The Rational Reminder Podcast

Today on Rational Reminder we take a deep dive into the evolution of modern portfolio theory. We kick the show off with some updates and reviews on some of the brilliant shows and books we are watching right now. A key item from this selection is Stolen Focus: Why You Can't Pay Attention and the points it makes about the value of flow state for learning and creativity. After this week's news stories, we get into the main topic, and Ben starts with a breakdown of portfolio theory as it was laid out by Harry Markowitz in 1952. From there we talk about research that shaped the current understanding of portfolio theory, exploring the distinction between the mean-variance efficient portfolio and the multi-factor efficient portfolio, and how they theoretically combine to make the market portfolio. One of the biggest takeaways here is that your financial asset portfolios can look the same in terms of asset allocation but the person with more macroeconomic risk in the remainder of their financial situation is taking on more risk. Additionally, even if somebody is the perfect candidate to be the mean-variance investor and they could theoretically tilt toward value, it doesn't necessarily mean they have to. We wrap up our conversation by inviting our good friend Larry Swedroe onto the show to speak about his love of reading and share his methods for incorporating what he learns from books into his work and thinking. Key Points From This Episode: Updates: Shows, books, upcoming guests, reviews, and our reading challenge. [0:00:22] A review on Stolen Focus: Why You Can't Pay Attention. [0:11:00] News stories for the week: Wealthfront offers thematic ETFs and more. [0:18:47] Moving onto the main topic for today: How modern portfolio theory has changed since 1952. [0:23:00] Lessons to be taken away from Markowitz's 1952 portfolio theory. [0:25:09] How the math changes when you have a risk-free asset in your portfolio problem. [0:26:59] The capital asset pricing model: the other foundational portfolio theory principle that comes from the mean-variance model. [0:29:08] Portfolio advice that stems from mean-variance optimization. [0:32:46] Building a tangency by expressing information beliefs. [0:36:06] Findings from Michael Jensen's 1967 application of the CAPM. [0:37:04] Why diversification is important according to Markowitz's portfolio theory. [0:38:02] Why the CAPM does not accurately reflect the relationship between risk and expected return. [0:39:49] The origins of multi-factor thinking and examples of multi-factor models. [0:41:10] How the allocation of the multi-factor efficient portfolio creates a third dimension. [0:49:29] How the theory predicts how people behave in aggregate. [0:52:44] Takeaways from today's discussion to keep in mind when building your portfolio. [1:00:00] Larry Swedroe joins us to talk about the importance of reading. [1:03:32] The many subjects that Larry reads about. [1:04:12] How Larry's reading habit works. [1:05:12] How to capture ideas you read for later use. [1:05:57] Larry's storage system for all the books that he reads. [1:08:38] The effectiveness of making a public commitment to read more. [1:12:13]

We always appreciate research-based arguments here at the Rational Reminder and when those arguments might rattle some assumptions we get particularly excited. Today we have an eye-opening conversation with finance professor Alex Edmans, in which he discusses his idea of growing the pie and how social change and value relate to investor decisions. Alex's work is deeply rooted in skepticism and a critical method of assessing evidence, an approach that has resulted in surprising and sometimes paradoxical findings. We get into a fascinating conversation dealing with employee satisfaction and ESG, with Alex challenging some commonly held beliefs around socially responsible investing, with the data to back it up. A strong theme that emerged during our chat is the need for these conversations to be grounded in research, instead of empty rhetoric, and Alex's data-rich perspective is a great inspiration. Towards the end of the episode, Alex talks about the practical, individual application of his ideas, and how an empowered employee can add value on any level. So, to hear all this and a whole lot more unmissable insight, join us on the show. Key Points From This Episode: Unpacking what Alex means by 'growing the pie' and differentiating this from other similar-sounding goals. [0:02:38] How to go about measuring the growth of the pie, and the pieces that cannot be measured. [0:05:14] Alex addresses Milton Friedman's famous quote about responsibility and profits. [0:06:48] The role of big asset managers in directing investment towards more socially responsible causes. [0:08:56] Thoughts on the value of divestment as a means to effect social change. [0:11:34] How much impact are typical ESG funds having currently? [0:15:05] The subjective discussion around sustainability and Alex's definition of what makes a company sustainable. [0:17:06] The inconvenient truth about sustainable funds' performance against the market. [0:20:56] Alex's research into the relationship between stock returns and employee satisfaction. [0:22:23] How to take a quantitative approach to employee satisfaction as an investor. [0:29:16] The practical application of information about happy workplaces for investors. [0:32:51] Alex's input on the problems associated with executive pay. [0:35:18] Counter-arguments to some of Alex's unpopular opinions and positions. [0:39:52] Tackling the tricky subject of board diversity at organizations. [0:41:27] Finding trustworthy evidence in the contemporary climate and combatting the post-truth era. [0:46:22] Using Alex's idea of growing the pie in everyday life; making the world better on an individual level. [0:48:46] The left-field study that Alex conducted linking Spotify playlists to stock performance. [0:52:16] Alex's perspective on his role as a finance professor and his purpose with regard to knowledge. [0:56:38] How Alex looks at success in his life and his goal of positively impacting people. [1:00:12]

