#245 Meb Faber - Understanding the Current Market Mayhem

Meb Faber is co-founder and the Chief Investment Officer of Cambria Investment Management. In this conversation, Meb and Anthony discuss if these crazy markets are outside the norm historically, why global asset allocation is important, how passive and active strategies stack up, what people need to know about share buybacks and bailouts, and why Meb is so heavily invested in farmland. =============================== Resources from this conversation: Meb’s books and white papers (free downloads) The Last Question by Isaac Asimov =============================== BLOCKFI-----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. TAXBIT-----Refund-maximizing, cryptocurrency tax software you can depend on. Visit taxbit.com/invite/pomp and receive 10% off your tax plan today by signing up for a free trial.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:10Anthony Pompliano?

  Meb Faber is co-founder and Chief Investment Officer of Cambria Investment Management. In this conversation, we discuss why these crazy markets may not be outside the norm historically, why global asset allocation is important, how passive and active strategies stack up, what people need to know about share buybacks and bailouts, and why Meb is so heavily invested in farmland. I really enjoyed this conversation and Meb didn't disappoint. This episode's brought to you by two sponsors, BlockFi and TaxBit. BlockFi is awesome. I'm an investor and a user. They've got three products today. They'll give you a US dollar loan against your crypto, they'll let you deposit crypto and pay you interest, and they'll

• 0:55Anthony Pompliano?

  also allow you to buy and sell on their crypto exchange. Go check out blockfi.com/pomp, again, blockfi.com/pomp, and you can learn more. With TaxBit, they help you pay your crypto taxes faster and easier. That's right, they automate crypto tax reporting. You can go to taxbit.com/invite/pomp, again, taxbit.com/invite/pomp, and you'll get 10% off getting your crypto taxes paid this year. Alright, now let's get into this episode with Meb. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions

• 1:36Anthony Pompliano?

  of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Guys, bang, bang. I'm here with Meb. Thanks so much for coming on and joining us.

• 1:59Speaker 01

  What's up, Pomp? Great to be here.

• 2:02Anthony Pompliano?

  You're in good spirits in all the craziness of the markets, which I appreciate. For those that don't know you, maybe let's spend a quick two, three minutes on your background and kind of what you do day to day today.

• 2:14Speaker 01

  Yeah, man. I grew up a little bit Colorado and North Carolina, right down the road from the rest of your team in Chapel Hill, in Winston-Salem. Went to school at Virginia, was a Cavalier.

• 2:28Speaker 01

  Engineering background, biology. I graduated at really the peak of my favorite bubble, which was the internet bubble.

• 2:39Speaker 01

  You know, the original undergrad plan was to go back to complete a PhD. And I had some family members that did that and said, you know, maybe take a few years off, go to grad school later, earn some money first. It's a long slog in the life sciences. And so took a year off to work. So I was always interested in investing, so worked as a biotech equity analyst. So kind of the two passions combined in DC. But it actually allowed me to go to grad school at night at Hopkins.

• 3:13Speaker 01

  And kind of never looked back, you know, it'd be kind of the hobby became the career and vice versa. And started to gravitate more and more away from biotech and more and more towards quant. If you remember, that was the early 2000s was really the nuclear winter for the internet. So I had the smart decision to move to San Francisco. And had worked there for about a year and then in Lake Tahoe. Said I worked for a commodity trading advisor as a startup there, but mostly, mostly ski bum. And then moved to Los Angeles in the early, mid 2000s to start Cambria in 2005, I think. And never looked back. So that's, that's the quick one minute summary.

• 3:59Anthony Pompliano?

  I love it. It's, it's always cool to be able to kind of move between industries just based on your personal interest, which sounds like you were able to do pretty well. All right, let's get to the most important part, which is it seems like we are living in the craziest of times. It's like every day in a stock market, we're hitting stock circuit breakers. I saw yesterday, we hit seven consecutive sessions of 4%. Percent swings in either direction, which set the new record. The old record was six sessions in a row back in nineteen twenty nine. But this may not be as crazy as we think. So give us some kind of historical context as to how, you know, kind of different is right now versus the past times of the stock market.

• 4:45Speaker 01

  So like most investors, the best thing you can do as a young person is to lose all your money. And so I did that many times early in my career, discretionary trading, and that's what moved me more and more towards quant, by the way. And so, you know, running after that management business now, but the foundation for this was, I said, look, I have all the behavioral biases. I'm overconfident. I'll take too much risk that you give me. So I really need to understand and have some expectations to which to set an anchor to ground myself. So to be an investor, you simply have to be a student of history. And so my favorite investing book, Triumph the Optimist, you can go back over a hundred years, investment returns.

• 5:27Speaker 01

  Really, you can go back to Amsterdam Stock Exchange in sixteen hundred, but really in the modern era, there's about two hundred years. But if you look at today and what's going on, this feels weird to say to a lot of people, particularly younger people, but this is all pretty normal. And the reason being is that stock market, normal stock market returns are extreme. And let me elaborate on that. We wrote a paper a number of years ago called Where the Black Swans Hide. And it demonstrated that down five percent days are totally normal, as are up five percent days. Right? This is the tails of the distribution. They happen about one percent of the time, even down ten percent days, totally normal.

• 6:10Speaker 01

  They happen about point one percent of the time, and this is in all the countries around the world. And then even bigger down days can happen, of course, you know, and in October eighty seven, we had down twenty in plenty of markets around the world, I think today, some are down fifteen, twenty percent alone. But the funny thing is, is, is people don't expect that. So as you came into this year, for example, all the Wall Street strategists, I did this in a tweet. They said, what do you expect stock returns for next year? And they clustered in between minus three and 10%. But you look at the historical yearly returns, it's like 80% of the returns fall out of that range. Yes, that's the average, but normal returns are extreme. Look, last year

• 6:51Speaker 01

  we were up 30, right? This year, down 30 or wherever we are today, but that's pretty normal. Now, that having been said, you traditionally see volatility cluster, meaning, as you've seen in the last month, these huge up and down days. And we did this study and we showed that most of these big down and up days occur after the market is already declining. So you could use something like the 200-day moving average and say, why though, just like around two thirds or 70% of these big up and down days occur when the market's declining? Well, if you think about it, and it makes a lot of sense today, it's because people are

• 7:33Speaker 01

  emotional, right? Markets are going down. They use a different part of their brain when they're making money. I think back to last year, people probably checking their account balance every day on Robinhood. They're thinking about buying a new house. They're patting themselves on the back for how smart they were. And that, look at that stock I bought. They're bragging to their neighbor. They're opening their account statements. All that stuff, right? And, and the very real visceral, physical experience of making money, it stimulates a lot of the same parts of the brain as, as many pharmaceuticals would or drugs would. On the flip side, when you're losing money, it's a very real visceral, physical experience. It's painful. You don't want to open your account balance. You don't want to talk to your neighbor. You say, that guy's such an idiot for recommending that security to me.

• 8:17Speaker 01

  I can't believe I listened to his advice. It's so stupid. And at some point, you start to panic and say, I can't take anymore. I gotta get out. Look, we're only down on the stock market, I don't know, let's call it today, 30%. And had you not studied history, you wouldn't have realized that, look, we had two fifty percenters in the last decade, back to 2000. But you go back far enough, you remember the Great Depression? That was over eighty. And in plenty of stock markets around the world, you've had worse. And in a couple of stock markets, Russia in 1917 and China in 1949, they said, nope, thank you very much, we're closing it. The government's taking all of your assets. No more private businesses. And that's had to do with communism. But you had to know at

• 8:56Speaker 01

  least what was possible. We did a tweet last night where, and this goes along with another article we did on expectations. And we said, by the way, this is a fact, so interpret it as you want. But long bonds, one of the most universal beliefs in the entire world of investing is that stocks outperform bonds. Ninety-nine probably percent of people believe that as a fundamental truth. But the problem is, most people don't believe that stocks can go long periods of underperforming bonds. And right now, as of today, stocks have gone forty years underperforming bonds. Had you studied history, you would have known that. You would have known

• 9:37Speaker 01

  there's been periods of twenty years, a couple of times. In the nineteenth century, you say that's too long ago, there's a period of sixty-eight years. So the challenge with that is most people think in terms of days, hours, weeks, quarters, and certainly not years. And that mismatch of truly setting expectations and what works in a long period and actually implementing it causes a lot of problems. And as your partner said, I said this on Twitter the other day, Mark Yusko, one of my favorite quotes is, investing is the only business. When things go on sale, everyone runs out of the store. And that's the beauty of the quant approach and having a plan. And we can talk more about that. But if you don't and

• 10:19Speaker 01

  let the emotions work their way in, that's where you start to see fractures and problems happen.

• 10:26Anthony Pompliano?

  Yeah, it's so funny. One of the first things he ever said to me is humans are really good at doing two things. One is they always buy what they should have bought and they always sell what they're about to need, right? Which is kind of the same thing around when the prices go down, everyone runs away. But I think that the book that you mentioned kind of about this optimism, right? Essentially, what you're saying here is if you believe that it's not going to go to zero, right? These dips and kind of drops in the prices are actually opportunities, right? And again, as long as it doesn't go to zero, they end up having high volatility days or over long periods of time, you get kind of a continued increase in value across the different stock markets. But that's the difference between

• 11:08Anthony Pompliano?

  am I, you know, being emotional today versus some long period of time actually having a plan, being disciplined, kind of in control of my emotions, etc.

• 11:17Speaker 01

  Let me give you a good example from the book. And so it looks at like 30, 40 different stock markets back to 1900. And there's so much information, but it gives you a great base case. So if you look back historically, stocks have done around, let's call it 9% a year. And then after inflation, down around five globally. Okay. Bond. So if you call inflation 4% during that period, bonds historically did around six after inflation, two bills around five after inflation, one. So I call it the five to one rule. So after inflation, your expectations would be that stocks return five, bonds return two, bills perform one.

• 11:57Speaker 01

  One of the key parts about this study is that it's really important to diversify. Because again, you go back to 1989, we're sipping champagne, we're having this discussion in London or New York or wherever it may be. It wasn't altogether clear that the US was going to dominate the 20th century. You had a scenario where then in 1900, by the way, the vast majority of the US stock market was railroads. Okay. But also, the US wasn't the largest market cap country. UK was. US was only about 15%. They ended the decade around half, the century around half. So massive. Outlier on the upside. Now, they weren't the best performing stock market. I think tiny South Africa was.

