Rob Arnott Says It’s ‘Insanely Stupid’ to Chase Market Bubbles

Rob Arnott has a warning for everyone who is confident they’ll know when it’s time to sell a soaring stock like Inc. or Tesla Inc.: getting out before the crash is much harder than it looks.

“People buying bubble assets will make money until they don’t,” the Research Affiliates co-founder said on Bloomberg’s What Goes Up podcast. “If they don’t have a view of what will it take for me to say, ‘OK, enough already, I’m going to get out,’ then they are doomed to ride the roller-coaster over the top and down. So without a sell discipline, buying bubble assets is insanely stupid.”

After a stellar run for technology stocks this year, with the Nasdaq 100 up more than 25% at one time, speculative trading sending the likes of bankruptcy stocks soaring and shares of Tesla surging nearly 300%, comparisons of elements of 2020 to the dot-com days have grown louder. The concern is that today will end catastrophically as it did then, with a bubble eventually bursting, burning those who have enjoyed the historic rebound from the depths of the coronavirus bear-market.

Research Affiliates, a smart-beta pioneer and sub-adviser to money managers including Pacific Investment Management Co., has studied the nature of bubbles for years. In an April 2018 report titled, “Yes. It’s a Bubble. So What?”, Arnott listed several evidences at the time -- including tech, crypto-currencies and so-called micro-bubbles in certain stocks including Tesla -- but urged investors be patient.