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. But we do see, when were
people most bullish? The absolute worst
time in history to be bullish-- January
of 2000, for those of you that were investing them. When were people most bearish? The absolute best time to
be investing in my career, March, 2009. This goes to show,
the whole point is that your emotions could
work against you, right? And it's what has come
down on our genetics for many millions
of years, right? What was important when
you're on the savanna and a tiger is chasing is very
different than what the skill set and genetics
needed to trade shares of IBM or Google or short gold
or whatever it may be, right? But this isn't anything. This is something that's been
going on for hundreds of years. This is an example that goes
back to the early 18th century. This is in a paper we
wrote called Learning to Love Investment Bubbles. But this is an example of one
of the most famous bubbles. And there's some great
books on this topic. "Extraordinary Popular Delusions
and the Madness of Crowds" is a really
wonderful one-- talks about many historical bubbles. What this shows is an example
of a stock that went parabolic in the early 18th century. It was a [INAUDIBLE] stock. We talk about it in this paper. It's a really interesting story. It involves a lot of the
things that typically happen in bubbles-- easy access
to money, credit, people borrowing. But the most important one is
people making a lot of money. And a very great example is one
of the most rational, brilliant scientists of all
times, Sir Isaac Newton, was an investor in this company. It goes to show his
experience that will probably mimic a lot of
investors experiences in stock that went parabolic
and went in bubbles. So an example-- I joke a
lot on my blog and Twitter that this probably looks like
a chart of Bitcoin, to which I get a lot of hate
mail about, strangely. I've been writing
for seven years. And all of a sudden, I
start getting hate mail. Anyway, so this example. So Neuton buys in,
doubles his money. What is that? Yeah, doubles his money. Could not be happier. What's the worst
possible thing when you've made money
and gotten out? Well, it's that your friends
are making more money, right? Someone just sold
an app company. Uber's valued at $18 billion. Someone else did this
Yo app that's getting millions of downloads, right? What's the worst possible
thing that could happen? It's your friend
in the next cubicle is making more money than you. Or your friends are all
getting rich but you're not. So what happens, of course? Well, then he decides
to buy back in, OK? Well, of course, he's buying
near the top, at the peak. What happens? It crashes 90%. Well, then he sells
at the bottom, OK? Well, this is something that
happens over and over again in investing. And so I just want to
show it's nothing new. And think about this
as we go forward. So what can you do? Is there anything you can do to
remove this emotional decision making to combat our
behavioral biases? Well, so there are these
two good looking guys you may recognize, may not. On the left is Ben
Graham, often known as the father of
security analysis. He wrote a couple great books. He's a professor
early 20th century called "Security Analysis--
An Intelligent Investor." And what he proposed is,
when looking at an investment to value the company and often
to smooth out the valuation by using earnings over
a number of years. Not just looking at
one year of earnings, but his preferred metric was
smoothing it out over five to seven years. There's a way to smooth out
the business cycle, right? As a way to have a
fundamental anchor to be able to compare companies
to each other on a long term basis. Fast forward 80 years later--
so this is nothing new. This has been around
almost a century. Robert Shiller,
recent Nobel laureate, just won with Eugene
Fama, professor at Yale. He put out a white
paper in the late '90s called "Irrational Exuberance." Sorry, excuse me, a
white paper, then a book called "Irrational Exuberance." Alan Greenspan later used
the term in Congress, promptly sent the stock
market down quite a bit. But he says, let's
take a look at this. But let's use it on the
market-wide basis as a whole. Let's look at 10 year average
earnings across the entire US stock market called the 10
year Cyclically Adjusted Price Earnings ratio-- CAPE, right? So this is an example of what
that looks like back to 1881. So that's a long time. And the problem you have with
efficient market people-- people that say, the
market's efficient. You can't predict bubbles--
or sorry, bubble don't exist. First of all, they say,
bubbles don't exist. They do exist. You can't predict them. And that doesn't make
much sense to me. If you look at
this chart, there's an average value of around
16, 17 times earnings, right, that the US stock
market has been in. There's times when it's
been incredibly low, in the low single digits--
think 1910s as well as post depression. But there's also times when
things get incredibly bubbly. If you look at the late '20s,
you get to a value of over 30. If you look at the biggest
bubble in the US stock market's ever seen in the late
'90s, you have a value of 45. Does it seem even
remotely reasonable that it is a good a time to
buy stocks when they're trading at 45 times earnings
in 1999 as it was in the early 1980s
at a value of five? That does not pass a common
sense sniff test for me. So if you look at this, you
say that OK, does it work? Historically, being a scientist,
an engineer, does this work? Historically, it's worked great. If you buy stock market
when it's cheap at, say, less than a CAPE ratio of 10,
you get great future returns. These are 10 returns going
forward-- real returns. So we're netting out inflation. And it's a nice stair step down. The more you pay for stocks, the
lower your future returns are. It is-- again, it's
not rocket science. It's simple. But this works out over
a long term time horizon. If you look at where we are now,
we're at a value of around 26. So unfortunately,
in the worst bucket where the red line is right
now where future returns should be pretty muted, pretty low. We don't think it's a bubble. It's not crazy. But I was talking about
this at lunch today. There's a spectrum of
future returns, right? And simply, the more
