in computer science, but the stock is “a textbook story of a Big Market Delusion,” wrote the founder of Research Affiliates.
Would Nvidia’s popping bring down the whole market? “It’s very possible,” Arnott said in an interview. Warnings about valuations have rained down on the Nasdaq 100 since long before Apple became the first trillion-dollar US company five years ago. The index has returned nearly 15 per cent annually since 2008. And virtually every effort to beat the main exchange-traded fund tracking the index has failed.
Arnott says he’s not opposed to capitalisation-weighted indexing, in which a company’s representation in an index is based on its market value. “If you just want to own the market, sure, cap-weighting is fine. But there are issues — and the most flagrant issue is that anything that is today overpriced relative to its future prospects is overweight in your portfolio,” he said.