Meb Faber - Factors, Dividends, and Angel Investing

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:59)
Patrick O'Shaughnessy is a principal and portfolio manager at O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:21)
My guest this week is Meb Faber who started the podcast similar to this one right before mine and was a big reason I was open to the idea in the first place. Meb is a quantitative researcher whose firm, Cambria, has been behind many interesting investment strategies that break the Wall Street mold. We talk about investing factors, dividends, angel investing, podcasts and more. This was a fun catch up with a close friend of the industry who has been a leader in using data to explore the best potential active strategies in a variety of different asset classes. Please enjoy our conversation, which begins with a factor draft.
Okay, Meb, so now after a year of doing this together in LA, unfortunately, we're remote and this time I get to host. It'll be a conversation, but I'll try to skew it in your direction at least a little bit as you did for me a year ago. And we'll start with a draft for quant factors. So the rules of the game are we're each going to pick five, the rules of the game just back and forth, snake draft, not an auction.
And a factor would be defined as, say, price to earnings ratio, not value as a category. So it's got to be a specific factor.
And the idea is that you can use these five factors in a model however you see fit. Maybe we'll talk a little bit about how we might do that afterwards. But it's over the next 10 years. So you're trying to earn the most kind of excess return, let's say, in the US all cap market using five factors. Since you're the guest, I'll let you pick first.

**Meb Faber** (2:42)
All right. First of all, congratulations on a year, Patrick.

**Patrick O'Shaughnessy** (2:46)
Thank you, brother.

**Meb Faber** (2:46)
The podcast. In your honor, it's Friday afternoon here in Los Angeles. So the only alcohol-fueled podcast I've ever done was the one you and I did, which kind of ended poorly for me because you had to go give a speech later and I ended up drinking about six beers.
So I just poured myself a margarita. So your listeners, I would encourage to listen all the way through this podcast because it's probably going to get more interesting as we go.
But this was a listener sent us in a bottle of tequila. So cheers to you virtually from here from LA. All right. So the rules of this draft, is it US or global?

**Patrick O'Shaughnessy** (3:25)
US.

**Meb Faber** (3:26)
US only, say stocks above 200 million or something.

**Patrick O'Shaughnessy** (3:29)
Sure.

**Meb Faber** (3:29)
And it rebalances once a year or whatever, but we got to stick to it for 10 years. And I have to use these in combo or they're, it's going to be like a multi-factor model.

**Patrick O'Shaughnessy** (3:41)
That's your discretion. We'll talk about how you want to use it at the end. So think about it first, just like drafting players onto a team, and then you can be the coach and deploy them however you see fit. But you're going to get a roster of five discrete individual factors.

**Meb Faber** (3:55)
I can't even name five factors. This is kind of an interesting mind game, because now I also got to pick factors that I would like to pick before you pick them.