The Coronavirus Broke the Weighing Machine
Legendary investor, Benjamin Graham, explained the stock market in the following way: “In the short run, the market is a voting machine, but in the long run, it’s a weighing machine.” Since the emergence of COVID-19, the weighing machine is broken.
The Distinction between a Company and Its Stock Price
We at Research Affiliates recently conducted our first virtual All Hands meeting after finding ourselves working from home in the wake of the COVID-19 crisis. As CIO, I responded to questions about our investment strategy. Katy Sherrerd, CEO, and Jeff Wilson, Head of Distribution, asked me to elaborate more broadly on my response to one of the questions submitted by email the day prior.
The Impact of ETFs and Index-Tracking and Passive Strategies on the Fixed-Income Market
There are three key areas where the allocation requirements of passive fixed-income vehicles have an impact on the market.
The Great Leverage Unwind
We entered into the current crisis with a whole financial system that had been incentivized by policymakers to take on excessive levels of debt and leverage. The turmoil we are seeing right now is the result of the unwinding of this leverage.