As Meb is back from another series of speaking engagements, Episode 30 starts with a brief recap of his travels. But we hop in quickly, first addressing the election. We’ve had several anxious people write in, requesting commentary on the financial markets now that Trump will be taking over. Meb offers his thoughts, which we can reduce to one word: irrelevant.
Next Meb gives us an overview of a white paper he’s soon to begin writing – a rebuttal to detractors of Shiller’s CAPE ratio. He provides some convincing points on why CAPE can be an effective timing tool. You’ll want to hear this if you’re a CAPE fan – even more so if you believe CAPE is flawed.
After that, we hop into listener Q&A. A few of the questions you’ll hear Meb tackle are:
- How does CAPE do as a valuation metric for a stock index when the composition of the index is changing or there is significant dilution?
- When it comes to value filters like P/B or P/E, how do you rank metrics which can become negative or distorted when they get too close to zero?
- Besides trend following, what other alternative strategies (e.g. long/short, diversified arb, global macro, market neutral, etc.) do you believe are a worthy addition to a balanced portfolio?
- Please address living through drawdowns versus using trailing stops. Discuss the tradeoff between minimizing drawdowns versus potentially missing huge recoveries.
- What do you think of using CAPE in Frontier markets? And does the 10-month SMA timing model work in these markets?
- How do you practically implement the bond strategy laid out in your paper, “Finding Yield in a 2% World”?
- James O’Shaughnessy’s “What Works on Wall Street” references an investing strategy that posted amazing returns for many years. Seems too good to be true. Any insights? Wouldn’t everyone be using this system if it really was this wonderful?
- Any pointers on how to do your own backtesting?
As usual, there’s lots more, including the common investor sentiment of “I’m waiting until the uncertainty dies down before I put more money into the markets,” Meb’s thoughts on cash and inflation, and the benefits of systematic investing. All this and more in Episode 30.
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