The Compound and Friends Big Market Delusion
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Mar 14, 2025 
Rob Arnott, founder of Research Affiliates, offers his expert insights as he dives into critical market topics. He discusses the current selloff and the allure of value stocks, juggling the implications of the CAPE ratio's evolution. The conversation shifts to Tesla's valuation struggles and market delusions around electric vehicles. Arnott also critiques traditional economic models while advocating for innovative asset allocation strategies that incorporate diverse investments. It's a captivating blend of humor, market analysis, and investment wisdom.
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Valuation Matters
- Tesla's innovative nature isn't enough to justify an excessively high price-to-earnings ratio.
- Buying at 400x earnings is risky, even for innovative companies.
Price-to-Sales Importance
- Price-to-sales ratios are often neglected but are crucial.
- High price-to-sales can be a warning sign, as with Nvidia's 30x sales, implying a potentially unsustainable profit margin.
AI's Data Hunger
- AI is data-hungry; it's very useful with trillions of data samples, but less so with only millions or thousands.
- AI is helpful in areas with vast data like large language models and tick data, but less useful for long-term investing.