the market goes up in the meantime means the
lower your future returns are going to be. The more the market goes
down in the meantime, the higher your future returns
are going to be in general. The best possible
thing that could happen, if you're a young person
in this room, is the market could crash by 50%. Maybe the best possible thing,
but the best possible thing for your investing career. Because you can then invest
in the US for the next 10, 20, 30, 40 years at a much
cheaper valuation. That is not the opportunity
set right now, unfortunately. We're going to stop on
this one real quick. It's just a scatter plot for
the nerds out there like me that goes to show that
valuation-- it looks almost like a shotgun blast, right? Doesn't explain everything. We're in kind of
the yellow area. But in general, the more
expensive you pay for stocks, the worse the
future returns are. The less you pay for them, the
better the future returns are. I don't expect you
to see this chart. I don't expect you to really
even appreciate what it is. From just the colors,
it looks like a bowl of, like, Fruity Pebbles, right? But what this is-- this
is CAPE ratio buckets. So the dark green, or the
cheapest buckets, all the way out to red, which are
the most expensive. And these five columns
are future annualized 10-year returns. And the only take
away from what you should see in this chart is
that most of the green stuff is on the right, meaning
your starting points when they're cheap--
great future returns. And most of the red
stuff is on the left. When you pay too
much, in general, you get crappy
returns going forward. However, it's not
guaranteed, right? You see there's three
great returning years on the far right
when you started out with pretty rich valuations. And on the left, there's even
a few green, light greens, when markets are cheap that
you had kind of low returns. So valuation is not-- it is what
we like to call a blunt tool. It is not an exact science,
which makes it challenging as well as fun. But if you look at
the 10 best times to buy stocks in
the past-- I think this is 114 years--
awesome returns. 16% a year, net of inflation. You can really compound
massively at that level. The starting valuation
was around 11. The 10 worst
possible times to be buying stocks over
the past 114 years-- negative returns every year. Starting valuation was an
average of 23, all right? So where do we find
ourselves today? A secular bull market starting
point around 11 or a secular bear market starting
point around 23. The bad news is we're on
the more expensive side. There's a caveat, of course. This is the PE ratios
versus inflation. When inflation is
low and contained-- let's call this 1% to
4% safe range which goes to about here
to here-- people are willing to pay
more for stocks, right? Because the future is
slightly more certain. When inflation is really
high-- think about Argentina, think about these
countries that have consistent high
inflation-- Venezuela-- when you're a
business and you're trying to plan for the
future, it's really difficult. On top of that, your future
cash flows are worth less. Because every month
you're losing money to this erosion of inflation. So you'll see a warning sign. This may never happen in
the next 10, 20 years. Who knows? Maybe it will. In the '70s, the US had
double digit inflation. It's hard for many of
us to comprehend now. But thinking about
inflation going up that much-- we
live in a world of, let's called it 1
and 1/2, 2% inflation hopefully right now,
not even that much. But the takeaway is,
that until inflation gets above really that 3%,
4% kind of upper level, people are willing to pay more
for stocks for that certainty. Again, they're
not willing to pay 26, which is off this chart. But they're willing to
pay a little bit more. There's a lot of criticisms
of this valuation methodology. What I want to impress on you,
when you're valuing something, most of the valuation
indicators should agree. So it doesn't even really
matter if you're using CAPE or you're using price
to book or you're using cash flows or Buffett's
favorite market cap, the GDP, in general they should
say the same thing. But, so a lot of people say the
measurement period is too long. In our book "Global
Value," we show that the best period is
around five to seven years. So Ben Graham was right. Seven years, I
think, was the best. 10 is just fine. What's the worst? One year earnings. What do most analysts
on Wall Street use? One year earnings. So we don't know why. A lot of people say that
ignores depressions or bubbles. We're not going to get
into that because we don't have enough time today. And we certainly aren't going
to get into the accounting, talking about reported
and operating earnings. But if you want to email
me or you have questions, I'm more than happy
to talk about it. This is a good chart from
my good friend John Housman that goes to show
it doesn't even matter what valuation
metric you use. These are a bunch of
different models using earnings, dividends,
Schiller CAPE. This is Buffett's favorite--
10 year market cap GDP. And then, how does
it actually work in the future 10-year returns? And what you can
see in general is they all tend to
move together, right? Generally. They're not going to
be incredibly specific. But what this shows is that this
is projected future returns, right? So it's like the valuation
chart flipped upside down. But what it goes
to show-- and it's pretty good at
this-- it says, look. When were returns
projected to be the worst? Late '90s, right? That's a terrible time
to be buying stocks. But as the market has gone
down, stocks have gotten better. And in 2008, stocks
were supposed to return double digits. But no one wanted to be buying,
even though they were cheap. But certainly not a
good buying opportunity is the early '80s, which is
the start of the biggest bull market we've ever seen in
the US, but getting better. So again, people like
to think in terms of, stocks are expensive. They're going to crash. Sell. When stocks are cheap,
we've got to buy them. They're going to go
up to double digits. But in reality, it's usually
somewhere in the middle. People don't like
hearing something like, the future expected returns
are going to be about 4%, which is what we think, which
