Follow Us on Substack:

https://excessreturnspod.substack.com/

In this episode, we sit down with Rob Arnott for a wide-ranging discussion on bubbles, valuations, AI spending, market history, index construction, and long-term return expectations. Rob explains how to think about bubbles in real time, why today’s market echoes the late 1990s, and what investors can practically do to improve future returns. He also digs into Research Affiliates’ latest work on fundamental indexing, growth investing, and the opportunities in international and emerging markets.

Topics covered:
• How Rob defines a bubble and why narrative drives market pricing
• Lessons from the dot-com era that apply to today’s AI-driven market
• Why disruptors eventually get disrupted
• Practical portfolio steps for investors concerned about concentration
• Why value stocks remain historically cheap
• CapEx vs R and D and what history says about future returns
• The role of AI spending and why many companies struggle to monetize it
• How AI may reshape industries and who the real long-term winners could be
• Index construction flaws and how RA’s RAFI and RACWI approaches differ
• A new way to build growth indexes using actual business growth
• Why expensive companies with slow growth are the worst quadrant to own
• Insights on emerging markets, international value, and forward return expectations
• How Rob invests personally and what he sees as the best long-term opportunities

Timestamps:
00:00 Defining bubbles and why narrative matters
02:00 Are we in a bubble today
06:20 Lessons from the dot-com boom
12:00 What investors can practically do now
14:00 Value, RAFI, and rebalancing alpha
17:00 AI CapEx and its historical parallels
20:30 Who benefits most from AI
23:00 Disruption, technology cycles, and productivity
35:00 Reinventing index construction
40:00 A new way to define and weight growth stocks
43:30 The problem with expensive slow-growth companies
46:00 Magnificent Seven through the growth lens
52:00 Rob’s outlook on emerging markets
55:00 Why the US is priced for perfection
57:00 Averaging out and trimming expensive winners
58:00 New research and future product ideas from RA
59:00 Rob’s personal portfolio approach and long-short ideas
01:00:20 Closing thoughts and outlook

The Communal Budgie Smuggler

Toni and Ryan

Latvia trip details and Latvian drinks

The AI-powered Podcast Player