SPECIAL: Highly Appreciated To Diversified - 351 Exchanges Decoded

DANO WEIR: It's a special edition of On The Markets. We're talking 351 exchanges with Meb Faber. Who's that? What is a 351 Exchange? We're about to find out.

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DANO WEIR: Special edition of On The Markets. My name is Dan Elweir. I'm the marketing director for Sonoma Wealth, Fermata Advisors, our Fermata family of brands. I'm joined by our managing principal, Chris Seip, CFP, and very excited to have our special guest today.

DANO WEIR: He is the co-founder and chief investment officer of Cambria Investment Management. He's also the host of the Meb Faber Show on YouTube and Apple Podcasts. And we're talking 351 exchanges today. Welcome to On The Markets, Meb Faber.

MEB FABER: Great to be here. Thanks for having me.

DANO WEIR: So, Meb, here's a scenario, totally fictitious scenario. Let's just say I got in early on a Company that makes chips for... Ai applications. Can't imagine which Company that would be. And that stock position has appreciated greatly.

DANO WEIR: It's feeling a little risky to me and now I want to get out, but the capital gains are freaking me out. So I'm quote stuck.

DANO WEIR: Have you ever heard of that scenario and how would a 351 apply to that?

MEB FABER: I personally never have any capital gains. I mean, I grew up during the 1990s bubble. You know, I think I'm still sitting on my pets.com, you know, a loss forwards, CMGI. I might be a little PTSD for some of the older listeners here, but no, just kidding. Yeah. I mean, look, we often say the tax alpha is more important than the investing alpha.

MEB FABER: Everyone loves to spend all day talking about what's the Fed going to do, should I buy gold or stock's expensive. In reality, the very simple blocking and tackling of taxes and largely avoiding or deferring them can be orders of magnitude more important than sort of the gains often that people try to seek out on the investing side of the business.

MEB FABER: So simply by avoiding these or deferring them is important. And so this is one of the reasons the ETF structure has kind of grown to eat the asset management industry. It's just a much better structure than a lot of the legacy products that also happen to be high fee too.

MEB FABER: There's some innovations coming on in a bunch of different areas, but one of them being, hey, look, is there a way to do something with these massive capital gains other than just die or donate them? Is there something else you can do to defer them a little longer? And it turns out that sure enough, there is.

CHRIS SIPES CFP®: Yeah. So a couple of options we were going to talk about today, Meb, were 351 exchanges and then exchange funds. Now, how long has this... Structure been around like in the tax code? Is this something that's new or it's actually just been around for a while and maybe people just haven't heard of it until now?

MEB FABER: Let me define a few things because in our industry, there's nothing people love more than jargon, right? So even the ETF, the exchange traded fund, if you were to ask people 20 years ago, what they would say, EFT, is that a funds transfer? What is this? So I think the world for the most part understands what an ETF is. It's largely a tax-efficient mutual fund is the best way to say it.

MEB FABER: Trades during the day, everyone knows the tickers. Spy has been around since the 90s now. And the beauty of the ETF is that you buy into a portfolio like SPY and the ETF structure allows you to rebalance that portfolio and it's not a taxable event. So whereas for a mutual fund, if you do a bunch of turnover and you have gains, you have to distribute those gains. For an ETF, they get... Deferred.

MEB FABER: So the cool part, if you bought SPY in the late 90s, third, 25 years later, despite all the rebalancing it's done, it's not paying capital gains distributions. Now you'll still might have some income distribution from the dividends, which are pretty low today, but in general, it's not paying capital gains, even if it's an active fund. So a massive innovation. So that's the ETF. The problem is- And SPY.

CHRIS SIPES CFP®: Sorry to stop you, but just SPY would be something that tracks the S&P 500, which is the 500 largest companies in the US. So within that fund, it would own a little piece of all those top 500 companies. And so what you're saying is that originated in the 90s. Maybe Exxon was a huge portion of that way back when I remember you mentioning the whole energy complex got down to only 3% of the SPY like during COVID.

