View Mebane's Meeting and Learn... - Why a traditional 60/40 allocation will not get you to 8% - How to value international stock markets - How to avoid market bubbles and buy when “blood is in the streets” - How to create a trading system to always invest in the cheapest markets Investment bubbles and speculative manias have likely existed for as long as humans have been involved in markets. How can investors identify and avoid these bubbles’ bursts and losses, and even profit from these crashes? Building on Graham and Dodd’s work, Robert Schiller popularized CAPE, his version of the cyclically adjusted price-to-earnings ratio, in the late 1990s to give timely warnings of poor stock returns. Mebane Faber applies this valuation metric across more than 30 foreign markets and finds it both practical and useful. This presentation will describe a trading system to build global stock portfolios based on valuation, which can lead to significant outperformance by selecting markets based on relative and absolute valuation. This presentation was part of QuantCon 2015 hosted by Quantopian. Visit us at: www.quantopian.com.

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Click to edit Master subtitle styleInvestment Management
for High Net Worth
Individuals and Institutions
• Market Outlook &
• Global Stock Valuations
March, 2015

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Disclaimer
This presentation is for informational purposes and is not an offer to sell. Any investment involves significant risks, and
past market conditions may not resemble future market conditions.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE
DESCRIBED BELOW. THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT, DO NOT
INVOLVE FINANCIAL RISK OR REFLECT ACTUAL TRADING BY ANY ACCOUNT UNDER ACTUAL MARKET
CONDITIONS AND THEREFORE DO NOT REFLECT THE IMPACT THAT ECONOMIC AND MARKET FACTORS
MAY HAVE HAD ON THE ADVISOR’S INVESTMENT DECISIONS FOR THAT ACCOUNT. NO
REPRESENTATION IS MADE THAT CIMI'S PERFORMANCE WOULD HAVE BEEN THE SAME AS SUCH
SIMULATED HAD CIMI BEEN IN EXISTENCE DURING SUCH TIME. ANOTHER LIMITATION IS THAT
INVESTMENT DECISIONS REFLECTED IN THE SIMULATED RESULTS CANNOT COMPLETELY ACCOUNT
FOR THE IMPACT OF FINANCIAL RISK ON THE MANNER IN WHICH AN ACCOUNT WOULD HAVE BEEN
MANAGED. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR
TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO AFFECT
ACTUAL TRADING RESULTS. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN
HYPOTHETICAL RESULTS AND THE ACTUAL RECORD SUBSEQUENTLY ACHIEVED. THE SIMULATED
RESULTS DO NOT TAKE INTO ACCOUNT ENHANCEMENTS THAT MAY BE MADE TO THE PROPRIETARY
COMPUTER MODELS OVER TIME. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKET
IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE
FULLY BE ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL SIMULATED PERFORMANCE
RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. ALL RESULTS ARE
GROSS OF ALL TRADING AND MANAGEMENT FEES

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About Cambria
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• SEC RIA founded 2006
• $450+ million across
• Individual accounts
• Active and Passive ETFs
• SYLD, FYLD, GVAL, GMOM, GAA
• Disrupt traditional high fee investing

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Market Research
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Blog: MebFaber
Work: CambriaFunds
Ideas: TheIdeaFarm

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Freebook.mebfaber.com

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Before we start…
What percentage of your personal stock
allocation is in the United States?
Example: 80% U.S., 20% in Japan, write
down 80%

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Emotional Investing

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Emotional Investing

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Emotional Investing

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Can we do anything to
remove emotional
decision making?

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Cyclically Adjusted Price Earnings Ratio
Source: Shiller

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Source: Shiller

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Source: Shiller

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REAL RETURN CAPE
10 BEST 16.1% 11
10 WORST -3.3% 23

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Source: Shiller

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Median Stock P/E and P/B

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…But you would be out of stocks since the 1990s!

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So, stocks are expensive,
what about bonds?

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So, the US is expensive
and bonds yield very
little, where to look?

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…But you would be out of stocks since the 1990s!

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Does it work in all markets?
Source: Global Financial Data, MSCI, Bloomberg

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Source: Global Financial Data, MSCI, Bloomberg

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Blood…and Bubble.
1 Year 3 Year 5 Year
Blood <7 31% 18% 21%
Bubble >45 -9% -4% -1%
Source: Global Financial Data, MSCI, Bloomberg

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Where are we now?
Greece 2
Russia 5
Hungary 6
Austria 8
Portugal 8
Brazil 9
Czech 10
Mexico 22
Sweden 23
Switzerland 23
Japan 26
USA 27
Philippines 28
Denmark 34
Source: Global Financial Data, MSCI, Bloomberg

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Why This Matters (to You!)

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US VALUATION RANK
CAPE 40
CAPD 40
CAPB 40
CAPCF 39
Average 41/43

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CONTACT
WEBSITE
www.cambriafunds.com
PHONE
(310) 606-5555
BLOG
www.mebfaber.com
EMAIL
mf@cambriainvestments.com

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All the ETFs
SYLD – 100 US stocks
FYLD – 100 Foreign stocks
GVAL – 100 Foreign stocks
GMOM – Global Tactical
GAA – Global Core

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…But you would be out of stocks since the 1990s!