Zweig and Grant on the Pressure to Go Passive

On a recent episode of WealthTrack, Consuelo Mack interviewed financial journalists Jason Zweig and James Grant regarding the lagging performance of value stocks and the pressure to move to passive investing.

Here are some highlights:

  • According to Zweig, “The real utility of a value investing framework is that it helps modulate your emotions as a value investor.”
  • Grant argues that the current cycle is likely to end badly due to: (1) the corruption of accounting methods–he describes EBITDA is an “imposter” metric that has “corrupted the entire food chain of finance;” and (2) the “suppression and manipulation of interest rates.”
  • We should view the future as a fan rather than as a line, says Zweig, adding that he is “not comfortable forecasting the shape of the slope,” but considers it “extremely implausible that it’s going to keep going up and up.”
  • One of the difficulties faced by today’s investors, says Zweig, is figuring out how to navigate stock market fads. One of the biggest at the moment, he argues, is “smart beta” investing, which he says has “led to an enormous amount of confusion for investors.” Zweig asserts there are “highly naïve or self-interested firms promoting these strategies.” There is no such thing, he asserts, as any factor that always outperforms.
  • Beating the market is a very difficult thing to do, says Grant, but adds that there is room for thought and analysis.  Zweig weighs in: “I’m not sure it’s that much harder to beat the market than it ever was. It’s a bit of a historical fallacy. I have yet to identify a period when professional asset managers have easily outperformed and did it again and again.”
  • Grant: “An intelligent investor today should recognize the age in which you live, the zeitgeist, the spirit of the time and, as much as possible, detach yourself from the optimism or pessimism.”