The Visionary
The future, and what is barely possible, reads round the next corner.
Robert Arnott reads as The Visionary because he did not refine passive investing so much as rewire it. Fundamental Indexing, now a 140 billion dollar concept, was born of his willingness to challenge indexing orthodoxy when doing so drew institutional anger rather than applause.
“Valuation change. If valuations are high, you're more likely to have mean reversion down. If valuations are low, you're more likely to have mean reversion up. So when markets are expensive, you have a lousy yield. Growth is what it is. And valuations are more likely to come down than rise.”
“Well, there's that, and then there's also the simple fact that the ads beat the discretionary deletions by 9% during a period of days. Well, that's a big move. So you also have part of that 23% return difference in the subsequent year is simply mean reversion, taking the price impact of the index funds back out.”
“Absolutely. Now, fundamental index. Still to this day, pretty much unique among the so-called smart beta strategies does have vast capacity. Why? You're spanning the broad macroeconomy, you're owning pretty much everything?”
“Molecule comes from the efficient markets community. He believes, he wrote random walk down Wall Street back in, I think, the 60s. It's interesting to note that if you believe that the share prices equal a fair value that we cannot see.”
Masters in Business: “Robert Arnott on Global Asset Management (Podcast)”
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