Ep. 1404: Mebane Faber Interview with Michael Covel on Trend Following Radio

My guest today is Mebane Faber. Mebane is the co-founder and Chief Investment Officer of Cambria Investment Management. He is also the manager of Cambria's ETFs, separate accounts and private investment funds, and author of multiple books. The topic is his book Investing in America: The Rise Of A 250-Year Bull Market. In this episode of Trend Following Radio we discuss: America's 250-year bull market and long-term wealth creation Entrepreneurship, capitalism, free markets, and creative destruction Global diversification and emerging-market opportunities Trend following, managed futures, and portfolio diversification Market valuations, bear markets, and current U. S. equity risks Jump in! --- I'm MICHAEL COVEL, the host of TREND FOLLOWING RADIO, and I'm proud to have delivered 10+ million podcast listens since 2012. Investments, economics, psychology, politics, decision-making, human behavior, entrepreneurship and trend following are all passionately explored and debated on my show. To start? I'd like to give you a great piece of advice you can use in your life and trading journey… cut your losses! You will find much more about that philosophy here: https://www.trendfollowing.com/trend/ You can watch a free video here: https://www.trendfollowing.com/video/ Can't get enough of this episode? You can choose from my thousand plus episodes here: https://www.trendfollowing.com/podcast My social media platforms: Twitter: @covel https://twitter.com/covel Facebook: @trendfollowing https://www.facebook.com/trendfollowing/ LinkedIn: @covel https://linkedin.com/in/covel/ Instagram: @mikecovel https://www.instagram.com/mikecovel/ Hope you enjoy my never-ending podcast conversation!

• 0:00Speaker 00

  My guest today is Meban Faber. His book, Investing in America: The Rise of a 250-Year Bull Market. This is one of those inspirational books. You get it and you feel better, whether you're American or not, because the book is really about success, entrepreneurship, sticking with it, survival, making money. Last I checked, everybody out there, whether they're American or not, or whatever country, we all want to make money. Without any further delay, let's jump right into my conversation today with Meban Faber.

• 0:54Speaker 00

  Here's the thing that I'm jealous about. I have wanted to do a coffee table book forever, and you beat me to the punch. So now I will have to, you know, beat what you've done, then you can beat what I'm going to do in the future.

• 1:07Speaker 01

  The good news is I have a playbook for you, and I learned a lot, a whole lot. You know, dude, this is my eighth book. I've done everything, self-published, traditional publishers, on and on. Coffee table was a whole nother thing, for better and for worse. So we could do a whole episode on that, but I could tell you where the bodies are buried and everything else.

• 1:28Speaker 00

  This is no publisher right now.

• 1:30Speaker 01

  This is no publisher, but we are distributing it through Amazon. It's a little different for us because my goal was just to get it in people's hands. I'm not trying to make much money off of it. We're donating the proceeds. But for me, it was more just like, I want to make it as beautiful and nice as possible. And you can't do that with Amazon, right? You gotta go either on your own or with a traditional.

• 1:55Speaker 00

  As somebody who's also done eight books, when you see a book that someone has done, and you know they've not done it with a publisher, and it's very different, and the quality is very nice, I instantly know, oh, there's a frickin' story here, because it's not, it's just not easy to do. One of my favorites is, I think it's the Turtle Trader book done in Japanese, and the quality of this thing is so off the charts, right? Even my trend following book in Vietnamese, the quality is nicer. Anyways, it's a whole different subject, but it's fascinating to make nice books.

• 2:31Speaker 01

  The unlock for me was listening to a podcast Nick Kekonas did with Tim Ferriss, I don't know, five, six, seven years ago. And he was the owner of Alenia at one point, the best restaurant in the world in Chicago. And he was talking about doing a beautiful coffee table recipe cooking book with the main chef there. And he started going down this rabbit hole, same as our, you know, money management industry. You start to dig a little bit, and you're like, why do I only make a couple of dollars off this $50 book? And he started peeling the onion. He's like, well, wait, there's a layer of middlemen, and then more middlemen, and more middlemen, and more middlemen.

• 3:09Speaker 01

  And what he eventually found out is they could produce this gorgeous book, and they actually, for them, make it like seven, eight figures off this book, maybe more. And it's absolutely just 10 out of 10 gorgeous. So we learned a little bit there. But the printing, the really crazy insight is you do the offset printing, if it's 1,000 books, 10,000 books, 50,000 books. The cost to print even like the nicest coffee table book, under $10. It's like, in some cases, you buy it at bulk, it's like $5. And you're like, where the hell does the rest of the money go?

• 3:41Speaker 00

  I'm in the middle of dealing with publishers right now for new books, and you're inspiring me again. My initial coffee table inspiration was over a decade ago, and Seth Godin did two of these things. I bought both of them. They're massive. They weigh like 10 or 15 pounds each. And I went down the path of finding who he actually worked with, how he printed. It's a fascinating process. I mean, I commend you because there's a lot of people that have never done a book, but anybody can write a book. Anybody can put a book on Amazon, but if you create a piece of art that somebody wants to keep, that they're never going to throw away, and you don't live forever, then why not create the frickin' art?

• 4:19Speaker 01

  I hear you, man. Well said. You know why? It's because it takes a lot of work. That's why.

• 4:23Speaker 00

  Dude, I've been in the middle of writing an autofictional account of my little adventure over here, when then using these kind of meta footnotes, completely unrelated to trading. You'll enjoy it. You'll enjoy it. It's a little controversial, so I'm in the process of figuring out, will any of these ladies in New York City that run publishing even talk to me about it? But let's just get into your work here. The premise is, if I'm reading you right, is Americans never die, so buy and hold.