• 12:41Speaker 01

  But there were other ones ignoring the ones that zero. Um, that I had essentially zero return Austria and others. And if you flip the equation and look at the bond, same thing. Um, some bond markets did great, some went to zero, usually because of hyperinflation, world wars, et cetera. But the beauty of this is. If you take a long view. Um, and this, we wrote a book about this called global asset allocation. And we said, look, there's. All sorts of investors out there, super famous investors. Like Dave Swinson from Yale, Robert Knott from Research Affiliates, Warren Buffett, Mohamed Aran. That all at some point have said, here's a recommended asset allocation.

• 13:20Speaker 01

  Okay, um, and we, in this book, we said, okay, let's see as a quant, let's see how these have done in history. And so we took all the main ingredients. So if you're taking all the ingredients off the shelf, you've got global stocks, global bonds, global real assets, like real estate and commodities, gold. Um, and we said, let's look and see how these portfolios perform. And we took them back all to nineteen seventy two. Um, we're going to take this back to nineteen twenties. We've already done it, but uh, hopefully update that this year. And there's some interesting takeaways. First of all is that all the portfolios did great. But they were hugely different. So some portfolios said you should have nothing in gold. Others said twenty five percent. Some said ninety percent in stocks, some said twenty five percent. So there's these massive differences, right?

• 14:05Speaker 01

  But in reality, it turned out, um, it didn't matter all that much. Let me give you a good example. So if you go back to nineteen seventy two. And I said, Paul, I'm going to give you a crystal ball. I'm going to let you pick the single best performing asset allocation model from this book. And I'm going to let you implement it from nineteen seventy two to twenty eighteen, twenty nineteen, twenty twenty, whatever. Um. How much would someone pay for that in the billions? Probably PIMCO, any of these, Fidelity, uh, Schwab would pay billions of dollars to have this. Perfect foresight into what works the best. And I said, however. You have to implement this with the average mutual fund fee of today, which is one point two five percent. Forget going back to nineteen seventy two.

• 14:48Speaker 01

  Index funds didn't really exist, but the average mutual fund then. Um, and you say, okay. Well.

• 14:56Speaker 01

  Walking forward, if you look at the best performing asset allocation, implementing it with perfect foresight, but with those fees transforms the best performing asset allocation to almost as bad as the worst, rendering the entire asset allocation decision almost meaningless. So if you're doing the just basics, the what I like to call asset allocation for dummies, your specifics don't matter that much as long as you have some global stocks, some global bonds and some global real assets. And I liken this to baking. My mom's from North Carolina. She doesn't ever use cookbooks. She does it by feel this much butter, this much sugar. If you exclude whole categories of ingredients, it's probably not going to work.

• 15:39Speaker 01

  To put all your money in gold, probably not going to work. But in general, if you have the main ingredients, it it works out just fine. And so people obsess so much about, gosh, do I have too much in bonds? I have too much in stocks. What do I do this with this? And in general, as long as you have the basics covered, it doesn't really matter as long as you don't implement it very foolishly. And most important, do the really dumb thing, which is make really dumb behavioral mistakes. You know, and panic at the bottom, sell at the top over and over. We see so many examples of this. Today we'll get updates. They do this every week. My favorite example of rationality is the American Association of Individual Investors. They do a weekly survey goes back to the eighties.

• 16:22Speaker 01

  They say, are you bullish, neutral or bearish on the stock market? And

• 16:28Speaker 01

  the most bullish reading ever was in December of 1999, the single worst time to be bullish in the history of our lifetimes. And the most bearish people were was in March of 2009. Again, the scene you cannot make this up. This is not some academic, you know, hypothetical. This is the real world and today it's probably going to print something really low. We'll see. But historically, if you sort based on those those extreme readings, it's usually a really good time. So that sets the case for the expectations of the base case. And why is that important? Because we did this piece recently online, a four part series recently about what's going on in the world. It was like time to panic. And then it was a three part series called the get rich portfolio, stay rich portfolio,

• 17:11Speaker 01

  how I invest my money and investing in a time of Corona. And the first part about the get rich portfolio was that if you put money to work. I hope there's 20 year olds listening to this podcast because this is fantastic opportunity. You put money to work right now, you get 10% returns, just for math's sake. 25 years, you 10x your money. 50 years, you 100x your money. You do not have to do anything. It takes zero effort. And we talked so much about this on the podcast and the blog. This is the beauty of capitalism and free markets is you can take a little bit of the sweat of your labor, put it into other people's labor and magically transform that into multiples of money in future decades.

• 17:52Speaker 01

  So the decision by far that forms everything else is when you decide to start investing, how much, how much you save and how much you invest. And so the basics, again, we can talk more about a lot more timely and tactical implementations and tilts and everything else. But this is, this is something anyone on the planet can do and do it for no cost essentially today and have phenomenal returns. The hard part of course is, is avoiding those emotions which try to lead us astray.

• 18:26Anthony Pompliano?

  Yeah, it goes back to, I think it was Fidelity or somebody did a study that basically said, out of all of our portfolios, who's got the best performing portfolios? And it's people who lost their password or died, right? It's just kind of, once they put it on, they didn't touch it. And it's some of the basic mistakes, I know that you guys have talked a lot about. You mentioned high fees, but also one that I find really fascinating is kind of this home country bias. Maybe talk a little bit about how you guys think about that and kind of why is that so prevalent? You know, especially here in the United States where things have gone pretty well over the last, you know, decades. And people tend to kind of think US centric rather than as global as they should.

• 19:03Speaker 01

  So the 2010s or 2018s were an exceptional decade to own US assets. Go full Rip Van Winkle in 2009, wake up in 2019. God bless you. That's all you had to do for the entire decade. And the problem with most investors, they're myopic. They extrapolate that infinity to, to, you know, as far as you could see, going back to what Mark said earlier. They destroyed everything else. And we, we did another poll on Twitter. I love to, to source polls on Twitter. And I said, you know, by the way, people, what, what has been the best performing asset of the last 20 years? And I think it was like stock, US stocks, real estate, gold, something else, bonds, maybe. And everyone said stocks, but in reality, stocks, US stocks were the worst because the 2000s were terrible for US stocks.

• 19:47Speaker 01

  But that's the way it works. One regime, regime sets the stage for the next. Emerging markets dominated the early 2000s. Small cap value, everything else just crushed US stocks. And then the 20 teens, US stocks did great. And these things play out over the periods of not just years, but, but decades as well. The problem is then people say, okay, US stocks forever. And traditionally markets that go up, if you look at the PE, it's the P that's going up. So markets that go up a ton usually get more expensive than what we're seeing right now is that markets that go down a lot. It's, it's, you know, they're getting cheaper for a reason. And, but it's the P, it's the price going down.

• 20:29Speaker 01

  But people extrapolate that. So the problem is Vanguard's done a bunch of studies here. We have as many others. People for some unknown reason, and there's a known reason, I can, I can understand why, but they put the vast majority of their assets in their own market. So US investors of their stock portfolio on average put 80% in the US. Now, that's not as awful as you think it is because the US is around half the world's stock market cap. But in other countries, this happens in every country around the world, Spain, Italy, UK, Japan, Australia. Every single country does it. And in some of the countries that are only like 3% of world market cap, Canada, et cetera.

• 21:12Speaker 01

  It's a really horrible mistake because you're making a massive, massive overweight. People say, look, I feel comfortable. I understand these companies, but it's really a false sense of security. And so we did a post on the blog and summarized it at the end of the year where I took my six favorite

• 21:30Speaker 01

  research pieces on global investing.

• 21:33Speaker 01

  Last year, one of them was from Bridgewater and they said, look, US stocks outperforming a global equal weight is an anomaly. In fact, it's only happened a couple of times in the past 12 decades. It happened in the 2010s, it happened in the 90s. Before that, you had to go back to 1920. And so, and there's been a bunch of studies on there that show that diversifying and buying the global market cap, you end up with lower volatility and you eliminate the outlier outcomes. We talked earlier, you eliminate the South Africa being the best, but also Austria being the worst. You get somewhere better than in the middle because you get a diversification benefit. And it really makes no sense to just look

• 22:12Speaker 01

  at one country. And let me elaborate on that for a little bit more on, as to why. So that's, that's one mistake of just doing it. And you ask anyone in the world right now who's living in Russia, Greece, Brazil, about putting 80, 90% in your own market and they say, that was the dumbest thing I've ever done in my life because it's now down 60, 70, 80, 90%. It's also compounded, but if you look, if you go back to 1970s, and there was a neutron bomb that went off in the asset management industry and most people think that it was indexing, which was a massive, massive invention. You know,

• 22:54Speaker 01

  John Vogel of Vanguard has become very famous for doing it. They manage over, what, 4 trillion now? Others are doing it, Wells Fargo, et cetera, on down. And they came up with this idea that if you just bought the entire market, you could do it at super low cost because you literally didn't do anything. You just bought stocks according to their side. And the funny part is if you ask people, a lot of investors don't know this, you say, what is like, say, a market cap weighted US stock fund? How is it weighted? And people say, buy stocks. You know, you buy the biggest stocks. And that's correct. But most people usually think it's by revenue, cash flow, earnings, and that's not true. It's actually the only variable is stock price times shares outstanding. That's it. There's no tether

• 23:36Speaker 01

  to value whatsoever. So if, if, I know you love aliens, if you're an alien and you came down and you said, Is that a reasonable way to invest? Does that make any sense? You kind of scratch your head and say, why would anyone invest like that? You would never buy a business like that. You would never buy a lemonade stand with no reference value or a house or a car or anything else. Why would you do that with stocks? Now, the reason it actually works is because in the stock market, people understand this when it comes to private investments, but it happens in the stock market too. All of your returns are determined by the outliers. So there's about 5% of stocks in the entire stock market that determine your entire return.

