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  • Welcome, everyone.

  • A "Forbes" article about Meb Faber's book

  • begins with the question, how does an investment manager

  • reconcile all of the various prognostications

  • he hears on a daily basis?

  • His curt and brief response was, ignore them.

  • Over 70 years ago, Ben Graham and David Dodd

  • proposed valuing stocks with earnings

  • smoothed across multiple years.

  • Robert Shiller later popularized this method

  • with his version of the cyclically adjusted price

  • to earnings, or the cape ratio, in the late 1990s

  • and correctly issued a timely warning of poor stock returns

  • to follow in the coming years.

  • Our speaker today Mr. Faber applies this valuation metric

  • across his global investments.

  • He's a co-founder and CIO of Cambria Investment Management

  • and has authored numerous white papers and three books--

  • "Shareholder Yield," "The Ivy Portfolio," and "Global Value."

  • A frequent speaker and writer on investment strategies

  • who has been featured in the "Barons,"

  • "The New York Times," and "The New Yorker,"

  • he is here today to speak about his investing philosophy.

  • So without further ado, friends, let's welcome Mebane Faber.

  • MEBANE FABER: It's great to be here today.

  • This is a nice, intimate audience.

  • So I usually fly through this pretty quick.

  • So if I'm going too fast, I say something

  • you don't understand, just raise your hand and wave at me.

  • This is interesting.

  • Because this is probably the first time in my entire life

  • I've been the most dressed up person in the room.

  • You know, suits for me, it's normally weddings, funerals.

  • I live down in So Cal.

  • So casual is kind of our normal entire anyway.

  • So it's a bit humorous.

  • Anyway, all right.

  • So we're going to get started real fast.

  • Since I don't see too many familiar

  • faces, quick introduction.

  • Again, my name is Mebane Faber, although I go by Meb.

  • Mebs lately have had a lot of great press.

  • This is the Meb who just won the Boston Marathon.

  • And as one of my friends' moms on social media

  • said when I posted a link to this,

  • said I didn't even know you ran, I said, well,

  • I know if you've seen any photos,

  • but he's in much better shape, much skinnier than I am.

  • I grew up in Colorado before spending some time

  • in North Carolina.

  • I went to college at University of Virginia.

  • So if anybody is watching the College World Series tonight,

  • go Hoos.

  • We're playing Vanderbilt.

  • So pretty excited about that.

  • May have to make a last minute trip to Omaha

  • here if we win one of the first two games.

  • Actually studied engineering in biology so.

  • I feel like I'm in good company today.

  • Probably a lot of engineers here.

  • My first job out of college was in Washington, DC.

  • Worked as a biotech analyst for biotech stocks

  • and was going to grad school at the time

  • before moving to San Fransisco.

  • So I lived in the Bay Area for about a year and a half

  • and then a brief-- and actually lived

  • with an early Google employee.

  • So I was gravitating more towards the quant side

  • of the business of the time.

  • So moved away from the bench, from the science--

  • I was always really terrible at it anyway--

  • but more towards quantitative investing.

  • A brief stop in Lake Tahoe, where I can get away

  • in most of the country saying that I actually

  • had gainful employment there.

  • But most to you can see through that and say,

  • you're probably a ski bum.

  • As you know, there's probably not a lot

  • of high investment companies going on in Tahoe.

  • But an interesting side story was that when I did live there,

  • I managed to sneak my way into a really, really great Google

  • party.

  • And if any of you all have been around long enough--

  • this is probably 2004-- anybody here

  • that used to go to the parties they had at Squaw-- wow, OK.

  • We got a couple.

  • So, I mean, we're talking six stages--

  • this is probably pre-IPO days.

  • You could still get away with this.

  • Six stages and ice sculptures and fire.

  • And they flew almost everybody in from around the world.

  • And of course, I wasn't working at Google

  • but had a number of friends did.

  • So I managed to sneak my way in.

  • And I remembered as I was walking today.

  • I'd completely forgotten about this.

  • But they gave every Google employee two drink tickets

  • and then I think you had to buy the rest or something.

  • But the good news is, most of my friends

  • worked in travel employment up there.

  • So I had it from friends working the hotel front desk

  • setting up the tents with the guys.

  • One of the guy says, here, you want some drink tickets?

  • You know, because we're all obviously

  • sneaking into the parties.

  • And he said, sure.

  • You know, you only get one or two.

  • He goes, here's 50.

  • Needless to say, I managed to get kicked out

  • of the party later that night, or the after party,

  • but really had a great time there.

  • It was really a lot of fun.

  • Moved down to LA.

  • I guess this should be a Kings photo now.

  • But I've been in Manhattan Beach for the past seven years.

  • When I started my company Cambria Investment Adviser,

  • spent a lot of time learning how to surf.

  • But I'm pretty terrible.

  • Look like this and this.

  • And if you've see the videos on YouTube lately,

  • one of the benefits of having technology,

  • of course, the go pros of the world,

  • is you get amazing footage, right?

  • But also, you learn some things you really probably

  • didn't want to know.

