Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns in the Stock Market is Mebane Faber’s new book. This new tome sells for a little as $4.99 for the Kindle edition on Amazon.
Aside from running Cambria Investments, Meb writes good stuff, the most well-known being The Ivy Portfolio. That book is also available at Amazon.com. Enough for the plug, let’s talk about the new book. In Global Value, Faber quotes Robert Shiller’s definition of bubbles.
In short, he deems bubbles in the following:
· A time of rapidly increasing prices.
· People tell each other stories that purport to justify the reasons for the bubble.
· People tell each other stories about how much money they’re making.
· People feel envy and regret that they didn’t participate.
· The news media are involved.
As is usual with Meb Faber, Global Value is thoughtful and careful. The author spends considerable time discussing CAPE ratios from various perspectives, including those of Jeremy Siegel of Wharton, John Hussman of Hussman Funds and, of course, Robert Shiller, CAPE’s creator. (CAPE stands for cyclically-adjusted price earnings.)
The bottom line: No matter how you slice it, stocks are some overvalued (or “not cheap” as the book puts it).
The thesis is of Global Value is protection—how to avoid falling into the all-too-human greed and fear traps. Author Faber favors rational behavior and spends a great deal of time educating us to that end. “…but,” he writes, “at the end of the day, it is simple human beliefs on the value of stocks that drive their short term price levels.”
He goes on to quote Kurt Vonnegut and asks this question, towards the end: “How does an investment manager reconcile all of the various prognostications he hears on a daily basis?” He answers, too: “Simple–ignore them.”
You can find out more about Mebane Faber at theideafarm.com, and–at the moment–you can buy Global Value on Amazon at a pre-hardcover price. (This book represents the first time that charts have worked well for me on a Kindle–things are getting better in the world of electronic ink.)
Have a sensational week, and keep your customers out of trouble, okay?