Meb Faber: The U.S. Market Can’t Keep Winning (The Chart That Shows It)

The Met Faber Show - January 29th, 2026: Summary

Key Concepts:

• Value Investing: Focusing on intrinsic value rather than market sentiment.
• Macroeconomic Analysis: Understanding broad economic trends and their impact on investments (acknowledged as challenging).
• Asset Allocation: Diversifying investments across different asset classes (stocks, bonds, gold, real estate, etc.).
• Trend Following: Identifying and capitalizing on existing market trends.
• Market Cap Weighting vs. Equal Weighting: Different methods of constructing market indices.
• 351 Exchange: A tax-advantaged strategy for converting appreciated assets into new investments.
• Factor Investing: Utilizing specific characteristics (value, size, momentum) to select investments.
• Global Diversification: Investing in markets outside of the domestic market.
• Dividend Yield & Shareholder Yield: Measures of returns from stocks, with a focus on buybacks.

I. Market Overview & Macroeconomic Considerations (January 29th, 2026)

The episode began with a discussion of recent market volatility, highlighted by a 10% intraday swing in gold prices. The overarching theme was the inherent difficulty of macroeconomic forecasting, referencing a Charlie Munger quote: “Value is what we do, but macro is what we put up with.” The discussion acknowledged the success of gold bulls (Pollson, Einhorn, Hickey) given the recent price surge. The hosts noted the show’s return to a more regular schedule and the addition of Coloby Donovan as a co-host.

II. 2025 Performance & US Stock Market Valuation

2025 was characterized as a “monster year” for US stocks, but the hosts cautioned against complacency. Charts (available on the YouTube channel) were emphasized as crucial for visualizing market trends. A key point was the historical perspective on bull and bear markets, noting that while bear markets are painful, bull markets are significantly longer and larger. Data from Deutsche Bank illustrated the distribution of returns, revealing that returns of +15-20% (like those seen in 2025) are actually more likely than the commonly expected 8-10%. The S&P 500’s 18% return was highlighted.

However, the market ended the year expensive, prompting discussion of market cap weighting versus equal weighting. A chart from Charlie Bello showed the historical performance of both strategies. While market cap weighting has outperformed recently (the last 11 years), equal weighting had a long period of outperformance prior to that (13 of the prior 15 years). The current PE ratio of 40 (CAPE ratio) was identified as a potential turning point.

III. Beyond Market Cap Weighting: The "ABMCW" Approach

The hosts advocated for strategies “Anything But Market Cap Weighting” (ABMCW), arguing that relying solely on market capitalization is a simplistic approach in a complex market. They highlighted the increasing availability of diverse investment options beyond simply asking for “grape nuts” (a metaphor for limited choices). The discussion referenced a GMO chart showing a significant portion (approximately one-third) of the S&P 500 trading at a price-to-sales ratio of 10x or higher.

IV. Global Asset Allocation & The US Dominance

A significant portion of the discussion focused on the US market’s outperformance relative to global markets. A chart from JP Morgan showed the US now represents approximately 23% of global market capitalization, a dramatic increase from the late 1980s when Japan held 40% and the US only 30%. This led to speculation about the potential for future shifts in global market dominance, particularly the rise of China and India. The hosts emphasized the importance of envisioning different future scenarios.

The unique US culture of risk-taking and stock ownership was highlighted as a key driver of its market dominance. The compounding effect of widespread stock ownership was described as creating a widening gap between the US market and other countries. The hosts noted that US investors tend to be heavily concentrated in US stocks, a potential risk.

V. International Markets & The Rotation to Value

The discussion turned to the relative underperformance of US stocks in 2025, noting that it was among the worst-performing developed markets. This prompted speculation about a potential rotation into international markets, which generally delivered higher returns in 2025 (averaging a third). The hosts observed that foreign and emerging markets are already experiencing increased inflows in 2026.

Value stocks were identified as a potentially attractive investment opportunity, with deep value strategies outperforming the S&P 500 over the past 1, 3, and 5 years. European banks were specifically cited as outperforming the “Magnificent Seven” (MAG 7) US tech stocks.

VI. Gold, Silver, and Real Assets

The recent surge in gold, silver, and copper prices was discussed, with the hosts noting that many managed futures strategies are heavily positioned in these commodities. The historical role of gold as a portfolio diversifier was emphasized, referencing the work of Mark Fabber (who historically allocated 25% to gold) and a study that found his portfolio was the only one to deliver positive returns in every decade. The hosts highlighted the potential for gold to serve as a substitute for bonds in a 60/40 portfolio.

VII. Tax-Efficient Investing & The 351 Exchange

The importance of minimizing fees and taxes was stressed, with the hosts citing research showing that high fees can negate the benefits of even the best asset allocation strategies. The 351 exchange (converting appreciated assets into new investments) was presented as a potentially valuable tax-advantaged strategy, with listeners directed to a dedicated email address ([email protected]) for more information.

VIII. Future Plans & Upcoming Events

The hosts announced plans to publish two new books in 2026 and encouraged listeners to submit questions for future episodes. They also shared their upcoming speaking engagements, including the Dirtnap Conference in Nashville, the Basis Northwest conference in Seattle, and events related to the Berkshire Hathaway annual meeting. They encouraged listeners to subscribe to their YouTube channel and engage with them on social media.

Notable Quotes:

• Charlie Munger: “Value is what we do, but macro is what we put up with.”
• Met Faber: “Anything besides market cap weight should do well [in the next 5-10 years], when PEs are at 20.”
• Met Faber: “The US has a culture of risk-taking and entrepreneurship and ownership… simply compounding that wedge starts to get wider and wider.”
• Met Faber: “If you own too much in the local market… trend following should give you exposure to the right tail.”

Data & Statistics:

• Gold: Experienced a 10% intraday swing on January 29th, 2026.
• S&P 500 (2025): Returned 18%.
• S&P 500 Valuation: PE ratio of 40 (CAPE ratio).
• S&P 500 Composition: Approximately one-third of the index trades at a price-to-sales ratio of 10x or higher.
• US Market Cap: Represents approximately 23% of global market capitalization.
• Dividend Yield (US): Currently around 1.1%.
• Average Mutual Fund Fee: 1.25% (still prevalent despite the availability of lower-cost ETFs).
• Foreign Market Returns (2025): Averaged a third.

Conclusion:

The episode provided a comprehensive overview of the current market landscape, emphasizing the importance of diversification, value investing, and a long-term perspective. The hosts cautioned against complacency in the face of recent US stock market gains and highlighted the potential for opportunities in international markets, real assets, and alternative investment strategies. The discussion underscored the need for investors to be aware of fees, taxes, and the potential risks of overconcentration in domestic equities.