• 4:49Speaker 01

  There's a little secret now. I don't know if the broad public knows this, but Mike, I've actually written two coffee table books. The first one I wrote preceded this, but it's not out yet. And that one's actually global. The problem was, as I finished that one, we looked and we said, oh, no, we got a big birthday coming up here in the US, 250. People are going to want one that's probably US only. So let's kind of rearrange this one a little bit and kind of celebrate this pretty amazing milestone. But the inspiration goes back to COVID. I know a lot of the Asian countries shut down big time. When I was in Japan, my God, that was like years went on.

• 5:30Speaker 01

  Los Angeles, they shut down the beaches. There wasn't anything to do. They stopped showing sports on TV, NBA shut down. Oh, you remember all that? And so what do the youngins do? They say, well, we don't have anything to gamble on. What can we go gamble on? Aha, the stock market. And all of a sudden, this entire generation of young people started trading meme stocks. And that's sort of followed through over the next few years. Now it's prediction markets and on and on. And I was kind of super frustrated saying, oh, God, you're just getting led through the casino. Like, I was super happy that investors were learning about the markets. Hey, look, that was me in the 90s, E-Trade, CMGI, dot coms, right? But hopefully you learn those lessons, and eventually you grow up and have the scars.

• 6:14Speaker 01

  But it was really frustrating. And I was trying to, you know, say, hey, look, the real story is better than any of this. Like, you don't have to day trade. You don't have to chase these DGEN coins. And so there's this long-term picture of the stock market. If you ever go into a financial advisor's office, somehow they all have it. It's from like DFA, Dimensional, shows the long-term returns of the US since about like 1920 or something. And I said, well, let's do that, but let's take it back to 1800 in the US, because all sorts of crazy stuffs happened, you know, world wars, global financial crises, pandemics, on and on.

• 6:55Speaker 01

  And yet, over that period, the US stock market has been this massive, massive wealth accumulator. So we sort of wanted to tell that story visually, which is why it's Coffee Table Book and hundreds of pages long. But basically, to zoom in on each decade and say, okay, look at all the crazy stuff that went down. But then zoom out and say, okay, but what were the returns the next 20, 50 years? And taking this long-term perspective has been astonishing, astonishing wealth builder. This concept of being an owner, being a capitalist, free markets. I think it's, as Getty said in the book, we have a lot of little quotes, maybe inspired by your book, a lot of little quotes.

• 7:37Speaker 01

  And one of them said, you know, the door to the millionaire's club is not locked, which I thought was a great expression of this amazing experiment.

• 7:45Speaker 00

  I just had David Booth of Dimensional on my podcast. Not surprisingly, I was not aware of him because that's just not what I've been in the middle of. Then I had to go back through my trend following book and realize I criticized Dimensional.

• 7:57Speaker 01

  I joke with him. I said, if you're a Dimensional investor, you're supporting Kansas Athletics. I mean, I think he gave like 400 million or something to Kansas. Good for him. I said, you better be a Kansas basketball supporter now.

• 8:09Speaker 00

  My nephew, he just finished four years at UVA playing on the football team, didn't really get any playing time, defensive back. We don't know how it happened, but for his fifth year, he's got one year of eligibility left, and he is now at LSU for his final year.

• 8:22Speaker 01

  Wahooa. Sad he left the grounds at UVA, but good to see he's still playing. That's great.

• 8:29Speaker 00

  Well, I mean, LSU is a whole different ballgame. He said, yeah, basically, every guy at every position is bigger.

• 8:34Speaker 01

  Yeah, my wife went to a college. I took her to a game at Virginia, and it was her first real college football game. She's like, this is amazing. And I said, yeah, but just to be clear, this is like, you know, a rung or two down from going to see Alabama or something. That's a totally different, different ballgame.

• 8:50Speaker 00

  Well, first off, hold on, you're still SoCal, right? Nothing's changed, right?

• 8:53Speaker 01

  Still SoCal, Manhattan Beach.

• 8:56Speaker 00

  All of us out there in the ether, we hear these stories and we see these images. Is SoCal the same today? Is it changed in 10 years? Is you and your wife walking down the beach, any of those beaches, Redondo Hermosa, is that environment changed?

• 9:12Speaker 01

  First of all, I thought I would hate Manhattan Beach. I thought Los Angeles would be full of vampires and soulless people, which, to be clear, it is. But I had moved here from Lake Tahoe, was skiing, kind of a ski bum, but to start this company, Cambria, this is 20 years ago, by the way. This is our 20-year anniversary since I started this company. And I was like, I'm just going to give the beach a year or two, and, you know, I can just check that box. Say I lived in LA, say I lived at the beach. And fast forward, that one year becomes two and two becomes three and on and on. And I definitely love the beach here. I think it's fantastic. I hesitate to really call it LA. We're kind of, I feel like, you know, flip flops and surfing and volleyball version of being adjacent. It has changed quite a bit.

• 9:56Speaker 01

  The little taco joints and what used to be dancing sports bars, you know, Luca now lives here and Kendrick Lamar and all sorts of fancy people. But it's a beautiful town. It feels still little, but it's close to LAX. So I still hop on a plane and get out and go visit my friends all over the world.

• 10:16Speaker 00

  So listen, the one thing I love about where you've gone, just to get back into the specifics, is never betting against America, just the idea of it. I think for people listening, you're not telling people, hey, this particular strategy, it's not what this book is about. This book is about, as you say, never betting against America. I think what's interesting about that, though, and you mentioned another global book coming, there's all these other options. And of course, where I'm at right now, you end up making constant comparisons, right? So I say to myself, I don't think it's a smart thing to bet against America, but I don't like the fact that if two people drive through the drive-in and McDonald's, their two Happy Meals are 35 or 40 bucks, you know?