• 24:16Speaker 01

  It's holding the Amazons, the McDonald's, the Walmarts, the Apples of the world that have these multi-baggers up 10 times, up 100 times, up 1,000 times that generate all the returns. So by indexing, by owning everything, you are guaranteed to own the big winners. The power laws of investing is if you look at the distribution, about 2/3 of stocks underperform a broad index. Almost half over their lifetime have a zero rate of return. And around a quarter, probably now a third, are straight up zeros over their lifetime, which is why stock picking is so hard. Just by throwing darts, you're probably not going to get a winner. But people are attracted to it, just like catnip,

• 24:58Speaker 01

  because they see the outliers and say, oh, my God, if I put 10 grand in Berkshire Hathaway in the 60s, I'd have $200 million today. So anyway, that's the base case market cap weighted investing. And that's good, but it's pretty suboptimal. And the reason being is that it's really free markets and capitalism, and it makes sense. Where if you invest in Apple and it gets the size where it's a trillion dollar company, you better bet that someone in Korea or in Europe wants to make billions of dollars too. And so you have that creative destruction. You have the competition where other companies come in. And there's been a lot of quant studies on this. Research affiliates have done it.

• 25:43Speaker 01

  If you look at the largest stock in the stock market, so by market cap weighting, it underperforms the broad market by three percentage points per year for the next decade. This applies to every country, this applies to every sector, and it should make sense. And it does make sense because it's really the price going up with no tether to fundamentals. So you can create an investing strategy, it doesn't matter what it is. It could be equal weighting, it could be weighting based on value, which we like, momentum, whatever it is, it could be weighting based on whether a CEO wears bow ties, or regular ties, or no ties, all of those should beat market cap weighting by about a percent or two per year. Now, why does this go back to the home country bias discussion and comment?

• 26:27Speaker 01

  Well, it also applies to the global portfolio. And so, we said overweight in the US isn't a big of a deal because the US is 50% versus 80, which is what people in. But, the US came into 2020 being one of the most expensive countries in the world, which happens all the time with market cap weighting. So we just demonstrated why it happens on individual stocks, but it happens to entire markets too. And so if you look back in history, the big granddaddy of them all, we like to use long-term valuations called CAPE ratios, which is a 10-year price to earnings, but you can use anything, you could use dividends, sales, cash flow, whatever. In the 1980s, Japan.

• 27:11Speaker 01

  So for reference, long-term P ratios are around 18, you've seen countries get as low as five, the US hit 45 in 99, but Japan hit almost 100. It was the largest market cap country in the world in the 80s. You're probably too young for this, but every magazine article, every TV story, every book was about the Japanese business model, it was about how they're outperforming everything in the world, we all had to copy Japan. And it turned out it's just the biggest bubble we've ever seen. But if you were a market cap weighted investor, you put most of your money in the biggest bubble we've ever seen when it was the most expensive. And so this is something that happens over and over again, happened globally with the US, you know, at the end of last year.

• 27:55Speaker 01

  And so it's the good news is a pretty easy problem to fix. You diversify, you try to wait with a tilt towards value or any other metric. But in general, the problem with putting all your eggs in one basket, particularly a home country bias is you end up saddled to a very specific outcome. And you ask most people around the world and they would say it's usually not a good one.

• 28:21Anthony Pompliano?

  Yeah, it's super interesting because you're right. This happens to the private market all the time, right? Especially take kind of the most extreme example of angel investors in technology companies. What they end up doing is the downside is companies going to zero and a lot of them go to zero. So you actually need incredible power law to come back where you need the thousand X, 10,000 X, you know, whatever those numbers are. And what you're basically saying is whether it's that private investing or it's in the stock market, like the power law and indexing does work. I guess then what comes down to is how do you think about indexing fitting into a broader strategy? Given that if you kind of have a pretty simple, I'm going to put money into this index. Then is it just let me make as much income as I can, save as much and just continue to kind of feed

• 29:03Anthony Pompliano?

  that strategy and don't kind of try to be too smart and divert from it in times of either extreme euphoria or fear? Or do you kind of think of, hey, build it out and then start to look at maybe alternative investments or something else? Like, how do you think about the stocks fitting into that rest of that portfolio?

• 29:22Speaker 01

  All right, there's three parts of this wrapped in. I'm going to try to hit all of them. You touched on private markets briefly, and I think this is interesting because private power laws happen in both private markets and public markets. So VC funds, almost entirely, the performance is dominated. They do 100 investments, it's dominated by two or three investments. You know, if you get it, if you hit an Uber, you hit a Google, you hit something that does 100X, 1,000X, 10,000X, all the other ones are irrelevant, actually. The same thing happens in public markets. If you own an index, you're guaranteed to own those. The problem comes if people don't use indexes and they buy a stock. Let's say you buy a stock today, six months from now it doubles, it triples. You are elated, you are so happy.

• 30:05Speaker 01

  And you're probably going to sell it, which is natural. It feels like the thing you should do. I can't believe it. I'm so smart. I doubled, tripled my money. Well, guess what? At some point, that stock could go up 10x, 20, 50, 100, 1,000x. It's a little harder with public markets because they tend to be bigger. So the market cap, you know, you're at 100 million range up to a trillion. Whereas a lot of the private angel stuff, you're down sub 100 million, a little bit easier to expand. The hack, which used to be considered, I think, a bug, but I actually think it's a feature in private markets. You can't sell. So, you know, I've been investing in private companies back to probably 2014. And there's some that I guarantee you, I would have sold a thousand times over after they doubled or tripled in the public markets.

• 30:50Speaker 01

  But because I can't sell, you know, they've now have been up 10x, 50x, 100x. And so we learned so much about investor behavior. How many of us would be able to sit and watch that stock that goes up, say, 10x? But then what happens if it goes down 50%? You know, the great case is Amazon. So, you know, the media loves saying, if you just put 10,000 Amazon, it's now worth 20 million today, probably less after today. But, um, and, uh, but the problem is the path to get there, right? Amazon's gone through multiple 50% declines. It had one that was a 90, I think 95% decline. Who could sit through that? Only a psychopath, right? No one can. So indexing allows you to own those and not know it.

• 31:33Speaker 01

  Private allows you to do it and be stuck in it. Okay? So there's kind of a behavioral hack and I think it's a great one. In addition, there's some, some tax benefits to the private now where you can do these QSBS rules, where you pay no taxes on investments under 50 million. You can put them in an IRA now, like Alto IRA and others. We can get in that later if you want.

• 31:58Speaker 01

  But the thing is, again, going back to the beginning is the base case investing is actually pretty damn simple. We give an example in one of our articles, and this is really simple and anyone can do it, where we say, look, there's been countless famous people who have been low-income workers who have just saved the crap out of it. And one was this janitor, and he put in forty dollars a week. And we give the example, so let's say you're twenty bucks. Most of us could come up with forty bucks a week, put in forty bucks a week for a decade, and that's it. You only save about twenty grand in total, but you allow that to compound until retirement, and you have a million dollars. And it's not hard. You don't do anything. And the problem for most people is they want to look at it, they want to

• 32:38Speaker 01

  check, they want to sell it. And everyone wants to be a millionaire, right? The problem is, almost everyone, this is a quote from my buddy Morgan Housel, they don't actually want to be a millionaire, they want to spend a million dollars. They want to buy a house, they want to go on vacation, they want to buy bottles of the club, right? But to be a millionaire, take the exact opposite skill set. You have to save, you have to invest, and you have to not muck around with it. I mean, a good example right now, I mean, we gave a speech last year in Dublin, where I was talking to a bunch of students, and I said, look, a bunch of you guys are going to probably go into spring break right now. God bless you. You're probably going to Ibiza, maybe in the US, it would have been, I don't

• 33:20Speaker 01

  know, Cancun, or Daytona, or something, who knows? Let's say it's going to cost you all in two thousand dollars, you know? Or you could take that two thousand dollars and put it in a retirement account, an IRA, and whatever, and in fifty years, that's going to be worth a couple hundred grand. Does a sixty, seventy-year-old you, can you have empathy and sympathize with that person? Or would you rather just spend the two thousand dollars now? And so, it's hard. I said, look, you should probably go to Ibiza or Cancun. You'll build a lifetime of memories, and you can look back on it when you're seventy. But the actual implementation is pretty damn simple. And let's be honest, There's never been a better time in the history of the world to be an investor.

• 34:03Speaker 01

  Back in the day of my parents and grandparents, you want to buy a stock that's going to cost you a hundred bucks, 2% commission each way, you're going to get just absolutely ripped on it. Today, you can buy a portfolio of stocks, bonds, ETFs for 0.05%. That's essentially free. If you include short lending on the portfolio, which most ETFs do, and the good guys return it to shareholders like we do, that portfolio is probably not already 0% fee, it's probably a negative percent fee. Meaning you're getting paid to own the portfolio. And that's phenomenal. So, right now, if you're a young person, you should be ecstatic about being able to set up and have a plan and allocate. And that's the problem, though, for most people, is they just don't have a plan.

• 34:46Speaker 01

  I mean, we talk to thousands, we have over 45,000 investors at Cambria. And we do all these office hours and 90% plus don't have a written plan. They don't have something set up to where it's automated, maxing out their 401Ks and everything else. And the actual investing part is simple, it's the implementation, it's the emotions that get into trouble for most people. Hopefully, that was the part of the question I answered. I got a little off-topic.

• 35:11Anthony Pompliano?

  No, it's fantastic. So, how does the passive investing and kind of that disciplined plan mesh with active strategies and kind of this world of the individual investor who thinks they can pick stocks, probably not going to be very good at it, but there are professionals who are pretty good at kind of active management, etc. How do you, you know, kind of balance those two things as you think about just portfolio management in general?

• 35:37Speaker 01

  Okay, so, the base case, what I like to call asset allocation for dummies, is it doesn't really matter what you do, going back to what I said earlier, but the starting point for almost everyone, if you don't have a waypoint or a compass, is what I call the global market portfolio. That means if you went out and bought the entire world of public assets, and the things that are missing in public world is private homes and farmland and some private real estate. But if you were to buy every public asset in the world, what does it look like? You end up with a portfolio that's roughly half stocks and half bonds. And of that, it's roughly half US and half foreign. And that's a great portfolio as a starting point.