There seem to be many differing opinions out there about investing in emerging markets, and unfortunately, many of these are inaccurate. This is mostly due to the fact that emerging markets and your involvement in them, perform in ways that are somewhat counterintuitive. In today's episode, we tackle this tricky subject from a number of angles and try to give all of our listeners a better understanding of the strengths and weaknesses of using emerging markets within your portfolio, without falling prey to some common traps. To kick off the episode we talk about some financial news and the interesting recent book Making Numbers Count, before diving into the main course of the show. Listeners can expect to come away with some new insight into the history of emerging markets theory, realistic emerging markets returns, the appropriate amount of caution to exercise when investing in them, and more. Towards the tail end of the show, we are joined by our friend Morgan Housel, author of the prominent new book, The Psychology of Money, and we briefly discuss reading habits and how implementing a few small practices for learning can have an extraordinary impact on ones' life. Don't miss out on this great show. Key Points From This Episode: Rounding up some interesting recent content; TV shows, articles, and more. [0:01:16] This week's book review of about the powerful, Making Numbers Count. [0:07:23] Standout data points; Twitter's valuation, Deere Corp, and more. [0:13:14] A few pieces of the most interesting financial news from the last week. [0:16:18] The roots of the idea of emerging markets and its appearance in the 1980s. [0:20:05] Unpacking the findings on emerging markets and the best examples of the thesis. [0:21:20] What to expect with regards to returns from emerging markets. [0:26:37] Reasons for the benefits of diversifying a portfolio using emerging markets. [0:29:26] The importance of market integration segmentation and how this relates to emerging markets. [0:33:46] Portfolio skewness and how assets contribute to this. [0:35:18] Reasons for surprising yields with emerging markets for Canadian investors. [0:41:26] The cautious place that emerging markets deserve in a balanced portfolio. [0:47:20] The dangers of mixing and matching products relating to emerging markets. [0:49:45] Morgan's opinion on how reading can take us beyond our mundane bubble. [0:51:38] The approach that Morgan uses to gain and learn the most from what he reads. [0:52:47] Decisions on what to start reading and exploring a variety of your interests. [0:54:03] Weighing the value of conversations and discussions about the books we have read. [0:57:32] Morgan's process for capturing and retaining useful information from books. [0:58:35] Parting advice from Morgan about finding the time for a healthy reading habit. [1:00:11]