CHRIS SIPES CFP®: So there's been a lot of changes in in the makeup of that spy over that, those decades. However, because it's protected by that ETF structure, all those, all those trades with those different companies did not create a capital gain along the way for the, for the client. Is that, is that correct?

MEB FABER: Which is magic, you know, for sure. Things come in like Tesla and Berkshire, things come out over time. And it's really this, this really incredible structure for taxable investors. And it applies to all the ETFs, you could have active ones trading.

MEB FABER: And there's some on the periphery that are a little bit weird that will be paying capital gains. So if you're investing in I don't know, some cash Markets like Brazil or Colombia or China, you know, you might end up distributing a little bit of gains. But in general, it's almost universally better than anything else. Out there.

MEB FABER: But that doesn't help you if you were lucky enough to have bought the mag seven, 10 years ago, right? You know, or you're, you, you are a founder of a Company or you invested and you're sitting on huge gains or you did all sorts of different things. You know, I, from our parents' generation used to hear the phrase was, Hey, I bought GE or I bought IBM.

MEB FABER: I got a 10 bagger, a hundred bagger on this. I can't sell it. The tax man's going to kill me. Like how many times have I heard that? And so I used to always joke with people. I say, well, look, you know, the market's eventually going to solve this one way or the other. And sometimes they watch it go all the way down.

MEB FABER: Right. And so they say, I can't sell it. And then it goes down 10, 20, 50, 70, 90 percent, which is a really unfortunate and in many cases, devastating and unrecoverable mistake. The good news is you now have options. So there's kind of two things you mentioned that have actually been around in the tax code for... 50 to 70 years.

MEB FABER: The first one is a exchange fund, which has traditionally been the province of like Goldman or Eden Vance. And there's some great features of it. And there's some less great features.

MEB FABER: The first tough part is you have to be an accredited investor or usually qualified, which means you got to have a lot of money. Second is that you can contribute assets to this fund, but you got to hold it for seven years. So not ideal. And the third is you contribute stocks or positions, and after seven years, you get back whatever anyone else contributed.

MEB FABER: So the challenge for a lot of these is you may not want what everyone else is contributing. You may not want to contribute a bunch of tech stocks and maybe get back the NASDAQ in return. And traditionally, they've been very high fee.

MEB FABER: But it's a potential solution for people. And then kind of the new one that we're going to talk about, or I should say. The new interpretation is the 351, which has been in the tax code for at least 70 years. But it really found its moment, its partner with the ETF structure is really where all the good magic happens.

DANO WEIR: So I'm going to set the scenario again. I'm going to set the scene for someone because we have a lot of our clients and prospective clients who are trying to conceptualize where does this come in and work for me. So you've bought a tech stock. And it was a different time in your life and you made a great pick and it's appreciated greatly.

DANO WEIR: But you're looking to get out because you're feeling like maybe it's, you know, you don't like the trajectory or it's a little too risky for you at this point. Maybe your life has changed. You're worried about the capital gains hit. And now Chris is your advisor.

DANO WEIR: Hey, lucky you. And he says, you know what? We work with Meb Faber and we have this thing called a 351 Exchange. Tell me again, Meb. Really, you talked about block and tackling. Tell me again, really basic. What does the 351 Exchange do for the person who has that concentrated isometric risk?

MEB FABER: Yeah. So if you go back a hundred years and the point of 351 was, let's say, I know we got, we got two folks in sort of farm country where y'all are, you know, where the three of us wanted to start a new business, a new farm.

MEB FABER: One of y'all is going to have the tractor. One of y'all is going to have the seed. I'm going to contribute the barn, whatever. You contribute all these assets to a new corporation, and it's not a taxable event, right? You shouldn't have to pay a bunch of taxes on that when you start a new Company. And that's really the origin of the 351.

MEB FABER: And then where it's found its perfect partner in the modern age is with the ETF. And we can get into this maybe with the deck, might help on some of the visuals, but basically it allows you to contribute property, in this case, stocks or ETFs, publicly traded assets, to a registered investment corporation, an ETF, and it not be a taxable event.

