Radio Show: U.S. Equities: At What Valuation is Meb Selling? | #66

Episode Summary

Executive Summary: Meb and Jeff discuss investor office hours themes: most people lack written plans, think in binary in/out terms, and suffer from behavioral baggage and the endowment effect. They argue for a global market portfolio as a low-cost starting point, then tilts/trend overlays for risk management. They also critique ETF/passive myths, highlight cheap foreign markets versus expensive U.S. equities, and warn against bubbles like crypto.

Main Topics: Investor office hours: common concerns and behavior patterns (Priority: 5/5): Meb reports repeated questions from investors and advisors about what to do with money, market conditions, and how to implement ideas. The recurring issues were baggage from legacy holdings, lack of structured plans, and emotional decision-making. Why an investment plan matters more than age-based rules (Priority: 5/5): Meb argues investors should have a clear framework rather than rely on simplistic age-based asset allocation. He emphasizes matching strategy to temperament, goals, and ability to endure drawdowns, not just time horizon. Global market portfolio as the default starting point (Priority: 5/5): He presents the global market portfolio as the natural baseline because it is diversified, low-cost, and reflective of the investable world. It serves as a benchmark before considering tilts, trend-following, or other adjustments. Trinity approach: buy-and-hold plus trend following (Priority: 5/5): Meb explains his holistic approach combines a fundamental buy-and-hold anchor with trend-following and risk-management overlays. He views this as a better way to manage risk and behavior than relying on either approach alone. U.S. equity valuations and the case for foreign markets (Priority: 5/5): The discussion stresses that U.S. equities remain expensive while many foreign markets are cheaper and have recently outperformed. Meb suggests investors should not frame the choice as only U.S. stocks or bonds. ETF/passive debate and fee compression (Priority: 4/5): Meb rejects claims that ETFs or indexing are destroying capitalism, arguing that the real issue is high cost versus low cost. He notes ETFs are just wrappers and that most assets are still in mutual funds, many of them active and expensive. Bubble behavior in crypto and FOMO-driven speculation (Priority: 4/5): He compares crypto/ICO mania to historical bubbles and warns that many investors are chasing dramatic upside without understanding what they own. He sees it as a FOMO machine rather than a sound long-term investment theme.

Key Arguments: Most investors manage money without a written or rules-based plan, which leads to reactive, inconsistent decisions and portfolio clutter. The endowment effect makes people overvalue current holdings, so a clean-slate or liquidation mindset can be better than trying to optimize legacy baggage. Risk tolerance is not determined by age alone; emotional capacity, prior drawdown experience, and financial needs matter more than birthdays. A global market portfolio is the best starting benchmark because it is diversified across assets and countries and can be accessed at very low cost. Trend following is useful but difficult to stick with; combining it with buy-and-hold creates a more robust and behaviorally sustainable process. Investors should avoid binary thinking; scaling in/out or reducing exposure gradually is often better than going all-in or all-out. U.S. stocks are expensive on multiple metrics, so investors should expect lower returns and consider cheaper foreign markets. ETF structures are generally neutral wrappers; the fee discussion matters more than the active/passive label. Bubbles persist because investors are drawn to stories and FOMO, not fundamentals; crypto is treated as a cautionary example. Shareholder yield and buybacks only help when valuation is reasonable; buying expensive stocks just because they repurchase shares is still poor investing.

Data Points: Office hours calls: 10 to 12 calls a day for two weeks - Meb accidentally left his calendar open and spoke with investors and advisors during summer office hours. Call length: 30 minutes - Format for the office hours conversations. Audience mix: About half individuals and half advisors/institutions - Composition of office hours participants. Baggage/common issues: Two-thirds of calls focused on business, markets, or portfolio implementation - Meb estimated the proportion of substantive investing discussions. Global market portfolio exposure: 50,000+ securities - Approximate breadth of the investable world portfolio. Global market portfolio mix: Roughly 50/50 stocks and bonds - Broad market-cap world portfolio description. Low-cost asset allocation ETFs: Under 0.3% all-in - Examples of inexpensive diversified funds. Number of cheap asset allocation ETFs: About 4 to 6 - Meb says several low-cost global allocation ETFs exist. Mutual fund vs ETF assets: Mutual funds are 5x ETF assets - Used to argue passive ETFs are still much smaller than the mutual fund industry. Mutual fund launches vs ETF launches: More mutual funds launched than ETFs in the year mentioned - Evidence against the idea that ETFs dominate the industry. Current CAPE ratio for U.S. stocks: Around 30 to 31 - Used to describe expensive U.S. equity valuations. Historical CAPE bubble peak: 45 to 48 in 1999 - Reference point for prior U.S. valuation extreme. Hypothetical CAPE scenarios: 50 and 100 - Twitter poll asked whether investors would still own U.S. stocks at those valuation levels. Poll result at CAPE 50: About two-thirds said yes - Shows investors tolerate high valuations more than logic would suggest. Poll result at CAPE 100: About one-third said yes - Illustrates extreme anchoring and overconfidence. Historical U.S. stock drawdowns: 80%+ declines have happened - Used to show investors underestimate equity risk. NASDAQ bear market: About 85% decline - Example of extreme drawdown during the 2000 tech crash. Historical stock market real return: 6.7% real - Referenced in a post comparing long-run expected returns to investor expectations. Investor return expectations: 10%+ expected by surveys - Gap between expected and historical returns. Cheap foreign market CAPE: Around 11 - Meb describes cheaper foreign markets as a compelling opportunity. Average country CAPE: Around 20 to 22 - Broad comparison to U.S. valuation levels. Tail risk allocation: 10% of Meb's portfolio - Meb discloses a meaningful allocation to U.S.-focused tail risk strategies. Public investable assets: All invested in Cambria strategy and portfolios - Meb states his own investment exposure is concentrated in his firm's strategies. Podcast milestones: 1.5 million total downloads and over 200 reviews - Listener/community update at the end of the episode.

Pivotal Quotes: "the most important thing is to find the investing strategy that's right for you" — Meb: Explaining that investors should match strategy to temperament and goals rather than follow generic age-based rules. "it's not about active or passive, it's high cost versus low cost" — Jeff / attributed to Bogle, then echoed by Jeff: In the debate over ETFs, indexing, and active management, the real issue is fees and expense drag. "that's a giant fear of missing out machine" — Meb: Describing websites and crypto mania that show massive hypothetical gains and fuel speculation.

Implications: Listeners should build a rules-based plan, lower emotional exposure, and prioritize low costs and valuation discipline. The episode favors global diversification, selective tilts, and trend/risk overlays over binary market calls or chasing bubbles.