It is commonly believed that rational thought is threatened by emotion, but contemporary understandings of the brain paint a more complicated picture. Today's guest is Leonard Mlodinow and he joins us to talk about why. As a mathematician and theoretical physicist, Leonard might seem like an odd fit for this topic at first glance. However, when Leonard's desire to discover the secrets of the universe spilled over into a curiosity about the brain, he started publishing books on the subject, his most recent being Emotional: How Feelings Shape Our Thinking. In today's show, Leonard argues that the brain is essentially an information processing organ and that emotions play an integral role in feeding it data. As such, there is no way to separate emotions from thinking, and in fact, they often aid the decision-making process, as well as play a vital role in motivating us. However, our emotions evolved in a different world to the one we live in today, meaning that there are situations where a certain emotion might be influencing a decision in a way we don't want, and this is where the cultivation of emotional intelligence becomes a beneficial practice. So for all of this, as well as perspectives on its ramifications for sensible investing, be sure to tune in today! Key Points From This Episode: Introducing Leonard Mlodinow and his book, Emotional: How Feelings Shape Our Thinking. [0:00:19] The role of emotions in rational decision-making. [0:01:04] How the brain processes data and the role of emotions in this process. [0:04:09] Whether emotions are detrimental to decision making. [0:06:50] The situations our emotions evolved in and how our world has changed. [0:09:05] Whether it is wise or possible to separate emotions from rational thinking. [0:11:50] New findings from affective neuroscience about emotion. [0:13:36] Why simplistic categorizations of emotions and beliefs that they are associated with certain organs are wrong. [0:14:51] What 'core affect' is, its relationship to emotion, and how it affects decision making. [0:18:36] How to gauge when to make certain kinds of decisions. [0:22:12] What Leonard's findings on emotion mean for evaluating risk tolerance in investment. [0:24:00] What role emotions play in theoretical physics and mathematics. [0:26:28] Wanting, liking, and determination: Where the feeling of motivation comes from. [0:30:45] How to develop emotional intelligence by cultivating awareness of how emotions affect decision-making. [0:34:21] Whether some emotions are more influential than others. [0:37:57] What causes people to have different emotional profiles. [0:39:41] How other people's emotions affect us. [0:42:14] Considerations about the impact of a financial advisor's emotional profile on their clients.[0:44:24] When and how to control emotions versus embrace them. [0:45:43] Why Leonard wrote Emotional when he is a theoretical physicist and mathematician. [0:50:24] How Leonard defines success in his life. [0:52:14]

In this special episode, we review the relationship between war and financial markets. War is a tragedy. We are not minimizing the humanitarian tragedy of what is happening in Ukraine by focusing on the potential impact on financial markets. But we are offering a Rational Reminder for investors in a stressful time. Wars and financial markets have coexisted, and often been intertwined, for hundreds of years. Countries that have lost major wars have had their financial markets decimated, while global markets have been relatively resilient, even to major conflicts. In addition to the historical perspective, we offer some timeless lessons for investors to remember in times of stress.

Today's guest is Neil Pasricha and he joins us to discuss how to read more. Before our time with Neil, Ben and Cameron lead the discussion, working through a range of topics including how to grasp large numbers, the value of 'humbitious' leadership, and how to get a better understanding of regret. When Neil jumps into the conversation, he starts by making an argument for reading, telling us how it is the best form of compressed knowledge we have, and that readers effectively live a new life each time they read a book. We hear about how Neil got back into reading later in his life and the role it has played in shaping so many of his most significant projects over the last few years. He answers some common objections that people have to reading, busting the myth that there is no time for reading or that only certain kinds of books are worth it. In light of our current reading challenge, we hear Neil's views on whether making a public commitment is an effective approach to reading more. Wrapping up, Neil makes a great point about the importance of finding the right books for your personality and gives some helpful tips for how to do so. Key Points From This Episode: Updates: things to watch, our reading challenge, top books, and more. [0:00:19] How Cameron stumbled upon today's guest, Neil Pasricha. [0:02:34] Finding ways to grasp big numbers in Making Numbers Count. [0:04:27] Discussing the value of humble but ambitious leaders in [0:10:01] This week's news: Wealth Front is contesting the value premium. [0:15:42] The importance of understanding regret for making financial decisions. [0:25:00] The main types of regret and things that people feel this emotion about. [0:31:58] How to prevent future regret and manage current regret. [0:38:10] Cameron's quasi-obsession with enabling teams as they scale. [0:45:00] The tool Cameron and Ben are going to build to survey financial goals. [0:47:45] Neil Pasricha joins us to talk about how to read more. [0:50:05] Access to compressed knowledge and why reading is so important. [0:50:23] Whether Neil's advice for how to read more has changed as the world has. [0:51:53] Why Neil started reading more and how that morphed into his podcast. [0:52:14] Objections to people's arguments for why they don't read more. [0:54:20] Whether it is important to have a physical space dedicated to reading. [0:56:57] Perspectives on making a public commitment to reading more. [0:58:24] How Neil finds new books to read. [0:59:20] Whether Neil finishes every book he starts. [1:01:09] Why the device that we use to read matters. [1:02:44] Which kinds of books Neil keeps on his bookshelf. [1:04:40]

