Should Market Timing Have a Place in Your Portfolio? A Critical Look at Meb Faber’s All Time Highs Strategy
By Dr. Pete | TradeRounds Note: For readers who may not be familiar with all the financial terms used here, I’ve included a helpful glossary at the end of the article.
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Note: For readers who may not be familiar with all the financial terms used here, I’ve included a helpful glossary at the end of the article.
The financial world loves to warn you against buying at market peaks. Ask any investor and they’ll likely caution, “You never buy at all-time highs…” as if it’s a sacred law of investing.
Meb Faber, founder of Cambria Investment Management, politely disagrees.
I had the pleasure of meeting Meb over 15 years ago, back when he was managing just a few million dollars (he now oversees billions). Even then, I thought: this guy is sharp. He remains one of the best thinkers in tactical investing today and has always been generous in sharing his data-driven research.
In his white paper, “All Time Highs: A Good Time to Invest? No. A Great Time,” Faber lays out one of the simplest yet most contrarian tactical strategies you’ll find: buy assets when they’re near their highs, not after they’ve crashed. Let’s explore the data, the method, the risks, and where things stand today.
💡 What Is the All Time Highs Strategy?
The system is simple:
At the end of each month, check if an index (e.g., U.S. stocks) is within 5% of its all-time high.
If yes: Stay invested in the asset.
If no: Move to 10-year U.S. Treasury bonds.
Faber’s backtest from 1926–2019 compared this to standard buy-and-hold investing.
Buy-and-Hold U.S. Stocks:
Annual Return: 10.07%
Volatility: 18.65%
Sharpe Ratio: 0.36
Maximum Drawdown: -83.66%
All Time High Switch Strategy:
Annual Return: 9.61%
Volatility: 10.84%
Sharpe Ratio: 0.57
Maximum Drawdown: -29.13%
The takeaway? A small tradeoff in return buys you a huge reduction in “gut-wrenching loss” risk. If you’ve ever watched your portfolio fall 50%+ during a bear market, you understand why this matters.
🌎 It Works Internationally Too
Faber applied the same rule to foreign stocks with even better results.
Foreign Stocks Buy-and-Hold:
Annual Return: 7.91%
Volatility: 15.83%
Sharpe Ratio: 0.28
Maximum Drawdown: -70.35%
Foreign Stocks All Time High Strategy:
Annual Return: 9.81%
Volatility: 10.27%
Sharpe Ratio: 0.62
Maximum Drawdown: -30.82%
Not only did risk drop dramatically, but returns actually improved. That’s a rare two-for-one in investing.
🔧 The 12-Month High Variation
One issue with all-time high filters is that markets can stay below prior highs for years (think Japan in the ‘90s).
So Faber also tested switching based on 12-month highs instead. Allocate Smartly’s analysis of this tweak found:
12-Month High Strategy:
Annual Return: 10.68%
Volatility: 10.68%
Sharpe Ratio: 0.62
Maximum Drawdown: -43.98%
This version kept the risk control benefits but captured more upside after deep drawdowns.
📉 What About the Past Decade?
It’s important to note: most momentum models—including this one—have underperformed since 2010.
U.S. stocks had a historic bull market with few deep corrections. Momentum strategies like Faber’s often exited briefly, only to miss quick rebounds. As Allocate Smartly and others have shown, this led to “whipsaw losses.”
That doesn’t mean the strategy is broken. It reminds us no model works in all environments. Momentum shines in volatile, trending markets, but struggles in long steady rallies.
🛠️ Practical Implementation with ETFs
Thanks to exchange traded funds (ETFs), investors can implement this approach easily.
An ETF (Exchange Traded Fund) is a low-cost basket of assets that trades like a stock.
Here’s a practical ETF lineup for an All Time High or 12-Month High strategy:
Asset Class (choices of ETFs for each)
U.S. Stocks: SPY, VOO, IVV (S&P 500 stocks)
Foreign Stocks: EFA, VEA (Developed country international stocks)
Emerging Markets: EEM, VWO (Emerging market stocks)
U.S. Bonds: IEF (ten-year U.S. Treasuries), TLT (long-term US Treasuries), AGG (broad bond market)
Real Estate Investment Trusts (REITs): VNQ, IYR
Commodities: DBC (broad commodities), GLD (Gold), IAU (Gold)
How do you know if an ETF is within 5% of its high?
You can use:
Yahoo Finance (free)
TradingView (charts)
PortfolioVisualizer.com (backtests + price histories)
ETF provider websites (Vanguard, iShares)
Morningstar
Quick DIY method:
Check if current price ÷ recent high ≥ 95%.
Example: SPY all-time high = $480, current price = $460 → 460/480 = 95.8% → stay invested.
This makes the strategy extremely approachable for DIY investors with nothing more than basic spreadsheet skills and access to free online data.
🤝 Buy-and-Hold vs Trend Following? A False Choice.
Faber’s Trinity Portfolio (ETF ticker: TRTY) combines buy-and-hold, momentum, and value investing. Why? Because each strategy takes turns being “in the doghouse.”
That’s also my philosophy: don’t obsess over which strategy is “best.” Build a robust toolkit to give yourself the best chance of long-term success.
📝 The Bottom Line
Meb Faber’s All Time Highs system is no magic bullet. But it may help you avoid catastrophic losses while keeping you in the game.
If you can stick with it—through the inevitable dry spells—you may avoid the fate of countless investors who panic-sell at the worst moments.
To quote Meb’s paper: don’t be the guy who passed on The Beatles to sign The Tremeloes.
📖 Glossary of Key Terms
Annual Return: Average yearly increase or decrease of an investment.
Volatility: How much prices fluctuate; high = more risk.
Sharpe Ratio: A measure of risk-adjusted return.
Maximum Drawdown: Largest % loss from peak to bottom.
ETF (Exchange Traded Fund): A fund that holds a basket of assets and trades on an exchange.
Momentum Strategy: Investing in assets with strong recent performance.
Buy-and-Hold Strategy: Owning an asset long-term, regardless of price moves.
Trend-Following Strategy: Buying assets moving higher, selling when they weaken.
Tactical Asset Allocation: Actively adjusting your mix of assets based on market conditions.
12-Month High: The highest price reached by an asset in the last year.
All Time High: The highest price ever reached by an asset.
DIY (Do-It-Yourself): A personal, hands-on approach to investing or portfolio management without relying on professional advisors.
📚 Sources
Faber, M. All Time Highs: A Good Time To Invest? No. A Great Time.
Allocate Smartly. Meb Faber's 12-Month High Switch (2024)
Allocate Smartly. Buying Global Stocks at All-Time Highs (2019)
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Author’s Note on Content Creation
I use AI tools like ChatGPT and Gemini to assist with data gathering, historical research validation, and draft refinement. I also regularly review and analyze third-party research, market commentary, and white papers. The final strategies, opinions, and trading insights presented here are entirely my own, grounded in my experience as an investor and educator. AI helps streamline my process, but the conclusions and voice are all mine.