is what the model shows, which isn't that exciting. So as you think about this,
and thinking about bubbles and thinking about
the efficient market and not overpaying
for something, we think it's important
to understand risk, right? And the risk of loss
and the very real risk of losing a lot of money. A Great Arthur Ashe quote--
either you understand the risk or you don't play the game. And we have a picture
of the mouse who's trying to get the
cheese but being smart about it-- wear a helmet. And someone on Twitter the
other day said, you know, Meb, your CAPE measure,
the Schiller CAPE measure is kind of like the difference
of chance of fatality if you're driving a car
at 200 miles an hour versus five miles
an hour, right? You're much more likely to
get into a big wreck fatality at 200 miles an hour
then you are at five. So that leaves us
with the problem. Every pension fund
in the country expect 8% returns per year. We wrote a paper called,
"What if 8% is 0%?" Pension funds investing with
eyes closed, fingers crossed. What do you do? US bonds yield 2 and 1/2%. Stocks should return around 5%. That's not that exciting, right? Your 4% yield or
4% roughly return. The math doesn't work out. It doesn't work out for
a lot of institutions that are going have really big
troubles with their pension funds that will likely
eventually go broke in the next 10 to 20, 30 years. So what do you do? If you're looking at
return, what do you do? This is a chart. We've never seen anyone do this. So we had to go create this. We said, all right. We live in a global world. Let's look at 45 developed and
emerging economies, countries, and come up a CAPE ratio
for all of these, right? And so we took this
back to the early '80s. And in general, the
takeaway of this chart is that most things
move together, right? And generally, stocks
are correlated, right? It's a globalized world, right? What happens in the
US is going to affect what happens in China and
India and Japan and vice versa. So in general,
they move together. However, you can see some
pretty wide dispersion at certain times
and over the years. And then you also
see a few things. This massive, massive outlier
over here, this bubble. There's a lot of young
faces in the crowds, so you probably
don't remember this. But Japan in the
late '80s was widely expected to take over
the world, right? Their companies were better. Their cars were better. There were more
efficient companies. The valuation of
their stock market is the biggest bubble
we've ever seen. And it's not even close. They hit a valuation ratio CAPE
of like 95 or maybe it's 99. I can't see. 95, it looks like. And so it's funny. Because you hear commentators
talk about the lost decades in Japan and how
terrible the stock market returns have been in the
'90s and 2000s, right? No, it's because they
had one of the biggest bubbles you've ever seen. And it's taken them that
long to work that off, right? When did Japan finally get
back to a reasonable valuation? Only in the last few years. What happened? Japan is the best
performing stock market in the world last year. But the efficient
market person will say that it was just a good a
time to buy Japan in late 1989 when the real estate
under the Imperial palace was worth more than
the entire state of the real estate
of California. Things that just
don't make sense. But to us, coming up with
this objective measure of a fundamental metric,
fundamental anchor, can that help you? So we said, we
reran the same test. Does starting valuation
impact future returns? And the answer is, it
does in the same exact way that the US did, right? The less you pay for
something, the better it is. I don't care if it's baseball
cards, a Tesla, whatever you think. The less you pay for it,
the better it's going to be. The more you pay for it,
the worse your returns are going to be. Where are we right now? With foreign developed
markets and foreign emerging, they're both right around 15. So the two red
bars here emerging was a little bit cheaper. So this bar developed is
a little higher than 15. But much better returns than
in the far right bucket, which is the US. So, much more opportunity. What happens if you went
back and said, you know what? We're going to only investing
in the cheapest countries. Instead of this global
portfolio, what if we just invested in the cheapest
25% of countries each year? Takes five minutes
a year, rebalance. Well, that would
have done fantastic. So this is what the
global portfolio would have looked like. The top CAPE, which is
the cheapest countries, did a much better job
than the bottom CAPE, the expensive countries, OK? Again, not complicated. But buying value works. It has worked over time. Enormous amount
of literature that shows this investing
in stocks worked great. This is what the equity
curve looks like, right? This is a logarithmic chart
to equalize returns over time. But again, yellow line, that's
investing in what's expensive. Not a bright idea. Black line, buy and hold
of all the countries. The blue and red lines are
two different variations of buying the cheapest. One is you said, you know what? It probably makes sense
to invest in the cheapest. But only invest in the cheapest
when they are the cheapest. What if everything is expensive? So like, in the late
'90s, for example, right? You don't want to be
investing in stocks when everything is expensive. So we use the absolute
metric caps of around, I think it was 18 in the book--
maybe it was 20-- to say, you know what? If things get that much, we'll
start to move the cash, right? And so you'll come with a little
bit less volatile portfolio. Same returns over
time, but avoid some of the big draw downs
and losses of buy and hold. But what's really
interesting-- and this happens a lot in various
fields-- is I have a buddy, John Bollinger
says, you know, all the information is
in the tails, right? So the ends of the distribution. That's when things get
really interesting. And so, what we call is--
there's a famous investing phrase that says, investing when
there's blood on the streets. Hopefully not
literally, but when things are really, really bad. So we call this at a
CAPE ratio below seven, which doesn't happen that much. It's only happened in
the US a couple times. Future returns are fantastic. One, three, five years,
