#74 - Jeffrey Sherman - “There's This 'Buy-the-Dip;' Mentality... Do You Play in It, or Just Shake Your Head?"

75 minutes

In Episode 74, we welcome Jeffrey Sherman from DoubleLine. We start with Jeff’s background – it’s a fun recap, including stories of running the scoreboard for The Stockton Ports… being a bank teller… earning graduate degrees… there’s a brief aside into catastrophe bonds which is a good primer if you’re less familiar with them… then back into Jeff’s background with DoubleLine.

This dovetails into Meb asking about the type of shop DoubleLine is, as well as its overall investing framework. We learn that DoubleLine will go into whatever market it finds interesting. They’re also a macro shop, which led them to fixed income. After all, Jeff tells us “If you want to know what’s going on in the world macroeconomically, the bond market tells you.”

Next, Meb asks how the world looks to Jeff today.

Everything is growing, but it’s not the same old growth. The difference is debt.  Overall, it has been a positive environment for investing; inflation is low, but the price of assets now reflects this good environment and people are projecting that forward – but it’s not realistic. Many assets are expensive now. Jeff puts a point on the situation by saying “There’s this ‘buy-the-dip’ mentality… Do you play in it or just shake your head?”

The guys cover lots of ground here: Prices in the bond market have gotten ridiculous… Policy mistakes from the Fed… How this is “The Jay Cutler bull market” meaning it’s very “ho-hum”... how Europe is growing at the same rate as the U.S., yet they are continuing to do QE, while we’ve hiked rates four times… we’re talking about unwinding bonds while they’re buying – there’s a disconnect. And we don’t truly know what unwinding is going to look like.

This leads into a great discussion of bonds and how they respond to a rising rate environment. As Meb notes, most people hear “interest rates are going up” and they think “bond prices must be going down.” But that doesn’t have to be the case. Jeff dives into some great detail here on the math behind bond returns and rising rates. If you’re a bond guy, make sure to catch this part of the episode.

A few twists and turns later, Meb brings up a DoubleLine fund that combines U.S. equities in various sectors, paired with a fixed income component. He asks how is it designed, the benefit, and so on.

Amongst other details Jeff tells us, we learn that the fund applies a sector rotation strategy based on Professor Shiller’s CAPE ratio. Historically, people have used CAPE to evaluate markets. Jeff wondered why one couldn’t apply it to smaller subsets of the markets – sectors. For instance, utilities and tech have different profiles re: beta and whatnot. So why not take each sector’s CAPE and compare it to its own CAPE history? You then look for the cheapest sectors of the market. And you can avoid buying a value trap by apply momentum (in Jeff’s strategy, they throw away the worst one-year momentum sector).

Meb asks which sectors look good from a CAPE perspective now. Jeff tells us he’s looking at technology, consumer discretionary, consumer staples, and health care. He was looking at energy, but he booted it due to its bad momentum. He tells us another high flier is the financial sector. Up 35% or so since the election.

Meb asks a Twitter question next – how much does DoubleLine incorporate technicals into their process? Jeff tells us that he uses technical more on trade implementation and things that are hard to value like FX.

There’s so much more in this episode: sentiment… Trump, and the D.C. status quo… commodities… the “Four Asset” portfolio… More write-in questions from Twitter… a quick descent into a crypto-rant… the biggest mistakes Jeff is seeing investors make… and of course, his most memorable trade.

What were the details? Find out in Episode 74.

More episodes from The Meb Faber Show

#191 - Simon Hallett - Wherever We Can, We’ve Added Something That’s Based Upon Behavioral Finance

In episode 191, we welcome our guest, Simon Hallett. Simon and Meb start off the conversation with a run-down of Simon’s firm, Harding Loevner, cover its quality growth investment approach …

#190 - Radio Show: Buying Stocks At All Time Highs…Fund Manager Sentiment…Year End Questions for Advisors and Brokers

Episode 190 has a radio show format. We cover a variety of topics, including:

  • Buying stocks at all-time highs
  • 2010 Fund Manager of the Decade
  • Jim …

#189 - John Parise - 70% Of Wealth Is Lost In The 3rd Generation

In Episode 189 we welcome our guest, John Parise. John and Meb kick off the conversation with the idea of the family CFO and wealth planning. As John gained experience in financial …

The Best Investment Writing Volume 3: Ray Micaletti – The Smart Money Indicator: A New Risk Management Tool

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 …

#188 - Andreas Clenow - Trend Following Is…About Taking A Lot of Bets On A Very Large Number Of Markets

In episode 188 we welcome our guest, Andreas Clenow. Meb and Andreas start the conversation with a  hat on what hooked Andreas on trend following, …

The Best Investment Writing Volume 3: Jack Forehand – The Case Against Value Stocks

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