#14 - Eric Crittenden - "It's Not Fear and Greed that Drives the Investment World; It's Envy"

55 minutes

Episode 14 is easily one of our most interesting so far. While there’s great content about trend following, Eric and Meb also delve into the psychological side of investing. There’s a fascinating tension between what people say they want from investing, versus what they actually do. For instance, investors say that want diversification, but very few, in practice, are willing to implement a truly diversified portfolio. Why? The psychological trauma that people experience when they diversify (and watch parts of their portfolio draw down) is simply too painful. This leads into a discussion about one of Eric and Meb’s favorite ways to diversify a portfolio: managed futures. The numbers suggest managed futures are a fantastic addition to a portfolio. Eric ran an experiment with his clients involving portfolio construction. He presented clients the returns and volatility numbers of a handful of asset classes – without revealing what those asset classes were. 100% of the time, when presented blind, people chose managed futures as their core holding. Eric and Meb then move on to the returns of great fund managers like Buffett and Soros. Eric studied these managers with the thesis that they must have done something other investors are uncomfortable doing (which is the source of their long-term alpha). He concludes that this differentiator is actually “underperforming their benchmark.” Eric says Berkshire Hathaway is a “glaring” example. An investor in Berkshire would have underperformed the S&P more than half the time (over various time-periods), but would have made tremendously more money than investing in the S&P. This leads Eric and Meb back to the psychological side of investing, specifically, the pain of relative performance. Meb recalls the Buffett or Munger idea that it’s not greed and fear that drives the investment world; it’s envy. Meb then turns the focus toward playing defense, which leads Eric to tell us how few people realize the impact on their returns of avoiding drawdowns. Avoiding the big losers has more impact on your compounded returns than catching the big winners. In other words, defense is what wins championships. There’s far more: how 80% of all stocks effectively return 0%, while just 20% of stocks account for all market gains… a pointed warning from Meb to listeners about the fees associated with managed future “fund of funds”… and of course, plenty more on Eric’s trend following approach. All of this and more in Episode #14.

More episodes from The Meb Faber Show

#281 – Adrian Helfert, Westwood Group - We’re Fundamental Investors And Multiasset Investors That Can Look Across The Capital Spectrum

In episode 281, we welcome our guest, Adrian Helfert, Director of Multi-Asset Portfolios for Westwood Group, where he leads Westwood’s multi-asset …

#280 – Matthew O’Connor, AdQuick - People Use The Term Disrupt All The Time…And I Like To Think We Can Kind Of Help Erupt The Industry

In episode 280, we welcome our guest, Matthew O’Connor, co-founder of AdQuick, the first true marketplace for out-of-home advertising, providing …

#279 – Kevin Davitt, John Hiatt, Cboe - Relative To The Overall Portfolio, Small Allocations To Tail Risk Ideas Can Have An Outsized Impact

In episode 279, we welcome our guests, Kevin Davitt and John Hiatt, both of whom work for the Cboe as the Senior Options Institute Instructor and VP of Derivatives Strategy, respectively.

#278 – Lucas White, GMO - Since Inception Of The Strategy…We’ve Been Buying Companies At A Significant Discount, Yet Our Portfolio Has Had Earnings Growth That Far Exceeded The Broad Equity Market

In episode 278, we welcome our guest, Lucas White, a portfolio manager for the Resources and Climate Change Strategies at GMO.

In today’s episode …

#277: Top Podcasts 2020 – Replay: Rick Rule, Joe Davis, Tom Basso

Episode 277 is a replay of The Meb Faber Show’s top podcasts of 2020. Guests include Rick Rule, Joe Davis, and Tom Basso

Hear Rick Rule discuss the …

The Best Investment Writing Volume 4: Selected Writing from Prominent Investors and Authors

Last year when we published The Best Investment Writing Volume 3, we offered authors the opportunity to record an audio version of their chapter to …

How you can listen to this podcast

You can listen to episodes right here on the website, or if you prefer, in a podcast app. Listening in an app makes it easier to keep track of what you’ve already heard, listen without using your data plan and many other conveniences.

Recommended apps
Start listening to #125 - Tom Barton - The Biggest Problem Investors Have is Things Change...and They Don't Change
1:24:56
Start listening to #125 - Tom Barton - The Biggest Problem Investors Have is Things Change...and They Don't Change
1:24:56