At equities.com, we’ve always been focused on building an active community among the leading voices within the world of finance. As with many other fields, in finance, we’ve noticed a significant shift away from traditional sources of financial news, tips and predictions, and toward a growing number of financial bloggers.
In this series, we profile some of the most distinct and noteworthy voices in the world of financial blogging. Here, you’ll find our recent interview with Meb Faber, founder of the site Meb Faber Research
and author of Global Value
and The Ivy Portfolio
. Read below to learn about Faber’s commitment to quality of quantity when updating his blog, and his belief in the importance of a truly global portfolio.
EQ: Thank you for speaking with me today, Meb. I understand you have a new book coming out – can you tell us a bit about it?
Faber: It's called Global Asset Allocation. It takes a look at the 15 most famous asset allocation strategies for buy and hold allocations and how they've done since 1972. It’s short but fun, and pretty basic.
EQ: We want to get a sense of where bloggers are coming from now that they're more or less the mainstream. When did you start Meb Faber Research?
Faber: Good question – I believe it was 2006 or 2007. All my past posts are archived on the site, I’ll have to check to refresh my memory. There’s over 1500 articles, so I’m not quite the grandfather of blogging – that would probably be my buddy Ritholtz, who’s been doing it since about 2000.
EQ: Still, since you started around 2006, modern financial blogging has really exploded, putting you in a good place, overall. What would you say differentiates your blog from the other financial blogs out there?
Faber: There’s a lot, and the challenge of course is that it's a pretty ruthless sort of job. Maybe “job” is the wrong word, but it's challenging to consistently write, and consistently write things people want to read. Unfortunately, if you’re just using your blog as a soapbox and you’re out there saying dumb or inflammatory things, you'll get noticed one way or another.
We did an old study that looked at what we called "The Number One Key to Investment Blogging". It’s a scatter plot chart – simply, number of posts on one axis, and monthly traffic on the other axis. We found a very linear correlation of how much you write and post to the amount of traffic you receive. As you can imagine, The Zero Hedges of the world that are doing a dozen posts get a lot more traffic. It's like TV as well, if you're highly opinionated and have a strong inflammatory opinion, that will get you more traffic.
We're kind of the opposite of that. I only do a few posts a month, and they tend be of longer form. They’ve evolved over the years. Some of my research now gets diverted to The Idea Farm
, which is a separate research publication we run, but I’ve always enjoyed blogging, and a lot of what we do is quant based, objective. It’s perhaps a little more…boring, but stuff that's a little more aimed at the investment professional.
EQ: Do you find that other bloggers trend toward the more sensational, inflammatory ideas and posts in order to boost traffic?
Faber: It depends. The words “blog” and “blogger” have become a bit meaningless. It’s kind of like describing the average dog – some are golden retrievers, some are dachshund, etc. There’s people that post all day, every day about day trading and there's people that write monthly or weekly research pieces like Grantham or Huntsman. Are those bloggers? I don’t know. It’s a blog sort of platform, and we've done a lot of articles in the blog form, but we’ve also written a handful of white papers, and what’s soon to be our fourth book.
One of the more interesting evolutions has been seeing a lot more content coming out on Twitter as well. The medium is pretty wide ranging, and good, relevant content typically bubbles up. There’s a vast spectrum of different types of bloggers out there.
EQ: What initially inspired you to start blogging?
Faber: I’m a reluctant writer. My background is in engineering and biotech. I started doing a lot of quant investment research, which for many can be a very lonely pursuit. I started out as an equity analyst, which is out talking to companies and management and suppliers and competitors and other research analysts and investors.
While still data driven, it’s a very different job than pure quant. There was actually two ideas that I was researching at the time, and I was a bit frustrated at the lack of information. One was investing in foreign listed hedge funds. Many didn’t know, and still don’t know that a lot of hedge funds -- even ones here in the US – list on foreign exchanges. You could go out and buy Third Point in London and now have access to their actual fund. Same with the recent, the bigger, $5 billion fund Pershing launched in, I think London or Amsterdam. That was an idea that we were very interested in that no one, especially in the US, talked about.
The other was tracking the top hedge funds through 13F investing, and that no one was really talking about at the time. I was doing the 13F by hand, and both of those ended up in my Ivy Portfolio book. I manage a fund based on one of them and it’s very developed now, but in the beginning there was very little available information. I said “Hey, I’m looking for information on this. No one is talking about it but I’ll publish my research on it in the meantime,“ and it kind of went from there.
EQ: You also wrote Global Value. What are your thoughts on the global markets today? There seems to be a lot of volatility.
Faber: I don’t know when it's not volatile, but my favorite intersection is when a market display is value and momentum. Essentially, when something is cheap and it’s going up. That’s not really the case with the world today. Most of the stuff that is going up is US dollar based, US stocks, US real estate. It’s not cheap. The good news is, in a lot of the rest of the world, equity markets are reasonably priced or very cheap, so in my mind, it's a great time for investors to have at least some foreign exposure. Or, if they're a value type, to have even higher overweight to value equity countries.
