Meb Faber, a podcaster and the CEO of Cambria Investment Management, acknowledged the value of "income and capital appreciation" as a cash management approach, particularly in times of economic instability.
Prior to this, on March 24, American venture capitalist Tim Draper offered some advice on managing funds in light of the current economic turbulence following the failure of Silicon Valley Bank, a major bank (SVB).
His worries were particularly focused on risk diversification, fraud awareness, vulnerability awareness, the value of yield, capital management, etc.
Faber stated in response to Draper's tweet that the worry for return and capital appreciation is “particularly meaningful in a time of higher inflation”:
Notably, Draper noted that "yield has been a crucial aspect in cash management" for many years in his guidance. He continued by saying that it has been exceptional even during periods of lower inflation and interest rates.
Draper said that understanding risk and return are equally important while discussing the current importance of yield, 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."
Faber noted his non-consensus portfolio, which was released on March 5, 2020, along with his interesting response to Draper's comments. In this portfolio, Faber cited risky financial elements as well as false assumptions about the security of Treasury notes.
He also clarified that while T-bill returns appear 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."
Similar to this, Draper went into length about the various dangerous factors and the importance of raising awareness of them, noting that even the government is guilty of this.