• 36:18Speaker 01

  But most people wanna kinda skew that depending on, you know, what their, their own interests and, and start to tilt away from there. Ninety percent of what I talk about in our research, you know, our white papers, our books, is the like final 10%. You know, we wrote a, um, if you remember back again, probably too young, but back decades past, they had this old, uh, food pyramid where the, the government recommended what people should eat the most of and then sparingly all the way to the top. And it's funny to look back on because the, the base for everyone used to just be carbs. It was like bread, cereal, pasta, pizza, pizzas, like totally inverted today on what people think would be good, um, good advice. And the, and the same thing probably applies to your investing,

• 37:00Speaker 01

  but, but in general, um, you do the big muscle movements first and are the things at the top worth doing? I think so. I, I have a lot of departures from the standard advice, but this goes back to a John Bogle quote where he says,

• 37:16Speaker 01

  I said indexing worked for him, for example.

• 37:20Speaker 01

  Are there approaches that are better? Sure, but there's infinite worse. And so finding one that works for you, um, is important. It's easy to say, uh, to set your risk tolerance and say, look, I'm fine losing 50%. And we talked about a lot of people who used to ask me, hey, Mav, this get rich portfolio, how do you, uh, get, how do you hit 20% returns? How do you get 30% returns? And I said, here's some ways, but frankly, most of you probably can't handle it. Cause on paper, you say you can handle down 50, down 80. And then when it hits the fan, you probably can't. And we did a tweet and this is kinda happening in real time and said, usually don't see bad behavior until people see minus 20.

• 37:58Speaker 01

  And then it gets exponentially worse every 10 down from there. So that's the base case, what I call the global market portfolio. And if anyone did that, it's fine. By the way, there's a 2,000 year old portfolio called the Talmud portfolio, um, where it says, let every man invest a third of his wealth in, uh, land, a third in business and a third keep in reserve. So I call that real assets, stocks, bonds. That beats the vast majority of institutions over time. We've done some articles called, um, why CalPERS should be managed by a robot, why Harvard should be managed by a robot, um, how to clone Ray Dalio's all weather, Bridgewater, all of these.

• 38:38Speaker 01

  Are pretty hard. This 2000 year old portfolio does a pretty good job of replicating what all these do with thousands of people, tons of fees, tons of effort, headache. You just buy this portfolio, done with it. Okay, so that's the base case. Now, let's say you want to start tinkering with that. And by the way, my personal portfolio largely mirrors the Talmud portfolio, which is, I do it a little bit differently because my background, my family and my dad's side came from a farming background in Kansas, Nebraska. My old man grew up on a farm, straight up, no running water, all of that stuff. So farming is sort of in my blood. So a third is in farmland,

• 39:19Speaker 01

  a third is in private businesses, because I know that I'm friggin horrible about behaviorally selling things. So over 150 private companies. And then, then there's the public assets. Okay.

• 39:34Speaker 01

  I think there's some important tilts that make a lot of sense. And the two big foundations, the pillars to which to build from, in my mind, are nothing new. It's nothing that we've invented, but that goes back 100 years. So one, over 100 years, goes back hundreds of years, but famously 100 years in the US. One being value. So Ben Graham, you know, one of the famous, most famous people to talk about that. And then on the other side is what I would call trend following in momentum, which Charles Dow, you know, creator of the Wall Street Journal, but also talked a lot about trend following early 20th century. We talk on valuation first. It's actually pretty

• 40:14Speaker 01

  easy to come up with an estimate of how a stock market's going to do the next 10 years. This isn't my equation. It's actually John Bogle's equation. You know, one of the greatest contributors of the wellbeing and success of investors all over the world, particularly in the US over the last 50 years. He wrote a paper in the 90s, and I call it Bogle's formula. Obviously, he would never say to use it for timing or forecasting, but he would say just to set expectations. And it's super simple. It's three variables. You want to know the stock returns to the next decade. It's starting dividend yield, then it's dividend growth, and then it's change in valuation. And that's it. Now, the dividend growth, you can kind of explode into inflation and real dividend growth, or you could also call it earnings growth,

• 40:59Speaker 01

  but same thing. So historically, and I'm going to round here. Going back to 1900, the dividend yield up almost around 5%. Gone are those days, although they may be soon coming back, depending on what the market's happening today. Dividend growth also almost 5% and change of valuation should be a wash. Over ending 19, 2019, there was a slight edge to that in the US as the US stock market got more expensive over the past 120 years. And so you can plug in parts of that equation and find out where we are. So at the end of last year, dividend yield, let's round up and call it 2%. Let's say you got the same dividend growth as historical. And the nerds out there who are listening, by the way, the dividend growth is actually

• 41:44Speaker 01

  a little bit higher than historical because of the way buybacks have sort of changed that equation, but it's a wash mostly because the inflation's low. The big variable comes with a change in valuation. And so we ended 2019 at a long-term price earnings ratio around 32, I think. And historical average is around 18. Now, if you have low inflation, you could say it's around maybe 21. So it's high. Again, it's not crazy like the late 90s were 45, but it's high. And so you can plug that in the equation and say, look, John Bogle said this before he passed, by the way, said investors should expect, I think, low, single-digit returns in the US stock market for the next decade.

• 42:27Speaker 01

  Now, his point wasn't sell everything and be done with it, but rather just to lower expectations, take your medicine and maybe save more or just have real estate. And Vanguard publishes very similar returns. The problem, of course, comes that most investors expect 10%, always, every survey. The Texas just did one where they surveyed investors all around the world at the end of last year. They expected 11.7 real. So you got to add on inflation and I think the survey is probably not fair because most investors have a hard time distinguishing between nominal real, but really that means like 14%. But even at eleven point seven is crazy because markets have never returned that in history ever. So the problem you see is this massive dislocation between valuations.

• 43:10Speaker 01

  So that was the bad news. But you put that in the US and you say, look, every quant shop on the planet, AQR, research affiliates, GMO, yada, yada, would say low single-digit returns expectation. Some would say even negative. So a pretty bad opportunity set. Now, the good news is, the rest of the world is cheaper. So we'll use end of last year and then we can update it. Foreign stocks were trading around average valuations for low inflation. So let's call it twenty-one. Emerging market down around fifteen. And the cheapest bucket, cheapest quartile was down around twelve. And historically, tilting towards value has been a great way to add, let's call it one to four percent returns over market cap weighting. The problem is, obviously, it comes in chunks. You know,

• 43:54Speaker 01

  it doesn't happen every year. And as we've seen this year, it certainly can get worse. And the beautiful thing about valuation is it's hard, right? The stuff that's cheap, so end of year, I mean, we're talking Russia, Brazil, Greece, Italy, Singapore, I mean, Norway, just nasty, who's who, the worst countries of geopolitical, of economic news, you know, the prices, because they've already declined sixty, eighty percent. And on the right side, the good stuff, that's hitting new highs, everything is rosy. At least it was a few months ago, right? The US lowest unemployment on record, had their first decade in history with no recession, the first year in history, calendar year, where the stock market went up every year in twenty seventeen, on and on, right? Everything looks

• 44:35Speaker 01

  great. But one of the biggest things about using valuation is it's not just about buying the cheap, where there's massive career risk. Nobody wants to own those names, because if you do, and they go down, your clients say, what are you talking about? We own Russia, and Brazil, and Greece, and Italy, you're fired. If they do great, they're pouting back, which you're supposed to do. Everyone wants to own the expensive stuff.

• 44:59Speaker 01

  But using valuation is every bit as much about avoiding the expensive as it is investing in the cheap and going back to our examples of avoiding the US when it was the largest market cap country in 1999, avoiding Japan when it hit a P ratio of 100 and has had negative returns the next 30 years. And that's not some backward economy, right? Japan is the still the top three economy in the world. So doing those two things is hard. That's why you make it systematic. You put the rules in place. You have it so that you tilt towards value. I mean, look, this is Warren Buffett 101. It's not that hard. And over time, it delivers. Now, the problem, and I'm getting a little long-winded, I'm sorry. The problem

• 45:39Speaker 01

  is that most people expect returns to come within a year or two. That's how long of a leash they give people. We did a survey on Twitter where they said, how long would you tolerate a manager underperforming before you sold that allocation? And it was like 80 or 90% said under six years and most said under three. There's been survey after survey that shows institutions are just as bad, by the way, where they say they'll give 95% of managers under three years and then they fire them. But the academic literature shows that's the exact opposite of what you should be doing. The three-year time horizon,

• 46:21Speaker 01

  most institutions, they've shown this over 10,000 hiring and firing decisions, would be better off staying with the manager they fired and not adding the one that they're adding to or including now because they just revert. And if you don't mind, give me a little latitude here. Let me give you a good real world example. I used to tell clients that asked me, say, Mav, how long should I give this strategy? And you can extend this to asset class, anything you want. How long should I give it? And I used to say 10 years. And now I say 20. A good example is the stocks versus bonds currently. Everyone knows stocks outperform bonds. It's been 40 years and they haven't. Will we expect that going forward? No, with bonds at almost 0% interest rates versus stocks, you would absolutely expect

• 47:06Speaker 01

  stock to outperform. But that wasn't the case 40 years. So you've got to wait. But let's use Warren Buffett. Everyone knows Buffett's an amazing investor. Everyone didn't know that in 99. Article, article saying he's lost his touch. He's old fuddy duddy. And we wrote a book called Invest with a House that you, you actually used to talk to Mark a lot about this, where you could track hedge funds, what they're doing through the 13 half filing. So you could buy what Buffett buys when it's public, top 10 holdings, equal weighted back to 2000, when the filings became electronic. And that outperforms the market by about three percentage points per year. That beats 95% of all mutual funds. You don't have to do anything.

• 47:47Speaker 01

  You could also buy Berkshire, the 13 half's outperformed by a little bit, but it's very close. You don't have to do anything. It takes five minutes a year. You just hired the best performing portfolio managers on the planet and Charlie Munger too. And now the new guys. But why would never, why would anyone never do that? It's because they go through ridiculously long periods of underperformance. Buffett has underperformed. We're ignoring what's happening this year. I have no, no idea. The last 17 years. So of the 20 years, he's underperformed in his like 11 out of 17 calendar years. So every institution, every retail investor would have given him a three year leash. And then you're fired, Warren, you're fired, Charlie. But I just gave you a prescription to beat 95% of all mutual funds, zero cost, takes no effort.

