Today on Trend Following Radio Michael Covel interviews Mebane Faber. Mebane is a noted author, blogger, and portfolio manager with Cambria Investment Management. His new book, “Invest with the House: Hacking the Top Hedge Funds” is out now. This is Mebane’s 4th appearance on Trend Following Radio. Michael and Mebane have a slightly different outlook on trading but they do align. The biggest similarity is that they both come at the markets from a quant way of thinking.
Michael starts the podcast off asking, “Why do some of the big name guys motivate you so much.” Mebane says he always loved investing. In his spare time during college he would explore finance. A fund manager named John Griffin, who was Julian Robertson’s right hand man, taught at Mebane’s school UVA. It was in this class that many famed hedge fund managers provided his first initiation. The managers would give examples of different kinds of research they would do. Mebane knew he would never have the resources to do that type of research, so he turned to studying the numbers instead.
Mebane’s new book is based on mimicking the trades of some of the most successful hedge funds. He says it isn’t too hard to identify the “Michael Jordan’s” of the finance world. The key, however, is to figure out who’s trades you could piggy back off of and be successful. You have to go into this believing markets aren’t efficient. Where do you find the best players? Mebane studied 10-12 managers that friends and colleagues suggested. The most obvious was Warren Buffett. Turns out, you still make amazing returns piggy backing off of Warren Buffett’s trades. You cannot trade futures in this way or trade shorts, you must be long only. Trading with this strategy, as opposed to buying straight into these big hedge funds, gets you away from paying huge fees and large taxes. In Mebane’s latest book he goes much more in depth into this topic.
Michael then goes into Twitter questions posted by listeners. The first question, “My market is too small? What should I do?” Mebane says there is a “home country bias” among people. People like to invest in their own markets. The Asian countries happen to have the worst of this bias. It is a terrible habit to have if you need proper asset allocation in your portfolio. You must look beyond your own country, be agnostic in your trading. Don’t let your emotions or irrationality rule.
In this episode of Trend Following Radio:
- Home country bias
- Different trading strategies
- Finding the most successful hedge funds
- Margin of safety
“Look beyond your shores. You have to be investment agnostic. As much as I love my home team, you have to be agnostic while investing.” – Mebane Faber
Mentions & Resources:
- Mebane Faber
- “The Ivy Portfolio”
- “Invest with the House: Hacking the Top Hedge Funds”
- The Trinity Portfolio
- “10 Bearish Charts, 1 Bullish Chart”
- Julian Robertson
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