you're compounding your money at 20% percent a year. What's the opposite? Bubble, right? Where the markets are
really expensive-- over 45. So that's the peak
of the US, right? But anyone remembers
back to 2006, 2007, if you were investing
then, the BRICs, right? This expression-- Brazil,
Russia, India, and China. That's where you want to invest. That's where the world's going. What they didn't mention
was that China and India were both trading
at CAPEs above 40. I think China hit 65, right? And so China has had
horrific stock market returns since then. Is anyone talking about
China that much anymore? No. But China is at a
great valuation now. But this is what
happens over and over. People are much more interested
in investing here-- they're excited because returns have
been great-- then there. It's really hard to
invest in the low markets. Part of that is simply
behavioral, right? All the news is bad, right? The news is usually terrible. So let's give you
some common examples. Where are we now? I just updated this at
the end of last month. You look at the left. The cheapest markets
in the world-- Greece had the lowest valuation we've
ever seen at a value of 2 in the summer of 2012. Greece is now up 200%. Their stock market
off the bottom. Russia hit a value around
five, maybe got down to four a couple months ago. Ireland, Hungary, Austria,
Italy, most of Europe, right? But where the
returns are best is when things go from truly
horrific to merely less bad. Russia is a perfect example. We've been on TV
the last few months pounding the table
for Russia, saying Russia is cheap on every
valuation metric we can find, to which all the TV anchors
say, well, what about Crimea? What about Putin? What about all these
things that are happening? But that's when you
want to be investing. Sir [INAUDIBLE] famous quote. He says, don't ask me
where things are best. That's the wrong question. Ask me where things
are the worst. The challenge with why this
strategy works and will continue to work--
imagine going home to your wife, your husband,
sister, brother, neighbor, and say, you know what? I heard this great
presentation today. I'm putting my money into
Greece and in Russia. Now, the next four-- the next--
you'll get slapped or divorced or what not. In my industry, you'll
get fired, right, as a money manager. And it's funny because
the European names-- the European names don't elicit
as much hatred right now, right? Most people say Hungary,
Austria, Italy, OK. Interesting. You go back a couple years when
the euro was disintegrating-- no one wanted to be
investing in those countries. Italy-- second best stock
market in the world this year. It's up, I think, almost 20%. So when things-- as
the news flow recedes, Russia from the bottom--
here's the dumb things you here at the bottom, right? US government press secretary
goes to Twitter and says, someone asked him about Russia. And he says, you know what? I would be selling Russian
stocks if I were you. In fact, I would
be shorting them. This is the press secretary
giving this advice to the general public of not
only selling Russian stocks, but shorting them, OK? He's suggesting, first of
all, telling the investment public, short anything--
horrific advice. You can lose your
entire account. Talking about shorting a market
that goes up and down 5% a day, the volatility is
off the charts. And oh, by the way, it's
the second cheapest market in the world. What's happened since then? I like to-- not patting
myself on the back, Russia is up, what
25% from the bottom. Press secretary no
longer has a job. I'm not saying
that's why-- related. But if you look
at the right side, these are the most expensive. I was really unpopular
in the last year. I give talks in Colombia,
in Bogota, and in Mexico. And I said, look. I love your country. I love the food. I love the people. But your stock market is one of
the most expense in the world. And Columbia at the time
was in the mid to high 30s. And their market has
got pounded since then. Again, I'm only going to
start traveling to countries where they're really
cheap now so they'll enjoy my message,
say that's great. Bring us good news. US is one of the most
expensive in the world, OK? The US is not in a bubble. It's nowhere close. But returns? Maybe 5% a year going forward. But what's important is even
if you invest in the indexes, right-- the broad
foreign developed-- there's huge dispersion
within those indexes, right? So what we talk about is buying
a basket of these countries. And here's why you need to buy
a basket instead of just one. This is Greece stock market. And the black numbers are
the CAPE ratios over time. Late '90s-- reasonable
CAPE ratio, awesome return. Market doubled. 150% returns. Hits a value of 40. That's bubble territory. Massive bear market
around with the rest of world-- 2000, 2001, 2002. Hits a low single digit value. Great time to be buying. Massive run up again. Hits a value where
the US is right now. Not terrible, but then the
Euro crisis 2008 happens. The challenge here
is what they call catching a falling knife, right? Where the market is falling. It's getting
cheaper and cheaper. But then it proceeds to
get cheaper still, right? Once this got to 10, you
would say, that's cheap. And then you bought it. And it goes to eight. Then it goes to six. Then it goes to four. Then it goes to two, right? So you watched it
continue to get cheaper. There's a famous
investing joke that says, what do you call
market that's down 90%? That's a market
that was down 80%, and then proceeded to
go down 50% more, right? The way the math works out. And we talked about
this at lunch. The compounding that
people talk about-- eighth wonder the world is
compounding, right? Where if you just
invest long enough, it works out in your favor. Well, what they don't talk
about is the opposite. The bigger hole you get in, the
compounding works against you. So the kink doesn't
really happen until you lose about 10%
to 15% of your money. You lose 10%, it takes,
what 11 to get back to even? You lose 20, it takes 25. You lose 50, it takes
100% to get back to even. You lose 75%, it takes
300% to get back to even. You think 75% is unrealistic? US had a 90%
drawdown in the '30s. US has had multiple
50% draw downs. Every G10 country in the
world has lost at least 2/3 of its stock market
value at one point. So go ask someone in Cyprus what