• 48:29Speaker 01

  But no one would have been able to withstand Buffett because of that mismatch we're talking earlier. But this applies to active management too. So going in with all these asset valuations and the struggle with, with why this is so hard. If you look at the world right now, after it's been imploding in the last few months, the good news, stock valuations in the US have come down from 32. I don't know what today is happening, but down to about 22. So we're back to normal valuations for low inflation. That's great news. It's not back to normal full period, which would be another 20% from here. And it's not back to global financial crisis lows, which would be, I hate to say it, another 40% from here ish. And it's certainly not back to all the way to five where it's been before.

• 49:14Speaker 01

  But you also have to hold in your head the chance that it could go back to 45, right? Or all time highs. If we cure this, we find out that chloroquine works or there's new vaccine, boom, we can, we can go back to highs. You have to hold both possibilities in your head and most investors can't. Foreign developed is probably down to, I don't know, 15. Foreign emerging is probably straight up at 10. And the cheapest countries, we update this every month, every quarter on the idea farm and send it to investors. And happy to send it to y'all's list. A lot of countries around the world are going to be P ratios about five and about seven, which are generational buying opportunities. These things you, it doesn't have to be this week, this month, this quarter.

• 49:58Speaker 01

  Could be this year, could be next year, the things you could be allocating to where you will get probably 15, 20% returns going forward. But it's going to be really hard. It's good to, you may buy them and they may go down 20% more. I gotta pause there. I've been blabbering for like 20 minutes. So you're still awake.

• 50:16Anthony Pompliano?

  It's incredible because what you're basically elaborating on and kind of hitting from multiple perspectives is this idea that if you are a short-term investor and you want immediate results. One, you're likely not to get them and two, you're actually going to make really bad decisions. Right. Because the, if you're looking for that kind of quick feedback loop of, hey, I bought X, it didn't return what I wanted in 12 months. Let me go change my strategy. It's kind of this belief that the average is the average for a reason. Right. And so if you go through three, four, or five years of underperformance, well, if the average performance is higher than that, at some point it reverts back to that. Right. It's kind of the, the thing that Mark always says around, you know, people kind of buy what they should have bought because it's at the all-time highs and they think that it's, you know, all rosy.

• 51:00Anthony Pompliano?

  But then also they sell what they're about to need. So they sell it after, you know, a couple of years of underperformance. And then all of a sudden it goes on, you know, the run that they were all expecting three, four, or five years before. And so it really comes down to, I think, one, the emotional discipline, but also two, the ability to understand the math behind a lot of the decisions, right, which you've done a great job articulating and just kind of trust that the math works. And what I find when I talk to a lot of investors is it's almost like they know the right answers, but they feel like they have to do something to feel in control. Right. Because if I underperform two, three years in a row, rather than stick with it, if I do something, then like now I'm in charge and I can kind of get myself out of this. And that usually is just a really bad strategy.

• 51:42Speaker 01

  We had a quote that we put out in this piece this past week, again, channeling Bogle. We probably would have disagreed on so many things, but we think he's wonderful. Where he had a great quote where he said during crisis, you know, most people wanna wanna do the, don't just sit there, do something, but the reality is you'd be better off with, don't just do something, stand there, you know, sit, sit there, do nothing. And so for most people, we said, the whole point of this is you have to have a plan. You know, as Peyton Manning, as football goes the line of scrimmage, you know, he has the plan. And you come into this and say, look, this is my plan. Now, your plan can be basic, it could be, look, I'm gonna do global market portfolio, rebalance once a year.

• 52:25Speaker 01

  So rebalancing has the effect of you're guaranteed to be adding more to the stuff that's gone down and cheap and trimming the stuff that's gone up and expensive. So it's that constant discipline. There's a topic that we talked about in a podcast with Howard Marks and Robert Knott, where it's this concept of even you could go a step further and over rebalance or calibrate, meaning you add a little bit more. And maybe it's if you had 6040 portfolio, you go back to 6040. Well, maybe if stock valuations are true but cheap, you go 6535. But notice it's never like 9010. Most investors, they wanna a super binary, all in, all out. But in reality, it's better to just trim a little bit. And you get the blended outcome of all, all expectations.

• 53:09Speaker 01

  But yeah, if you have the plan and one of the beauties of a lot of approaches today is you can automate those suckers. You know, we've said, we demonstrate for public assets, most people, you build your portfolio, you let it sit, let it whir in the background, and you just should never touch it again if it's automated. And so we have a digital offering that does this and as well, many others. And it makes the adjustments for you, so you don't have to worry about it. You almost see it as a savings account. And it just kinda keeps you, your hands out of the cookie jar. But if anything, you know, in times like these, people start to act batshit crazy. There's some things and dislocations you could add a little bit, but this is all in the periphery, right?

• 53:53Speaker 01

  These are little tilts you want to be making, not wholesale. I gotta be all in on stocks or all out. Because all that matters is this sort of sleep, sleep at night portfolio. And I love to sleep. I really, really do. I have a, I have a young kid who's quarantined now as well as we all are. So I'm probably not sleeping as much, but, but the portfolio is not bothering me. Because you have all the stuff planned ahead of time and it, it takes away a little bit of the, the interest in, in mucking with it.

• 54:25Anthony Pompliano?

  Yeah, I know a lot of people like to talk about the robo-advisors and stuff like that. To me, the whole idea of just taking people's hands off the wheel, kind of that savings account you talked about. So it's literally just, let me automate as much as, as I can. I really remove myself and my bias from the process, I think, will become much more popular over time. Some of that's technology driven, just, there's gotta be more options. People gotta understand how they work, trust them, et cetera. And then two is I think it's a lot of people just educating folks. Look, the, the more that you try to do things, especially for an individual that's not doing this professionally or full-time, the more you're actually probably screwing it up than you are helping yourself. So I think we'll see that over time. I want to just give you a little bit and talk about dividends, share buybacks and bailouts,

• 55:08Anthony Pompliano?

  which I know you have sworn off talking about buybacks, but kind of let, maybe we can just start with like, what's the pro argument or kind of the proponents of the dividends and share buybacks? And then we can get into a little bit of, I think, the timely conversation around, you know, airlines, et cetera, have done a bunch of this stuff and now are looking for the government assistance. But I'll kind of just leave you with the broad, so you can kind of take whichever direction you want.

• 55:35Speaker 01

  First of all, I'm gonna lay some foundation and say, one of the biggest policy failings of our, you could call it government, educational system, all of us, is we don't teach basic personal finance. Forget about investing in school, in high school. I think it's like 12% of the high schools in the country teach personal finance. Forget about in college, like, we're teaching calculus, right? Like, I was an engineer. I haven't used calculus ever. Forget about differential equations and physics, you know, all these other things. But not equipping people with the very basics and the libertarians out there will be like, well, yeah, but your parents should do it. Well, look, a lot of people don't grow up where they have access to parents.

• 56:19Speaker 01

  Maybe they're a single family, maybe they don't have parents at all, and the education system is failing. And it's not hard, and it would benefit people so much. We expect 17-year-olds to say, hey, you gotta make a decision about the rest of your life about taking on 50, 100, 200, $500,000 debt when you're 17 years old. I wasn't thinking about that. Are you crazy? Thinking about girls and beer, right? And so it's a tragedy, and the best thing young people have is time. We talked about earlier with investing in a long-term time horizon. So it's really frustrating. So when you hear a lot of politicians and gurus and everyone weigh in on this topic, I partially say, look, I get it because they weren't taught this.

• 57:06Speaker 01

  They should know better. Again, I try to ban this topic because it's an emotional one. It's like talking about religion. It's like talking about cryptocurrencies, right? People end up on these totally irrational. So listeners, come into this, please, with an open mind and try to understand and be objective. I'm a quant, right? There's no emotions here. I have no heart. So.

• 57:29Anthony Pompliano?

  I always joke and say it's negative interest rates, crypto, and stock buybacks are the three most religious things in finance.

• 57:37Speaker 01

  All in one. All right. Let's start with the basics, and then we'll go from there.

• 57:43Speaker 01

  You're a company, doesn't matter if you're public, private, whatever. Let's use a public company, say you're Apple. There is only five things you can do with your money, and that's it. The first one, which is what people spend 90% of the time on is the sexy part, is you can reinvest in the business. That means you're building new plants, you're doing research into a new computer. You're hiring new people, you're doing new innovation, right? That's one. Second, you can go do M and A, you can buy other companies, which traditionally is actually value destroying on average. But you can go take over other companies, add to your company to extend you have cash. So that's one, so one reinvest in company, two M and A. Three, to the extent you have debt, you can pay down debt.

• 58:29Speaker 01

  And then the last two are ways you return the cash to shareholders. You can pay cash dividend, or you can do a stock buyback. That's it, there's nothing else you can do with your money. And the job of a CEO, who by the way, most of these guys are not dummies, they may be egomaniacs, but they're not dummies, is to pursue any project that has the highest return, okay?

• 58:54Speaker 01

  And so let's say you're at Apple and you have a great idea for a new teleporter. And it's gonna be awesome, good for you, put that money there. But if you're a widget factory making widgets and you don't have like any brilliant ideas, but you're sloughing off billions of capital, what are you supposed to do with that? And you can't just, so most people, you say, well, you could just go hire a bunch of people and do all this R and D. Well, you're just flushing money down the toilet if you don't have ideas that are reasonable. And if you get to a certain size, it gets harder and harder. If you're a hundred billion dollar company, if you're a 500 billion dollar company, these are the old kind of bloated companies. You can't do anything with that much money. So what have they done historically?

• 59:37Speaker 01

  They go do M and A and also flush it down the toilet, they name stadiums, flush it down the toilet. So the long history, by the way, you go back hundreds of years, is that the original reason companies had dividends is because when you were selling securities to the public and institutional investors, you had to try to make them a little more like bonds, like, hey, you can buy this company and it'll pay you some sort of like cash return, like interest, okay? And it's returning cash to shareholders, and so that was the concept. But buybacks, this is going to trigger everyone, but this is finance 101. This is something you should have learned as a freshman in college is that buybacks are

• 1:00:21Speaker 01

  the exact same thing as dividends with only two differences. Buybacks are more flexible. You can do them whenever you want or stop them. They're more tax efficient. Dividends have a worse tax treatment because you're forced to take them every year when the company pays you. So you have to have money back, whether you want it or not. And then buybacks can also happen at a distance from intrinsic value for the company. And that's it. So if the company is trading, if stocks trading at intrinsic value, and let's say theoretically, politicians did this, they never will. They have the same tax treatment. They're literally the exact same thing. And that's full stop. Okay, you cannot argue that fact. That is a one plus one equals two theorem. Okay.

