market efficiency

Of course we all know that passive investing delivers superior returns. But what if everyone is investing passively? Is there a case for active investing then? Recent research has shown that the explosion in index funds has made equities slower to respond to news. And also, it’s fun to be contrarian. So today on the show we explore cracks in the case against active investing. Also we go long RuneScape and cycling. 

For a free 30-day trial to the Unhedged newsletter go to: https://www.ft.com/unhedgedoffer

Follow Ethan Wu (@ethanywu) and Katie Martin (@katie_martin_fx) on X. You can email Ethan at ethan.wu@ft.com.

Read a transcript of this episode on FT.com

Hosted on Acast. See acast.com/privacy for more information.

Over decades, index funds have delivered superior returns and surged in popularity. But some claim the rise of passive investing has come at the cost of less competitive markets and inflated prices for consumers. We look at the evidence that common stock ownership might harm economic efficiency.

And in today’s Dumb Question of the Week: How high would bond yields have to go for you to sell your stocks?

Selected links

• How Index Funds May Hurt the Economy - The Atlantic
• Anti-Competitive Effects of Common Ownership
• The Perils of Common Ownership: The Flooding Phenomenon
• Martin Schmalz: How passive funds prevent competition
• Index Investing and Common Ownership Theories | BlackRock

---

Get in touch

📧 mhr@pensioncraft.com

🎧 many-happy-returns.captivate.fm

---

Join PensionCraft

🌐 Become a member at pensioncraft.com

▶️ Subscribe on YouTube

---

Disclaimer

This podcast is for informational and entertainment purposes and is not financial advice. We do not provide recommendations or endorse any decision to buy, sell or hold any security. We cannot be held responsible for any actions listeners may take and investors are encouraged to seek independent financial advice.

Copyright 2023 Many Happy Returns

Dimensional Fund Advisors is one of the fastest growing providers of mutual funds and ETFs. It was founded in the early 1980s, built upon University of Chicago research on efficient markets, passive investing, and other ideas that have since become extremely widespread. After having built up a huge following among financial advisors for their mutual funds, the company has been racing up the list of ETF providers. On this episode, we speak with Dimensional's co-CEO and chief investment officer Gerard O'Reilly on the firm's history, its approach to investing, and where he sees the fund management industry going.

See omnystudio.com/listener for privacy information.

John Arnold is widely regarded as the greatest natural gas trader of all time, but in his late 30’s he walked away from it all and turned full-time philanthropist. He and his wife have committed to strategically give away most of their vast fortune in their lifetime and are already doing so at a staggering pace of nearly a half billion dollars a year. In this episode, John explains his quest to address the most challenging social programs plaguing the country, including criminal justice, health care policy, and K-12 education. John also shares self-identified attributes that contributed to his success in natural gas trading and how those same traits have translated to his philanthropic aspirations.

We discuss:

• John’s background, upbringing, and early entrepreneurial tendencies [3:50];
• John’s time and rise at Enron [16:45];
• Characteristics that made John an exceptional natural gas trader and how they translate to his philanthropic work [27:30];
• The collapse of Enron [35:00];
• The success of John’s hedge fund, and his early interest in philanthropy [40:30];
• The infamous 2006 trade that brought down Amaranth Advisors [55:45];
• John’s analytical prowess and emphasis on fundamentals [1:02:15];
• The decision to become a full-time philanthropist and the founding of Arnold Ventures [1:09:00];
• Education—John’s quest to fundamentally change K-12 education [1:18:45];
• Strategic philanthropy—preventing problems by attacking root causes and creating structural change [1:24:30];
• The criminal justice system—structural changes needed to address mass incarceration, policing practices, and recidivism [1:31:45];
• Re-imagining prisons to reduce recidivism [1:49:00];
• US health care policy—John’s focus on drug prices, and the severe consequences of not making system changes [1:56:15];
• Climate change—the bipartisan role of John’s foundation [2:13:45];
• Advice for young adults interested in philanthropy [2:17:45]; and
• More

Learn more: https://peterattiamd.com/

Show notes page for this episode: https://peterattiamd.com/JohnArnold

Subscribe to receive exclusive subscriber-only content: https://peterattiamd.com/subscribe/

Sign up to receive Peter's email newsletter: https://peterattiamd.com/newsletter/

Connect with Peter on Facebook | Twitter | Instagram.

The biggest macro trend in investing is the rise of so-called "passive investing." But while this may have advantages for the individual investor, it raises a whole new host of issues, such as elevating the role of index designers, and decreasing the emphasis on studying individual companies. On this week's Odd Lots podcast, we speak with Bernstein's Inigo Fraser-Jenkins who once wrote a note that said passive investing is "worse for society than Marxism."

See omnystudio.com/listener for privacy information.

It's hard enough to save for a house, tuition, or retirement. So why are we willing to pay big fees for subpar investment returns? Enter the low-cost index fund. The revolution will not be monetized.

Among the biggest trends in the world of markets is the rise of passive investing. Rather than pay high fees to active mutual fund managers (who often fail to beat the market), people are pouring money into passive strategies that track major indices, but with little cost. So what are the ramifications of this trend for investors who choose to remain active? On this week's Odd Lots podcast, we speak with Michael Mauboussin, who heads global financial strategies at Credit Suisse and is not just an expert on the world of investing, but also on the role of luck in success. As he sees it, trading is like a game of poker, and in poker you want to play against weaker, less-skilled players. But as more and more of those less-skilled players opt not to trade (choosing passive strategies) then the game gets harder.

See omnystudio.com/listener for privacy information.