Jul 8, 2021
Today we welcome Rob Arnott to the show! Rob is the founder of
Research Affiliates and is a prolific writer who has published
hundreds of articles for many different journals. We know
firsthand, the power of Rob's work, and how it can alter the way
you think about investing, and this depth of knowledge, coupled
with his ability to make complex topics understandable makes him a
dream guest for us! Rob is the co-author of The
Fundamental Index, and we get some insight into this
subject along with many other groundbreaking areas he has worked
on. We cannot stress enough the rarity of Rob's gift for getting
difficult ideas across in a deliberate and approachable way, and
this is apparent through this illuminating conversation. For us, it
was quite surreal to speak to someone so influential, and listeners
can expect to come away with a greater understanding of
'smart-beta', intangible assets, forecasting, and some insight into
the interesting areas of earnings dilution and 'the big market
delusion', before Rob shares some very surprising information on
factor momentum at the end of our chat. So for this and a whole lot
more, in a truly stand-out episode, be sure to listen in!
Key Points From This Episode:
- Rob's perspective on the drawbacks of cap-weighted indexing.
- Getting to grips with 'smart-beta' and its links to RAFI.
- Building a fundamental index and what the weights are based on.
- Misconceptions of the value of backtesting when making
investment decisions. [0:13:43.3]
- The prevalence of extreme factor-drawdowns for investments.
- Weighing the importance of intangible assets and what to trust
in this regard. [0:23:32.8]
- Value stocks in the current drawdown; value's relative
cheapening over recent years. [0:25:53.8]
- Stories about the inner workings of a company and how this can
vary in importance. [0:28:41.5]
- Unpacking 'the big market delusion' and the paper that Rob
co-authored on the subject. [0:33:33.2]
- Rob's work on earnings dilution and how it relates to
- How the findings on earnings dilution impact strategies towards
disruptive industries. [0:40:19.9]
- Forecasting the expected returns of a factor portfolio and
utilizing Research Affiliates website!
- The possibility of adding value through timing exposure to
- The truth about momentum in historical back-tests in the last
few decades. [0:49:12.8]
- Rob explains the real costs of trading!
- Momentum's primary existence in factors, ahead of individual
stocks and sectors. [0:58:44.8]
- How Rob currently defines success in his life.