MEB FABER: So it ends up being, hey, you contribute this property, you get the ETF back, and it ends up being a tax deferred event. Now, to be careful, listeners, you're not washing these taxes. That would be illegal. You're not getting rid of them, but simply deferring them. And it ends up being a pretty magical setup.

DANO WEIR: So you're able to change your risk profile from that isometric risk of that one position, and you're able to spread it out if you're looking to go from the concentrated risk to a more diverse risk profile, basically.

MEB FABER: Yeah, I mean, I think concentrated is kind of the number one use case for sure, whether it's, you know, a handful of positions, a bunch of positions, one sector, one country, whatever it may be. I think that's a good lead in for sure.

MEB FABER: All right, we got a beautiful deck. Should I roll through this real quick?

DANO WEIR: Yeah, take it.

MEB FABER: Awesome so anyway we're gonna keep going one more you know again the lead gen you guys talked about concentrated stock another part is for a lot of people is they just say i'm nervous about the stock market in general, maybe. Some people say it's been a hell of a run since 2009 that the stock market's been a 10-bagger. Congrats, pat yourself on the back.

MEB FABER: But these romping, stomping bull Markets often lead to a place where the good times eventually end. Who knows? Maybe it's this year, maybe 2030, maybe 2040. I don't know. May never have a bear market again. But in general, the good times lead to things getting expensive. And that's true in the US. This is a chart of 10-year... Ratio is going back to the 1800s. Anyway, next chart.

DANO WEIR: And this is something that Chris loves that Chris loves any chart that goes pre 1900. He's he's out right now.

MEB FABER: Yeah. But it gives you perspective. And this one and y'all can look at it later, too. It's it's a well discussed phenomenon. Everyone on TV talks about this all day long, is you got this what people call the mag seven, which is the acronym of this cycle, which is a very concentrated. Mega cap market, you know, NVIDIA knocking on the world's first $5 trillion market cap Company.

MEB FABER: So you're kind of putting all your eggs in the basket of these highly appreciated positions. And a lot of that makes a lot of people nervous. They say, man, I, you know, I don't, I don't want my portfolio to be chock loaded with all these positions. It feels a little bit like the late nineties for a lot of people. The next slide.

MEB FABER: So we kind of referenced this, but here's your dilemma you say all right you just you're gonna hold it and just deal with it you know i'm gonna sit through this i'm gonna accept whatever my fate will be and then the other is nope i give up i'm gonna sell i'm gonna pay uncle sam which nobody loves to do and move on with my life call it a day and those historically have been kind of that's the menu.

MEB FABER: But if you've ever been to In-N-Out, you know, there's a secret menu. There's a third option, which is 351.

DANO WEIR: So let's- 351 is the animal style of finance?

MEB FABER: Yeah, exactly. So what if there was a better way? Next slide. So, you know, we talked a little bit about this. You can contribute assets and they got to be, you know, publicly traded stocks or ETFs. And so you can't- contribute mutual funds, can't contribute your hedge funds, can't contribute futures or options or fart coin or doge coin, any of that stuff, publicly traded stocks and ETFs. Next slide.

MEB FABER: And so this is pretty wordy, but there's two main rules that y'all got to focus on when we're talking about this. And the first one is you can't just contribute one position. So the largest position can't be above 25%. And the reason why, as you go back... To the early days of 351, the regulators in their foresight, they said, look, we don't want people doing this for tax reasons alone.

MEB FABER: So this has to be somewhat diversified contributions. So let's say you got 10 million NVIDIA. You can't just contribute 10 million NVIDIA. You can contribute 2.5 million NVIDIA and 7.5 million something else. And the second rule is top five positions can't be above 50%.

MEB FABER: So what does that mean? The basics are you either need to contribute about 12 stocks. Or more, or, and this is a giant or, ETFs are pass-through. So meaning, if you look at SPY, we referenced earlier, that's going to hold 500 stocks. So theoretically, you could contribute 100% SPY, or you could contribute, say, 2.5 million NVIDIA, 7.5 million SPY, whatever it may be.