Goal-setting has been a divisive subject of discussion for us here on the Rational Reminder Podcast, and today we dive a bit deeper into the topic with the help of the amazing Ayelet Fishbach, author of the recent book Get It Done. Ayelet is an expert in motivation and a Professor of Behavioral Science and Marketing at the Chicago Booth School of Business. Her focus in her work is researching social psychology, management and consumer behaviour, and having her on the show to share some of this amazing insight is a real honour! In our conversation, we cover many sides of the goal-setting process, exploring the vast array of research that Ayelet has done and has examined. We talk about the difference between intrinsic and extrinsic goals, the outcomes of tracking progress, what makes an effective goal, and what is meant by a 'goal-system'. Ayelet also shares how this research can inform tasks such as retirement planning, and the work of financial advisors. So for this and a whole lot more that is bound to be illuminating, fascinating, and potentially life-altering, be sure to join us on the show. Key Points From This Episode: Using goal-setting to address our inability to predict elements of the future. [0:03:50] Differentiating between intrinsic and extrinsic goals. [0:05:00] Ayelet lists some examples of effective goals and their qualities. [0:06:37] The dangers of avoidance and unhealthy goals and how to recognize these. [0:10:48] Exploring the parts of human psychology that push us to always want more. [0:14:46] How quantifiable, self-set targets for goals can aid the process of achieving them. [0:17:18] Weighing the benefits of creating incentives associated with the goals you set. [0:21:45] The roots of intrinsic motivation and how to foster more of these. [0:25:13] Making the pursuit of a goal enjoyable and why this is so important. [0:29:21] How these findings on goal-setting relate to long-term retirement planning. [0:32:10] Ways for financial advisors to make certain processes and tasks more enjoyable for their clients. [0:33:36] The impact of tracking and monitoring progress towards a goal. [0:35:03] Learning from failure and why this can be an unreliable strategy for achievement. [0:39:36] Ayelet describes a goal system and its most important components. [0:43:06] Writing out goal systems and an explanation of the chart that is included in Get It Done. [0:46:17] Prioritization and how to choose between conflicting goals. [0:48:02] Strategies for keeping on track with resolutions; the role of intrinsic motivation and the question of temptations. [0:50:14] How other people and our social environment influence our ability to reach our goals. [0:55:04] Ayelet responds to Ben and Cameron's tendency to avoid setting bigger goals. [0:56:41] How Ayelet goes about setting goals for herself, and how she applies her expertise to her role as a parent. [1:00:53] Learning as the marker of success; why Ayelet feels that she never left school. [1:03:42]