• 10:59Speaker 00

  The undercurrent there is like, yeah, it sure looks like it's tough to bet against America. We got nukes and aircraft carriers and we go anywhere. But some of the things, you're like this, right? You're kind of up and down in terms of your perception.

• 11:11Speaker 01

  I was getting into it not too long ago on Twitter debating tax policy with some politicians. And I said, you know, look, here's the deal. And this is actually a beautiful positive about the US state system. I said, I don't know how many states I'd be happy to live in, but the number's probably half. You know, I was born in Colorado. I could easily move back, live in the mountains, live in Boulder, live in Denver, my whole family's there. A decent part of my life in North Carolina, in the South, in Virginia. I could totally live in those states, on and on. Look, my dad, when I was a kid, used to say, damn Californians moving to Colorado, they're gonna ruin it. And I said, that's been a one-way, you know, one-way highway. And now it's the other states, to North Carolina and Texas especially.

• 11:55Speaker 01

  But here's what's interesting about our country that I think is actually pretty unique. Part of the story that we're talking about in the book, the US is definitely somewhat unique. If you go back to the founding, 200 years before the declaration of independence, and we were taught this in elementary school, the Mayflower, right? People coming over from Europe, what were they doing? They were escaping religious persecution, they were searching out for a better life and freedom, all true. However, almost all of these voyages were for-profit ventures. You say, really? Right? And so there was this advent, starting in around 1600, in a little, little place called Amsterdam, where you start having these joint stock companies, which today we just call companies.

• 12:39Speaker 01

  But basically, you had this period of exploration, right? Ships checking out the new world, going to look for gold, all these ventures. And the problem is, if you or I wanted to funded one of these ventures, because untold riches they might come back with, well, guess what? The boat might sink. Or guess what? There's pirates. Or guess what? You know, the hurricane, on and on. So it was incredibly risky. But if you or I could say, well, maybe I can divide that up across a dozen voyages and put one twelfth in each. And so this idea of this joint stock company to pool risk is a amazing invention. And so all of a sudden, if you look at Hudson Bay Company, Virginia Company, Mayflower, on and on, these voyages were for-profit companies.

• 13:21Speaker 01

  And so already from the get-go, America's founding was from risk takers and entrepreneurs. And so there was something in the water. And so we talk about this a little bit in the book, and we say, if you roll that forward to today, there's an attitude about entrepreneurship, there's an attitude about equity ownership that definitely, you see it in places around the world. I mean, look, my South Korean cowboy traders, my God, they make gambling look like it's dinner pastime, the way the stock market's been trading over there.

• 13:52Speaker 00

  The whole country.

• 13:53Speaker 01

  Yeah. You and I can't convince anyone this philosophy, but I have this discussion with a lot of people. I say, look, you go back to Jack Bogle, 1970s, you go back to the origin of the stock market, and this is the way every single person on the entire planet reports returns, which is market cap weighted indices. And we demonstrated that starting in 1800. And a little tongue-in-cheek, listeners, there wasn't tens of thousands of stocks back then. There was like five in 1800s, right? You had a bank and insurance company. When you roll forward to like the late 1800s, many more, you had railroads and canals and all sorts of fun tech stocks like that back then. But the way you think about the market then, as of today, is market cap weighting.

• 14:35Speaker 01

  And this drives people crazy, financial advisors I talk to, because half the time, people don't even know what market cap weighting is. There's two variables. It is price of the stock and shares outstanding. That's it. It is the ultimate trend following index, full stop. The only difference is your position sizing, this is almost like a mulvaney. The more it goes up, the more you own, and the more it goes down, the less you own. And eventually it gets kicked out because it's too small or goes bankrupt. This market cap weighting, and so we talk about, you put a dollar in, in 1800, and yes, I know, taxes would have eaten into it, you couldn't index back then, it was expensive to trade. Be quiet, just listen, listeners. It's meant to be instructive over the decades. That's 200 million today.

• 15:19Speaker 01

  It had a near 10% return, 50 years is a hundred bagger. And so the point of this story is kind of looking at this whole period, despite civil wars, despite everything, amazing growth across 200 years. And the same is true, by the way, globally, in our other book, which will probably be out next year, called Time Billionaires, and that starts the clock at 1600. So two centuries before the US even got started, because US wasn't even around yet.

• 15:46Speaker 00

  You know, a lot of people might not be aware of this. Heck, I didn't know before I spent a lot of time here. And we brought up UVA in Charlottesville, University of Virginia at Charlottesville. And there happens to be a very famous home there, owned by a former president, third president, Thomas Jefferson Monticello. I took a Vietnamese lady there because she wanted to see it. And people might not be aware that in the, you know, after World War II, when Ho Chi Minh declared independence, before they had to fight France and America, he was quoting the Declaration of Independence. So it's like, people, people around the world do understand that, you know, if you can get this foundation right, that things can kind of explode up. One big issue is that a lot of people say, hey, why can't we emulate this success?

• 16:30Speaker 00

  Can we emulate this success? Can we go down this American path? And I think everybody wants to do it. That's what they want.

• 16:36Speaker 01

  If you look at Y Combinator's Silicon Valley model, you've seen that percolate around the world. There's no reason that Silicon Valley is just limited to San Francisco, right? Or around the Bay Area. And I've been doing angel investing for over the past decade, have invested in over 400 startups. And the funniest part, if you look at the top 10 returners for me right now, despite being a minority of the total, just because of the sheer breadth of where they're located, I think the majority of those best performers are actually ex-US companies, which is interesting. Part of that may be the valuation discount, part of it may be more inefficient. But as I tell people all the time, I said, look, there's great entrepreneurs everywhere.

