About the coronavirus crisis: “We’ll come out of this darkness in a very powerful way,” Charles “Charley” Ellis, renowned investment strategy consultant to large institutions and author of the classic bestseller “Winning the Loser’s Game,” tells ThinkAdvisor in an interview.
The “loser’s game,” by the way, is active investing, according to Ellis, who has been a staunch index fund advocate for more than half a century.
Founder of research-based consultancy Greenwich Associates, which he led for three decades, and chair of the Whitehead Institute for Biomedical Research, Ellis, 82, points to a high level of U.S. pent-up demand for goods and services, and argues that a safe, effective coronavirus vaccine will be produced in a year’s time.
In the interview, he also forecasts that the recovery will be “relatively rapid,” estimating that most of the “rebuilding” should be achieved in a year.
Ellis has championed index fund investing all the way back to his doctoral dissertation, written while attending New York University. His most recent book is “The Index Revolution: Why Investors Should Join It Now” (2016).
Especially in today’s chaotic market, better to index than use the active investing approach because index funds don’t “let us get fooled by Mr. Market,” he says. Day traders “will get clobbered.”
Indexing is “boring” — and that’s a good thing, he argues strenuously.
Ellis, who is on Wealthfront’s advisory board and Rebalance’s investment committee, was a successor trustee of Yale, where, with David Swensen, he chaired the university’s investment committee.
Amid his personal portfolio of index funds is an individual equity he’s been investing in for some 50 years. He discusses that stock, which he frames as similar to “a well-managed index fund” with extras.
He is a recipient of the Graham and Dodd Award of Excellence from the Financial Analysts Journal and has served on the governing boards of Harvard, Yale and NYU’s business schools.
ThinkAdvisor interviewed Ellis on June 22. He was speaking by phone from his home in Connecticut. His overall advice about investing in ETFs: “Anything you can do to make the decision less specific and less interesting probably works to your advantage,” he says.
Here are highlights of our conversation:
THINKADVISOR: Is your mindset that the coronavirus isn’t going away anytime soon; therefore, we’ll just have to live with it? If so, how will that affect the economy and markets?
CHARLEY ELLIS: For many years I’ve chaired the Whitehead Institute for Biomedical Research, and I’ve learned a lot. I’m very comfortable believing that it will take as long as a year from now for us to have prevention and that we’ll come out of this darkness in a very powerful way.
How long will the recovery take, do you think?
If I’m right, it’s a relatively rapid recovery process. We’ve never had so many people working collegially and sharing information as now. The biggest problem will be once we have a workable product, how to make enough to meet the needs of society — and who goes first. It will be a marvelous challenge to ethics and fair play.
Please elaborate on “We’ll come out of this darkness in a very powerful way.”
We’ve got a lot of things to catch up on. I don’t know anybody who feels that being incarcerated in their own home is a deeply fulfilling experience. People are making notes of things they really want to do or buy — there’s quite a lot of pent-up demand. My bet is that there will be a lot of catching up on business and a lot of desire to catch up on recreation and travel once [those pursuits] are assured to be safe.
Will everything be as rosy as that?
We’ll have some permanent loss and changed habits; for example, we’ll lose restaurants that are barely making it, and some airlines and hotels.
Do you see the recovery taking shape in any particular configuration, such as a “W” or “U”?
No, because we see those shapes looking back after the fact, rather than knowing what the characteristics are that will cause the progression to look like them. I don’t see the recovery as a sharp response because there’s a lot of rebuilding, reorganizing, rehiring and retraining needed; and that will take some time. But I think 80% or 90% of it would be accomplished in a year.
To what extent should the Federal Reserve further support the economy with stimulus?
We’re down to the last few bullets in terms of the Fed being able to do what it’s so skilled at doing. The problem is they’ve done virtually everything they could do. They’ve made their [moves]; and if something comes along that creates another major difficulty, they don’t have reserve funds to put in play.
But they give the impression that they have those.
They do in the sense that they can print money and then put it to work. But the Fed knows that they have to find a way out of the dilemma before other people — other nations’ reserve systems — say, “We’re not going to let you do that anymore.”
What responsibility does business have to balance the two huge goals of reopening the economy so that money can be made and keeping people safe at the same time?
When it’s something as consequential as the whole population needing leadership, you go to the state or federal government. But the responsibilities of business are really just an easy checklist: Be sure everybody knows what the realities are, that we all wear masks, that people are well informed and that the senior [management] in the organization model the model.
Regarding leadership, often the federal government presents a distorted reality. Your thoughts?
Yes, today that’s the terrible reality. The absence of leadership is bad enough. Thank goodness for Dr. [Anthony] Fauci. We need him to speak out.