Youre Focusing on the Wrong Question | Victor Haghani on Why Static Allocation Fails

For transcripts, episode summaries and more, follow up on Substack
https://excessreturnspod.substack.com/

In this episode, we sit down with Victor Haghani, founder of Elm Wealth and one of the original partners at LTCM, to explore his journey from running complex hedge fund strategies to adopting a simplified, evidence-based investment approach. We discuss how investors should think about expected returns, portfolio construction, dynamic asset allocation, valuation signals, buybacks, managed futures, and the dangers of extrapolating past returns into the future.

Topics covered:
• Victor’s journey from LTCM to simple, systematic investing
• Why position sizing is as important as what you own
• How to think about expected returns and valuation frameworks like CAPE and P-CAPE
• The role of risk, risk premia, and personal utility in portfolio decisions
• Why 60/40 and the permanent portfolio ignore expected returns
• Buybacks, market elasticity, and capital flows
• Indexing misconceptions and asset allocation discipline
• The ETF structure and tax efficiency in asset allocation strategies
• Concentration in large tech stocks and long-term equity returns
• The importance of dynamic asset allocation vs static allocation
• Key lessons for individual investors and avoiding “too good to be true” opportunities

Timestamps:
00:00 Intro and Victor’s investing journey
03:00 Lessons from LTCM and shift to simplicity
09:00 Position sizing vs asset selection
13:00 Risk as a cost and thinking in expected returns
18:00 CAPE and the P-CAPE framework
26:00 How to use expected return estimates
34:00 The impact of buybacks on equity markets
39:00 Indexing vs poor asset allocation habits
43:00 Portfolio construction and global diversification
46:00 Why the permanent portfolio falls short
47:00 Managed futures and factors beyond stocks and bonds
50:00 Inside Elm’s dynamic allocation ETF
55:00 Market concentration and equity issuance risks
01:01:00 The case for dynamic allocation
01:02:50 Victor’s one investing lesson