MEB FABER: There's a lot of permutations of things that could fit. But for concentrated positions, a lot of people end up contributing, hey, I got these 10 stocks and ETFs, or I got these 20 stocks, or I got on and on permutations that will get you to where you need to be that makes it okay.

MEB FABER: It's important. This only happens on the seed of a new fund. This doesn't happen. You can't do this after the ETF launches. After the ETF launches, it's just like any other ETF trading on the marketplace. You can pull it up on your Schwab account, look at it, buy it, sell it, on and on. Next slide.

MEB FABER: And this was just kind of a good summary on what you can buy, what you can't buy, what you contribute, can't contribute. I think we've already covered this. We can go to the next one.

MEB FABER: This isn't our first rodeo, so we've actually done three of these. People are always like, I haven't heard of this. Well, don't worry. 99.9% of people haven't heard of this. I've been getting speeches all over the country, certified financial planners, CFAs, family offices, institutions. And people usually respond with a blank stare when you're talking about 351.

MEB FABER: It's changing, though. You know, our lawyers that have done this have done over 100 of these. And traditionally, the way you've seen it is something like a mutual fund to ETF conversion, or somebody says, hey, I'm going to convert my hedge fund to an ETF. What we're doing is this what we call open enrollment. So, you know, we're allowing financial advisors and their clients to contribute assets to this ETF launch.

MEB FABER: And when we started doing this over a year ago. We said, we're going to lay out a buffet for 2025. And here's going to be four choices. We'll probably do this again in 2026. And so we've done three already. Tax was the first one about a year ago, which was a U. S. Stock fund. E&DW, which was an asset allocation fund.

MEB FABER: And GEW, which was a couple of weeks ago, was a global stock fund. And they're getting increasingly bigger. So in 30, 100 million, 150 million. And then next up, if you guys could zoom in on my hat, you could see that it's a USEW, which is the next fund. And we can go to the next slide. And so what is USEW? It's a US stock fund. One more slide. And basically, the launch date is going to be mid-December.

MEB FABER: So before the holiday time, it's going to give you sort of a US core equity exposure. And we're going to break that market cap link. So going back to the US stock market being expensive, you know, we don't want it to be. All of our positions in these giant mega cap companies, we want to get to a place where it's closer to looking to something like the top 500 stocks in the US, but more of an equal weight.

MEB FABER: So instead of, you know, having all in on seven stocks, really, you're going to have exposure to the top 500 companies, we're going to allow it's going to has the ability to rebalance tax efficiently, the expense ratio is about, you know, 0.25%, or other call it 25 basis points. So nice and low as well. We do one more slide.

CHRIS SIPES CFP®: So if just to visualize that, since we're getting close to my favorite holiday, Thanksgiving, and I have four kids, Meb. And when you go to divide up a pie, they are watching it like a hawk to make sure that each piece is exactly the same as the other pieces, especially it better not be bigger or smaller than the one their sibling just got. And so that's kind of how I would.

CHRIS SIPES CFP®: Picture an equal weight is that you're slicing that pie into equal slices for every Company in that S&P versus the traditional, say, SPY. You know, a huge slice of that is going to NVIDIA, huge slices going to Microsoft, and there's going to be a little bit of the pie left for the other 493 companies, right? So is that a good way to kind of describe how the equal weight's going to work?

MEB FABER: Yeah. So the good hack there, by the way, I don't know how this works with four people. Traditionally, when it's two kids, you can say, all right, one of you gets to cut and the other one gets to choose. That way, that way, you're smart. That's the market right there.

CHRIS SIPES CFP®: I like it.

MEB FABER: Well, it's funny, you know, so for clients listening to this market cap, you know, so when you go back to Jack Bogle and others who started developing the market cap indices in the 70s, like it is the market that is the true index. And it was a massive innovation because it allowed people to offer. Products at low cost because they did nothing. True market cap, you buy the stocks and they just float, right?

MEB FABER: You don't really do anything. The problem with market cap, when you talk to a lot of end investors and you say, do you know how something like the S&P 500, and the S&P 500 is a little different because it's got a committee, but every other index is designed is, you know, it's the largest stocks. But the Achilles heel of market cap investing is it has no tether to fundamentals.

