JACK FARLEY: We've got a real treat for you today on Real Vision. Jason Buck is interviewing Mebane Faber of Cambria Investments. It's a long interview, almost two hours long, in fact. Because of that, we want to let you know the first 20 to 25 minutes is focused on Meb's background and the founding of Cambria. From that point on, Jason and Matt really get into the weeds on asset allocation, risk management, volatility targeting and the like. Just wanted to give you a quick heads up and with that, enjoy.
JASON BUCK: Welcome, Real Vision audience. I'm delighted to introduce Meb Faber, founder of Cambria Investments and the wildly popular Meb Faber podcast. Meb, I'm going to probably start off with a difficult question. I actually love that, to me, what permeates through everything you do as a sense of practice, you really like to scratch your own itch. You explore areas and solve your own problems. I'm going to start off with, I see your books in the background, why do you hate Amazon?
MEBANE FABER: Oh, man. We're already going down this rabbit hole, huh? I emailed Jeff the other day, and he seems to have cleaned up part of the problem. We'll see if it's finished. Amazon, the challenge of publishing is they don't assign a single skew to every item on there. You have books, if you're an author listening to this, go type in your own book or your favorite author, and you'll see 10, 20, 30 variants of the book, none of which happened to be from the correct publisher, published in the correct year.
I complained about it. Nothing seems to change much. Hopefully, they get their act together. The nice takeaway is all my books are now free to download because we just had enough and said, look, you can you can download this, so listeners, please don't go pay $100, $200 for my books on Amazon from some seller in the Philippines, when you can just download them for free.
JASON BUCK: Great, and you've been doing your podcast for a long time. What year did you start your podcast, and roughly how many episodes have you guys done so far?
MEBANE FABER: Oh, man, we're 300 in maybe. If I had to guess, three, four or five years ago. We were the second wave, not the Rogan-Ritholtz era, but the second wave and ironically enough, we've considered doing video on the beginning. Back then, videos was a lot tougher than it is now. Real Vision, you guys do such an awesome job, but we started out with audio. Maybe three, four or five years. Started out with blogs and academic papers, then books and now this modern era of everything else in between.
JASON BUCK: I'm curious, though, when you started, were people saying podcasting is a fad? Did it feel like there's too many podcasts out there? Why start a podcast?
MEBANE FABER: No, it was actually immediately obvious as a consumer podcast that it's going to make a lot of sense. Most people tend to consume it while doing something else, while they're walking the dog, exercising, driving, whatever it may be, hopefully they can listen to this. I speak a little slow, 1.5x, 2x, 3x speed so you can get through this interview in like 10 minutes. I think people, it's one of those obvious mediums that they took to immediately.
JASON BUCK: Speaking of scratching your own itch, with the podcast, you've done a great job of trying to solve for like searchability, or weekly putting out your favorite podcast. Do you think that's getting any better for trying to be an aggregator or trying to find the best podcast and sift through those and help searchability in general?
MEBANE FABER: One of the topics we've been talking a lot about for over a decade is curation on so many different topics, where it's just a flood of information, it's getting worse every day with your phone across not just the platforms, but Real Vision is competing with CNN, which is competing with the Wall Street Journal paper, which is competing with TikTok. It's all this competing for attention. The struggle is so much of it's just noise.
We've struggled with podcast curation, which is information curation in general. We actually pay, we hired and pay someone, and part of his job is literally just to listen to podcast and to rate the top two, three for each week. That sounds crazy, but if you think about all the time, you spend wasting listening to poor content, or things that you spent an hour on and said, man, I wish I had that hour back. It's frustrating. I think there's probably a lot more machine learning, AI that will assist there, but in general, it's so weird. Most podcast apps, they don't even have ratings.
JASON BUCK: I've lived in a lot of places in my life, but as a longtime listener to your podcast, you do amazing job. When anybody says they're zooming in from or recording the podcast, it always seems like you live there at one point in your life. Let's start backing, where did you actually grow up?
MEBANE FABER: A little bit of a mutt. Born in Colorado, spent some time in North Carolina as well. You can hear a little bit of the Southern drawl I retain. College in Virginia, out to San Francisco, ski bum in Lake Tahoe, down to Los Angeles to start Cambria pre-financial crisis, the last one and have been here ever since, 10 years plus now, 12, 13, 14 and got sucked into the beach lifestyle. If anybody's listening who's near Manhattan Beach, Hermosa Beach, El Segundo, come say hello.
JASON BUCK: What did you study when you're at UVA?
MEBANE FABER: I was a nerd, engineer, biotech, biomedical engineering, this was in the late 1990s, so for those who are new to investing in crypto and manias, that was me 20 plus years ago. I was trading stocks in class. The nice part about looking back on that time, which was very instructive, is I can see myself and so many people today, not just young people, older people too, but the names were different, but the story was the same. For us, it was E*TRADE rather than Robinhood. It was also tech and dot-coms, as well as biotechs and genomic stocks.