• 17:20Speaker 01

  One of the struggles I have with this book, of course, we were a bit of a fundamental shop at Cambria too. And I almost wanted to include an end note kind of chapter, just being like, well, just to be clear, right now, you know, because we're at this period where we're close to taking out all the valuation highs that we put in in the late 90s, which historically is not a great starting point. So for those who don't know me that well, my message has always been global. Now, the US is still 2/3 of the world market cap, which means 10 times more than any one country. But one of the cool parts of the book is we have in each chapter, we have these little sidebars. And one of my favorites is like, top 10 stocks globally by decade. And this shows two things.

• 18:04Speaker 01

  One, it's not always US stocks like it is now. So mid 2000s, you had a bunch of Chinese stocks, and 1980s, it was all Japanese stocks, on and on. But even if you look inside the US, like we go back to 1900, and the sectors are totally different. Like we mentioned before, it was like all railroad stocks back then, it's not always all tech stocks. But the comment we make too is that US doesn't always hold the crown. So Amsterdam, Netherlands, used to be the largest stock market, then London, right? UK. And then for a little period, even in the 20th century, Tokyo was the center of it all. And so the names always change, and to us, it's less the idea of America, the country,

• 18:49Speaker 01

  and more the concept of, hey, free markets, capitalism, you know, entrepreneurship, which to me is, has nothing to do necessarily with the geography, more has to do with the system and a concept and just letting humans flourish wherever they may be.

• 19:05Speaker 00

  I love the idea of being an entrepreneur. I don't even have any ability at this stage of the game to relate to anything else. The only conversations I have with people are about that. I wouldn't even know what to say to somebody who talks about the job and going to work and all the other kinds of stuff. I don't even know what that is. I'm not criticizing, I'm not trying to say I'm all that. It's just that once you go down this path of finding a way to create a value for somebody in exchange for something, okay, I created value for you, you give me some value back. Once you go down that path, it's exhilarating and you can't go back. You can't go back, it's impossible. This book you did, if you sell a million copies, it's fantastic.

• 19:50Speaker 00

  But this is more about a piece of art. You want to create something. And if I could tell anybody out there, it's like, once you get that in your blood, once you get in your blood of creating something, you can't stop.

• 20:03Speaker 01

  I was gonna say, we're definitely not selling a million copies because the book's 76 bucks, listeners. And that was in honor of 1776, you'll get the Easter egg there. But we're also donating all the proceeds to the Invest America charity, which if you haven't followed or you don't know what that is, it's a pretty cool idea where one of the biggest problems with today is this wealth income gap. And so a lot of people think that it's unattainable, which is totally wrong. If we study any of the research, most of the millionaires are actually self-made, like you mentioned. And so the Invest America charity is actually seeds people born in the United States with a thousand bucks. And they said, here, this is cool, because it lets you sort of identify and say, okay, I'm part of the team, right?

• 20:45Speaker 01

  I'm cheering for Apple now, instead of saying, ooh, this evil CEO. And you also start to understand compounding, you start to understand math and investing, and you're part of something that's bigger as opposed to being something that, this concept of entrepreneurship, like you mentioned, every single entrepreneur goes into their venture. Holding this incredibly impossible thought inside their head, which is most startups fail, most ventures fail, but that's not going to be me. And we often tell people, this is true in markets, and this is why trend following appeals to me so much. This is true in almost every part of life. It's simply surviving, right? You get taken out of the poker game, you lose all your chips, you can't play.

• 21:29Speaker 01

  And so with entrepreneurship, the best compliment you can give someone in markets is not, hey, did you have the best return? Are you still playing? We see this in so many examples, the mistakes, situational awareness, all these people make that just takes them out. And, you know, to build in that redundancy of being an entrepreneur, it's tough for sure. But yeah, I wouldn't have it any other way.

• 21:49Speaker 00

  Right, there's no other option for someone like yourself or myself.

• 21:52Speaker 01

  The early currency, this is another fun sidebar, we're full of these little factoids, listeners, was the currency on US denominations didn't use to say, in God we trust, it used to say, this is from Ben Franklin, by the way, mind your business. And he didn't mean it like, hey, you snooty neighbor, mind your business. It was like a sundial that showed what was going on is like, basically time is short. Like, mind your business, get your act together and think about hard work and all these cool ideas that were foundational to this republic.

• 22:25Speaker 00

  So you've said a couple of different things here that I want to connect. You mentioned kind of being a fundamental shop, but you've also, you're a guy that's aware of a concept like trend. We brought up David Booth, a dimensional, and when I interviewed him, I tried to get him to go down the path a little bit of efficient markets. And of course, that's going to be his baby. The idea of looking at conomen is going to be more like, well, that's philosophical, but you know, markets are efficient. You kind of remind me, at least from afar, you're a guy who can definitely see both worlds. You're not someone who's out there saying, well, it's only this way, it's only this way. You are very well aware, and you've dropped some names in this conversation, you're very well aware of both sides of the equation.

• 23:05Speaker 00

  How did that come to be for you that you didn't just pick a side and say, I'm only here?

• 23:12Speaker 01

  Let's go back to when I was a undergrad at Virginia. I was studying biomedical engineering in like almost anyone else in the late 90s, trading stocks, dot coms, but also biotechs, and thought I knew everything, as most 21 year olds do. Went to work at a fundamental biotech fund right out of college and watched all the stocks go down 90% and scratched my head and said, well, that's odd. You know, I think we know a lot about these companies and stocks. How did they all go down 90? And that sent me down a path and a better part of the next decade was spent learning and studying. And for me, I'm a little different. I came from a blank slate, like I wasn't taking finance courses in college. And so I read everything.

