Here’s the second part of my Boom/Bust interview from last week. If you missed part 1 you can see it here. In this video I discussed:
- The buyback boom and how corporations now prefer using funds to boost EPS and stock prices via share buybacks as opposed to making long-term investments in the company.
- Why it’s so difficult for investors to generate a decent return. With interest rates at 0% bonds are likely to generate sub-par returns going forward which means that the aggregate portfolio of financial assets likely won’t generate the same returns for investors as many people are used to. This will force people out on the risk curve….
- Why the term “passive indexing” is so misleading. I go into how the economics supporting passive indexing is based on ideas like rational expectations and the efficient market hypothesis. But we know, for a fact, that these concepts are unrealistic views of the economy. Therefore, it can’t be right that we should just “take what the market gives us” because we know that the markets can be wrong. I use the example of bonds and the global aggregate portfolio in the 70s and 80s which would have told us to “take” an overweight equities position, but we know in retrospect that the market was allocated wrongly and that this was an ex-post snapshot of the markets response to the interest rate environment. In other words, a static “passive indexing” view was precisely the wrong approach based in large part on flawed economic thinking.
- Why the investment business will continue to see lower and lower fees going forward.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.