Identifying investment goals is a critical step in developing a sound financial plan that helps investors reach their objectives. Studies have shown that using a goals-based framework in financial planning can lead to an increase in wealth for investors and has the potential to strengthen planner-client relationships; but what goals should you be setting? And why is it often so difficult to make these kinds of decisions? In today's episode, Benjamin dives into some of the research he is conducting about goals-based financial planning for the paper he is writing on the topic, and we discuss why defining and prioritizing goals in the financial planning process is so important (and why it can be so challenging), as well as some practical guidelines to help you set effective goals. Additionally, you'll learn all about our 22 in 22 Reading Challenge, which we officially launch today with the help of Heather Reisman, book lover, entrepreneur, and CEO of Indigo, Canada's largest books, gift, and toy retailer. Heather is also the co-creator of the Kobo reading device, a former governor of the Toronto Stock Exchange, and the co-executive producer of the documentary, Fed Up. As you know, the objective of this podcast is to help improve listener's lives by communicating ideas about sensible investing and financial decision making; and reading is a big part of that. Make sure to tune in to find out where to sign up for the challenge, take note of our book recommendations, and more! Key Points From This Episode: Learn more about the 22 in 22 Reading Challenge and where to sign up for it. [0:00:35] Introducing today's special guest, Indigo CEO, Heather Reisman. [0:03:55] Some of the exciting guests you can expect to hear from on the show in future. [0:06:38] Our watchlist recommendations for you, including Ray Donovan: The Movie. [0:08:43] Cameron's book recommendation: The Culture Code by Daniel Coyle. [0:10:05] Benjamin shares his views on Facebook's one-day $232 billion drop in value. [0:17:16] Why a great company is not necessarily a great investment. [0:22:32] Reflecting on the Talking Cents cards we did with Andrew Hallam in Episode 186. [0:23:45] Onto today's main topics: how to make sound, goals-based financial decisions. [0:27:20] Why defining and prioritizing goals in the financial planning process is important. [0:30:33] Find out what goals you should set and why it's difficult to make those decisions. [0:31:19] Practical guidelines to help you set goals from Bond, Carlson, and Keeney in 2010. [0:33:47] Hear some of the goals from the master list that Morningstar put together. [0:36:15] Learn what an effective goal looks like according to Ayelet Fishbach. [0:37:21] Whether you should use approach goals or avoidance goals. [0:39:42] How you can turn your goals into action by creating challenging, measurable, actionable, and self-set targets that don't feel like chores. [0:42:51] Creating more intrinsic motivation when setting long-term financial planning goals. [0:45:58] Why pursuing goals is more about the journey than it is about actually achieving it. [0:47:08] How top level abstract goals are served by multifinal, equifinal, and unifinal means. [0:48:48] Resolving goal conflicts by prioritizing some goals over others or compromising. [0:50:11] Kicking off the 22 in 22 Reading Challenge with special guest, Heather Reisman. [0:53:12] Why Heather believes reading is so important, starting with the pure joy it brings. [0:53:44] How she decides what to read, whether it's via recommendations or based on her specific interests at the time. [0:55:59] What her daily reading habits look like that enable her to read 75 books a year. [0:53:30] How reading helps with some mental health issues that stem from social media. [1:01:25] Why she advocates for long-form reading, regardless of whether or not it's digital. [1:03:38] Learn about the origins and the mission of the Indigo Love of Reading Foundation. [1:05:50] How a community like 22 in 22 might help someone who wants to read more. [1:10:25] Heather's parting words of advice for listeners: be deliberate about your habits! [1:12:37]

One of our favorite things to do on this show is talk with the amazing authors of new books related to sensible investing. Today we do just that, welcoming back Andrew Hallam to the podcast to talk about his new book, Balance. In it, Andrew tackles the relationship between our finances and happiness, looking at the areas of life that need the most attention, and how we sometimes overlook important aspects of our wellbeing. This is Andrew's third book, and we previously hosted him on the show in Episode 99, so make sure to go back and catch up on that if you have not already listened to it. We have a fascinating chat with Andrew again today, getting to grips with some of the main findings in the book, with our guest unpacking his arguments about material purchases, spending on experiences, gratitude, and financial literacy. We also get to hear from him about the importance of staying light-hearted, and how he defines success and failure. Balance is such an eye-opening and illuminating piece of work, which we highly recommend our listeners check out, so tune in today to get a taste of what it's all about. Key Points From This Episode: Andrew's explanation of his definition of a successful life. [0:02:53] The questions to ask when prioritizing aspects of one's life. [0:04:35] Worthwhile material purchases and when spending money can truly have a positive impact. [0:06:12] Confusion about real estate and investments; Andrew clarifies the idea of buying property. [0:08:59] Andrew's 'desert island litmus test' for evaluating purchases. [0:12:18] The relationship between social media and our spending habits [0:14:03] Times that more liberal spending might be a good decision; Andrew's emphasis on experiences. [0:17:39] Thoughts on reaching a level of maturity regarding material wealth and satisfaction. [0:24:05] Andrew's reflections on his experiences of cancer in 2009. [0:27:28] The role of gratitude in a good life and increasing its presence in our practices. [0:31:37] How our network and social circles support and enrich our lives. [0:36:39] Index funds and financial literacy; Andrew weighs in on what these allow you to do. [0:37:26] Questions to ask when hiring an advisor; recommended products, financial stories, and more. [0:40:55] Andrew speaks about whether it is smart to have 100% equity. [0:45:59] The ghost story that Andrew uses to illustrate a point about risk assessment. [0:47:48] Deciding between simplified and complicated portfolios. [0:50:11] How parents can approach educating their children on saving and spending. [0:51:39] Andrew weighs in on retirement, career, purpose, and the last phase of life. [0:52:38] Personal finance and good humour; why Andrew embraces the inner child. [0:55:57] Andrew's definition of failure and why it is so important to understand the finite nature of life on a behavioural level. [0:57:04] A round of Talking Cents cards with Andrew. [0:57:38]