  • So being a surfer in Manhattan beach

  • and all of a sudden realizing that, yes,

  • underwater there's a lot of great white sharks.

  • So you've been seeing a lot of these videos coming out lately

  • where stand up paddleboarders are just

  • watching these great whites swim through the line up.

  • I would rather just not know, of course,

  • that our friends are there.

  • But they're harmless, right?

  • A bit about my company-- we started in 2006.

  • We manage about 430 million, maybe 440 million now.

  • We do individual accounts.

  • We manage public funds.

  • The goal-- and I feel like this try to include a Silicon Valley

  • term-- disrupt traditional high fee investing.

  • I have 100% of my net worth invested in our public fund.

  • So this isn't a theoretical exercise

  • we're going to talk about today.

  • But this is what I do with all my own money.

  • Now, before we start, this is a fun little quiz

  • we're going to pass around.

  • It's anonymous.

  • So don't worry.

  • Nobody's going to see what you wrote down.

  • But asked a simple question is for those of you

  • invest in stocks-- so ignore bonds.

  • Ignore real estate.

  • Ignore commodities or whatever else you

  • may trade-- currencies.

  • And you have to be US resident.

  • Otherwise, you'll bias the data.

  • How much do you put in the US?

  • So let's say you have 80% in the US, 20% in Japan.

  • Write down 80%.

  • So there's a little piece of paper

  • that's going to go around.

  • Just write down a number.

  • And then when it gets to the end, raise your hand.

  • And we'll get back to this a little bit later.

  • You can find a lot of information that we write about

  • and publish.

  • Again, I have a blog-- Mebfabor.com.

  • My company's website-- Cambria Funds.

  • There's a third site called The Idea Farm, but all of which

  • we publish.

  • Most of it is free.

  • There's 1,500 articles I've written

  • on the blog, about a dozen white papers, three books.

  • And as a benefit of sitting here during a lunch break

  • or taking the time out today or if you're watching the webcast,

  • I'm more than happy to send you a free book.

  • You can only pick one, though.

  • But the topic of this one today is a book

  • we put out a couple months ago called "Global Value."

  • But we've also published two others.

  • But I'll have more than happy to send you one.

  • Shoot me an email.

  • My personal email address-- mebane@gmail.

  • I tried to get meb@gmail in the early days,

  • but they said, no three letter Gmail addresses when it first

  • came out, sadly.

  • But anyway, shoot me one.

  • "Ivy Portfolio" is best in harder paperback.

  • It came out at a time when the Kindle software

  • wasn't that great yet.

  • So I would recommend reading that one in a hard cover

  • or paper back.

  • The other two, I would be happy to send you a free copy.

  • All right, so we're going to get started on the talk now.

  • And it's interesting.

  • Because a lot of people, when you talk about investing,

  • it's an interesting science.

  • And it's interesting because so many people

  • have such widely held beliefs, right?

  • And so, talking about it, in many ways,

  • to certain people, especially that aren't as open minded,

  • it's like talking about politics.

  • It's like talking about religion, right?

  • Trying to convince a buy and hold indexer

  • that you should be tactical is just

  • as difficult as trying to convince a Republican to be

  • a Democrat or someone to switch religions.

  • It's really difficult.

  • But we're going to talk about some interesting stuff

  • today that probably goes against a lot of conventional wisdom.

  • So keep an open mind.

  • You may agree with some of it, may not.

  • But it should be interesting.

  • I was going to name this chart or this topic

  • You Suck at Investing.

  • And when I say this, I don't mean any of you specifically.

  • I'm not pointing out any one of you, although most of you do.

  • But you're terrible at investing.

  • This is the broad investing public.

  • This is an example of a study that comes out

  • by Dow Bar that shows investor returns, dollar

  • weighted returns.

  • As you can see, typically, everything

  • did good except for the average investor.

  • Morningstar replicates this study for funds, right?

  • So the average investment fund-- when the money comes in,

  • when the money comes out.

  • And typically, what happens-- people are emotional.

  • They have a behavioral bias or they

  • rush into stocks or performance of a fund at the top

  • and then sell at the bottom.

  • And they do it over and over and over again.

  • That costs you roughly about 2% a year typically, right?

  • So all you that are getting really excited about stocks

  • again after the fifth year of this bull market

  • but weren't investing in 2008 or 2009,

  • you maybe want to take a little bit of pause, think about it.

  • But it's important to come up with a systematic investment

  • approach to avoid some of these genetic behavioral biases

  • we have.

  • A good visual representation of this

  • is, there's an American Association

  • of Individual Investors-- polls their readers and says,

  • simple question.

  • Are you bullish on the stock market, bearish, or neutral?

  • This goes back to late '80s.

  • So the red is kind of average values.

  • The green triangle is where we are now.

  • So kind of average.

  • What you can see, though, is a little bit of complacency.

  • The neutral is a little higher than normal, right?

  • And that kind of reflects what's going on the market.

  • There's low volatility.

  • A lot of people haven't really participated.

  • They got out in '08, '09, and have never really gotten back

  • in.

  • Don't really know what to do.