The Ex-Lehman Trader’s Case Against Index Funds

Jared Dillian ran a trading desk at Lehman Brothers right up until the firm collapsed in September 2008. A month later, he launched his own investment research newsletter. It's still running today — and his new book makes the case that the investing advice an entire generation was handed is built for conditions that no longer exist.   In our podcast this week, I sat down with Jared, editor of The Daily Dirt Nap and author of The Awesome Portfolio, to explore his time on Wall Street and the investment strategy that he lays out in his new book.     In our conversation, Jared shared a shocking fact with me – index funds have grown from 2% of assets under management in 1997 to 56% today. And he made the point that, when everybody is in the same trade like this, it’s a liquidity trap waiting to happen.   We also drill into the principle of asset allocation, and Jared expands on the investment system that he developed and back-tested. Going back to 1971, his allocation model has returned roughly 9% annually at about half the volatility of the S&P 500. And its single worst year was an 11.8% drawdown in 2008.   We then spent the back half of our conversation getting into the psychology of investing... which I think is absolutely fascinating. And Jared shares my view that, at the end of the day, it’s not really about money.   You can catch the full episode at: https://phoenicianleague.com/podcast-episode-23-the-ex-lehman-traders-case-against-index-funds-jared-dillian-on-the-awesome-portfolio/   And if our conversation resonates with you, be sure to pick up a copy of Jared’s new book at: https://www.amazon.com/Awesome-Portfolio-stress-free-approach-investing/dp/1804094099   Have a great week!   -Joe Withrow

 

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