they think about buy and hold investing. You'll get a very different
perspective than someone in the US. We've been publishing
these values for a while. This is a good example
of 2013 and where the values stood at the time. I don't expect you
all to see this. But again, Columbia was
up at 34, Peru at 34. Greece, Ireland-- I don't
include the frontier markets usually. But we use Argentina because
they're too small to liquid. But a lot of those names. And then what happened? Well, had you bought a basket
of the bottom five countries or 10 20% returns in 2013. If you bought the most
expensive, minus 5% to minus 18%, right? So buying expensive stuff--
not a great idea was. There's two outliers here. One, cheap country Russia, which
went from seven down to five, had negative returns last year? And what's the outlier
on the opposite side? Expensive country that got
more expensive-- the US had a monster year last year. There's nothing that
can stop-- so this is one of the
challenges of being an investor with a
long term time horizon. You have to mentally prepare
yourself for the possibility, however small it may be, that
the US market can decline 80% or increase in
value 100%, right? Those valuations have
existed in the past-- so, from where we are today. What's the only difference? What people are
willing to pay, right? That's it. How much are you willing to pay
for one share of the S&P 500? And so both of those
happen in the past. And most people set up
their investing program or how they invest ignoring
both of those possibilities. Say, you know what? If I just have a long
enough time horizon, things are going to be OK. Can you sit through
a 50% bear market? Can you sit through an 80%? Going back to the statistics
earlier, remember. People can't. They buy things here,
they sell things there over and over again. The good news-- I don't want
this to be too depressing. This is the average
of global valuations. Generational lows,
single digit CAPE ratios. Early '80s-- again, best time
to buy in everyone's career. But expensive things
got expensive. Late '90s, a special bubble. Market got hammered,
went back up. '07, right? Bubble-- bubble territory again. Huge bear market. But most of the world has
lagged the US over the past five years. So we're down in
this cheap territory. Most of the world's
pretty cheap. And going back to this
chart, many countries are really cheap, all right? So moving towards the
left side of this chart away from the right side
the chart is important. Why this matters to you--
where's that piece of paper? Did you pass it up to me? Oh jeeze, you guys are
even worse than normal. OK, there's another bias
called over confidence. And I'm sure this
room has it in spades. This is why I became a quant
is I read a lot of literature on my suggest
behavioral-- there's a lot of great behavioral books. James Montier writes some
of the best there are. But to take a little
time to read those books. Because you'll see a
lot of behavioral bias-- overconfidence, right? More than half this room
thinks they're smarter than the other half, better
looking, better drivers, right? Statistically,
that's impossible. And the same thing
with the population. I asked this question. I've asked it in my
last eight speeches. I've gotten the same answer
more or less at every speech. The average amount
people invest-- and I'm sure you
circled it here. This is, right? 78% in the US. That's called home country bias. That happens in every
country around the world. Americans invest all
their money in the US. Italians invest all their
money in Italian stocks. People in Greece
do the same thing. People in Japan. That's a terrible idea. And I'll tell you why. It can be a good year. But in gen-- It
can be a good idea. In general, it's
a terrible idea. The US-- this is global
market capitalization. What percentage of
all these countries are they say of
the entire world? US is half. If you're a vanguard
John Vogel devote, index through and through,
buy and hold, you should only have half
your portfolio in US stocks. No one does. You go to a financial
advisor, any advisor almost on the planet and say,
what do you think? How much should I put in the US? It's almost always 70%,
which is the broad average for the country-- not just
retail, but professional as well. Same thing happens in
every other country, right? And it's more insidious
in other countries. Because often, they're a
tiny part of market cap. So, Canada, you're 4%. But you're putting
70% in Canada? You're getting no exposure
to the global world. Think back to the Japan
example and why this is so bad. And this lines up
the two bubbles just to show you how bad
the Japanese just dwafted our cute '90s
internet bubble, right? This is kind of months to the
peak. we just lined them up. But this goes to show that
this massive bubble-- look how long it took Japan
to work that off, right? It only got cheap in
the 2010, 2011, 2012. Japan in the late '80s was
half of world market cap. Same as we are today, right? That's hard to think. Those negative return
for the next 20 years were a massive drag
on your portfolio, right, on a global
portfolio, which is what market cap
weighting does. Market cap weighting
means you're investing based on
the broad portfolio. You invest the most in
the biggest companies. Right now, that's what Exxon,
Apple-- certainly up there. But usually, the only metric
they're using is price. They're not using valuation. They're just, what's biggest? Well, that's a terrible thing. This is a chart of the S&P 500. This is the blue line. This asks a simple question. What if you invest in the
biggest stock, biggest company in the US when each
one held the Crown? So, familiar names-- Apple,
Cisco, Exxon, GE, IBM, Microsoft, Walmart. It's a horrific thing to do. Look at how much
worse the returns are. Let's think about why. It's simple capitalism, OK? When you're big,
when you're Google, you have a huge
target on your back. Why? Well, everyone else would
like to make money too. And they see how
successful you are. So it's simple competition. There's a study that came
out-- some friends down in So Cal-- research
affiliates that said, what happens when you
invest in the largest company in the market? One of your future speakers
actually did a study on this as well-- Munish [? Perbri. ?]
