Eddy Elfenbein – OG Financial Blogger Turned ETF Manager | #601

Episode Summary

Executive Summary: Meb Faber interviews Eddie Elfenbein on his 20-year Crossing Wall Street blog, his CWS ETF, and a disciplined stock-picking process centered on high-quality, underfollowed businesses. They discuss why simple, patient investing can work, how mega-caps have made stock selection harder, and why valuation, cycles, and interest rates matter more than market narratives.

Main Topics: Crossing Wall Street origin and the rise of financial blogging (Priority: 5/5): Elfenbein explains how he started blogging in 2005 during the political/blogging boom, inspired by writers like Barry Ritholtz, and how the medium let independent voices reach investors directly. Buy list philosophy and ETF structure (Priority: 5/5): He describes his annual buy list of 25 stocks, launched into an ETF with Advisory Shares, where five names are swapped each year from a watchlist. The goal is to show that investing is simple when disciplined and patient. Finding high-quality, underfollowed compounders (Priority: 5/5): Elfenbein focuses on strong businesses with durable earnings, market position, and low analyst coverage. He prefers companies that are overlooked, understandable, and less crowded. Cycles, mega-cap dominance, and valuation discipline (Priority: 4/5): Both discuss how mega-caps have crowded out smaller stocks and made it harder for active stock pickers. Elfenbein argues cycles matter and he won’t change his style to chase recent winners. Market philosophy and contrarian truths (Priority: 4/5): The conversation turns to his aphorisms about gold bugs, high P/Es, ‘healthy corrections,’ and the market being self-aware. He emphasizes that price affects behavior and markets are not like physical science experiments. Lessons from winners, misses, and the business of asset management (Priority: 4/5): He cites Moody’s as a major winner, Eli Lilly as a painful miss, and Nicholas Financial as a memorable crisis-era opportunity. He also warns that running an ETF requires fundraising, patience, and capital. Macro views: rates, the yield curve, and sector rotation (Priority: 3/5): Elfenbein ties stock behavior to the yield curve and interest-rate regimes, noting recent weakness in defensive sectors and expecting possible rotation if rates fall or the market broadens.

Key Arguments: A disciplined, low-turnover process can outperform emotional trading because it forces patience and rule-based decisions. Underfollowed, high-quality companies often offer better opportunity because analyst coverage is shallow and mispricing is easier to find. Mega-cap stocks have absorbed market attention and liquidity, making active stock selection harder in recent years. Price matters as much as fundamentals; high P/Es can be a warning sign while low P/Es can reflect real problems. Markets are cyclical and style leadership changes; investing success depends on adapting expectations, not abandoning one’s edge. The ETF business is difficult without seed capital and a differentiated strategy because investors demand proof before committing assets. Interest rates and the yield curve help explain relative performance across stock styles and sectors, especially value, growth, defensives, and gold.

Data Points: Crossing Wall Street blog age: 20 years - Elfenbein says he started the blog in mid-2005 and is now at the 20-year mark. CWS ETF age: 9 years - He notes the ETF recently celebrated its ninth birthday and is nearing a 10-year track record. Current ETF assets: around $200 million - Elfenbein says the ETF is small versus peers but respectable for an independent fund. Watchlist size: 80 names ideal; often 120-130 names - He says his watchlist is ideally smaller but tends to grow beyond the target range. Annual portfolio turnover: 20% - Five new stocks are added and five removed each year from the 25-stock buy list. Buy list size: 25 stocks - The ETF is based on his annual list of 25 holdings. Heico long-term performance: up 100,000% over 30 years - Used as an example of a little-known compounder in aerospace parts. Heico performance since 1995: up 1,000-fold - Elfenbein cites Heico as a standout long-term winner with only a few analysts following it. Nicholas Financial crisis price: about 20 cents on the dollar - He describes buying it during the financial crisis when it was widely mistaken for a failing subprime lender. Aflac holding duration: 19 years - He says Aflac was in the portfolio since the beginning until recently removed. CAPE ratio peak: 44 - Meb references the historical high in the Shiller CAPE ratio. Current CAPE ratio: around 40 - Used to frame valuation concerns despite strong recent market performance. CWS ETF ranking: 4-star fund - Mentioned in the conversation as a sign of product quality and track record.

Pivotal Quotes: "A bubble is a bull market in which you don't have a position." — Eddie Elfenbein: He uses this line to explain how valuation fears can be psychologically driven and often look obvious only in hindsight. "The market is self-aware, scary but true." — Eddie Elfenbein: He argues that stock prices are influenced by being watched and traded, unlike a physical science experiment. "There’s no such thing as a healthy correction." — Eddie Elfenbein: He rejects the idea that pullbacks are inherently beneficial, calling it a meaningless phrase used by commentators.

Implications: Listeners should take away that long-term success can come from patient ownership of simple, high-quality businesses, especially those overlooked by the crowd. The discussion also suggests market leadership is cyclical, so discipline and selectivity matter more than chasing narratives.