Enduring Underperformance Drives Long-Term Investment Success

This conversation on evaluating investment strategies, using the Cambria Shareholder Yield ETF (SYLD) as a lens, reveals a critical, often overlooked truth: long-term investment success is less about avoiding periods of underperformance and more about developing the discipline to endure them. The hidden consequence of chasing immediate gratification in investing is a perpetual cycle of missing out on durable gains. Those who can stomach short-term "pain" for the promise of long-term advantage will find themselves in a select group, capable of capitalizing on opportunities that others flee from. This analysis is for investors who recognize that true wealth preservation and growth demand a time horizon measured in decades, not quarters, and who seek to build conviction in strategies that may appear flawed in the moment but possess a robust underlying edge.

The Uncomfortable Truth: Winners Lose, Too

The narrative surrounding investing often focuses on the meteoric rise of successful strategies and investors, creating an illusion of linear progress. We hear about Warren Buffett's Berkshire Hathaway, a titan of industry, and its astounding growth. Yet, beneath this success lies a more complex reality: even the greatest investors and strategies experience significant periods of underperformance. The podcast highlights how Berkshire Hathaway, despite its legendary status, has underperformed the S&P 500 in roughly a third of all years. This isn't a bug; it's a feature of long-term investing.

This insight challenges conventional wisdom, which often equates underperformance with a broken strategy. Many investors, conditioned by the instant gratification culture, abandon investments after a few years of lackluster results. As Meb Faber notes, quoting Professor Ken French, "People are crazy when they try and draw inferences that they do from three or five or even 10 years on an asset class or any actively managed fund." This short-sightedness is precisely what creates opportunities for those with a longer view. When investors flee during a downturn, they are not only selling at a loss but also forfeiting the potential for substantial future gains. The SYLD ETF's recent performance, struggling in the bottom 11% of its category in 2025, exemplifies this. While uncomfortable, this period of underperformance, when viewed against its strong long-term track record and attractive valuations, may be the very signal that patient investors have been waiting for.

"It's waiting that helps you as an investor, and a lot of people just can't stand to wait. If you didn't get the deferred gratification gene, you've got to work very hard to overcome that."

-- Charlie Munger

The implication here is profound: the ability to withstand and even capitalize on periods of underperformance is a critical, albeit difficult, competitive advantage. It requires a mental fortitude that transcends the immediate emotional response to negative returns. This "deferred gratification gene," as Munger calls it, is what separates those who merely participate in the market from those who truly master it.

The Illusion of "Missing the Boat" and the Reality of Value

A common investor fear is "missing the boat," the idea that a winning investment has already made its gains and is no longer worth pursuing. This fear is often amplified during periods of market exuberance, like the dot-com bubble. The podcast recounts how Barron's magazine questioned Warren Buffett's relevance in 1999, a time when Berkshire Hathaway underperformed the S&P 500. Investors, swayed by the allure of high-flying tech stocks, bailed on Buffett, only to miss out as Berkshire subsequently doubled while the S&P 500 stagnated for a decade.

This historical parallel is crucial for understanding the SYLD ETF's current situation. While not comparing SYLD to Berkshire directly, the episode uses it as a thought experiment: if investors abandoned the "investing GOAT" during a rough patch, what hope do we have for a simpler ETF? SYLD's recent outflows suggest that many investors are indeed succumbing to this fear, treating its recent underperformance as a signal of a broken strategy rather than a temporary headwind.

However, a deeper analysis, particularly concerning valuation, reveals a different story. The podcast emphasizes that while short-term market movements are unpredictable, valuation metrics offer significant explanatory power over extended horizons. SYLD consistently trades at lower valuation multiples (price-to-earnings, price-to-book, price-to-sales, etc.) compared to its Morningstar category (Mid-Cap Value) and the S&P 500. This is not accidental; it's a consequence of its shareholder yield strategy, which often invests in companies that are out of favor with the broader market but offer compelling value.

"The distinction between a temporary rough patch and a genuinely impaired strategy is complicated to assess, and it's where many investors struggle."

-- Meb Faber Show Guest

This presents a powerful case for a delayed payoff. By investing in a strategy that is currently out of favor, investors are effectively buying at a discount. The "discomfort" of recent underperformance is, in this context, the "cost of admission" for potentially significant future returns. The system, in this instance, is presenting an opportunity: those willing to look beyond the immediate noise and recognize the underlying value will be rewarded. This is where conventional wisdom fails; it prioritizes immediate performance over durable value, leading investors to sell low and buy high.

The Power of Rolling Returns and Expanding Horizons

Evaluating investment performance solely on calendar year returns is a flawed approach, akin to judging a marathon runner by their performance in the first mile. The podcast advocates for a more robust metric: rolling returns. Rolling returns, calculated over