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Excess Returns
Busting 50 Years of Investing Myths | Rob Arnott
Jan 23, 2025
In this engaging discussion, Rob Arnott, the founder of Research Affiliates and a pioneer of fundamental indexing, shares over 40 years of investment wisdom. He tackles pervasive investing myths, debunks the misapplication of 'smart beta,' and highlights the deceptive nature of historical returns. Arnott also explores the inefficiencies created by index funds and the current challenges for U.S. growth stocks. Additionally, he emphasizes the potential of small-cap and value stocks in today's market, providing valuable insights for savvy investors.
01:12:14
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Quick takeaways
- Rob Arnott highlights that historical returns can mislead investors regarding future equity risk premiums due to changing market conditions.
- The discussion emphasizes the effectiveness of fundamental indexing in mitigating risks associated with traditional market capitalization-weighted indexes.
Deep dives
The Current State of the Stock Market
The U.S. stock market is viewed as undervalued, especially when compared to historical standards, with small-cap stocks also considered cheap. There is a notable concentration in the market, with the top 10 S&P companies representing nearly 40% of the index, which is unprecedented in market history. This abnormal concentration suggests a potential for volatility, as these companies may be overvalued based on projections for their future economic contributions. Overall, this environment is seen as rich with investment opportunities, particularly in value and smaller stocks that are currently underrepresented.
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Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode