Excess Returns Busting 50 Years of Investing Myths | Rob Arnott
28 snips
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.
AI Snips
Chapters
Transcript
Episode notes
Fundamental Indexing Advantage
- Fundamentally weighted indices outperform cap-weighted indices by rebalancing and contra-trading against market noise.
- This outperformance is driven by a rebalancing alpha and a value tilt, similar to value investing but with more consistent returns.
Index Fund Controversy
- Rob Arnott presented fundamental indexing at a conference and faced angry opposition from a cap-weighted indexing proponent.
- The proponent questioned the validity of calling it an index, to which Arnott replied that his dictionary doesn't specify cap-weighting as a requirement.
Index Funds and Market Inefficiency
- Cap-weighted index funds cause market inefficiencies by purchasing stocks after they soar and selling after they tank.
- This creates price distortions and predictable patterns of outperformance for additions and deletions, particularly evident with Tesla's addition to the S&P 500.