• 23:56Speaker 01

  And to me, the starting point, 100 years ago, looking at Ben Graham on one half of my brain is sort of rooted in value and the other half, the other side of the brain is Charles Dow, right? Talking about Dow theory and one of the original trend followers. It's sort of evolved into what actually works in a long study of history. We've written so many papers and studies and ideas that we have a running list on Twitter that's things that Meh believes that the vast majority of his professional peers, so if I go sit down with a bunch of CIOs, 75% would disagree with, and there's probably 22 of them. But how you build a global portfolio, what goes into it? And we have like three or four main mistakes most investors make. And they're easy to tick off. So ignoring fees and taxes, which is always one of the biggest, but not having anything

• 24:41Speaker 01

  in global, we see that mistake on and on in the US investors. They have the home country bias, but that's actually true everywhere. It's true in Vietnam and Japan and Australia, on and on. They put everything in their own market, which is a horrible, terrible idea. Second is they almost never have any real assets, things like precious metals, gold, tips, REITs. But third, and this is where I really am like the black sheep in the room when I go to talk to conferences and whatnot. It is to me, you hook people up to a lie detector test, you cannot argue. And even if you just use the SOC Gen Trend Index, doesn't even matter what you use, something similar. And you do a blind Pepsi Coke taste test, right?

• 25:23Speaker 01

  If you do a portfolio optimization, say, all right, I got this portfolio, stocks, bonds, real assets, I'm going to blind these diversifiers. Okay, so here's this trend one. What is the optimizer going to say is how much I should add to the portfolio in these trend following strategies? And the answer almost always is half, 50%. So out of any registered investor, registered investor advisor in the country, to my knowledge, our default is half, by the way, what we call our Trinity portfolios. I don't know a single one that even comes remotely close to that. Now, to the people that are fully bought in, crazy, they might do 5%. They might do 10%.

• 26:05Speaker 01

  And I'm not talking about the people that are already like the Jerry Parker trend followers, right? Where like, that is their thing. I'm talking about like CalPERS, Harvard, Yale, these big institutions, right? To me, it's always been a question of looking at the history, looking at what is going to be robust and survive? And then how do you build a portfolio to withstand that? I got into it recently, I was looking at bonds, for example. We've talked a lot about this and I'm convinced the vast majority of not just retail, but professional investors just have no idea how fixed income works. And then there's people, I'll be talking about this on Twitter, I'm like, man, if

• 26:46Speaker 01

  stocks were down in some cases, let's say stocks were down 20, 40, 60, 70% right now, which is how much most bond indices are down after inflation, people would be losing their minds. But I don't think a lot of people even understand bonds can decline. And certainly if they do, they only think in nominal returns. But the good news is all the trend followers have been short bonds for quite a long time. Anyway, I'm getting into a few different topics, but the whole point was, it was an education that led me from sort of first principles to say, what actually works? And how do we put this all together into something that's let's fall to lower drawdowns and still gets good returns?

• 27:26Speaker 00

  Let me bring it up to something that we're all kind of living with today. And I'm going to connect this to your new book, Investing in America, some data points for you to deal with. So I can look out there and it looks like Mr. Buffett has got a massive amount of cash, right? I can look through your book and I can see you're very open about, hey, look, even though my thesis is over the long run, America's great, there are boom and bust cycles. Things go down. And you've mentioned several times in this conversation, the dot com era, you know, the NASDAQ crapping out, I don't know, fall of 02, like down almost 80%. Took a while to get back to its high and then go higher. And now we're in the middle of this kind of AI world. And you can quote the exact numbers for me, but you know, in terms of the overall S and

• 28:11Speaker 00

  P right now, how much of that is crammed into assorted AI stocks? I guess where I'm going with this is that it's easy to imagine, even though America looks great over the long haul, it's easy to imagine if you're an individual, we can look at the different generations right now, from boomer to X to millennial to Z, there's some very different opportunities for both. But why could we not see another NASDAQ crap out? Why would it necessarily have to bounce back as it did? If we're looking at the last 25 years, to me, it always feels like this through line, right?

• 28:53Speaker 00

  Okay, we went crazy with the dot com era and then we saved it and created the Big Short Film. And then after that, starting in March of 09, we then said, you know what? If you got any money in the bank, F you, we're going zero interest rates for over a decade. So it just feels like there's these imbalances that are out there. Now, this is just me as an observer, the econ side of me over here, the political side of me over here, but as a trader, you're kind of like, what do you do with all that? You know, you got to have a strategy. But just get into the theoretical for a second, for a guy who has talked about booms and busts, and how you see where we are today. Look, I use AI stuff. I have lots of opinions about it.

• 29:33Speaker 00

  I don't know if it's a tool for everyone other than this is my new friend I talk to every day. What's your thought on all this? Cause we haven't talked for a long time.

• 29:42Speaker 01

  First of all, the bear markets, everyone always wants to avoid the bear markets. Bear markets are a feature and not a bug. And let me explain why. You have these excess periods, you have these booms where all sorts of capital gets spent in crazy different ways. Look, we don't know the future. And so bear markets tend to happen and it washes out, and this is a very technical term, all the dipshittery, right? The people that were over leveraged, the people who just had crazy ideas, getting funded for the dumbest stuff, on and on, the people way over their skis. As Buffett would say, when the tide goes out, you see who's swimming naked. And so bear markets are absolutely a feature of markets that are all wonderful.