He'll be talking, I think, next month. He said, what
happens if you invest in the largest
company in the market? That company
underperforms the market by 3% a year for the
next 10 years, all right? Big time out-performance. Happens in every sector. The largest stock
in every sector underperforms the market in
the next 10 years by 3% a year. So getting-- and the
reason being, again, going back to Japan, market cap
weighting over weights expense countries and
companies, all right? So because the reason
they're expensive, there's only one
variable, which is size. Typically, the biggest
is most expense. So it's not always the case. Right now, for
example, small caps. I would not touch them
with a 10 foot pole in US. They're the most
expensive they've ever been relative to
large cap stocks. So I would highly avoid. But again, the US isn't always
one of the most expensive. This shows us right now. Black line is the US. Red line is average
CAPE valuations. Yellow is cheapest and
blue is most expensive. So there was times
when the US was one of the cheapest
countries, right? In the early '80s--
best time to be buying. And there's times when
it's been relatively cheap to the rest of world. This, you could kind of
use this is a guide saying, are we cheap relative to
the world or are we not? And we're right now. We're one of the most expensive. So not-- a great time to be
getting away from the US. Some other questions
I think I'm going to zoom through in
the next five minutes. Does this work with
sectors in the US? It does. Robert Shiller has published
extensively on this. Does it make sense to add
some other things like trend? We talked at lunch about
my favorite section is value and trend. So when something is cheap,
it's starting to go up, right? Italy is a great example now. Brazil maybe turning
the corner here. But we're going to
shift here real quick and talk about something because
this is a engineer focused crowd, because you have
an appreciation for data, this is interesting
topic and probably an area for study
for those of you who are thus
interested in stocks. Going back to what we were
talking about earlier, than most people stink
at stock picking. They're horrific at it. They're really, really bad for
a lot of emotional reasons. But it's a tough game you're
playing because you're up against the smartest
investors in the world. So these hedge funds
that have staff of 50 people that are
out there paying them the top money in
the world, that's who you're competing against. It's not the guys on the
internet chat rooms, right? But the math of it is difficult. There's a paper called "The
Capitalism Distribution" published by some friends
of mine that show just how difficult is the average stock. It's 2/3 of stocks. If you just picked it out
of a hat, 2/3 of stocks underperform the index. Because when you
own an index, you are guaranteed to
own the winners. The losers simply
go down to value and they go out of business. One of the reasons why stock
investing works is you're just investing in capitalism. You're investing
in business, right? But 2/3, if you're just
picking out of a hat, if you pick the company out
of the "Wall Street Journal," chances are, you're going
to underperform the index. So the math is is already
working against you. Half of stocks are losers
over their lifetime, right? But it's the tails, right? Going back to earlier,
it's the tails that matter. It's the few Googles,
Apples, Walmarts of the world that account
for the vast majority of your gains. So a question I asked--
when I was in college, I said I meet all these--
there's all these hedge fund managers, tehse interesting
guys that I said, well, why wouldn't I just outsource
this to Warren Buffett? He's clearly much better
at this than I am. He's been managing money
forever incredibly successfully, one of the richest
people in the world. Why wouldn't I just outsource
my stock picking to him? And what most people don't
know is that you can. The SEC requires that any
institution over $100 million has to publish their holdings. It's every quarter. There's a 45 day delay. But they are available
online, all right? So I said, why wouldn't I
just invest what Buffet buys? And being an engineering,
being a quant-- this is late '90s-- I said, I can't do this
until I work with the data. And what we found
largely is you can. If you bought Buffett's top
10 stock picks, updated every quarter when the
values are public-- and there's now an academic
paper that validates this-- you would have beaten
the market by-- well, this goes back to
'99-- 7% a year. That is a monster number. That would outperform every
possible mutual fund out there. The paper takes it
back to the '70s, finds similar outperformance. This is a local company I helped
co-found many years ago called Alpha Clone that does
a lot of the analytics with these hedge fund. Now, it's important when you're
focusing on these funds-- and this requires a little
bit of demand expertise to at least kind
of know what's some of these funds do--
you want funds that are stock pickers,
that are not shorting, that don't have
too much turnover. They're not active traders. They're not doing anything
weird like arbitrage. They're not doing
futures or derivatives. But in general, stock pickers
long term time horizon, this works great. You have a lot of benefits. You can control the
holdings yourself. There's no fraud. You don't have to
lock up your money. And the biggest one--
there's no two in 20 fees. There's a number
of examples where these what we call clone
portfolios just by investing in what's available
online-- you can go to SEC. There's lot of websites
that attract this-- Guru Investor, Insider Monkey-- these
underlying clones will end up beating the manager. Because the manager
is charging 2% management fee,
20% in performance. So you actually can do
better than they can. Why any institution in
the world doesn't do this rather than investing in
managers, I don't know. My fourth book will probably
be on this topic coming out in the next few months. So stay tuned. But another one of my
favorites to watch-- Seth [? Carmen, ?] Baupost. Any time you could watch
him, beats the market. What is that, 9%? 10% a year? And one of the nice thing
that the views are often truly variant. Some of these names they're
picking, even if you don't follow them blindly but use them
as what we call an idea farm-- so a place to go
look for new ideas for stocks-- this is much
better than going and asking your broker for ideas or
your next door neighbor. Appaloosa-- another
one of our favorites has absolutely just
destroyed the market by, what, 18% a year? David Tepper-- that's
one of the reasons he now owns part
of the Steelers. And then, of course, a
local shop, ValueAct, was in the "Wall Street
Journal" last weekend. Beats the market by 14% a year. And it's something like six