As we all know, not all investments are equally exciting, but on today's show, we make the case that you should not put your money into an ETF just because it is trending. A thematic ETF is a fund that offers the opportunity to invest based on a particular theme, such as climate change or artificial intelligence. The concept behind investment themes is that they ostensibly offer investors the opportunity to participate in potentially disruptive trends with the idea of earning excess returns. The problem we find with these ETFs is that as the markets they are based on attract more attention and an influx of entrants, everybody's per-share earnings get reduced. By the time a themed ETF becomes investable, it experiences a mean reversion of prices and media sentiment, in contrast to the attractive returns shown in its backtested index. This means that while thematic ETFs are good business for the ETF providers, they do not create value for investors on average. Toward the end of our show, we invite Wes Gray from Alpha Architect to talk about their change from index to active ETFs and more. Wrapping up, Wes along with Robin Taub join us for a lively round of Talking Sense. Tune in today!

Episode 184: Robin Wigglesworth: Unpacking and Understanding Trillions Episode 184: Show Notes. We have often spoken about the book Trillions on the show, and in today's episode, we are lucky enough to interview the author, Robin Wigglesworth. We get to speak to Robin about his book and some of its central and most interesting ideas, while touching on other subjects too. Listeners will definitely come away with some enriched perspective, and hearing Robin's thoughtful and articulate answers was an absolute pleasure for us. Our guest is also the Global Financial Correspondent for the Financial Times, with his contributions to the publication being well worth keeping up with. After distilling some of the history of index investing, Mac McQuown, Jack Bogle, and the building blocks of what we do here at the Rational Reminder, Robin is generous enough to also comment on crypto, tech disruption, private equity, ESG investing, and more. This episode ties in so well with previous conversations we have had and Robin's dedication to his craft as a financial writer is truly inspiring, join us to hear it all. Key Points From This Episode: Simple reasons for why index funds are the best option for investors. [0:02:40.1] Tracing the roots of the culture of stock picking. [0:05:52.7] The initial intellectual push that the idea of index fund received from Wells Fargo. [0:10:44.4] Touching on some of the important yet lesser-known characters in the history. [0:15:05.8] Robin unpacks the evolution that Jack Bogle went through in the 1960s. [0:17:40.1] Jack Bogle's real superpower and getting to grips with the essence of his philosophy. [0:22:33.4] The important relationship between Dimension and Vanguard. [0:25:42.7] Differentiating between factor investing and total mark indexing. [0:29:24.5] Robin's thoughts on where we are currently with an imaginary alpha. [0:32:46.3] Reasons for Jack Bogle's decision to avoid embracing ETFs early on. [0:35:28.7] Why Robin stands by the idea that markets are not efficient. [0:37:31.8] The impact of bond ETFs on the future of the market. [0:42:48.1] Concerns around proxy votes at bigger asset managers. [0:48:34.4] Some thoughts from Robin about ESG investing and its value. [0:52:17.7] The skepticism that Robin still holds about cryptocurrency and its disruptive characteristics. [0:57:45.2] The example of Albania that Robin has used in his book to illustrate a point about crypto. [1:02:47.6] Looking at the trend towards private equity in the financial world. [1:09:23.4] Robin's own definition of success: the feeling of doing a good job. [1:17:46.6]

