Rob Arnott: Investors Should Always ‘Average In’ To What’s Out-Of-Favor And Unloved Now

During his recent interview with FTSE Russell Convenes, Rob Arnott explained why investors should always average in to what’s out-of-favor and unloved now. Here’s an excerpt from the interview:

Arnott: A friend of mine in the business, Charles Gave of all things a really good French economist. Hard to imagine, but really good French economist, likes to talk about the media and the markets in a context of what are these bastards trying to distract me from.

I love that way of framing it because the media focuses on narratives. Narratives set prices for assets. Changes in the narratives, move asset prices.

So it’s often wonderful to ask what’s the dominant narrative today and will it still matter in five years? If it’s not going to matter in five years, then ask the question, which way will this have moved markets and bet against it.

Host: Not asking for investment advice per se, but for those looking to build or realign their portfolios right now in 2022, what do you think people should really be looking to do? Whether it’s put more into alternative assets or be more conservative.

Arnott: In terms of specifics, I think more into liquid alternatives is a good idea. Why? Because mainstream stocks and bonds are expensive and the yields are too low. Which alternatives? Non-US stocks and emerging market stocks and bonds are all priced much more reasonably than US. Non-US bonds outside of the emerging markets, that’s another story. Those yields are near zero.

In terms of general guidelines that would be more lasting in nature than my prescription for right now, one issue is to ask the question, what is popular and hot now and avoid it.

What is out of favor and unloved now? Average in, if you’re averaging in to what’s unloved, one of two things will happen. It’s a value trap and it’s on its way to zero. In which case, if you’re slowly averaging in, you’ll have lost a bit of money. Or it’s a bargain. In which case, if you’re averaging in at the bottom when it turns you’ll have your maximum exposure. Well, that’s pretty cool.

You can watch the entire discussion here: