The Rational Reminder Podcast · Oct 1, 2026 · 1h 8m · 58m saved
With Victor Haghani, founder of Elm Wealth and co-author of "The Missing Billionaires"
Stocks bounce around far more than any change in company fundamentals would predict, and Victor Haghani says the reason traces back to who is actually doing the trading, not what the news says.
Most market commentary explains a move after the fact; Haghani's research instead models three distinct types of investors and shows how just two of them, acting on nothing but static habit and recent returns, are enough to manufacture the volatility and momentum everyone else is left to explain.
"The amount of exposure you should want to have to risky assets in your portfolio is proportional to the expected risk premium that those risky assets are giving you." — Victor Haghani
Haghani was a founding partner of Long-Term Capital Management, the hedge fund whose 1998 collapse is one of the best-known cautionary tales in finance, and has spent the decades since building a wealth-advisory firm and writing on position sizing with mathematical rigor aimed at a general audience.
The full interview is covered here so you can skip it. 1 hour 8 minutes of audio, 10 minutes of reading.
Here are the 11 takeaways that matter.
Key Takeaways
Stock prices show "excess volatility": they swing far more than changes in fundamentals justify
Markets run on three investor types: value investors, static-allocation investors, and extrapolators who chase recent returns
Only the value investor stabilizes prices; the other two amplify every move
A simple worked example: if companies buy back 10% of all stock from 50-50 static investors, prices must rise 20%, not 10%, to restore the balance
None of the three investor types does especially well, including the "rational" value investor
Momentum and return chasing are not the same thing, even though they're often confused
Momentum has a clean definition; return chasing does not, and it is what actually hurts investors
The Merton share sets how much risk to take on: proportional to the expected risk premium, inversely proportional to risk
Over a trillion dollars a year in buybacks and 401(k) flows has been quietly supporting US stock prices
Long-short direct indexing for tax savings is mostly not worth it unless you believe you can generate real alpha
In a "tomorrow's newspaper" experiment, even AI models struggled to size their bets correctly despite guessing market direction well
Leverage can make sense for young people with high human capital, but brokerage borrowing costs (often 9%+) usually erase the edge
His advice to his younger self: spend about 10 hours building a real financial plan, the time it takes to watch one season of a show
1. Why Stocks Move So Much
Haghani's new paper, "Who Killed the Random Walk?," starts from a problem every asset-pricing course has to explain away: prices move far more than any rational update about future cash flows should allow.
"And I think the biggest of all of the strange things about the stock market is this idea that there's excess volatility, that stocks bounce around by much more than fundamentals would seem to dictate." — Victor Haghani
Fat tails, momentum and boom-bust cycles are all versions of the same underlying puzzle
He said the field traces this back to Robert Shiller's work in the 1980s, and that while individual anomalies each have their own proposed explanation, he and his co-author wanted a single, accessible framework that could tie them together without heavy mathematics.