• 1:01:08Speaker 01

  So one way to establish if a writer or a guru or someone doesn't understand buybacks is to look at what they just said, take out the word buyback and put in dividend. And if the sentence doesn't make any sense now or change the message, well, then they don't understand or they're conveying the meaning or they have an emotionally charged agenda. Okay.

• 1:01:33Speaker 01

  Let's talk about a few more things. By the way, not everything is rosy about buybacks. I won't get into that. For the greater experience of history, for the past two, three, 400 years, this goes back to Dutchie Sager company or Dutchie Sager. I'm going to get the wrong, get the name wrong.

• 1:01:50Speaker 01

  What's the name of the company? Anyway, 1700s. It was one of those.

• 1:01:58Speaker 01

  John and Seane others, we have on our blog post, I got so frustrated with this topic. We have a blog post, it's called FAQ on buybacks for journalists, politicians, et cetera. And it links about the top 10 things to do with buybacks. I actually saw a great one, a flow chart last night from Joshua Wolf and Michael Malbassin. It's on Twitter, you can post to the show links.

• 1:02:20Speaker 01

  For the most of history,

• 1:02:23Speaker 01

  governments and investors demanded that companies do buybacks because they didn't want CEOs squandering the money, paying themselves huge salaries, doing stupid projects, hoarding it. So they said, your company, you have to pay dividends, you have to do buybacks because we don't want you to do dumb stuff. And it's funny how the dialogue has changed. So let's fast forward to the modern era. Companies have started doing a lot more buybacks since the 1980s because there's a rule that got passed in the early 80s that made it particularly easy and gave companies safe harbor from buybacks. Okay, so in any given year, buybacks started ticking up and any given year, starting in like 97, buybacks have outpaced dividends as they should because they're more tax efficient. Okay.

• 1:03:09Speaker 01

  Now, there's two parts and there's two separations. There's the talk about buybacks and dividends from an investor standpoint, which we can get to in a minute. And then there's buyback and dividends from a public policy, et cetera. Why do buybacks have a bad name? First of all, they got terrible branding. Whoever came up with the name stock buyback should be fired. You know, such like you talk about like how everyone buys life insurance back when it's called death insurance. No one would buy it. The same guy, the Chilean toothfish, when he named it Chilean sea bass, all of a sudden everyone buy it. All right, so buybacks is a terrible, terrible framing for it. What it should be called is flexible tax efficient dividends. Okay. Warren Buffett understands this, right? Look at Berkshire. Berkshire has never paid a dividend and that's not quite true.

• 1:03:53Speaker 01

  It paid one in 1960s. It was like 10 cents and Berkshire famously, Warren says he was famously in the bathroom when they made this decision because he would never have made that decision.

• 1:04:05Speaker 01

  Because dividends force you to take, take cash back. Buybacks, you can choose to or not.

• 1:04:14Speaker 01

  The things that I think are probably fair.

• 1:04:20Speaker 01

  Many people associate buybacks with CEOs and compensation. And they say, well, these CEOs, they have compensation tied to earnings per share. They have options. Therefore, their only goal is to increase earnings per share. Thus, they're doing buybacks, yada, yada. Those are two separate issues. If you have a dipshit board that is tying CEO compensation to earnings per share, they should be fired. Full stop, right? That has nothing to do with buybacks. Okay? How you distribute cash has nothing to do with how you pay your CEO and your company. In the same genre, you have to talk about companies that also issue shares, correct? So there are a lot of tech companies and other companies to reward employees. They issue stock options. All right? So that's share issuance.

• 1:05:05Speaker 01

  So you're diluting the shareholder. And on the right hand, they go and buy back the shares. Okay? So it's somewhat of a wash in many cases.

• 1:05:14Speaker 01

  I think that's a fair criticism, but it's not a criticism of buybacks. It's criticisms of structure and how boards operate. And that's a policy decision that has nothing to do with buybacks. Another example is people love to take a sample size of one. And they'll look at a company that has been buying back a bunch of stock over the past 10 years. And then maybe gets into hard times, the share price goes down. They say, look how stupid that was to buy back stock. And now the share price is down. That was so dumb, they wasted so much money. But many of those companies were also issuing dividends. And you say the same thing. It's simply a return of cash to shareholders.

• 1:05:53Speaker 01

  It's the same exact phenomenon. Now, as a shareholder, you should never want to own an expensive stock. So if you're Warren Buffett, you have a quantitative measure. He says, look, we'll buy back shares of Berkshire when they get below, I think it's 1.3 times book. I think, I think it'll write around one now. So he's probably buying a bunch of Berkshire this year, this quarter, this month. Most CEOs don't have that in place. That having been said, if you look at the historical valuations of companies that are issuing shares, companies that are buying back stock, and companies that are buying back a lot of stock, the ones that are issuing shares traditionally are trading at valuation premiums. The ones that are buying back stock are trading at valuation discounts.

• 1:06:36Speaker 01

  And the ones that are backing up the truck and buying a boatload traditionally are trading at valuation big discounts. So on average, they've done a good job. It doesn't mean you can't come up with some company that hasn't. And then a second part is, is the company just poorly managed? People don't talk about, hey, they wasted a bunch of money on that new plant in upstate New York, or hey, they paid out billions in dividends. They shouldn't, they should have been paying down debt. That's a CEO decision and whether you wanted to lever up the company or not, it's up to you. But on the flip side, a lot of companies in Europe, a lot of companies in Japan, have the opposite structure where they have a ton of cash and they're just very bloated, what you call these zombie companies.

• 1:07:18Speaker 01

  All of this having been said, I'm a buyback agnostic. Doesn't sound like it, but I'm a buyback agnostic. A very simple fix to all of this is legislature politicians eliminate the double taxation of dividends. Okay, so you remove the tax of a company paying dividends and all of a sudden buybacks become fairly irrelevant. Because companies could pay out dividends whenever they wanted, not have to get taxed, but most people don't want it.

• 1:07:48Speaker 01

  This dovetails in, interrupt me at any time because I can rant for a while.

• 1:07:52Anthony Pompliano?

  So one question here is, and I think you nailed the issue on the head, right? So I'm actually in the camp with you of the buyback is just a dividend, right? In a different format, but it's ultimately driving value for the shareholder, especially when it's done really well. I think the only thing I'd add to that is if you look at the dividends versus the buybacks, so the numbers I looked at yesterday, I think I have these right, is about 52%, the S and P, 52% of free cash flow went to share buybacks. The reason why that's so high, I think, is because executive compensation is tied to it. And my guess here is people rail against it so much because

• 1:08:35Anthony Pompliano?

  the easier, the harder thing to do would be to rail against the board of directors and say, hey, you shouldn't make the compensation, right? You shouldn't tie it to share price or earnings per share, et cetera. And so the incentives are off. Well, the only thing that the quote unquote public or those that aren't on the board can really rail against when it's an industry-wide thing is, oh, the share buyback's the problem. And so what I don't know is, is there another solution than just railing against the share buybacks where you actually go after the compensation structures? Because if you change the incentives, to your point, the share buyback and the dividend is completely the same thing, right?

• 1:09:09Speaker 01

  So if you go check out all these FAQs on my blog posts, it attacks almost every one of these myths and there's much more in-depth academic people that have Del Madaran from NYU, Malverson, we mentioned Cliff Asness, on and on and on, talk about each, in some cases, some of these myths one by one. And one of the studies, and I may get it precisely wrong, is that they looked at the EPS and companies doing buybacks and not, and it was no difference, right? The companies that were tying at EPS weren't doing more buybacks than the one that they weren't. That having been said, it's a stupid metric, right? Warren Buffett,

• 1:09:49Speaker 01

  most of these good CEOs, capital allocators, there's a great book called The Outsiders, could write down on a napkin in probably five minutes, a compensation structure that made sense that's not tied to short-term stock price, but rather long-term performance of the company. And that's not that hard. I just think it's a boogeyman, a demonization that people like to latch on to. Like I mentioned, a very simple answer is, look, I don't care. But think about what happened. So like Elizabeth Warren and others came out and said, we're gonna make buybacks illegal. And I say, okay, you know what you just did? You just said CEO has a lot more cash on his hands. What do you think he's gonna do with it? He's gonna go spend it. He's gonna pay himself more. He's gonna pay his execs more. He's gonna

• 1:10:34Speaker 01

  go buy a jet. He's gonna go acquire other companies, an empire build, right? Like, so that's the last thing you wanna be doing. So it's tough, because, you know, there's a lot of things that people like to call attention to that just, it doesn't hold up in the data. And so I kind of bar myself on Twitter. Sometimes I can't help myself. But almost every one of those myths, you can go down, down, down the list and say, no, that's actually not true, or the data says this, the data says that. But again, it goes back to... The CEO's only job is to maximize where he's using that cash. And so is it paying down debt? It could be. Is it new projects? Maybe. Is it buybacks or dividend?

• 1:11:19Speaker 01

  Like, all these things, that's his job. And, you know, it's a topic that's emotionally charged right now because we're talking about bailouts, for example. And let's be clear. If the government steps in, and there's a long case study history of this, of the right way to do it. You bail out a company, whether it's an airline, a cruise ship. These stockholders should be zeroed, right? The CEOs, the executives that have equity compensation that's tied to shares, those shares should be worth zero. But that's the way it's always worked. That's bankruptcy, right? Company goes bankrupt, the US could easily say, "Look, fine, we're gonna backstop some of these airlines. That's fine, but your equity is now zero." Then it goes to bondholders, et cetera.

