Bogleheads On Investing Podcast Episode 88, Antti Ilmanen, Ph.D., talks about how investors form long-run return expectations, Rick Ferri host
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Nov 28, 2025 Antti Ilmanen, Ph.D., Principal at AQR Capital and expert on asset valuation, discusses how investors form long-run return expectations. He contrasts market-based, objective forecasts with subjective beliefs, highlighting the implications of bullish sentiment during low expected returns. Antti analyzes U.S. equity dominance and the impact of valuation shifts, while emphasizing the importance of simplicity in portfolios. He warns against overcomplicating investments, discussing reasons behind elevated earnings growth and the dynamics of bond expectations.
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Objective Vs. Rear-View Expectations
- Forward-looking, market-based valuations generally predict future returns better than rear-view extrapolation.
- High starting valuations (low yields) imply lower long-term expected returns even without mean reversion.
Fama's Paper Toss Moment
- Antti recounts asking Eugene Fama about survey data and seeing Fama toss a paper into the waste bin.
- That experience pushed Antti to revisit and promote survey-based investor expectations later.
Extrapolation Drives Equity Bubbles
- Equity investors often extrapolate recent strong performance into future growth, creating optimism that raises valuations.
- That optimism can coexist with objectively low expected returns, producing bubbles like 1999–2000.
