Chris Cole, CIO of Artemis Capital Management joins Danielle DiMartino Booth to discuss the impact of passive investments on financial markets. Cole says that with enough central bank monetary stimulus and the ability to create debt, markets create the illusion that factor and momentum investing is based on. Cole parrots a saying by the Convexity Maven, Harley Bassman, “Pigs can fly if they’re shot out a large enough cannon, but they always return to earth as bacon.” Cole explains that active investors are volatility dampeners and the proliferation of passive strategies have not only worked to remove the value players, but in doing so the phenomenon has reduces alpha. He argues that because passive investing is a systematic strategy – the soul of investing is at war with itself over the question “do assets have intrinsic value or does price momentum rule?”
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How Passive Investing Amplifies Volatility (w/ Danielle DiMartino-Booth & Chris Cole)
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