The Idea Farm

Rob D. Arnott shares a key reminder for investors: Market narratives — like AI reshaping the world — often have truth to them. But real change takes time. The world of 2027 may look familiar… 2035 is another story. #Investing #FinancePodcast #MarketNarratives #AIInvesting #LongTermThinking

Carl Kawaja of Capital Group shares an investing story that’s hard to forget. A biotech firm had a breakthrough AIDS treatment. No one cared — until GlaxoSmithKline acquired it for $1B. A lesson in patience, risk, and market inefficiency.

𝗔𝗿𝗲 𝘁𝗵𝗲𝗿𝗲 𝗶𝗻𝗰𝗼𝗺𝗲-𝗿𝗶𝗰𝗵, 𝗲𝗻𝗲𝗿𝗴𝘆-𝗽𝗼𝗼𝗿 𝗰𝗼𝘂𝗻𝘁𝗿𝗶𝗲𝘀 𝗶𝗻 𝘁𝗵𝗲 𝘄𝗼𝗿𝗹𝗱? No. Boston Consulting Group (BCG)

📉“If you’re looking at CAPE and saying ‘stocks are expensive,’ you might be missing something big.” Brian Jacobs, CFA of Aptus Capital Advisors explains a flaw in the CAPE ratio today: 1. It uses current prices 2. But average earnings from 10 years ago 3. That includes tech giants like NVIDIA — which had tiny earnings in 2014 Unless you think earnings will revert back to a completely different era, CAPE may be overstating valuations.

𝙒𝙝𝙖𝙩’𝙨 𝘿𝙧𝙞𝙫𝙞𝙣𝙜 𝙩𝙝𝙚 𝙎𝙪𝙧𝙜𝙚 𝙞𝙣 𝙐.𝙎. 𝘾𝙤𝙧𝙥𝙤𝙧𝙖𝙩𝙚 𝙋𝙧𝙤𝙛𝙞𝙩𝙨? Corporate profits totaled $4.0 trillion at the end of 2024—more than double what they were in 2010.  Profits averaged 13.9% of national income over the 2010-19 period; they were 16.2% of national income as of the last quarter of 2024. Which industries drove this increase? Where are corporate profits going? Ricardo Marto answers these questions and reads his piece for The Best Investment Writing. 🍎 Apple: https://lnkd.in/eJ5kgBkj 🍏 Spotify: https://lnkd.in/eiNQTnAF 📺 YouTube: https://lnkd.in/ekYTvPKg ✍ Article: https://lnkd.in/dyYhWfNx

𝗪𝗵𝗮𝘁 𝗱𝗿𝗶𝘃𝗲𝘀 𝗺𝗮𝗿𝗸𝗲𝘁 𝗿𝗲𝘁𝘂𝗿𝗻𝘀??? Decadal market returns are driven more by contemporaneous valuation changes (correlation 0.93) than by variations in EPS growth (0.39). Rising valuations gave windfall gains that boosted realized annual real returns to double-digit levels in the 1920s, 1950s, 1980s, 1990s and 2010s. Falling valuations pushed realized real returns to negative levels in the 1910s, 1930s, 1970s and 2000s. AQR Capital Management

📊 “𝘌𝘹𝘱𝘦𝘳𝘵𝘴 𝘥𝘦𝘷𝘦𝘭𝘰𝘱 𝘵𝘩𝘦𝘪𝘳 𝘦𝘹𝘱𝘦𝘳𝘵𝘪𝘴𝘦 𝘪𝘯 𝘵𝘩𝘦 𝘸𝘢𝘺 𝘵𝘩𝘦 𝘸𝘰𝘳𝘭𝘥 𝘶𝘴𝘦𝘥 𝘵𝘰 𝘣𝘦.” — Paul Graham, quoted by Barry Ritholtz on The Meb Faber Show. Barry lays out a key problem with forecasting and modeling: Every model is based on past data Every expert learns from old systems But the future doesn’t always play along. If tomorrow looks different, all those backtests and assumptions start to crack. This is the risk that every quant, strategist, and economist has to confront.

At the start of the decade, India was less than 9% of MSCI EM, and China was 34%. More than 15 points have been shaved from this spread to date. Henry Neville, Man Group

𝗦𝗵𝗮𝗿𝗽 𝗺𝗮𝗿𝗸𝗲𝘁 𝘀𝗲𝗹𝗹𝗼𝗳𝗳𝘀 𝗰𝗮𝗻 𝗽𝘂𝘁 𝗹𝗲𝗮𝗱𝗶𝗻𝗴 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 𝗼𝗻 𝘀𝗮𝗹𝗲 Capital Group