Victor Haghani on Death of Random Walk, and Passive, Buybacks, and LTCM

The stock market’s volatility and behavior defy classical random walk theories, driven instead by a heterogeneous mix of investor types. Extrapolators—who chase returns based on recent performance—and static asset allocators, who maintain fixed portfolio weights regardless of market conditions, exert significant influence on aggregate price levels. While fundamental value investors effectively price individual stocks, the broader market is increasingly shaped by corporate share buybacks and the behavior of non-fundamental participants. Long-term expected returns for U.S. equities remain modest, hovering near 6%, as high margins face inevitable competitive erosion. Victor Haghani, founding partner of Long-Term Capital Management and author of *The Missing Billionaires*, advocates for a dynamic, low-cost asset allocation strategy that combines value and momentum, prioritizing tax efficiency and systematic risk exposure over speculative forecasting.