Answer to reader question - Marc Faber

JS-Kit, the commenting system I use, seems to have messed up a comment (grr :(:(:( ). I hope this is a limited case. The message somehow came through to my e-mail (all message are sent to my e-mail) but it didn't get posted. Since the topics being dealt with were general, I thought I would address them here. There are two questions: one relating to Marc Faber, and another with gold. I'll make a separate post about gold.

Do note that I'm just an amateur investor and can be wrong so double-check anything I say (and correct me if I'm wrong.)

Reader hpmst3 asked the following:

This is a little off topic Sivaram, but do you know Faber's long term track record? His Barron's picks overall seem to beat the S&P 500 every year, but I am not sure. I think that he manages individual accounts, so he is not publicly measured like U.S. mutual fund managers. Do you by any chance know? I read his Tomorrow's gold, and it was all about long term historical economic cycles/macro. But I notice that aside from commodities, and currency picks, he usually buys asian companies that are trading at single digit pe's with nice yields. Do you find this to be the case from what you know about him. I have to admit that I am not very macro focused, so this may influence my perspective.

Marc Faber is definitely a macro investor. If you are a pure value investor, you should not follow him. A lot of what he does goes against value investing principles. Like most macro-oriented investors, his stock picks do not seem to be based on company-specific, fundamental, analysis. My impression is based on his public interviews, newsletter he writes (I don't have access to it now but it used to be free about 5 years ago), and his two books.

Honestly I have no idea what Marc Faber's track record is. As you alluded to, he doesn't publish any results and simply manages private client portfolios. My guess—this is a complete guess based on me following him—is that he probably beat the stock market quite a bit in the last 10 years but his record in the 90's probably wasn't as good.

I'm pretty sure he had spectacular gains in the last 10 years because he was superbullish on commodities and gold long before anyone even looked at chart of them. Unlike Jim Rogers, he also turned somewhat bearish, particularly on base metals, early last year so he probably avoided most of the carnage in the commodities sector last year. He probably still got killed (he seemed bullish on oil even near the peak) but anyone that overloaded on commodities before, say, 2005, is still up a lot.

I suspect he did not do too well in the 90's. My impression is that he was already famous in the 90's in Asia but there is nothing to indicate that he made any major profitable macro or stock-specific calls on the scale of his commodities calls in the 2000's.

Overall, he probably outperforms the market slightly. My guess is that he would be nowhere near, what I call, a superinvestor like Martin Whitman or Seth Klarman or George Soros.


As for his stock picks, you mention that he buys low P/E stocks with high dividend yields. He has suggested he likes those characteristics but I suspect that strategy is not by design. Quite a bit of what he buys is close to his home in risky Asian countries, like Thailand, Vietnam, and the like, so the low P/Es simply reflect a discount for political risk. Even some of the Singapore-listed companies he has suggested seem somewhat risky. For instance, even if the political risk is low, the companies don't seem anything like American companies and probably warrant a P/E discount. People bash the SEC and securities regulations in America but most of those countries don't even have anything 1/10th as good as the SEC.

Just because the P/E is low doesn't mean that one has found something that the market is mispricing. One will earn a higher return from low P/E stocks—one way to think is to look at earnings yield, which is higher with low P/E—if everything goes right but it depends on how the negative outcomes impact the investor. The P/Es are always low and will likely remain low in those countries. One of my early newbie lessons I learned was that some low P/E stocks are discounted forever. I remember investing in Petrobras, a Brazilian oil&gas supermajor, because its P/E was lower than other supermajors, and I thought the P/E would rise and close the gap. I was wrong and Petrobras always traded below other supermajors. This, even though Petrobras was one of the rare supermajors that had increasing production. The market never marked it up due to a whole hoard of issues ranging from political risk, to the fact that there were price controls on some end-products in Brazil, to the fact that the Brazilian government owned a major stake.


The interesting thing I see these days is that Marc Faber is bullish on select technology. This is kind of shocking given how he is the type that bashes technology all the time. His tech call is consistent with my view and I think technology is probably one of the best areas to make a macro bet (Most technology companies (but not the high-flying Apples and Amazons) have been in a 9-year bear market. Most tech companies have clean balance-sheets, often with zero debt. Tech also fits in with my mild-deflation view. Gary Shilling has suggested that technology is attractive during deflation because companies will be pressured to boost productivity through technology.)


Anyway that's how I see Marc Faber. I'm heavily influenced by him because he is a true contrarian who, sometimes, says completely ridiculous things and doesn't set out to please anyone. I like that. But he likely does not have a record anywhere near that of a typical superinvestor. Most of his investment suggestions are complicated or risky. If you look at some of his Barron's calls, you will see how you can end up suffering badly if your call is incorrect.