The Four Investing Tribes - Marc Levine on Meb Faber Podcast

 

One of the financial podcasts that I listen to occasionally is the Meb Faber Show. Meb is co-founder and Chief Investment Officer for Cambria Investment Management which offers ETFs and other investment products based on Meb's extensive research on quantitative and value investing.

He records a podcast each week where he typically interviews a prominent investor to discuss their background, investment strategy, and current viewpoint on the market. Episode #257 released on October 21, 2020 featured Marc Levine who was the former chairman of one of Illinois's pension funds and helped guide it to a passive, index approach to save fees and improve returns.

One of the key takeaways from the podcast are the four tribes that Marc views most investors are classified as. 

1. Permabears - these investors think the financial market is a house of cards ready to collapse so they favor things like gold and precious metals.
2. Deep Value Investors - these investors look for discounts in the market and a margin of safety by buying things that are inexpensive relative to their prior valuations or other companies.
3. Indexers - these are the "set it and forget it" investors. They understand that it is very difficult to pick stocks and beat the market so they favor owning the market, or portions of the market.
4. Growth Investors - these are the eternal optimists that believe in the revolutionary power of technology and disruption and typically don't care what the value of the company is today. All that matters is how fast it is growing and what kind of business it will be in 3-5 years.

When it comes to stock market investing, I think this a great way to classify investors. Most really do fall into one of these tribes. And much like our country's politics, these tribes are getting more partisan, embracing viewpoints of fellow tribe members and ignoring or even combating with viewpoints from other tribes.

I think each one of these tribes actually has investment merit. I'd recommend understanding each one and when they are successful and when they are not. Marc eluded to this as well on the podcast. There are times when you need to respect each one and even have investments in each one at all times.

I'd like to think I respect each tribe. The one I allocate to the most is the index tribe, but in the current marketplace I have tilted to deep value and even permabear through investing in companies with low debt and high cash flow generation as well as gold, silver, platinum, and bitcoin.

I have to admit that over the last few years, I did not respect the growth investor tribe. I had my eye on some growth stocks as they became good values (Apple and Microsoft in 2016, Paypal and Tencent in 2018), but talked myself out of pulling the trigger or holding on long enough. 

It would be very difficult for me to ever own a stock without revenue and some feasible way to break even operations. And I will always pay attention to value. Even the best growth stocks can become relatively inexpensive over time (like Apple and Microsoft in 2016), but that is certainly not the case right now. However, I am much more respectful of the growth tribe than I was even a few years ago.