YouSaid · the spoken record

Rob Arnott

lines on the record: 56
first: 2025-01-03
most recent: 2025-01-03
sittings or episodes: 1
sources: podcast

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“He book value dividends number of employees where McDonald's would be one of your largest holdings. It didn't matter which measure you used. We found it at about 2% per annum. It did introduce a value tilt because if you're waiting companies on their fundamental size, you're de-emphasizing growth, you're re-emphasizing value. Now these are better companies for sure, but it's in the price. The market's already priced in the quality of the business, and unless it exceeds lofty expectations, it's not going to help you. The value stocks. Troubled companies with headwinds. It's not going to hurt you unless it underperforms bleak expectations, so it does have a value tilt, and the result is that when you compare it with the cap-weighted market, fundamental index wins over long periods of time by about two years.”
2025-01-03 · We Study Billionaires · TIP688: Long-Term Market Cycles w/ Rob Arnott · IDENTIFIED FROM THE TRANSCRIPT
“And that assumes that the company has no expenses, that the shareholders are paying no taxes. He said it's preposterous for a company to be 10 times sales. What were the investors thinking? And he was actually vocal in 1999 and 2000 that his stock was way overpriced. Currently you have NVIDIA 30 times sales. Is that justified? If it's got stupendous growth over the coming decade, if 10 years from now it's going to be 30 times its current size, then maybe. But absent that, it does make sense to weight it lower. So with fundamental index, an idea I'd been playing with for in the back of my mind for at least a decade was why not weight companies by their sales? Why not wait them by their book value? And so we tested a whole array of measures, sales, profits, cash flow.”
2025-01-03 · We Study Billionaires · TIP688: Long-Term Market Cycles w/ Rob Arnott · IDENTIFIED FROM THE TRANSCRIPT
“Balancing alpha. And that's the cool part. It does have a value tilt. Growth stocks are deemphasized down to their economic footprint. Value stocks are re-emphasized up to theirs. I mean, chevron's a huge company, but it's not huge market cap. Nvidia is a big company, but it's not an enormous company, and it's priced as if it's truly spectacularly enormous. Current pricing is about 30 times sales. Scott McNally from Sun Microsystems back in 2002 was questioned by Congress about his stock having cratered and his comment was, we were priced at over 10 times sales. If business is steady, that means we have to deliver 100% of the total revenues of the company and dividends to shareholders over the next 10 years to justify the price.”
2025-01-03 · We Study Billionaires · TIP688: Long-Term Market Cycles w/ Rob Arnott · IDENTIFIED FROM THE TRANSCRIPT
“Analyst journaled Why Valuation in Different Indexes Work? And it was inspired by fundamental index. He pointed out that you don't know if stocks are over or undervalued. Fair enough. But you do know that some are overvalued and some are undervalued. You do know that with cap waiting, you're overweight the overvalued and underweight the undervalued. Take any other weighting scheme if it ignores price, if it ignores market cap, a stock that's undervalued might be over or underweight. And the result is that the error is cancel instead of magnifying. And he also pointed out that the price action of a stock, stocks can come into favor, and if the fundamentals don't match the price appreciation, then watch out. There could be mean aversion. The market's constantly changing its mind on what a company's worth. So a stable anchor like the size of its business will lead to a”
2025-01-03 · We Study Billionaires · TIP688: Long-Term Market Cycles w/ Rob Arnott · IDENTIFIED FROM THE TRANSCRIPT
“One level, a not so clever way to invest because any stock that's overvalued relative to its future prospects is going to be overweight in the portfolio relative to a fair value weight. Any stock that's undervalued, destined to outperform, is going to be underweight because you're tying the weight to the price. Now indexers have heard that criticism since the launch of the S&B back in 1957, and they always had a ready retort to that. They said, of course we overweight the overvalued and underweight the undervalued. But unless you can tell me which is which, you haven't said anything useful. Well, it turns out that acknowledging that you're overweight, the overvalued underweight, the undervalued, and doing so because you're tying the weight to the price, if the price doubles, your weight doubles, there's a missed opportunity there. One of the originators of the capital asset pricing model, Jack Trainer, he was a dear friend, wrote a paper in the financial”
2025-01-03 · We Study Billionaires · TIP688: Long-Term Market Cycles w/ Rob Arnott · IDENTIFIED FROM THE TRANSCRIPT
“Sure, the Genesis for the strategy was the aftermath of the dot-com bubble, a dear friend of mine who ran a company called the Common Fund that managed commingle university endowments. He also served on a New York State Pension Board and several other boards, and he was just beside himself, he was very distressed because money was pouring into Index funds and index funds had a 4% position in Cisco at a time when Cisco was a tiny company. that subsequently went down 90%. You had the whole dot-com suite of companies down, well, Nasdaq was down 80% in that bear market. And so it was the crash of the dot-com bubble. He came to me and he said, there's got to be a better way. I had long thought that indexing by market cap is a great way to match the market because the market is capweighted.”
2025-01-03 · We Study Billionaires · TIP688: Long-Term Market Cycles w/ Rob Arnott · IDENTIFIED FROM THE TRANSCRIPT