• 1:12:04Speaker 01

  The crony capitalism comes in where they say, "No, we're gonna protect the shareholders." That's the whole point of being an equity shareholder. You accept that risk, right? Stocks go to zero all the time. Like we mentioned earlier, the distributions, like a third of them go to zero. And so people like Mark Cuban, love him, God bless him, but he's like, "If we bail out some of these companies, they should never be allowed to buy back stock again." And I'm like, "That just, it doesn't make any sense. They should not be allowed to pay dividends? What do they do with the cash?" And by the way, if you get to be a fat bloated company, those dividends and buybacks, guess what happens with them? They get recycled back into the young, emerging growth companies that are employing and hiring lots of people versus these big fat bloated ones. So, anyway, it's, um, look, man, it's a topic that just, I think, is emotional

• 1:12:49Speaker 01

  and is something that people wanna latch on to, but I just, I don't think there's any there there. Little things you could change on the edges, but for the most part. And by the way, we haven't mentioned this, on the investment side... The number one thing you want to be attracted to is companies that are high quality, trading at cheap valuations, and Buffett says this, the best thing a company can do with its cash, if it's trading below intrinsic value, and I'm a quant, so you come up quant value metrics, is buy back their own shares, because you're buying back something for eighty, sixty cents that's trading for a dollar. So you can take this all the way back to the 1920s. We call it shareholder yield, but it's combining dividends and net buybacks, so net of issuance,

• 1:13:33Speaker 01

  combining the two together, and figuring out dividends are the most nonsensical investing strategy on the planet. They're tax efficient, inefficient, and it's kind of a crappy way to do value investing. It's not a real value tilt. They tend to be leveraged companies, kind of junky. You do the shareholder yield, you add a value filter, it's stumped almost all dividend investing approaches all the way back to the 20s and in most decades. So there's from the allocator standpoint, as well as the, but what you want at the end of the day is a good business, CEO's thoughtful, who's thinking about all the ways to maximize return, and do so in a way, by the way, the problem we're seeing this year is anti-fragile, right, where a short-term disruption is not going to zero the company, because those things happen.

• 1:14:19Anthony Pompliano?

  Yeah, I think that we actually see eye on a lot of this in terms of the share buyback isn't the quote-unquote evil thing, right? To me, it's the bailouts and really the structure of how the bailouts happen. And the other piece of it, too, is you specifically said, look, the risk you take as the equity holder is that it can go to zero, right? You can get zeroed out there. And again, I think that there's a balance between, you know, hey, we had a really great business, there was this black swan event, and we didn't do anything wrong, but this occurred, versus, I think, when people look at stuff and say, hey, you had, you know, eighty percent of your free cash flow you spent over the last five years doing the share buybacks, well, if you had held that, you could weather this, then I think the question really comes down to, you know, what's the right answer?

• 1:15:04Anthony Pompliano?

  Unfortunately, regardless of how much people want to debate, I don't think there is a right answer. It's, that's why there's the debate, right, is because many different people have different perspectives of it. But I think you articulated kind of what that trade-off there is.

• 1:15:17Speaker 01

  You know, I would love for politicians to make dividends tax-free. They won't because it generates revenue for the government. Same way, look, by the way, there's nothing more predatory that every state has and the government has than lottery system that generates tons of revenue. But if you're to ask a lawmaker, by the way, you're preying on uneducated, poor people, why are you doing this? And there's plenty of other systems in the world that have savings-based lotteries that actually help people save, but they're addicted to the revenue, right? So it's the same thing with dividends versus buybacks. Like a simple solution overnight, just make dividends tax-free.

• 1:15:53Anthony Pompliano?

  Yeah, I love it. Some of the questions that we got online as we were preparing for this, a lot of people want to know what's up with the heavy allocation of farmland. You talked about it a little bit earlier, maybe go into a little bit more detail. Just when you talk about farmland, kind of how do you think about good investments there versus bad investments? And also through market cycles, just holding the same allocation of the farmland, or does that change over time?

• 1:16:18Speaker 01

  Farmland's tough. You know, it's an asset class. It's one of the few that's not well represented in the global market portfolio because the vast majority of it worldwide, historically, has been in individuals or massive institutions like Nuveen or Kref that own just these enormous farms. There's not a whole lot of middle ground, and it's been hard for most investors to allocate to. So today, if you wanted to go get a farmland allocation, you got to either go buy a farm and then manage it, which is a nightmare, by the way. Thankfully, we have a lot of friends and family in the area that can help out. Two is you could invest in a private fund that does it. We've had a few of those on the podcast that talk about it. There's some platforms that are coming out that make

• 1:17:02Speaker 01

  it a little easier. If I was a young entrepreneur not doing what I do now in the ETF business, you know, we would probably go and launch a public REIT. There's only like one or two that do it that would give access to it. So it's hard. It's a great diversifying investment, like a lot of investments are just non-correlated. If you got a blueberry farm in Oregon or a wheat farm in Kansas or an almond farm in California. Or like those things don't traditionally correlate directly to what's going on in the rest of markets, which is what you want. And then you have, of course, the the private benefit, which is I put a picture on Twitter the other day of me walking through a wheat farm and says, look, I'm trying to value this today. It hasn't traded in forever. Like,

• 1:17:46Speaker 01

  I have no idea. I couldn't sell it if I wanted to. So like for a lot of people, for me, it's farmland. I don't own a house. But for a lot of people, their biggest illiquid investment is their house, right? They probably maybe with Zillow can come up with a little more today valuations, but they can't sell it tonight. It's not something they would if they wanted to. It's a lifelong investment. But it's a big part of people's wealth. And so one of the reasons people across the country and the world have become so rich and wealthy is real estate investing is because it's money they would have spent otherwise. You know, you're putting money into real estate like it's it's getting invested, same way with stocks or else. So far, but if it's personal for me, you know, I mean, it's a it's a connection to my family and my history. Would I be investing in it had I not that

• 1:18:31Speaker 01

  had not that probably not. I mean, I would be attracted to it. There's a lot of asset classes I'm attracted to that I think are interesting, but certainly wouldn't be such a large allocation. Plus, you can go out and shoot guns and hide out throughout the world and, you know, drive around on ATVs and horses and everything else.

• 1:18:51Anthony Pompliano?

  You're talking to a guy who also grew up in North Carolina. So those are all fond memories for me as well. What are your thoughts on the stimulus and kind of a lot of the monetary policy that's coming out right now in response to, you know, kind of market conditions at the moment?

• 1:19:09Speaker 01

  There's areas and I'm very opinionated on other things that fall in the middle. I think this is hard. It's hard because there's so much uncertainty, you know.

• 1:19:23Speaker 01

  We outlined this, we did a piece called Investing in the Time of Corona, where we said, look, here's a bull case. And we said, governments around the world respond, everyone's doing testing, self-quarantine works, there's treatments developed, hey, maybe the malaria medication works, a vaccine comes along, coronavirus is never seen again, essentially, or it's reduced, markets hit all-time highs by year end, right? Then you have the bear case, which is governments respond, but it's too late, the virus is everywhere, it goes exponential, you know, people are despondent, treatments don't work, a vaccine is two years away, the summer comes around, has some relief, and then the virus comes back in the fall, and it happens again, and markets go down

• 1:20:08Speaker 01

  another 50%. Like, you have to be able to hold those two ideas in your head at the same time, maybe not as equally plausible, but as possible. And we talk about this a lot with valuations, and we used to say with valuations, last year, we'd do speeches, we'd say, the stock market is trading at 32, what's most likely? Most likely is it drifts back down, mean or worst, to around average, in which case you'll get 4% or 1% a year. Could it go back up to 45? Sure. And you have to plan for that scenario. We'd say, what, how does it get there? How does it get to 100 P ratio? Maybe Elon Musk invents free energy. It could also go back down to 5, which has happened before, P ratio, in which case stocks decline 80%. What would cause that? Who knows? Could be something we're experiencing.

• 1:20:52Speaker 01

  So, you have to hold both thoughts in your head and prepare for both outcomes. What's most likely to happen? Something in the middle. So playing blackjack, you know, most likely events are statistical, the outliers always happen, you know, there's the idiot at the end of the table that, you know, hits a 19 and gets a 2. They say, see, I told you so, or something like that, but unlikely. So you prepare for both to be somewhat...

• 1:21:18Speaker 01

  Anti-fragile and the way that I do it and we didn't really touch on it is the hardest part of the public market stuff is staying the course. So buy and hold investing works great. You have a over a hundred years of been working great. The problem with buy and hold investing is that this is stocks, bonds, real assets, is that all the bad stuff happens at the same time. So you have a bear market, you have a recession, people losing their jobs, their account balances go down. It's all happening at once. So the hardest part with buy and hold is usually during the bear market, people sell on the way down or to the point where they just can't take it anymore. Right. But traditionally, if you hold and add over time, it's a great

• 1:22:02Speaker 01

  investing strategy. The flip side, which we didn't really talk about, which is half of my investment portfolio, which is larger than any institution in the world that I've ever talked to, is in trend following strategies. And that can mean a lot of different things, but the very basic is you're investing in a market that is going up, you're out when it's going down. You could use something like a 200 day moving average. We have a paper coming out that investing in markets at all time highs is actually a great idea. Or like say percent of all time highs.

• 1:22:32Speaker 01

  The problem with trend following, so you can apply that to an entire portfolio. We wrote an old paper back in 2006 in the Journal of Wealth Management that successfully navigated the global financial crisis. And I didn't think I'd ever see anything like that again in my lifetime. And sure enough, that portfolio, which was so basic, it looked at 200 day or 10 month moving average on updates once a month on stocks, foreign stocks, bonds, REITs, commodities, and it exits each of those when it's in a downtrend. Going into March, it would have been 100% cash and bonds. So who knows how this is going to play out. But the thing with trend following is that it's also hard to follow. It's hard to follow because it goes through

• 1:23:13Speaker 01

  long periods of underperformance. The entire 20 teens, anything other than buy and hold US stocks struggled. And there's old, I can't remember if Warren said it or Charlie said it, but they talk about, you know, the emotion Of fear and greed is not what drives markets, but the biggest thing being envy. And so the problem with trend following is that if you're underperforming and chopping along when all your neighbors are making hay in stock markets, you're not going to stick with it. But the beauty of this approach is what we call the Trinity portfolio, which is what I do with all my public assets, put it into one fund. And, and by the way, listeners, I think this is really important.

