#31 - Mark Yusko - "Asset Allocation Matters Most"

54 minutes

Episode 31 starts with some background information on Mark. After some early-career twists, he got his “big break” – working for his alma mater, Notre Dame, in its endowment department. Several years later, The University of North Carolina came calling, and Mark took the helm for UNC’s investments. Eventually, he moved on to private wealth with his current group, Morgan Creek.

Given the heavy institutional background, Meb asks about how endowments invest. Mark tells us that every large pool of capital manages its money the same way – investing in stocks, bonds, currencies, and commodities. That’s it – though how you own those assets might change. Yet despite different wrappings, they all have the same risk factors. This leads Mark to focus on asset allocation, as “asset allocation matters most.”

The conversation turns toward money managers (Mark uses various money managers at Morgan Creek). Meb asks how a retail investor can get access to the truly great money managers. It turns out, it’s very difficult. But Mark says you don’t necessarily want the well-known superstars who’ve been in the limelight for 20 years. You want to get onboard with them far earlier in their careers when no one is looking, before they become famous. As to how you actually find them, Mark says you have to “kiss a lot of frogs.”

Meb follows up with an interesting question – forget about how to find great money managers…how do you know when it’s time to get rid of one? After all, it can be hard to tell when a manager’s investing system is flawed versus when he/she might simply be distracted by personal issues, or just going through a rough patch.

Mark’s answer? Stop focusing on performance. Instead, focus on the other three P’s: 1) people 2) process, and 3) philosophy. If all you’re doing is looking at/chasing performance, chances are you’re going to underperform. So expand your analysis.

Meb adds that this focus on performance isn’t limited to retail investors – institutions do this too. Mark agrees, having had personal experience with this. His group was hired, fired, re-hired, and so on, as one particular client chased performance.

The guys then switch to venture capital, a huge area for outperformance. Institutional investors have the advantage here – the “illiquidity premium” as Mark calls it. Meb asks how retail investors can try to take part in this space. Mark tells us that, unfortunately, retail investors have one arm tied behind their backs courtesy of the SEC. Its philosophy is “If you’re not rich, you’re not smart.” So yes, investing in venture capital is very challenging for retail investors, despite some recent gains.

Eventually, the conversation drifts back to asset allocation. Mark has a 3-bucket system he recommends. Bucket 1 – “liquidity.” This is about 2 years’ worth of spending. Call it 10-15% of your wealth in cash-like investments. Bucket 2 – your “get rich” bucket. Also 10-15%. He recommends investments like businesses and real estate, though most people use this money to chase the latest hot stock. Bucket 3 – your “stay rich” bucket. This one is all about diversification (whereas your “get rich” bucket was all about concentration).

Meb agrees with this, telling us how the asset allocation required to get rich is different than the asset allocation needed to remain rich.

The guys then move to predictions. Each January, Mark writes his financial predictions for the new year. So how did he do in 2016? They go over the results, with topics that include interest rates, the Japanese equity market, black swan events in Europe, roaring commodities, and the strength of the Dollar.

This leads the guys into a more detailed conversation about U.S. interest rates, comparing us to Japan. Mark warns us about the Killer D’s: demographics, debt, and deflation. It’s a fascinating conversation with the short takeaway that we may not see the bottom in interest rates until around 2020-2022 (when demographics finally shift back in our favor).

There’s far more in this episode, including “Red Ferrari Syndome,” a Twitter question to Mark about the biggest learning experiences of his career, and an asset class that’s about to be down a whopping 6 years in a row. What is it? Find out in Episode 31.

More episodes from The Meb Faber Show

#198 - Rabi Gupta and Satwick Saxena - EvaBot Is…A Gifting Assistant…It Makes It Easy For Businesses to Send Gifts

In episode 198 we welcome our guests, Rabi Gupta and Satwick Saxena. Rabi and Satwick walk through the early days of EvaBot and how the pair started the company accidentally as a way to …

#197 - Rick Rule - In Resources You Are Either A Contrarian Or You Are Going To Be A Victim

In episode 197 we welcome our guest, Rick Rule. Rick and Meb start with Rick’s background in natural resource investing and Rick getting into his …

#196 - Minnie Ingersoll - I Do Believe That Innovation In Our Country Is The Huge Bright Spot

In episode 196 we welcome our guest, Minnie Ingersoll. Minnie and Meb start the conversation by getting into venture capital investing and the nature …

The Best Investment Writing Volume 3: Selected Writing from Prominent Investors and Authors

Last year when we published The Best Investment Writing Volume 2, we offered authors the opportunity to record an audio version of their chapter to …

#195 - Top Podcasts 2019 - Replay: Bill Smead, Cam Harvey, Raoul Pal

Episode 195 is a replay of The Meb Faber Show’s top podcasts of 2019. Guests include Bill Smead, Cam Harvey, and Raoul Pal

Hear Bill Smead discuss …

The Best Investment Writing Volume 3: Frazer Rice – Preparing For The Hurricane Of Wealth

Last year when we published The Best Investment Writing Volume 2, 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