My boss Steve Sjuggerud calls Meb Faber "one of the greatest investing minds of our generation." And it's easy to see why...
Meb has published numerous books and white papers about investing. He interviews the biggest names in the business for his long-lived podcast, "The Meb Faber Show." And he's the chief investment officer of Cambria Investment Management. This wealth advisory company runs 12 exchange-traded funds, totaling more than $1.7 billion in assets.
I saw Meb speak at this year's Stansberry Research Conference in Boston. And afterward, I had to shake his hand...
His message flew in the face of decades of conventional wisdom. But you can't argue with the results... He made double-digit returns year to date.
Meb promotes a simple yet powerful investing methodology. But you have to throw out your assumptions in order to successfully use it. Forget about what a portfolio should be... and embrace the trend instead.
Let me explain...
You're probably familiar with the "60/40" portfolio allocation strategy. It channels 60% of your capital into stocks and 40% into bonds.
This provides investors with the growth of stocks, backed by the stability of bonds. It's a tried-and-true institutional benchmark.
But 2022 has been a poisonous year for the 60/40 portfolio...
A major feature of the 60/40 portfolio is that stocks don't correlate with bonds. So if one falls, it won't drag the other down with it... That's the assumption, at least.
But this year, these "uncorrelated" assets turned into a double whammy against investors.
Stocks and bonds are now moving in concert. The S&P 500 Index is down about 17% year to date. And the iShares Core U.S. Aggregate Bond Fund (AGG), which offers broad-based exposure to U.S. bonds, is down about 15%. So a 60/40 allocation lost a little more than 16% for the year.
Investors with 60/40 portfolios had nowhere to hide in 2022.
After accounting for inflation, we're on pace for the single worst year for 60/40 portfolios in a century. Bonds and stocks have both suffered massive losses this year... and it's unclear when it will stop.
However, Meb still found a way to earn about 11% year to date, thanks to a strategy with just two key ingredients...
The first is value. Value companies tend to outperform in bear markets because they lose less money. When growth companies collapse, investors funnel money into these safer bets.
The second is momentum. Meb is "asset-class agnostic." He buys stocks and bonds, but he's equally happy owning commodities, real assets, and international stocks. All that matters is that the asset class is in an uptrend.
We can see the performance of Meb's strategy by looking at the Cambria Value and Momentum Fund (VAMO). It blends value and momentum to find companies with big tailwinds.
This year, it outperformed the S&P 500 by 27 percentage points. Take a look...
VAMO's performance shows the power of Meb's investing strategy. And it's a low-fuss way to put it to use right now.
Even if you don't buy VAMO, value companies and assets in an uptrend are a great bet in today's volatile market. Consider putting some of your capital toward them today.
Good investing,
Sean Michael Cummings
Further Reading
"The 'traditional' 60/40 portfolio is having its worst year since 2008 so far," Brett Eversole writes. Stocks and bonds are crashing in unison... But the pain won't last forever. As history suggests, the bad times will pave the way for strong returns. Read more here.
Two recession indicators say the economy is about to get tougher from here. But that doesn't mean the end for your investments. We aren't in a recession yet... And what's to come is likely no worse than what we've already endured. Read more here: Why the Worst of the Bear Market Is Behind Us.