• 1:23:54Speaker 01

  Cause a lot of people don't know this, the vast majority of mutual fund managers, depending on the category, it's like 50 to 90% have nothing invested in their own funds, zero dollars. If you go up to even a hundred grand, it's even less. I put all my money into our own funds. We have 11. But half is in my hold and half is in trend following. And why does that work for me? Because in a year like 2019, I am so happy to have a big chunk of my money and buy and hold as markets romp, you know, up in the world. In 2020, I'm happy to have a trend following allocation that markets, and depending on the fund you use, we, some of ours, some of other people's, either go to cash and bonds, or they'll straight up short some of these

• 1:24:38Speaker 01

  asset classes. And if you look at managed futures, most of those are having a pretty good year. Many of those are up. And so the combination of the two, it's like a yin yang. Thank God we have trend following in 2020 because if it does get worse, if we do have this bear case, hopefully I'm protected. But if markets rip back up, we find some treatments and the bull case happens. And thank God I have the, the buy and hold side. And this lets me behave. Bogle used to say he's, he put half in cash and half in bonds, he said, because half the time he spent worried he had too much in stocks and the other time he spent he had worried too, he had too much in bonds or too little, vice versa. It's the same thing. So that works for me. It may not work for a lot of people.

• 1:25:21Speaker 01

  The one other thing that, so, so as far as your question, I answered as an investor, but as a policy question.

• 1:25:32Speaker 01

  It's really tough, man. You know, I, I think a lot of, um, hopefully this is a short-term thing. I read last night the Imperial College report and do not read that if you, um, wanna go to sleep or, or, uh, not have huge anxiety and depression for the next six months. Um, we just don't know. And so, look, I, I think that is the government's responsibility and the private sector hopefully can help as much and, and try to find treatments, but is to backstop those in need when you have something that's totally out of your control. It's not to backstop the fucking cruise line, excuse me, but it's to backstop, um, individuals that are, you know, in the restaurant industry, the service industries, the people, healthcare

• 1:26:13Speaker 01

  workers that still have to go to work. Um, God bless them. You know, you and I are, are lucky enough to be able to do this sort of job remote. Um, how they do that, I, I don't, you know, whether it's universal basic income, whether it's incentives, um, I'll leave that to the, to the lawmakers. I, I don't know the best answer, but, um, there's probably a sensible, basic idea that, that works.

• 1:26:40Anthony Pompliano?

  Yeah. I, um, I, I wrote today about, uh, the unemployment levels and I went back and I looked at like Great Depression and kind of really tried to understand, uh, the unemployment levels there. And one of the data points that just blew me away was, um, in 1929, right before it started in kind of August 29, um, unemployment was at 3.1%, right? So very similar to where we are today. And it kind of ramped up over, uh, from 29 to 33, up to that 25% number that everyone always kind of, um, you know, highlights and yells and screams about. But in the second and third year, it was like 8 point something percent and then 15%. And so those are still very big numbers, right? But they're not

• 1:27:20Anthony Pompliano?

  25%. And, uh, I started doing some back of the envelope math, just seeing the unemployment, um, kind of multiples that we're seeing. So Ohio, Minnesota, New Jersey, et cetera, all reporting, you know, in some cases, seven to 10x, uh, increases on unemployment claims over the last couple of days, you know, beginning of this week. And who knows if that's sustainable? Who knows if that's not just kind of one Time thing or whatever. But when you start to look at this, you're like, look, you know, sitting around a 3.5% unemployment rate, anything above that can bring some pain. And I'm right there with you. I think that like, you've got to figure out, how do you help these people, especially when you're asking restaurants to shut down, you're asking bars to shut down, etc.

• 1:27:59Anthony Pompliano?

  You know, it's just, I hope that we don't kind of lose sight of the small business owner, right, who's not sitting on tons of cash. They're not worried about stock buybacks. They're worried about how do I get, you know, to next month and continue to, you know, make money for my family or their staff. I've got multiple friends that own restaurants or kind of hospitality type stuff. And they're literally like, look, I have to fire, you know, half to all of my staff in order just to continue to not have to go into bankruptcy. Because my cash flow or revenue went from, you know, a lot to zero because I literally am shutting down. And it's just a really kind of crazy time. So I don't think we've ever really seen something like this before.

• 1:28:33Speaker 01

  Yeah, I agree, man. It's it's tough.

• 1:28:38Anthony Pompliano?

  So, all right, listen, I appreciate you taking the time to do this. Before I let you go, get answer aliens, you already told us your favorite book, but a believer or non believer?

• 1:28:49Speaker 01

  You know, I was, I was a biotech genetic guy by trade and

• 1:28:58Speaker 01

  there's, there's a great quote

• 1:29:01Speaker 01

  by Douglas Adams, who the famous author, and I'm going to massacre the quote, so I'm sorry. But it's something along the lines of, you know, can we appreciate the garden for being beautiful without having to believe that fairies live underneath? And he's, of course, probably talking about atheism, I have no idea. But, you know, there's so much wonder and amazing things in our world. You know, and with, and thinking about the natural world and, and look at things that come out of the ocean during the tsunamis and exploration and so much wonderment, even as terrible it is, like the fact that there's these tiny viruses that can cause such a a massive disruption to our entire planet world.

• 1:29:48Speaker 01

  You know, that do do I believe that aliens possible? Absolutely. I think it's one of two camps. They're either super smart and leaving us alone, or they're probably just tell it out there. But like many things, it wouldn't surprise me either way. I don't think, you know, my my little bitty brain is really able to comprehend that. There's an old Asimov short story, and I'm not going to be able to remember the name. I'll send it to you. We can put it in show notes that that kind of touches on this perfectly. And I'll leave it to the readers

• 1:30:29Speaker 01

  because I don't want to spoil it. But it's a great book. So yeah, I imagine my bet would be there are. But if I live in LA, so they probably live amongst us already. If you walk up to to various parts of LA, it may be here already.

• 1:30:47Anthony Pompliano?

  So you brought up the ocean. I usually ask people, would you rather go to space or to the depths of the ocean? Which one is kind of more intriguing to you?

• 1:30:56Speaker 01

  Um, you know, I come from a family of aerospace guys. My dad was an old school Martin Marietta Lockheed. You know, when he passed away, I very fondly remember going through a lot of his files that were somehow stamped confidential that he seemed to keep but shouldn't have. My brother works on rockets at Northrop. I had started out as an aerospace engineer before I realized that actually entailed a lot of classes in statics and dynamics and a lot, lot more math than I wanted. So I, you know, if you were to ask the 10 year old me, I would have said I wanted to be a astronaut and and learn that aerospace engineering was not the same thing as being an astronaut, by the way. So for me, it would be space for sure. So I give it, I probably give

• 1:31:41Speaker 01

  it a, if I was a betting man, odds that it happens in our lifetime where we get to go up there. But we'll see. I love the ocean, too. We live right at the ocean here in Los Angeles and Manhattan Beach. So I spend a lot of time floating around and trying to not kill myself surfing.

• 1:31:59Anthony Pompliano?

  I love it. Where can people go read the blog and then also find you on Twitter?

• 1:32:05Speaker 01

  So my day job is CEO and CIO of Cambria Investments, which website is Cambria Investment, CambriaInvestments.com or Cambria Funds. We manage 11 ETFs, which we didn't even talk about today, which is good. All quant based, all sorts of strategies, stocks, bonds, global assets, allocation, tail risk, everything in between. You can find over 2,000 blog posts at mebfavor.com, watch me pick fights on Twitter, at mebfavor. And of course, the podcast, which you'll have to come on and join us one of these days too, is the Meb Faber Show. And by the way, all of our books are free to download because I have a, still have a running fight with Amazon. So if you go to our website, you can download all of our books and white paper for free.

• 1:32:52Anthony Pompliano?

  What, you gotta tell me real quick, what's the fight with Amazon?

• 1:32:56Speaker 01

  You know, you already hit like my main funny bone, which is the buyback topic. This is probably number two. Amazon, look, love the company, use it every day, transform the world. But the problem is they built kind of a crappy marketplace to where for many years, many, many, many years, people could just upload whatever products they want. And so I had one many times where people would email me and say, hey, Meb, trying to buy your Ivy portfolio book, why is it 90 bucks? And I said, it's not 90 bucks. What are you talking about? It's 10 or two or whatever they are. And, and I'd say, send me the link. And then I'd go to the link and it'd be kind of a wonky page where, you know, the normal book has whatever hundreds of reviews. This one may have three.

• 1:33:40Speaker 01

  Then I looked down at the publisher and the publisher was some dude's name and it was published in like 1960 or something. And what Amazon enabled was people to fraudulently upload more than one entry for a book. So mine would maybe have 10 or 20. So if you Googled the Ivy portfolio of Meb Faber or global asset allocation. The first one would be me, you know, they would get the right one. But if you maybe Google Faber Ivy or something, you would get maybe the first listing would be the one that's 90 bucks. So it was an arbitrage where intelligent people and wherever they may be would list fraudulent versions of the book. Now you'd still get the book, but instead of paying 10, you would pay 90.

• 1:34:25Speaker 01

  And so that's a really terrible way to destroy trust. Now, Amazon didn't care because they got paid and the seller didn't care because they got paid, but it hurts both the author as well as the buyer. So I emailed Jeff one day, Bezos, and let them know. And we did a post on Twitter where I was like, by the way, authors, I'll send a bottle of wine to the person who has the most fraudulent books. And someone had like 60. I think Jim O'Shaughnessy, who's been a guest, I think on your podcast, had like 20. And eventually they cleaned it up. And so you don't find that as much anymore. There's also fake products on there. Don't get me started. And there's also money laundering where if you steal a credit card and go buy something

• 1:35:09Speaker 01

  that may be listed in the far corner that's like 500 bucks, that's a way of laundering money. And so I had a buddy who sold one day like $20,000 worth of his books and he's a quant nerd. I'm like, nobody's buying your books. What's going on? It's like, I don't know. Somebody just bought 20 grand worth. But you know, you find these situations going on. Anyway, hopefully they've cleaned it all up. I think there'll probably be a multi-billion dollar settlement at some point. But the good news for investors is all my books are free now. So I had enough and I just threw them online and said, I don't want to pick the fight anymore.

• 1:35:42Anthony Pompliano?

  I love it. Free books, go get them. All right, Matt, listen, thanks so much. I appreciate it. We'll get this out soon and I hope people enjoy it.

• 1:35:51Speaker 01

  Pop, be safe. All your listeners, please be safe and best of luck investing in this tough time.

• 1:35:58Anthony Pompliano?

  Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.