A lot of similarities today, man, 20 years later. We had professors that were trading stocks during class, checking stock quotes. Exciting time. Bubbles are super fun. I was able to focus and graduate, of course, with all that was going on, but I had a hand in both sides of the bubble. I was an engineer in biotech and biotech was also rip-roaring because of the human genome project that was going on right down the road at Solera, as well as with the government. I used to go sit in on the FDA meetings, not too far away, and ended up in grad school at Hopkins, which is also right in the midst of all that biotech, and then managed to time that perfectly and graduated in 2000.
That was the absolute peak for both of those bubbles, and the biotech career. I started out as a biotech equity analyst. The career became the hobby and vice versa, not really focused on biotech as much anymore. They have gravitated more to the quant side of the world, partially because of all the pain and frustration of losing all your money as a trader and learning what not to do. Hopefully, when you listen to many of the great traders we had in our podcast with what's been your most memorable investment and most people that have been around for a while, it's often a scar.
Many of us who've been around long enough have many scars, and so that that period was certainly losing lessons in the dozens if not hundreds, rather than just one or two. That colored a lot of our investment methodologies and ideas that we implement today, 20 years later.
JASON BUCK: Yeah, I appreciate it because we're roughly the same age. It's amazing how many people like to talk disparagingly about the young yellowing trading now, but we can easily remember when we were doing the same thing in the late 1990s with tech, biotech, even figuring out options on each trade is more complex, and we didn't have all these YouTube tutorials teaching us how to short squeezes and buying call options, but like you said, it was a really fun time. More importantly, the money you lose there, people are going to stick around and learn the game and so it's incentivizing and the emotionality to actually learn the game.
I always think about a lot of people either learn initially through Buffett so they end up being value investors or other people start with the Market Wizards. The best part of the Market Wizards is you find actually, there's a lot of different ways to trade and you figure out the one that works for your personality. As a quant, was there more of a seminal piece to you different than Buffett or the Market Wizards?
MEBANE FABER: Yeah. Buffett, there's talk about this inoculation where just get it from an early age. I think I took the opposite approach where I just tried everything that didn't work and eventually, just like stumbled upon learning all the things that didn't work for me. That's part of the investing too, is that you alluded to there's many different approaches that work just fine for different styles and strategies and it comes a lot down to personality and in my realizations, we're making a lot of the mistakes. You mentioned trading tech stocks, and for me, it was options. Options on biotech stocks.
That colored and informed that I had all the behavioral biases that people talk about in the literature today. The Kahneman-Tversky, hey, look at this crazy way people are overconfident. You can just go down the list and I could just tell it's check, check, check. James Montie has a great book on the topic, as do others and being honest about it and saying, hey, I'm this way with money and investments. Let's put up some guardrails. That's what pushed me towards the quant world and strategy. Quant doesn't have to mean high frequency and super complicated, it can mean something as simple as just having some basic rules and guardrails that keep you from doing dumb stuff, which is the number one takeaway with this whole game, is avoiding doing the really dumb stuff.
That sounds super technical, I know, but as seen with a recent family office that just blew up $30 billion, not doing the basics of really dumb things. Even those super smart Nobel Laureate people get caught up in it. Making the mistakes, learning the problems that I had as a human that were coded into my genome, as a biotech guy, that resonated with me in understanding why we do the things the way we do. That started me down this road and process, so as far as inspirations, there's a laundry list of books and whitepapers, we have an article on my blog, that's called something along the lines of the learning to invest and the number one investing book.
It was interesting, because we polled the audience, we said, if you were to give a high school student, or someone graduating college that wasn't familiar with investing, so maybe a liberal arts degree, they want to learn about investing, what one book would you give them? We got something like 300 different responses. There's no one book really that stands out. Even if you look at the top 10, some people would answer things like security analysis. I say, my God, you're going to give someone that book, there's zero chance they finish it, are you kidding me? It's also 100 years old.
There are a number of books in that top 10 that I think would be seminal. If you read the top five, you're probably further along than 90% of the people out there, but modern day, like you mentioned, like the podcasts, and we have a Spotify playlist from each year that has some of the best podcast episodes, and listening to those, which you could crank out in a month, puts you probably ahead of 99% of MBAs. Listening to the Real Vision video, same thing, puts you leagues ahead of anything you probably learn in school. I can't point to any one in particular, that I think stands out.
I can tell you my favorite book, currently, if you ask me about investing, is Triumph of the Optimists. We can probably get into that in a little bit. That's like $150 book, so listeners, see if you can pick up the book at a library or used bookstore, but they also have a free version, called The Global Investment Returns Yearbook that's put out each year in partnership with Credit Suisse. You can find many of those online for free.
