Meb Faber, the contrarian money manager and blogger, has published a second book of essays by some of the most successful investors and respected thought leaders in the financial arena: “The Best Investment Writing – Vol. 2” (Harriman House 2018). Co-founder and CEO of Cambria Investment Management, with AUM of more than $1 billion, Faber chose the pieces in the first quarter of 2018 after receiving hundreds of nominations of essays written in 2017.
Here are excerpts of an interview with Faber.
Your new book is packed with insightful essays. Let’s discuss some.
“Buyback Derangement Syndrome” by Cliff Asness, managing principal, AQR Capital Management. He and colleagues wrote: Companies are using capital “raised externally versus cash on hand or liquidating potentially productive assets to fund buybacks…” [It’s a myth that] “the recent runup in prices is a result of share repurchases.” Faber: There’s a lot of misunderstanding when it comes to buybacks. They’re simply another tool in the CEO’s toolbox, nothing more. Three of our funds are based on this theory; so we’re very positive about buybacks.
“Making Private Equity Great Again” by Dan Rasmussen, founder and portfolio manager, Verdad Capital: “Private equity has had a “lackluster track record” since 2010. But price discipline “will make private equity great again.” This is one of my favorite pieces in my book. There’s so much money flowing into private equity that it’s important to understand the return drivers. [Rasmussen] does a very good job of demonstrating that a lot of it is simply due to valuation.
“A Letter to Jamie Dimon” by Adam Ludwin, CEO, Chain cryptographic technology company: “Stop using the word currency” to describe crypto assets — they’re a new asset class. Most people buying crypto have checked their judgement at the door.” We’ve been pretty consistent with our view on crypto, which is that it’s not an asset class that I’m particularly attracted to, though I’ve been somewhat of a sidelines cheerleader.
“The Bitcoin Boom: Asset, Currency, Commodity or Collectible?” by Aswath Damodaran, finance professor, NYU Stern School of Business: “Bitcoin is not an asset class. You don’t invest in Bitcoin; you trade it. Bitcoin is a young currency.”
Bitcoin has been interesting to watch. There was mania at the end of last year into January. Crypto is a cool concept but not a traditional investment that I’d be attracted to.
“Why Selling a Big Position of Puts the Day Before the Crash of ’87 Was a Great Trade,” by Jim O’Shaugnessy, chair-CEO, O’Shaugnessy Asset Management. Right before Black Monday, he sold stocks emotionally and “barely broke even.” Had he held them, he would have made “a not-so-small fortune,” he wrote. It was a lesson learned about investing emotionally. A lot of the best investors in history have had one of the best teachers: losses. So, as investors, one of the biggest [qualities] we should have is humility. It’s hard to invest. We’ve all made mistakes in our early days.
“The Great Financial Forecasting Hoax” by Todd Tresidder, entrepreneur; former hedge fund investment manager. He wrote: “Predicting the future is unknowable. Financial advice is really financial fiction. Forecasters will eventually be 100% dead wrong.” Investing has zero to do with picking hot stocks or predicting the future. It’s about “following a disciplined, methodical investment strategy based on a known, positive mathematical expectancy,” he said. I largely agree with him. We often make the argument that personal finance and savings are more important for many people than investing. We say that for many, it doesn’t really matter what your exact asset allocation is because frequently what’s more important is what they pay in fees and their [investing] behavior. People shouldn’t be spending time on their investments. They should automate, use low-cost investments and move on with their lives.
Jane Wollman Rusoff is a contributing editor who specializes in interviews with thought leaders. An author and prolific journalist, Jane is founder of www.FamilyStarProductions.com. Go to ThinkAdvisor.com for a full version of this interview.