MEB FABER: So You get a bigger weight as the stock goes up. And as the stock goes down, you get a lower weight, which is good because you own the winners. But it's bad because during the boom bubble times, you put more and more money into the stocks that have gone up the most. And so this is historically speaking, and we have a paper on this on our website.

MEB FABER: If you could avoid some of the downsides of market cap weighting by equal weighting or really doing any other weighting methodology because you break that market cap link. So, you know, you don't put the most money in the biggest stocks. So like December 99, the most expensive the US stock market's ever been, you know, that that was when the stocks had gone up the most.

MEB FABER: And if you had done something else, equal weight, the next three years, there was a 50% bear market in the S&P. But for many other, weighting methodologies, there was no bear market at all. You could look at something that we love talking about, like Japan in the 1980s. Got to the most expensive stock market in the world, but it was the biggest stock market in the world at the time.

MEB FABER: A lot of people don't know that. They always assumed the US was the biggest forever. Japan was bigger than the US in the 80s. And then Japan's stock market went nowhere for decades. And so I think there's a better approach. We believe so.

MEB FABER: And this seems like a perfect opportunity for people to contribute assets that maybe they feel are highly appreciated or expensive and be able to rotate into something that might be more palatable. There's some timelines. We want to get these done by Thanksgiving so you can enjoy your Thanksgiving holiday and move on. And then the fund will launch December, mid-December.

MEB FABER: And one more important comment, and then we can move on to whatever else, is that, you know, when you get the ETF back and let's say you contributed 20 positions, the cool part is you now have 20 separate cost bases to manage. So you could pick and choose. Which ones you want to sell in the future. So it gives you very granular tax optimization. It doesn't have to be all or nothing in the future.

CHRIS SIPES CFP®: Yeah. And so kind of the mechanics of how this works and stop me if I'm wrong anywhere in here is that you're going to take those appreciated positions that you already have. Your team at Cambria will map the tax using our help showing. What the tax lots are of those positions that we're contributing.

CHRIS SIPES CFP®: You map that over so that the new taxable position in the new ETF, you're in the same position as you were before. It's just you're going from concentrated risk to more diversification. That's really the main benefit. You get to continue to defer those taxes down the road. But your team does all that kind of underlying work with that tax mapping correct Yep.

MEB FABER: That's it.

CHRIS SIPES CFP®: And is that a big reason why three 51s have not been, you know, kind of brought to the public before now? Is it just that Cambria has been willing to kind of step out there first and do the work to, to do this? Cause it is a lot of work.

MEB FABER: There's a couple of things. So, so they, they have been done, but traditionally it's done where like dimensional fund will convert a hundred billion of their mutual funds. And that's kind of simple because it's their fund, it's their assets, they can control it. The innovation that we've kind of pioneered with our friends at ETF Architect is saying, we're willing to open this up to various advisors.

MEB FABER: Now, why hasn't BlackRock done this? Why hasn't Vanguard done this? And I think they probably will at some point. I think there's two things. One, they got four commas in their total assets. When you manage a trillion, You're not going to mess around with something that's a ton of work for not a ton of benefit, you know, and then they got to roll it out to everyone.

MEB FABER: It's just it's a it's a giant plumbing problem for them if they're dealing with millions of accounts. And it's getting much better. A lot of the custodians, depending on where you are, are much more set up and on board with, you know, kind of streamlining this. But software solves most of this.

MEB FABER: And it's getting better on each launch and smoother. But the main reason is just it's a lot of work. And it's manual still. You know, you're talking to a client and it just, it is, it's a process. And so thankfully we have y'all to help us. And we have ETF Architect to help us and on and on.

MEB FABER: But I think 20, and also the biggest hindrance is, as you guys know, with money, people. There's a lot of inertia and people are very wary. Look, and they, as they should be with their hard earned nest egg to go do something that sounds new. Right. And, the good news is now we have a fair amount of prior art. You know, we've launched three, and, and ETF Architect has launched a handful as well.