• 30:27Speaker 01

  Now, the hard part is you don't know how deep they can be. So we tell people, we say, look, in the US, you have these 20%ers, you'll have these 50%ers. Look, we had two in the prior decade and we even had an 80 plus percenter. And we wrote a paper a couple of years ago called The Bear Market and Diversification. And what I meant by that is if you graduated college in 2009, let's say you started as a financial analyst, it's been 17 years, this US stock market romping and stomping, destroying everything, right? Everything in sight, just crushing everything. And so we wrote this paper, we said, let's put this in terms of history, let's put it in context. And we looked at rolling 10 year returns and said, how many other times in history

• 31:12Speaker 01

  has the market had this period where it's had 10 years of 15% plus rolling returns? There's been four since 1900. The roaring twenties, so 1920s, the nifty 50 period, the internet boom and bubble, the dot com, and then now the COVID meme stock, AI era. What's interesting is of course, those times eventually end and the periods after them have names too, the Great Depression, inflationary 70s, dot com, GFC, and whatever comes next. It doesn't have to crash. It doesn't have to be terrible. Maybe this is the singularity we've all been waiting for and Elon finds free energy on the moon. Who knows? But arguably, this has been the best period in history in terms of years in a row of

• 31:56Speaker 01

  outperformance, then a diversified portfolio didn't do bad, right? Probably did 8%. And in terms of magnitude of the S and P creaming everything, doesn't even matter what. I think that changed probably two years ago. I don't think anyone's noticed. And I think what we're seeing is that as long as the S and P is cranking around 15%, you know, nobody's looking around and being like, wait, when did copper hit almost seven bucks? When did foreign stocks print back to back 30% up years? When did global deep value last year did over 50%? So there's all these trends happening and no one's paying attention. On the valuation side, again, just putting this in terms in the US stock market. If you're looking at so many people struggle with valuation.

• 32:40Speaker 01

  If you look at a market that's cheap or expensive uptrend or downtrend. Historically, the best for US stocks has not surprisingly been a cheap uptrend. But second best, guess what? Expensive uptrend, right? Which is where we are now. And so we're right at the 99 peak. The dividend yield is the lowest ever. It's about to cross below 1%. But there's no ceiling on valuation. If you know anything about Japan in the eighties, that's a double from here. All this being said, we've not been able to find a time yet in the historical database where a market starts the year at a 10-year PE ratio, what they call a Schiller-Cape ratio of 40. And we've built this out for every country in the world, going back decades,

• 33:23Speaker 01

  and has above-average future 10-year returns. You play baseball, you understand how this works. A 0% average is not good. But it doesn't mean it has to be terrible. It could just be low single digits. But on average, this is a high bar to cross. And to me, you know, it's the yellow flashing light is valuation. Trend, if and when it ever does roll over, it becomes the red flashing light.

• 33:44Speaker 00

  You threw a name out, and I'm not going to go down this path too much, but you threw a name out earlier, Paul Mulvaney, trend following trader, Mulvaney Capital. And he's had some fantastic performance the last four or five years. And what's interesting about that performance, put aside the strategy of trend following, is essentially what he's capturing. And what he's capturing is what you just mentioned, which is these, essentially, you could call them outlier, but these wild trends up and down. And the way his strategy is set up, he's catching them. So that is an interesting aspect that while we're seeing US equities look great, while we're seeing this great AI story, behind the scenes, a lot of markets that people don't pay attention to have been moving like rock and roll off the charts crazy.

• 34:29Speaker 01

  We tell investors, particularly the ones that are US-focused, US stocks and bonds only. If you remember the late Peter Bernstein, he had a great quote.

• 34:42Speaker 00

  Against the Gods. Go read the book Against the Gods, a pitch for a dead man's book. Great book.

• 34:47Speaker 01

  He's got such a great quote because I think it applies to trend following. Everyone in my mind, when they hear trend following, managed futures, all this stuff, they immediately conjure left tail. Okay, this is going to protect me when it hits the fan. And largely, that's been true. 2000, 2003, GFC, 2022. It's done a good job with that quote, crisis alpha. But equally as important to me is the right tail. And why do I say that? The vast majority of people don't have exposure to all those assets I talked about earlier. They don't have exposure to what happens if gold goes to 5,000. Oh, wait, that happened. They don't have exposure to foreign stocks or value stocks. They don't have exposure, certainly to being short bonds like in 2022.

• 35:30Speaker 01

  They don't have exposure to various commodities and currencies. So here's his quote. He says, "I view diversification not only as a survival strategy, but as an aggressive strategy because the next windfall might come from a surprising place." And to me, that describes trend following in a nutshell, right? You don't know where it's going to come from. And you don't know what the macro is going to turn up next year. But all of a sudden, boom, it happens. And so to me, when we talk to a lot of people, we say, look, consider trend and managed futures, not just because of this protection, but also it may help you. This year is a great example, great year, to have exposure to things you wouldn't have exposure to otherwise.

• 36:12Speaker 00

  You brought up Korea earlier. What a story. I mean, it is wild. And how do you predict something like that? You really can't. You can just say, depending on what your strategy is, wow, there's a lot of momentum. Let's go with that. But if we're going to participate in this momentum, let's have a strategy for it.

• 36:26Speaker 01

  Can you imagine telling someone, when the Korean war ended, sitting around and saying, look at this destruction. This country is divided in half. And guess what? The bottom half of this country, their stock market's going to be larger than the UK. You're going to be like, you're crazy. There is no scenario that's going to be true. And here we are. The irony of, you know, the book and other ideas, you go back to 1900, you go back to 1800, we're sitting around drinking tea in a teahouse and say, all right, Covel, Faber, you guys got to bet. You got to bet on the horse track, which country is going to be the big dominant one for the next 100 years? Like, it wouldn't have been altogether clear. There are some people who put money on Argentina on and on, right? Like, who knows? In the next 100 years? Who knows? I don't know.