of the last seven years. So these are all great
places to look for research. One last slide and then
I'm going to one this down. We talked about this
at lunch a little bit. And this is one of
the biggest challenges of investing is that,
going back to the religion and thinking about politics,
is that people often have their approach, right? How many investors do you
know say, you know what? I'm investing for income. I'm a dividend person. This is how so
many retirees say, I'm buying high dividend
stocks because I get these checks
I can cash, right? Dividend payments. Can't fake that. Can't fraud that. Well, dividend stocks,
what this shows is that the blue line is
dividend high yield-- if you bought a basket of high
yielding dividend stocks-- and it goes back to
the '60s-- the reason investing in dividend
stocks historically works is because you're buying
value companies that are cheaper than
the overall market. There's reasons often
because they're more leverage and they're usually in
a little more trouble. But in general, they're
cheap stocks, right? So historically,
high divident stocks have traded about a 30%
discount to the overall market. So by buying dividend stocks,
you're getting value, right? But it changes over time. This is what people call waiting
for the fat pitch in baseball, right? Not swing it when things
are balls but right down the middle. Well, what happened? Dividend stocks
were the cheapest they've ever been in
the late '90s relative to the overall market. Why? Well, everyone wanted Pets.com. They want all these
internet companies, these huge market cap
Ciscos of the world. They got incredibly,
incredibly expensive, right? So that was the
best possible time to be buying dividend stocks. No one's talking about dividend
stocks in the late '90s. Massive returns. Dividend stocks didn't even
have a 2000, 2003 bear market. Sailed right through it. But what happens when you're
in an environment where bonds yield 2 and 1/2, US stocks
are going to do maybe 4%, people are looking for yield? Massive amounts of money
flows into these high yielding stocks. What does that do? Well, it totally changes
their composition. High yielding
dividends stocks now for the first time in
history traded a premium to the overall market. They're more expensive
than the overall market. You don't have to believe me. You can go to Morningstar, type
in your favorite dividend fund, look at all the
valuation metrics. And they're more expensive
buying the overall market. So there's an entire
group of people that will be buying these
stock the last few years and wondering why in the
world their portfolio is underperforming
the market so much. And it's because they're buying
something expensive, which is an example of investor
behavior totally distorting something that historically
has worked great. The new fad is low
volatility investing. People investing in
low volatile stocks historically have
beaten the market. What's happened? Massive amount of
money's gone into those. Those are also
more expensive now. If I had to do anything, I would
avoid high dividend stocks, small cap stocks as well. So I'm going to wind this down. Again, this wasn't theoretical. We manage public funds. I have 100% of my
net worth invested in-- Global Value is the
one that goes and buys these 10 countries. But we'll be launching
lots of new ideas as well. So you have some
good ideas, please, please let me know afterwards. Here's my contact information--
phone number, work. That's not cellphone. Blog, email address-- feel
free to email me for a book. And I think we got time. I'm opening it up
for questions now. AUDIENCE: Hi. So it seems to me that
the global CAPE ratio is kind of correlated over time. So as a strategy, should you
buy low CAPE ratio countries and also short-sell high
CAPE ratio countries? MEBANE FABER: Good. question. The question is, if
you didn't hear it, if it's a good idea
to buy the cheapest, why not also short
what's most expensive? It's really hard to do. If there is-- that
is what's essentially called long shorter market
neutral strategy, right? Where you want to
essentially arbitrage the expensive stuff
and the cheap stuff. The problem is, over
time, that works. It works great. But there's almost
always large draw downs, large losses in the meantime. And let me give
you examples why. 2008, if you're doing
a market neutral approach, the expense
of stocks just get hammered all
the way down, right? And what happens at the bottom? When you have it when the rally
comes, what rallies the most? It's the junk, right? It's the junkie companies that
are now trading at $1.80 or $4. And all of a sudden,
you're short those. And then you lose
80% on the upside even though your
longs only did 30%. So it's really, really hard. There's some things
you can do-- and this is getting a little more
complicated-- such as, if you're shorting,
you short less the more the market goes down. So you take chips off the table. So you say, it
doesn't make sense to be shorting something
if its already down 50%. It can't go that much farther. A country's not going to go to
zero for the most part, right? So you could have a short
exposure like right now. But as those countries go
down, reduce the short exposure over time. But it's tough to do. And again, two other caviar
to what we talked about today. One, you only need to update
this about once a year. A deep value approach
needs time to work. The more you update it,
the worse it's going to do, all right? In two, going along the
lines of what you're saying, what's important
about this strategy is not just that you're
buying the cheapest. You're also avoiding
the most expensive. So avoidance, I
think, is just fine. Shorting, unlike
the press secretary, I wouldn't recommend it. OK the question is, US has
exposure to a globalize world, right? Roughly what, half of the US
revenues come from abroad? But vice versa-- as the
world gets more globalized, much of the countries abroad--
China, Mexico, Canada-- all have exposure to
the US too, right? So our opinion is that we
just assume correlations of one-- very high correlation
of stock markets, right? So in that world, it comes
to a more simple question. It's not where
revenues come from, but where is it just cheapest? So you're getting
foreign exposure-- so you can get foreign
exposure in the US at half. Or you can get foreign exposure
elsewhere for much cheaper. So it's more important to
us in a globalized world just to buy what's cheapest. If the opportunity
set is similar and they're highly correlated,
which they are-- I mean, it's not one. But global stocks in general
are up around 70%, 80%. That's great. Because then the
valuation means even more. AUDIENCE: When you're looking
at returns of global stocks, are you taking into account
currency fluctuations? MEBANE FABER: Oh, I knew that