MEB FABER: So it's, it's becoming more mainstream, but again, like we mentioned earlier, 99% of people have not heard of three 51. But the good news is if you Google 351 ETF, you'll see articles by Bloomberg and the Journal and CNBC and everyone else covering it. I think next year it'll start to hit more mainstream.

MEB FABER: I think the struggle for a lot of people is, you know, when does this wild romp end? You know, it feels like the what's the classic line of the punch bowl at the party? You know, we don't know when it's going to end, but one day it might. And I think, you know... People, a lot of people are nervous with these big gains they got.

DANO WEIR: Yeah, man, I'm so glad that you touched on the hard earned dollars piece of it, because When Chris was first, it was just new to me that I've been learning about here at the firm when we was explaining how this all works.

DANO WEIR: And my connection to a lot of our clients is I'm kind of the, you know, I ask a lot of the questions that someone who's never heard of things like this will ask. And so I immediately when Chris started explaining it, I like to call this stuff double backflip finance, where it's like, it feels like you're like doing a, you know, something like that. So I guess my question is.

DANO WEIR: Tell me about the process. Tell me about the people. Tell me about how often you've done this. Tell me it's new, but you've been doing it for a while. And you mentioned that the code goes way back. So can you just tell me about some success stories or what can you share with me regarding some case studies with people like this?

MEB FABER: You know, they're getting bigger and bigger. And I mentioned our first one was 30 million. Our last one was 150. I think you'll see some that are. Going to cross over a billion in short order.

MEB FABER: You know, Goldman did one. People always joked on our first fund. They're like, Meb, is this real? Is this legit? I said, well, Goldman just did one. And Goldman's got way more expensive lawyers than we do. And ours already are expensive. We pay them a fortune.

MEB FABER: Goldman did one, but they did it with their own money, right? They weren't opening it up to, you know, all the you and me. And so there's been a bunch of these.

MEB FABER: And you're going to hear more and more about it it's kind of like once you've heard it you can't unhear it the very tax sensitive people traditionally family offices are are on the forefront of being interested in this you know a lot of the and this is great for y'all by the way because the old traditional wire houses of the world their advisors are going crazy wanting to do this but obviously they can't because meryl and Morgan UBS, you know, those, those risk departments are taken forever.

MEB FABER: Plus on top of that, they're, you know, they got a lot of, a lot of conflicts on being able to do it. So, that's the beauty of, of, of y's model. So, I, I think, it's like anything, a new product adoption where the more, you know, you see the, the more comfortable people get with it. It's.

MEB FABER: It's probably a great rule not to be the earliest adopter when it comes to money and trying something out. But, you know, and I think it'll, it'll also increase depending on what's going on in the world.

MEB FABER: You know, if you start to see a little volatility and jiggles, or even a downturn, investors start to get pretty, pretty anxious, you know, as long as if the S And B is doing, and we said this earlier, I said, This is only one of four times in history where the U. S. Stock market's done 15% a year on a rolling 10-year basis and said the other three have names.

MEB FABER: The roaring 20s of the 1920s, the nifty 50 period of stocks, which is kind of not too dissimilar from today of the 1960s and early 70s, and then the internet bubble, and then the COVID meme stock mania. And so it's been an amazing time, but imagine if the U. S. Stock market stops doing 15% a year.

MEB FABER: Well, all of a sudden people would say, oh, I got to get out before this game of musical chairs ends of this position that, as you mentioned, like you don't want to be there when it's down 90 and you missed it. So I think the increasing interest will start to happen.

CHRIS SIPES CFP®: I think I heard the quote from you, Meb, that it's, you may concentrate to get rich, but you want to diversify to stay rich. I don't know if you're the one that said that. I feel like. I heard it from you. Take credit. Say it was you. It's a good saying.

MEB FABER: We wrote a series of four posts in the COVID pandemic five years ago talking about the get rich portfolio, the stay rich portfolio, investing in a time of Corona and kind of what I do with my own money.

MEB FABER: And we were talking about some of these topics, but the thing about concentrated stock is that the people that have made money with... With investments or concentrated investments. So let's say you hit the lottery, you had bought NVIDIA 10 years ago or Microsoft, Berkshire, whatever.