• 37:10Speaker 01

  You can make your educated guesses.

• 37:12Speaker 00

  You're bringing up something interesting. Obviously, since I'm living in this part of the world, it's one of the things that I enjoy. When you are in, just speaking rhetorically, when you're in a homogenous East Asian country, there is no off switch. The merchant thinking, the entrepreneurial thinking is built in. So I know you talk about in your book, you talk about, you know, America being a multicultural place. I'm biased, but if you take East Asian countries, Japan, Korea, China, Vietnam, Thailand, Taiwan, Indonesia does a lot too, Malaysia. I mean, it's just rock and roll, man. The people are built differently.

• 37:53Speaker 01

  They're hustlers, baby.

• 37:55Speaker 00

  Yeah, yeah, yeah. A lot of places too, there's not the support system. And the abstract, I love the abstract of investing in America, the rise of a 250-year bull market. I don't like the idea that everyone in America doesn't have the spirit that you and I are talking about. I don't like that there are so many people that say, you know what? How can I just, you know, sneak a piece from it? How can I scam part of it? How can I get some kind of payment for doing nothing? That part I dislike. And I think that is one of the advantages that many of the East Asian countries have, where they don't have some of the, quote, so-called safety nets.

• 38:34Speaker 01

  It's always hard to make generalizations right. And I always tell people, I say, look, US is only a quarter of world GDP. It bats way above its weight on the stock market. People are always looking at that. But the world, we've been trying to convince people to invest in emerging markets for I don't even know how long. Our emerging market fund is probably soon to be our biggest fund. It's done really well. But when we talk about emerging markets, I often tell people, I say, you know, emerging markets are a majority of the world GDP. And that always surprises people, right? They say, oh, really? You know, I just assumed the US was all the world's GDP or something. You know, and it's obviously hard to make generalizations. The one thing the US does really well, the capitalist free market system, it does create outliers. Like, that's part of the benefit, right? You have these SpaceX, you have these trillion-dollar companies.

• 39:17Speaker 01

  And there's really no shame in failure. In fact, there's nothing Americans love more than someone failing, laughing at them, watching them fail. But they'll cheer for them on, you know, their rebirth. Oh, hey, there's a phoenix. This person is coming back for the second or a third time. And various Asian cultures, I know this is certainly true. It's been hard to get the stock market moving in places like Japan and Korea over the past number of years. And one of the big triggers for a lot of my Asian friends, you know, when you're in the corporate environment, is an emotion of shame. They went to a lot of the CEOs in Korea and said, look, your stock's trading at 0.5 times book. You don't get this sucker up, we're going to put your name in the newspaper. And that's like, as bad as it gets, right? They're like, all right, well, we got to focus.

• 40:02Speaker 01

  We got to buy back some stock. We got to get moving here. But definitely the hustle mentality, there's no border for that. And what I used to call is like the PhD, you know, poor, hungry, driven. That's the PhD I want.

• 40:16Speaker 00

  Was it the Ace Greenberg put that line? Yeah, I think it was.

• 40:19Speaker 01

  I can't remember. I love it, though.

• 40:21Speaker 00

  You know, I'll offer an interesting insight too, being in Vietnam today. I believe, and you can correct me if I'm wrong, they recently went from frontier to emerging market status. And to see, especially this year, to see the economic development on the ground, the infrastructure on the ground. If anybody wanted to do a field trip right now, let's say you're sitting out there in a country or a city, and everything just looks the same for five or 10 years. You know, there's not much changing. Well, if you want to see what a rocket ship looks like, get on a plane and take a field trip to Vietnam, right now. If you wait five years, it might look exactly like every other East Asian city, completely built out like Xanadu.

• 41:03Speaker 00

  But if you want to see what it looks like on the ground, where there's just unbelievable expansion, it's worth a field trip.

• 41:10Speaker 01

  We publish a quarterly valuation summary for every country, stock market, top 45 stock markets. And we update it every year or two with new entrants and various. And so we publish this on the Idea Farm, which is a free email service. And we've been talking about the past handful of years, that post-2009 period, where we were just talking about the US just went to the moon. You got to remember, US was trading 2009 at a low teens PE ratio, just rock bottom cheap. And now it's at, I think, 42 or 43 for this 10-year Cape. But the rest of the world just hasn't recovered the same. And so there's a lot of countries, y'all can go look up on our valuation summary, that are trading in low teens.

• 41:54Speaker 01

  You get a few in the single-digit PE ratios. And historically, that's been an amazing place to go dig around, look for potential big winners. And like I said, I had a monster. This is up over 50 last year, up over 25 again this year. So all of a sudden, very quietly, and if you ask the average financial advisor in the US and say, are you aware of this? I posted a retweet on Twitter the other day that was showing, this strategy has now beaten the S and P over the last one, three, five years. Very quietly, it said, despite all this AI ascendance, despite the S and P hitting all-time highs, very quietly, other stuff has been making some pretty big moves. But it's starting from a really low base. A lot of these countries, low teens PE ratio.

• 42:34Speaker 01

  This is arguably the biggest valuation gap we've seen, US versus the rest of the world, since the 1980s. And it was the opposite. The US was screaming cheap, and the rest of the world was really expensive, largely due to Japan.

• 42:49Speaker 00

  Yeah, one last question for you. It's going to sound funny coming from me, but I'm curious because I want to hear your analysis. It's a good way to give you the floor on a little analysis on one particular company. So as a young man, I started wearing one brand of shoes, probably at age 11 or 12. And I wore that brand into my 50s. And somehow or another, that brand imploded.