question-- the question always comes up. Good question. Question is, what
about currencies? And this is quite
a simple sounding question but a
much longer answer. When you're think
about currencies, there's a quote that says,
currencies aren't-- currencies aren't difficult. They're just confusing. And Americans are the
worst at it, right? Most people, when they
think of currencies, they think of, all right. The peso is going down. It's now cheaper to go
buy steaks in Argentina. Or maybe it's getting expensive
to go skiing in Europe. And that's it. They don't think about
them in terms of investing. They do have a very real impact. Over time, currency
real returns-- because currencies adjust
for inflation-- over time, currency real
returns are stable, keyword being over time. In any given year, you
could have a currency like Japan last year move
20%, 30%, which is a lot. So I'm actually, if you
have no value added way to predict currencies, which
I would argue most don't, I would argue you have to choose
one side or the other year. You're either agnostic and
you say, you know what? I'm going to do it
from US dollar base. Or you hedge all your
currency exposure. But you pick one
and stick with it. And over time, they'll
have the same performance. And then a follow up
is, can you do things in currencies the
same way you do in stocks and bonds that
have outsized returns? So yes, you can actually index
currencies with basic value trend, momentum
carry strategies that perform great and don't
correlate to stocks. But that's the point of a
whole other two hour talk. So you guys have
me back in 2015. We'll talk about currency. So I'm agnostic. But it makes a big
difference in the short term. AUDIENCE: In terms of
the current valuation, it seems to me that Warren
Buffett, Joe Greenblad and also Howard [INAUDIBLE] post--
I think all of them said it's [INAUDIBLE] right now? And only one of
note that is kind of bearish in the long
term is [INAUDIBLE]. So can you reconcile with them? Because if Warren
Buffett and Joe Greenblad those said that it's
[INAUDIBLE] it's hard for me to think that it's expensive. MEBANE FABER: Well,
if you use Buffett's own favorite valuation metric,
which is market cap to GNP, stocks are very expensive. You also always have
to ask why people have the opinion they do. If you're a money manager and
have all your money invested long stocks in the US, are you
going to say they're expensive? Probably not. So it's challenging. And going back to the
intro of the speech, I think you should ignore
all of them, right? Everyone's going
to have an opinion. Just like, you know. A guy or girl walks by. 10 people are going to
have different opinions and say, well, I like
him, I don't like him. He's attractive, he's not. Whatever it may be. But that's what makes
a market, right? There's someone who's
bullish on US stocks in 1999 the same as
someone who is bearish. So that's why it's
important to me to have an objective measure. I don't care what it is. You can use price, sales price,
book price, cash flow, GDP, enterprise, EBITDA. By the way, all of those
say US stocks are expensive. There's not one that doesn't. But you have to have
an objective metric. Otherwise, you're just-- what
we have found in the literature, and this applies to
almost every field, is experts are horrific at
forecasting, including our US government, the
Federal Reserve, right? They are horrific at
forecasting the future. But if you have an
objective metric and say, all right, stocks very well
could go up 50% from here. But all that's doing is
mortgaging the future. So it's unexciting
to say, I think stocks are going
to do 4% a year. That's not terrible. It's better than
2 and 1/2% bond. But is it worth taking the risk? I would much rather invest
in the really cheap stuff, most of which happens to
be in Europe right now. So as I said on Twitter,
cheer for the US on Sunday, but buy Portuguese stocks. AUDIENCE: So how do you
avoid the value trap? For example, if Greece
had defaulted an exited from the euro, even buying at
two might have been expensive. MEBANE FABER: How do you
avoid the value trap? Well, question is,
how do you avoid buying a falling
knife and something it's cheap getting cheaper? And there's a couple
ways to lessen the impact of it,
the first being, diversify and buy a basket
of 10 countries, right? So, we own Czechoslovakia,
lot of those countries we talked about--
Brazil, Russia. One may be doing poorly,
another one's-- hopefully, that's-- same thing as you
buy a basket of stocks. Helps diversify the risk. Doesn't totally diversify it. Because right now, for example,
most of those countries are in Europe, in
emerging Europe. So you're getting exposure
that very well may do poorly. Another way to do it is
having a long enough horizon. Give it a number of years
to be able to recover. And that's a big key with
buying the really cheap stuff. It's hard to watch
something go down. The last way is
to-- for those who have followed my
research for a long time, know that we write a lot
about global maccarone trends. And so another way is use
trend following metrics, right, which would help you
say, all right, I'm going to buy this
something cheap, but only once it starts going
back up and has a nice trend. And then you still have an
objective buy and sell rule. You buy when it's above
the long term trend. You sell when it's below. Historically, that
doesn't add to returns. But it vastly reduces the
drawdown and volatility. So my favorite intersection
would be value and momentum. So buying what's cheap,
but also going up. So there's a number
of ways to try to minimize the
damage it can do. But it's part of
buying what's cheap is you're not ever
missing all the risk. AUDIENCE: So say you've decided
to invest in certain countries. How do you determine what
to buy in that country? MEBANE FABER: So
the simplest would be to buy the market
cap weighted index. Highly liquid companies. We go a step further,
which we actually didn't publish in our book. And out of the 30 biggest
companies in that country, we buy the 10 cheapest. Use a bunch of just
different valuation metrics. So it's almost like a
dogs of the Dow approach. So our [? ETF, ?]
for example, will own about 100 stocks
in those countries. That adds about
another percent return on top of just buying
the market cap. Because you're getting away
from market cap in general. You're buying the
worst of the worst. But as the individual
investor, it's really challenging to buy
individual foreign stocks in general for a
big enough portfolio to diversify 100 stocks
in all these countries around the world. And it's a huge pain
with taxes, too. So one way is to buy
country funds like ETFs. Even if you don't buy
ours, you can buy-- just moving away from
the US in general I think is a great first step. Thanks for having me. I'll stick around
for a few minutes.