MEB FABER: You have a very small subset hindsight bias.

MEB FABER: You were the successful one, right? And if you look at the long distribution of stock returns, roughly two-thirds of stocks underperformed the index. About half essentially have no return and about a quarter basically go to zero. And the thing then with concentrated stock going forward. Is everyone's like, yeah, but I made money on this stock. It's my baby.

MEB FABER: But here is the great behavioral question to ask people. Say, okay, you got 10 million and it's in NVIDIA today. God bless you. Pat yourself on the back, whatever.

MEB FABER: Let's say you can magically sell it. All right, now you magically sold it. You paid no taxes. You got 10 million cash. You wake up tomorrow.

MEB FABER: Would you buy... With your entire account, $10 million of NVIDIA. There are zero people that would do that, right?

MEB FABER: It's this endowment.

CHRIS SIPES CFP®: I don't know about zero, man.

MEB FABER: It's called the endowment effect. And here's a great way to make the analogy to investors. You put way more value on what you currently own than something you don't own. You can do this with a coffee mug, or you can do this very simply. You can walk out to your garage. If you guys don't have a garage, you can walk into your closet and take inventory and pretend tomorrow that your house burned or whatever.

MEB FABER: Someone got rid of all the stuff in the garage, got rid of all the stuff in the closet. Would you go buy all those things again? Of course, no one would. No one would go buy that old riding lawnmower that doesn't even work. No one would go buy the old sports kids equipment, which, you know, your kids are now 16. This is like from when they were five. So why do you, why do you keep it?

MEB FABER: Why don't you sell it is because people put a value on things that they already own and this is true with stocks too so i think it's mentally cleansing to move on but it all the academic research shows that holding a concentrated portfolio going forward is a terrible horrible no good very bad idea you may be the outlier on one in a hundred in the future on on what does well and good for you if you do but on average It is, and you can ask the Enron folks, you can ask on, there's thousands of examples of giant companies that are no longer giant.

DANO WEIR: You mentioned, and Meb, I just want to be really clear on this because you mentioned that Goldman had created a fund like this. And then you mentioned that your fund is for you and me. So when you say you've got 30 million in the fund, these are individual investors. These are like, for example. Chris's clients could be in there. The average retiree, this is something that they have access to through you.

MEB FABER: Yeah. The last one we did was 150 million. And the traditional path is you have to go through a financial advisor. And why is that? That's actually not an us requirement. I would love it if it's just open to everyone in the world. I love democratizing investing. I want everyone to be an investor. We got a new book coming out next year that's targeted at this topic called time billionaires.

MEB FABER: And so. But the custodians like Schwab are like, oh, no, we are not dealing with 10,000 people trying to do this. Like, this is not on our plate. So they say you got to go through an advisor, which is which, you know, it's kind of like the white glove handholding. But, yeah, you know, we end up having quite a few different.

MEB FABER: In varied portfolios and ideas and things that people contribute. And it's, it's pretty fun to see what, what, what comes in and you would expect it to be all on video, but it's not, you know, it's a wide range of positions and, portfolios and ETFs that come, come through.

CHRIS SIPES CFP®: So you don't have to be accredited, which some may know what that means. Essentially, you've got a high income and, or a high enough assets to have the powers that be say, yes, you can do this. You don't have to be accredited, but you do need to go through an advisor. Is that correct?

MEB FABER: Right. Exactly.

MEB FABER: Now, the reality is if you're a young person and you had big gains in your portfolios, only like a hundred grand, you may want to be taking the gains now because you don't have high income or you don't have your tax rates lower than it may be in 10 or 20 years. So on average, you know, we're not getting people with lower account balances.

MEB FABER: Sometimes they're like, I don't even want to deal with it. It doesn't matter. On and on, I'm not paying much in capital gains. So for each person, but for the people who are in the much higher tax brackets that, you know, and in some cases, you know, we talk to investors, they're like, look, I want to move into a portfolio that can rebalance and move on.