JASON BUCK: Yeah, we're going to get to Triumph of the Optimists and yeah, it's always hard when you recommend a book, it'd be like recommending Carmen's book that's like 1000s of dollars. If you could find that thing, that's always sad. Part of that story is we'll talk about investor education later and the dearth of investor education or what we can potentially do about it. One part I didn't want to skip though, is you talked about an interlude in Tahoe there. I want to give a shout out to our mutual friend Brian Chaplin, who used to be a ski bum with you back in the day, but Brian told me you stalled so I have screens up there. Were you still day trading those days or were you trying to be the next Glen Plake?
MEBANE FABER: Yeah, both and failed at both equally and as spectacularly. I did time a year in Tahoe, that was like a record snow year. I worked for a startup CTA and that was based out of San Francisco and they opened an office in Incline Village, what the locals called it because half of Tahoe's in Nevada, so there's a lot of tax benefits to being on the east side. Some of the quietly best skiing in the Sierras is in local mountain Mt. Rose that shoots there. Chappie, shout out.
Yeah, I worked at this startup CTA, which is now defunct, but certainly would go to work at 6am in my bibs and snow gear many a day to try to get out of there at 2pm and get a few hours in and then had a Gar Woods as well. Some of the work I did there certainly informs the starting of Cambria a couple years later, in particular, some of the early ideas on trend following as well as futures markets, studying a lot of what many of the great traders had been doing for, I don't know, four decades at that point. The Turtles, the Jerry Parker's of the world. That was the foundation for a lot of the work that we then eventually implemented here as well.
JASON BUCK: When you started Cambria, did you start off with ETS? You started off with a whitepaper, I believe, right before the GFC, isn't that correct?
MEBANE FABER: This would have been circa 2006, and so we had no idea where we wanted to be when we grew up. I'm late 20s at this point, being a ski bum, broke ski bum in Tahoe and started this company with a partner who came from a VC banking backgrounds and neither was started an asset manager. We started out from zero. We're talking bootstrapped, nothing, first account. I had written an op-ed in the LA Times or something, which I've never done before since. Don't even ask me why I did it. It was something about pension funds.
I wrote an article, maybe it's a letter to the editor, I can't remember. Our first investor literally came in through that venue. I'd never been a writer. I'm an engineer. You guys know how engineers write. It's the most dry and boring, possible content there is. I had happened to write an academic paper, which also was an unintentional production, because it was to try to get a certification, the CMT program, and so had to submit it because it was expiring at the end of the year.
I wrote my first academic paper, which at the time was called A Quant Approach to Market Timing or The Case for Market Timing or something, and literally, no one would read it. I'd send it to a bunch of people I respected in the investing world, luminaries, thought leaders, got back some really nasty responses, Nobel laureates, got back some thoughtful responses as well. I'm now great friends with some of those people, but that paper came out in the Journal of Wealth Management, let's call it 2007. At the time, I started writing a blog and some books, as well, but that one piece of content, which was unintentional, really paved the way for the whole business.
Now, part of that was luck and timing. The paper sailed through the financial crisis, the basic model did just fine. It certainly got some attention. From a young engineer, doing a startup who still to this day, writes like an engineer, it was the basics for the company. Two private funds, separate accounts, we transitioned as people started getting interested in our investing ideas. They were from all over, not just in the US, but global, as well. Here today, I think we have almost 100,000 investors around the world. A far cry from the LA Times op-ed.
We started doing public funds versus sub-advisory than on our own starting in 2013. We have a dozen funds now. Probably we'll settle in that mid-teens, 20 range, probably no more than that. It certainly has certainly grown from the days of a couple of screens in Tahoe. That's for sure.
JASON BUCK: A dozen funds now looking to do more, how many tickers though, do you actually own?
MEBANE FABER: You don't own the tickers, you can reserve them for a couple years with an exchange. We're not trying to just reserve hundreds. We want the ones that we have an intention to use for our funds, but it is certainly fun to pick out some memorable tickers. Maybe two dozen probably. We're a bit different when we think about funds and fund launches and is probably instructive dimension this real quick. There's four criteria we think about.
In a world of 10,000 plus funds, and you know this better than anyone is, why do we need any more? Why does someone have the audacity to think that they can beat Vanguard and BlackRock and launch a new fund? The reality is we try to only launch funds that either A, don't exist. It's totally a new fund or strategy that is not well represented, or we think we could do it much better and much cheaper, and cheaper, it's rare in 2021, but all of our funds are cheaper in the category average and some of the single cheapest fun in the category, which we're proud of.
Two is it has to be something where there's a fair amount of academic or practitioner research. Many of these fund companies just throw whatever they have against the wall, whatever the hot strategy of the day is. To me, I want something that goes back preferably decades, maybe a century of research. The two big pillars we really stand upon, value on one side so the Ben Graham, Buffett, but also momentum and trend. It also goes back