Volatility as Opportunity with Meb Faber

Volatility has returned to markets with a vengeance, but is this something to fear or embrace? It depends entirely on your perspective and preparation.

When markets plummet, most investors panic. But what if market downturns actually represent opportunity? For younger investors with decades ahead, buying assets at discounted prices might be the best possible scenario. As Meb Faber points out, "You want to dollar cost average when stocks are at a PE of 10, not a PE of 40."

The conversation delves into the nature of market volatility itself. Historical data reveals that approximately 70-80% of the market's best and worst days occur when prices trade below their 200-day moving average. This volatility clustering means big down days and big up days tend to happen close together - a phenomenon that quantitative approaches can potentially exploit.

Perhaps most illuminating is the discussion around what true diversification actually means. Many investors believe they're diversified simply by owning the S&P 500, failing to recognize they're only exposed to U.S. large-caps. Genuine diversification extends across asset classes, geographies, and strategies - particularly important when correlations tighten during market stress.

The discussion explores effective tail risk management strategies, including tactical allocation approaches and explicit hedging techniques. International markets trading at single-digit PE ratios offer compelling value compared to expensive U.S. indices, potentially signaling a regime shift after years of U.S. dominance.

Whether this market volatility represents the beginning of something larger or merely a temporary correction remains uncertain. What's clear is that having a written investment plan before volatility strikes makes all the difference between reacting emotionally and responding strategically. As markets continue their wild ride, those who prepared for turbulence will navigate with confidence while others scramble for direction.

DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Cambria and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

 Sign up to The Lead-Lag Report on Substack and get 30% off the annual subscription today by visiting http://theleadlag.report/leadlaglive.

Support the show