MEB FABER: I don't want to have to think about it. And you know what? This sucker is going to my heirs at death or I'm going to donate it. Like there's all sorts of. Different use cases. But on average, I think that people tend up having kind of larger portfolios just because, you know, for various specific reasons.

DANO WEIR: You mentioned previously crypto, and that is definitely a space where people may have an appreciated position. You also mentioned Fartcoin, which if anybody doesn't know, that is actually a real coin. Meb was speaking to truth. Don't go look for it. So how does crypto and 3451 exchange play with each other or don't?

MEB FABER: So one important note is, you know, people ask us. Hey, like what type of funds are you doing? And when we did this about a year ago, we said, we're going to lay out a buffet of four choices. We're not sure what people want. Cause some people, you know, say, Hey, I'm getting out of this. I may want that. I may want something else. And we'll do a similar buffet in 2026, I believe.

MEB FABER: But, you can only contribute assets that are similar to what the fund is going to be doing. So our next fund in December is a U. S. Only stock funds. So you can't contribute foreign stocks. You can't contribute a gold ETF or a Bitcoin ETF or whatever. For other funds that we have that might be multi-asset, you can, right? And so on average, it's got to roughly match what you're trying to do.

MEB FABER: But I think in 26, you may have the ability to contribute Bitcoin and some other interesting types of assets that really this year you probably couldn't.

MEB FABER: But for now, it's mostly U. S. Stocks as well as ETFs.

DANO WEIR: So if you're, just to be clear, if you're getting out of that concentrated position and going into the 351, you have to purchase, you've said this, I don't want to be clear here, you have to purchase like positions. So if in this case you were leaving crypto, you would have to go into crypto. If you were leaving international, you would have to be going into international in the 351. Yes?

MEB FABER: Broadly speaking. Correct.

CHRIS SIPES CFP®: Or a fund that holds all of those. Like earlier this year, you did the endowment fund, which is didn't take anything.

MEB FABER: Now that that's.

CHRIS SIPES CFP®: That's, you know, hold crypto, but it held a lot of other assets. And so you were able to contribute, you know, foreign stocks, US stocks.

CHRIS SIPES CFP®: You know, this year we've seen a big run in gold. So I'm sure you're going to have some people with looking for diversification options there, too.

CHRIS SIPES CFP®: But that's a good question, Dan. So but you couldn't take like crypto and go into a U. S. Stock fund. That's that's not going to work.

MEB FABER: That would not be my interpretation. I think there are other people out there that could come up with all sorts of different interpretations of what, you know, the rules may be. But that would make me a little squeamish.

DANO WEIR: And probably those lawyers, too.

DANO WEIR: Well, Chris, we are getting to the end of our time with Meb. I know you have, Chris always has more questions. So out the door, Chris, before we wrap up, what else do you want to ask him about 351 exchanges?

CHRIS SIPES CFP®: I know you've done a couple other podcasts, Meb. Where can people find out more if they want to dig into some more details? What would be some good resources for them?

MEB FABER: The first one is we have a page on our website, cambriafunds.com forward slash 351. If you just Google 351 ETF, you know, there'll be a number of webinars and things that we've done and others have done on the topic. And yeah, always reach out to us, you know, reach out to you guys. But you can also reach out to us and we're happy to answer questions.

DANO WEIR: We thank you so much for checking out our show today, this special edition of On The Market. If this is you, if any of this has been resonating, if you've had a position that you have not been able to rebalance, if you've been finding yourself feeling squeamish about the future moving forward in the market and you're looking for a little bit more diversification, this might be an option for you if you're a client of ours.

DANO WEIR: Contact your advisor, contact chrissinomowealth.com if you are a prospective client. If you want to learn more about what we can do for you and how a 351 might be helpful.

DANO WEIR: He is Meb Faber, the co-founder and chief investment officer of Cambria Investment Management. He's also the host of the Meb Faber Show. So if you're enjoying the conversation today, make sure to find him on YouTube and Apple Podcasts. Just search for Meb Faber. Details on Cambria Funds at cambriafunds.com. And Meb, thank you so much for the conversation today.

MEB FABER: It was a blast. Thanks for having me. Thank you, Meb.

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