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What belief do you hold that the vast majority of your peers (75%+) do not share?

From a Tweet thread by Meb Faber aimed at investment professionals. He goes on to list his beliefs in this context. My list here are notes for a blog post.


    1. "Trend following strategies deserve a meaningful allocation to most portfolios."

    I used trend following, aka managed futures during the Great Financial Crisis. I don't recall where I learned about it but it works, IMO, as a bear market strategy. It tends to do well when stocks do poorly and generally seems to struggle when stocks to do well which is most of the time. I added some exposure back in just as the pandemic was starting and then a little more in late 2022. Despite managed futures generally struggling when stocks do well, I found over the course of many different time periods over many different blogs posts I wrote in 2022, that an allocation to managed futures led to a lower standard deviation, better risk adjusted returns and often better nominal returns.

    2. "A basic low cost global market portfolio of ETFs will outperform the vast majority of institutions over time."

    This is probably true. Depending on the type of portfolio, a simple, key word simple, portfolio will outperform one that is overly complex. I like to say that a portfolio should be heavily allocated to simplicity hedged with a little bit of complexity. Some college endowments will likely always be heavily weighted in private equity and the like from managers that most other investors and pools of capital can't access. Most private equity that you or I could access is probably better to avoid. One example of complex portfolios not to emulate is the California pensions. They seem to change their asset allocation every year or two. That is a great way to lag or always chase the thing that just worked.

    3. "A reasonable time frame to evaluate a manager or strategy is 10, maybe 20 years."

    The typical investor just trying to have enough when they retire will have a much easier experience with markets if they take a long term approach with their strategy and their holdings. Some of the stocks and ETFs I own for clients have been in there for more than 15 years.

    4. "Financial advisors and asset managers are 4x leveraged the stock market, and could/should hedge that exposure....or even own no US stocks!"

    I have been making this point for ages. The way I have articulated it has just been to say that my livelihood is directly levered to the ups and downs of the stock market so my personal allocation to stocks is quite low.

    5. Big believer in liquid alts but only in moderation

    That one is from me. It ties in to number 1 from Meb. I'm not sure how he would quantify meaningful but no alternative strategy should be expected to work 100% of the time. Managed futures does what it is "supposed to" most of the time but in any future market event it might not. I am a big believer in diversifying your diversifiers.

    6. For the time being, intermediate and longer term bonds have become a source of unreliably volatility

    I started making that observation earlier in 2022. Longer duration no longer provides reliable ballast against equity volatility. Bonds themselves are more volatile as measured by the MOVE Index. Bonds were a one-way trade for 40 years as interest rates kept going lower. That trade is over. There is more risk if rates go up from here, than there is reward if rates go down. Trading bonds for capital gains is not my trade. Go in good health if that is your trade.

    7. If everything you own goes up together, it will probably all go down together

    That is a way of saying you're not diversified. I guess you'd be diversified against issuer risk but not market risk.

    8. Expectations

    I seek to understand what expectation any individual stock or fund holding sets as far as how it should trade, how volatile it should be, what it should correlate to and so on. I expect managed futures to go up when stocks go down for example. I use a merger arbitrage fund which I expect to mostly look like a horizontal line that tilts up slightly, I would expect consumer discretionary stocks or ETFs to go up more than the broad market on the way up which probably means they go down more than the broad market on the way down. When I stumble into a new fund, beyond the basics of the strategy I want to try to understand what expectation that fund is trying to set. Sometimes I can't figure that out which is ok but if I can't figure it out then I'm not going to buy that fund for clients. I might "test drive" it personally to see if I can figure it out by owning a little.

    9. I study many more funds than I actually use

    Learning about new funds is a very fun thing for me to do. I study way more than I use though, I'm not sure the extent to which other advisors do this or really any of the things I do.

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