Most investors don’t realize, especially in the US, that half of their overall equity allocation should be abroad. US is only half of world market cap but most investors have around 70% in the US, because of their home country bias. That happens everywhere – the Canadians and Australians and Italians, they all allocate more to their own markets than they should, because it's familiar. From a portfolio perspective, though, it’s a terrible thing to do. It's most relevant right now for US investors, because they're putting 50% or 70% in a country that is one of the most expensive in the world on a valuation basis. Valuation in any given quarter or year doesn’t necessarily play out, but over the next 5 to 10 years it's going to be a big headwind in the US.
EQ: People are told to invest in what they know, and like you said, that often means investing in your own country. But if someone was looking to invest globally, what would you suggest? Is there any specific sector in the world or region that you might recommend?
On a broad basis, foreign developed and emerging stocks
are reasonably priced. If you then look to what the cheapest are, they have a long-term P/E ratio of around 15. For perspective, average P/E for the US is usually around 17, and currently around 27. But it hit a peak of 45 in late 1999, and it's been as low as five, so it’s a pretty wide range of valuations
. It's simply what people are willing to pay, and right now, if you look at roughly the 20% cheapest countries, it's a lot of Europe, a lot of emerging Europe, Spain, Italy, Greece, Hungary, Czech. Also, some of the other countries that have really struggled, in particular Russia and Brazil.
So, you’re going to end up with a portfolio of markets that trade at a single digit P/E ratio of around eight or nine, versus the broad indexes at 15 or the US at 27. To me, that decision is fairly simple. I can’t fathom why anyone would rather own the US at what would be double or triple the valuations elsewhere, but it's also been going up. That said, I’m a trend follower at heart, I’m a macro guy, and it's completely reasonable to be investing in the US. However, once the trend changes, to me that’s very much a warning signal, and I would have no interest in investing US equities at that point.
EQ: I think that’s valuable advice. You say you're a trend follower and a macro guy at heart. Do you have a specific, overarching philosophy as a trader?
Faber: The very first white paper we ever published in Journal of Wealth Management, back in either 2006 or 2007, outlines a very simple trend following approach, and it's nothing more than using the monthly equivalent of the 200-day moving average – what we call the 10-month simple moving average. What it shows is that you can use an incredibly simple timing method, and it gives you roughly the same return as buy and hold, but it vastly reduces your volatility and draw down. That is important to a lot of people.
Many people have a very difficult time watching their money, or their portfolios decline 20%, 40%, 60%, 80%. If you look at a buy and hold investor in energy right now, that’s a perfect example, or Russia, or even Greece. A lot of those investors are facing very large draw downs, and psychologically, that is hard to deal with. What we demonstrate is nothing new, these simple trend following metrics have been around a hundred years, starting with Dow Theory.
Charles Dow was talking about this a hundred years ago, and a lot of the commodity trading advisers and managers have been doing this for decades and interestingly enough had a banner year last year – incredible returns for a lot of their funds and a strong start to 2015 as well. So, a very basic trend following approach makes a lot of sense, and then you can combine momentum and trends as well. We talk about that in a couple of our white papers you can find for free on SSR, and they are also linked to from my blog.
EQ: Do you have a specific long term goal for the blog?
The blog is simply meant as a soapbox to be able to express my personal views on investing, and share them. Typically, it's all been free, and people can do with them what they may. Professionally, my goal is to build this investment company Cambria, and the funds we launched, into one of the premier shareholder friendly investment companies – very much in the structure of a Vanguard. We offer much more active funds than they do, but we think the investment approach has a lot of merit. We just launched the first ETF with a permanent 0% management fee, and it's the cheapest asset allocation ETF
in existence. In many ways, we're doing things that I think are very beneficial to the individual and professional investor out there. It’s been fun. I like publishing. The writing process is not natural to me, and every time I write a book – and this is our fourth – I say I’ll never do it again, but we'll see.
EQ: How have you seen the financial blogging landscape change since you started Meb Faber Research?
Faber: You’ve seen a lot more entrants, and certainly also a lot of people leave. There’s been a lot of great newer bloggers that have come online. One of the beauties of the internet space is that when you have someone that has high quality content, people will find it. They publish it, it gets on Twitter, or wherever it may go, but if you're publishing really valuable information and research, it's not going to be hidden for long. That wasn’t necessarily the case 10 years ago. You had to be writing for The Street or MarketWatch or one of the other sites that had all the traffic.
Now, if you start a site from scratch, it's much easier to be able to get broad readership. I think there's been just a great deal of really wonderful people out there writing that have come on in the last few years from all walks – professors, hedge fund managers, research analysts, individuals, just about everything.
EQ: Is there anything that we didn’t touch on at all that you think is worth mentioning, anything of value?
Faber: If you want to read our new book check it out. It’s called Global Asset Allocation. If you want a free copy email me and I’ll send you one for reading this transcript.
For more on investing globally and other finance insights, visit Meb's blog Meb Faber Research, his site The Idea Farm, or read his books Global Value, Shareholder Yield and the upcoming Global Asset Allocation.
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