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James Montier: No Silver Bullets


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Guest hellsten

Thank you.



The one thing that unites everything I’ve been writing about in this paper is the golden rule of investing: no asset (or strategy) is so good that you should invest irrespective of the price paid. If when buying a house the mantra is “location, location, location,” when thinking about any investment (be it an asset or a strategy), the equivalent refrain should be “valuation, valuation, valuation.” We would argue that one of the myths perpetuated by our industry is that there are lots of ways to generate good long-run real returns, but we believe there is really only one: buying cheap assets.




investment managers have worked out that turning up at someone’s door and saying, “I’ve got this brilliant idea about how to beat the cap weighted benchmark. I’m going to invest in value stocks and small cap stocks!” would get them laughed out of town. But make no mistake about it: that5 is exactly what just about every smart beta strategy is doing.

One might argue that having exposure to value and small makes good sense. However, from my perspective this is true if and only if the golden rule of investing holds: “no asset (or strategy) is so good that it can it be purchased irrespective of the price paid.” Even value (cheap price to book) and small cap stocks are not guaranteed to outperform independent of their pricing!

If our forecasts are to be believed, then the current juncture represents a particularly bad point in time to be trying to implement a smart beta strategy as both value and small have very unattractive expected returns in the U.S. on our data

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