Radio Show: Meb on Markets at Extremes, Anything BUT Market Cap, and Embracing Volatility | #616 - The Meb Faber Show - Better Investing Recap

Podcast: The Meb Faber Show - Better Investing

Published: 2026-02-03

Duration: 50 min

Summary

Meb Faber discusses the current state of the markets, emphasizing the importance of understanding macro trends and exploring alternative investment strategies beyond traditional market-cap weighting. He highlights the potential of equal weighting and the need for investors to embrace volatility in their portfolios.

What Happened

In this episode, Meb Faber kicks off the new year by reflecting on the recent volatility in the markets, particularly noting a significant 10% swing in gold prices that day. He shares insights on the previous year's stock market performance, pointing out how the S&P 500 achieved an impressive return of around 18%. Meb cites a quote from Charlie Munger, which emphasizes the distinction between value investing and the challenges of macroeconomic predictions, stating, 'value is what we do, but macro is what we put up with.' This sets the tone for a discussion on the unpredictability of market movements and the importance of long-term investing strategies.

Meb dives into the contrasting performance of market-cap weighted versus equal-weighted indexes, suggesting that the current market environment may be ripe for a shift towards equal weighting. He references a chart revealing that a significant portion of the S&P 500 is trading at high valuations, with a PE ratio of 40 on the CAPE ratio. Meb argues that while market-cap weighting has dominated in recent years, there have been periods where equal weighting outperformed. He encourages listeners to consider diversifying their strategies and to be open to approaches that challenge conventional market-cap weightings, encapsulated in the acronym ABM CW, meaning 'anything but market cap weight.'

Key Insights

• Understanding macro trends is crucial for long-term investment success.
• The S&P 500 had an 18% return last year, highlighting the potential for significant gains in the market.
• Equal weighting may serve as a viable alternative to market-cap weighting in volatile market conditions.
• Embracing volatility can lead to better investment outcomes over time.

Key Questions Answered

What are Meb Faber's thoughts on the current market volatility?

Meb notes that the markets are experiencing significant fluctuations, particularly with a notable 10% swing in gold prices on the day of recording. He reflects on how the market environment has shifted, indicating a mix of excitement and caution among investors. The unpredictability of macroeconomic factors contributes to this volatility, making it essential for investors to maintain a long-term perspective.

How did the S&P 500 perform last year according to Meb?

Meb highlights that the S&P 500 achieved an impressive return of approximately 18% over the last year. He emphasizes that such returns are significant, especially when compared to historical averages. By providing this context, Meb underscores the importance of recognizing favorable market conditions while also being aware of potential risks going forward.

What does Meb suggest about equal weighting in investment strategies?

Meb discusses the advantages of equal weighting compared to traditional market-cap weighting, especially in light of high valuations seen in the market. He references historical performance trends, noting that while market-cap weighting has been dominant in recent years, equal weighting has outperformed during certain periods. Meb advocates for exploring alternative strategies that could provide better risk-adjusted returns.

What is the significance of the acronym ABM CW mentioned by Meb?

The acronym ABM CW stands for 'anything but market cap weight.' Meb uses this phrase to encourage investors to consider strategies that break away from conventional market-cap weighted indexes. He argues that relying solely on market cap can lead to problematic investing behaviors, particularly in volatile markets where valuations become skewed. By embracing alternative weighting strategies, investors may find more balanced opportunities.

How does Meb view the relationship between macroeconomic factors and investing?

Meb expresses a cautious view on macroeconomic factors, stating that while they are challenging to predict, they are an integral part of the investing landscape. He acknowledges that many investors struggle with macro predictions, which can lead to overreactions in their investment decisions. This reinforces the idea that while macro is part of the investing equation, focusing on value and long-term strategies is paramount.