48: Research Affiliates' Rob Arnott - The Value Factor

Rob Arnott is the founder and Chairman of Research Affiliates. In January, he published a paper that looked into the question of why the value premium hasn't worked for the last decade, called 'Reports of Value's Death May Be Greatly Exaggerated'. In this interview, we talk about the paper, how the current downturn due to the coronavirus might impact factors and why Arnott would never take Research Affiliates public. Overview of Rob Arnott Podcast: 1:00 Is this time different? 2:00 Will things be different three years from now? 4:35 The idea that tech stocks won't be hit is naive. 7:30 The narratives for why value fails, don't work, with one exception 7:50 Book/value is a terrible measure of value 8:50 By capitalising intangible assets, you boost the value of companies and some might not look like growth companies anymore. 9:00 By taking into account intangible assets, value works better 10:00 Even Benjamin Graham, in 1937, wrote about the mediocrity of book-to-price 10:30 Today, over half of the assets of a typical business are intangibles that don't show up in the book value 11:30 Are private equity investors arbitraging the value factor away? 12:00 I cannot imagine Research Affiliates going public. I would instantly resign! 15:30 You will never hear a momentum manager tell you the simple fact that momentum hasn't worked since 1999 17:20 We wrote a paper for a journal on machine learning in which we went through a laundry list of things that could go wrong 18:00 What would you do in the current environment? 18:30 You want to buy at peak fear. 19:25 Value stocks as a segment will come back; they are trading at the cheapest level since the tech bubble 21:00 In Emerging markets you have a crisis every two years, so this is just another, nasty crisis. 22:30 Will the new announced fiscal stimulus and QE distort factors?