• 43:15Speaker 01

  Are we going to say Nike to Arunim? Is that what you've ascended to?

• 43:20Speaker 00

  Of course, yes. But I, but I want to know how the hell, because you've got to know something behind the scenes. From a trend perspective, Nike's down, so what? But from a guy who used to use the product, who does not use the product at all now, after 40 years, what the hell have they done to blow up a company?

• 43:40Speaker 01

  If you go back and look at like what you most pine for as a child, like what just like Christmas Day, just dream, my generation, certainly the Jordan sneakers, Sony Discman, if you're old enough, that was up there for me. But you know, a pair of Nike shoes was everything. That was all you needed in life was just a pair of Nikes. And there's a great paper from Hank Besenbinder, and I don't know if you've talked to him before, but he wrote a paper called, Do Stocks Outperform T-Bills? He's written an update called like, What's the Best Performing Stock for the Last 100 Years? And the true story is just like, it's hard, you know? Being incumbent, being one of these giant companies, you got a giant target on your back.

• 44:23Speaker 01

  And you look at the name of all the top stocks today, that's not the top stocks of 10, 20 years ago, certainly not the top stocks of our parents' generation. And that's the way it should be, right? You get old, you die, you move on, there's rebirth and...

• 44:36Speaker 00

  Come on, there's got to be some insight in Meb and that tells me, what was the bad decision making this company made? There's got to be something that you can share with me that tells me. You got nothing?

• 44:46Speaker 01

  I don't have anything good off the top of my head. It's more just competition, you know? It's like everyone I know wears On Running. They're more comfy, right? But I'm sure there's some deeper insight, but I don't got it.

• 44:58Speaker 00

  That's actually a great theme of where your book has gone. When it comes to the competition, you're right, because there were, for anybody that's paid attention to, you know, athletic footwear, I used to think a lot of other brands that competed with Nike were kind of trash. But if I walk into an Adidas store today, that's not trash, you know? So it's like, people do level up and On came out of nowhere, right? Even like me and you, you kind of, sometimes you want to say, well, it's just, I can't because there's always some punk that wants to knock you off. You gotta keep swinging, man, right?

• 45:28Speaker 01

  That's the creative destruction. That's a good thing. Otherwise, you get all these government intervention, all these structures that are inefficient and just a mess. And we all know that, just let the free market decide.

• 45:40Speaker 00

  Well, that's a good place to leave it. The book Investing in America: The Rise of a 250-Year Bull Market, I am holding it in my hands, which is unusual these days, because most people just send me a freaking PDF. Before COVID, everyone would send their damn books out. Now everyone just sends a PDF and you don't know what the hell it is. So anyways, I can hold this in my hands and I can say very proudly, clearly, whatever word you want to use, whatever adverb, you won't throw this book away. So you will absolutely put this on your shelf. It looks good. Look, I didn't talk to Meb about this. This is just not some pitch for me. I'm a guy that writes books, so I'm sitting here looking at the thing, I'm holding it in my hands and I'm saying, if you buy this, and I did not know this either, that it goes

• 46:23Speaker 00

  to a charity, but if you buy this, you won't be disappointed. And if you are disappointed, just delete me, because I don't want to talk to you anymore. You're a loser. That's my pitch.

• 46:32Speaker 01

  The beauty of a coffee table book is you don't have to read it, right? There's beautiful pictures, there's over 70 pictures, charts, you can kind of flip through it. If you're a financial advisor and you want to buy a whole bunch of them, we got a website that gives you 50% off at Atasca if you want to buy 50 or more. So you can get it for all your clients. And when they're going crazy, the next time the stock market goes down 10, 20, 50, say, here, read Meb's book, this too shall pass.

• 47:00Speaker 00

  You make another good point there too about it. You better send me some money. But here's the thing, it is one of these things, again, as someone who writes books, you can put this in a room and have it as an accent piece of like IKEA, right? But it's true, it is something that, that you'll be happy with. So anyways, that's my pitch. Now I've got to beat it. So when we do the reciprocal here, you'll be like, oh, Michael, you did very good. I inspired you. Okay, so there you go.

• 47:24Speaker 01

  Please do, buddy. I think that's a book that needs to be written.

• 47:27Speaker 00

  Where can we send people, Meb? The book, Amazon, if they want to find out you, where can they go?

• 47:32Speaker 01

  Beauty of having a name like Meb, you can find me pretty easy. The book's on Amazon. If you want a signed copy, you can either come by our office or get one at Pages. If you Google Pages and my name, it'll show up. They have signed copies. It's at most bookstores probably at this point, I don't know. The blog, my day job is at Cambria Funds. So you want to learn about our ETFs? We got over 100 something thousand investors all over the world now. So I'd love to chat with any of y'all and come say hi in Manhattan Beach.

• 48:00Speaker 00

  Come say hi in Ho Chi Minh City. Have you done it yet?

• 48:02Speaker 01

  Vietnam was a close contender for us. We did a trip with my family and we ended up in the Dolomites instead. But Vietnam was a top three contender. So maybe next summer, that could be it for us.

• 48:17Speaker 00

  Hey, man, listen, I appreciate it. Have a good one.

• 48:19Speaker 01

  Awesome, bud. Cheers.

• 48:26Speaker 02

  I see a time when those awake will understand how to make money in up, down, and surprise markets. Whether a new trader or experienced, college student or financial advisor, protecting against a crash, or just trying to make a lot of money, trend following offers everyone an answer in uncertain times.

• 48:51Speaker 02

  To get started immediately, send me an email, [email protected]. I will send you the right trend following steps to take, along with my free video. But if you want to buy and hold, trust the government and trust Wall Street, this is absolutely not for you.