have made you a better investor, that either you developed yourself or you learned from others.
Uh, and as we go along, I'd encourage the audience to, To dig in and ask questions. So Meb, why don't, I guess, maybe what's the best way to introduce yourself? That's a lot. I mean, I think you did a good job. Although I think if investors had just invested in the Mag 7, they would have done much better than anything I could possibly say today.
So, uh, not, non consensus doesn't mean right. So maybe, uh, you know, NVIDIA is creeping right back up to all time highs again. I mean, we, we have an old tweet that's kind of fun. That looks at, it was like, what was the first stock to hit the various milestones? It was like 10 million, 100 million, billion, 10 billion, 100 billion, trillion.
So we'll see who gets to be first 10 Trilly. Uh, I don't know what people, but in the media on that one, they're halfway there. It's not going to take that much more, but it'll be fun to watch no matter what. Right. And I think one of your first papers, at least the paper I ran across was, and this might have been 10 years ago or so.
Uh, that's back when like weblogs and. Publishing an SSRI was like a thing. Now it's all short form Twitter content, right? But you had a very interesting thesis around alpha cloning. Do you want to define what alpha cloning is? And of course, it's timely. We just had a bunch of 13Fs drop and we saw movements off those drops.
What's your take on like hedge funds, ad values, alpha cloning work? Well, so, you know, if you think back to the 2000 decade, the aughts, Um, that was really the golden age for a lot of traditional hedge funds, and one of the reasons why is you had the market cap weighted index, so the S& P, uh, reached its highest valuation ever in the late 90s, so 1999, it hit a long term P ratio of about 45.
And so for perspective, historically, the average is around 18 low inflationary times, it's low 20s. Today, it's all the way back up to around 35. So expensive, but not the real bubble territory we had back then. And so almost anything outperformed for the next decade, gold, real estate, small caps, value, value investing, you guys remember that?
So hedge funds, a lot of the traditional strategies, if you invest in anything on the S& P, you look brilliant for about a decade, money flowed in. A lot of the endowments, which were heavy into these sort of alternative investors. But, you know, I had a thesis where I said, um, Traditional hedge funds, it's, it's not an asset class, right?
It's more of a structure and an approach and more of a compensation structure than anything. And traditionally hedge funds charge 2 percent management fees and 20 percent performance, which is an enormous amount. And, um, So I got a bug in my brain and I got to thinking and I said, you know, and Warren Buffett's not a hedge fund, but he runs a very large equity portfolio, but it's mixed in with things at Berkshire, and I was like, what if you just bought what Buffett bought, and we have a fun old tweet where we ask people, we say, do you think you're a better stock picker than Buffett?
And everyone's like, no. And then the follow on tweet is, Well, do you invest in Berkshire or buy his stock picks in the 13Fs? And everyone is also like, no. And there's a disconnect there, right? Everyone knows he's a better stock picker, but doesn't invest in his stock picks. That's an odd disconnect. Anyway, so I said, well, could you just track Buffett?
through his publicly disclosed filings. And so for listeners who don't know what a 13F is, uh, there's certain rules and they change over the years. But if you're a large institutional investor, um, you have to disclose your portfolio once a quarter, but it's 45 days delayed. So everyone just assumes that this delay, you know, the information is going to be stale, but a lot of the great stock pickers.
Seth Klarman, Warren Buffett, on and on. They don't trade that much. And then even then, if you ask Buffett, he's like, timing is not necessarily my Um, alpha or my strong point. And so there's been cases where Buffett buys a stock and then it continues to go down. Right. Um, so if you look at, uh, uh, so we did a study on this and this book's free on our website, as is most of our books.
Um, it was called invest with the house, but we profiled a lot of these managers, famous value investors, and found that not surprisingly, you could approximate their, uh, fun returns. But the big difference is, you're not paying 2 and 20 for most of these, right? Buffett, again, different animal, but a lot of these managers, you don't have the lockups, you don't have the minimums, hey, there's the book.