- Meb Faber commented that yield and capital appreciation are important at higher inflationary times.
- Faber’s comment was a response to Tim Draper’s tips on cash management.
- The venture capitalist claimed that the Treasury Department is meant to preserve cash only at normal times.
Meb Faber, the podcaster and founder of the investment firm, Cambria Investment Management acknowledged the significance of “yield and capital appreciation” as a strategy for cash management, especially during financial uncertainty.
Previously, on March 24, the American venture capitalist Tim Draper shared certain tips regarding fund management, with regard to the current financial turmoil after the debacle of the banking giant Silicon Valley Bank (SVB).
Notably, his concerns included diversifying risks, awareness of fraud, awareness of vulnerabilities, the significance of yield and capital management, etc.
As a response to Draper’s Twitter post, Faber commented that the concern for yield and capital appreciation is “particularly meaningful in a time of higher inflation”:
Significantly, in Draper’s advice, he explained that “yield has been a major factor in cash management”, for years. He added that it has been remarkable even at times when there were lower interest rates and inflation.
While narrating on the current influence of yield, Draper stated that awareness of risk and return are equally relevant, adding:
Now, we have both high-interest rates and inflation, so awareness of risk and return on a company’s cash can be mission-critical. Normally a company’s treasury department is mostly meant to preserve cash, but these are not normal times.
Interstingly, along with his reaction towards Draper’s points, Faber mentioned his non-consensus portfolio, published on March 5, 2020, in which he cited risky factors of finance as well as the fallacious beliefs on the safety of Treasury bills.
Further, he explained that though the returns of T-bills seem safer, it is “not exactly”, quoting:
These are nominal returns, and nominal returns are an illusion because they don’t take inflation into account. All that matters to any investor is returns after inflation, or what we call real returns. And if you measure the returns of T-bills after inflation you see a different story – unfortunately, this is a story most investors haven’t seen.
Similarly, Draper also included in detail the different risky elements and the significance of the awareness about it, adding that even the government themselves are “at risk of becoming insolvent”.