My Favorite Interview I've Ever Done

Listen in to my chat this week with my friend Meb Faber.

Meb is the co-founder and chief investment officer of Cambria Investment Management... and a big deal in the finance world. He has an incredible Rolodex and an equally incredible guest list on his podcast.

So when he e-mailed me asking me to go on his podcast, I jumped at the chance.

The result was fantastic. In fact, it was probably my favorite interview and podcast I've ever done.

I talked about...

  • The part I played in one of Wall Street's great practical jokes...
  • Why I said "go all cash"...
  • The income opportunity most people aren't talking about...
  • My best and worst investments...
  • And more. 

You can listen to it here.

Q: I watched few videos regarding centenarians [and] came to know recently that inflammation also determinate the life span. Inflammation can be ascertained from blood test. Is it true? Any investigation by you or pearl of wisdom will be immensely appreciated. – R.L.

A: The most common inflammation test is called a C-reactive protein ("CRP") screen. Higher results mean you have more inflammation. That dramatically increases your risk not only of heart disease and heart attacks, but also problems like diabetes and even Alzheimer's disease.

For the CRP test, the lower the better. If your levels are between 3mg/L and 10 mg/L, you're considered slightly elevated, usually due to things like obesity or a lack of exercise. Anything higher than that means your body is battling significant inflammation.

In the latest issue of Retirement Millionaire, we released the first part in our series on the real cause of heart disease and how inflammation is a major trigger. Retirement Millionaire subscribers can read it here. Not a subscriber yet? What are you waiting for? Click here to get started.

Q: You say to eat whole grains, but I thought we were to stick to the hunter/gatherer diet to preserve our brains. I know not to eat white rice, white bread, and white flour. What whole grains are okay? – P.M.

A: Hunter/gatherer diets like the popular paleo diet will help you shed pounds by avoiding processed foods, sugars, and carbohydrates. But these often involve eating a lot of fat. If you eat too much saturated fat, that can also put your liver into overdrive. Plus, you'll miss out on the benefits of whole grain foods.

The brain protection you're talking about is related to inflammation. We know that over-processed grains like white rice and white bread have been stripped of their natural health benefits. And they're packed with sugar, which we know triggers inflammation.

Whole grains, on the other hand, have well-known health benefits.

In a study published in  the Journal of the American Medical Association, researchers found a positive association between the consumption of whole grains and lower number of deaths in both men and women.

The researchers used two previous studies that followed 74,341 women and 43,744 men for 24 and 26 years, respectively. These studies measured cardiovascular disease, mortality, and daily self-reported diet. All of the participants were free from cardiovascular disease at the start of each study.

After adjusting for things like body mass index, age, smoking, and exercise, researchers found that people who reported eating whole grains – brown rice, whole wheat bread, etc. – had a lower number of deaths, including a lower number of cardiovascular deaths. They estimated that every one ounce of whole grain (about two tablespoons) consumed per day was associated with a 5% reduction in overall deaths and a 9% reduction in deaths from cardiovascular disease. That's just a slice of whole wheat bread each day.

Do what I do... Don't cut out those over-processed grains entirely. Instead go for brown and wild rice and whole-grain breads. Some of my favorite breads have 12 grains or more and look (and feel) like fiberboard from the lumber mill. If you don't like the texture or taste of fully whole-grain bread, look for some with three or more grains. (They have a softer, less grainy texture than my favorites, but still have benefits.)

Q: I'd like to know what the relationship is between free cash flow (FCF) and earnings. If, for example, I see earnings much lower than FCF, then how would I interpret this? – O.P.

A: Cash flow is king. When a company measures income, it includes accounting assumptions about the past and present. Cash flow is the real cash that shows up in the bank account this quarter or year.

Next, we look to see how much cash flows "freely." Free cash flow takes operating cash flow and subtracts capital expenditures. Operating cash flow measures how much money the business brings in from its day-to-day activities. Capital expenditures are investments in things that help grow and maintain the business. This includes things like factories and buildings.

Earnings, or net income, can be made to look better with accounting tricks (think Enron) or legitimate changes.

Say a company holds an asset that it estimates at a value of $1 billion, but this year it reassesses things according to the accounting rules and says the asset is worth $800 million. The company will take a loss to earnings of $200 million even though no money changed hands. This could happen thousands of ways. The company extends credit to a customer that then goes bust... or it could change its estimates on the life of a factory.

One of the most famous opening lines in literatures is the first line of Tolstoy's Anna Karenina, "All happy families are alike; each unhappy family is unhappy in its own way."

In finance, all cash flow is alike. If the earnings don't match, you'll have to dig in to find out why.

Free cash flow is the purest measurement of earnings because it's the actual amount of cash a company holds. That's the number we like to focus on.

What topics do you want to see us cover next? Let us know... [email protected].

What We're Reading...

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
February 22, 2019