While there is certainly room for rigorous debate regarding market efficiency versus inefficiency, there are many who dismiss Eugene Fama's Efficient Market Hypothesis (EMH) as an incorrect model without understanding what the implications are or how to test it. In today's episode of the Rational Reminder Podcast, we tackle some common market efficiency myths and misconceptions using Fama's 1970 paper on EMH as well as supporting papers by Kenneth French, Lubos Pastor, José Scheinkman, and many others. You'll also hear about behavioural finance, quantitative investing, human bias, and momentum as they relate to market efficiency before debunking some anecdotal misconceptions about EMH involving Warren Buffet and Renaissance Technologies. In addition to our fascinating main topic for today, you'll get a glimpse into the four waves of a career in Cameron's review of The Long Game by Dorie Clark and Benjamin shares some notes and corrections regarding the user cost model from Episode 180: Is Canada Really in a Housing Bubble? We also discuss housing as a depreciating asset, innovation stocks in deep value territory, and the size of innovation platforms relative to global market cap and what that means for investors, plus a whole lot more. Make sure not to miss this jam-packed episode for everything you need to know (and forget) about market efficiency! Key Points From This Episode: Kicking off with a book review of The Long Game by Dorie Clark. [0:10:53] Four waves of a career as per Dorie Clark: learning, creation, connecting, reaping. [0:13:04] Benjamin readdresses the user cost model from Episode 180 on the Canadian housing bubble (or lack thereof). [0:16:06] Insights from the user cost model regarding price sensitivity and rate changes. [0:20:13] Addressing common confusion regarding housing as a depreciating asset. [0:22:53] Speaking of bubbles: innovation stocks in deep value territory as per Cathie Wood. [0:26:08] ARK's forecast for innovation platforms and the 30-40 percent compound annual rate of return their strategies could deliver in five years. [0:32:01] What deep value looks like according to ARK; prices to book, sale, and earnings. [0:33:30] Thoughts on the size of innovation platforms relative to global market cap. [0:34:47] Why growth in earnings per share, not market cap, results in growth in returns. [0:36:14] The impetus for today's topic: Market Efficiency Myths and Misconceptions. [0:40:03] Eugene Fama' himself on why the market isn't expected to be perfectly efficient. [0:41:44] Testing market efficiency categorized by weak, semi-strong, and strong forms. [0:42:29] Why applied micro-economist and market design specialist Eric Budish believes the market is objectively inefficient at the millisecond horizon. [0:43:35] What EMH has to say about information markets, competition, and actual prices. [0:45:11] Some ways to test market efficiency taking different models into consideration. [0:47:22] Understanding what EMH does not say, including that prices are right at all times. [0:50:43] Alternative models to EMH; behavioural finance as explained by Professor Hersh Shefrin in Episode 167. [0:53:18] What Wes Gray says about quantitative investing and human bias in Episode 69. [0:59:09] Market efficiency and given anomaly: seasonality, momentum, and more. [1:02:12] Ken French on how momentum relates to market efficiency in Episode 100. [1:03:40] Anecdotal misconceptions involving Warren Buffet and Renaissance Technologies. [1:08:54] Whether or not people with specialized knowledge earn excess returns. [1:13:13] Overconfidence as per Ben-David, Graham, Harvey, Scheinkman, and Xiong. [1:17:18] Talking Cents: we share our comfortable and uncomfortable responsibilities. [1:23:53]

One of the pillars of our approach at The Rational Reminder Podcast and PWL Capital is the idea of index investing, a concept that is both fundamental and deeply embedded. Today we are very lucky to have John 'Mac' McQuown on the show, who was behind the creation of the first equity index fund. It is hard for us to overstate just how important this contribution has been to the world of finance and any fund managers and investors that share our philosophy. Mac's work back in the 1960s, his position at Wells Fargo, and his contribution to the founding of Dimensional Fund Advisors all speak for themselves, and we are extremely grateful to get some perspectives from this titan of the world of rational and data-driven investing. In our chat, we get to hear about some of the key points in Mac's career and the general arc of the rise of indexing and diversified investing, the key figures that he worked alongside, his thoughts on the future, and the importance of environmentalism in today's world. So, to hear it all from a hero and giant in the space, be sure to listen in with us today. Key Points From This Episode: Looking back at the role of data at the beginning of Mac's career. [0:03:00.2] Wall Street in the 1960s, and the amusing experiences Mac had early on. [0:04:20.6] Mac's initial findings when he started analyzing institutional portfolios. [0:07:44.5] Joining Wells Fargo and the team that Mac found himself on. [0:08:28.1] The strong support that Mac and the quantitative approach were given at Wells Fargo. [0:13:36.7] Early tracking of index funds and Mac's memories of the first index they tracked. [0:18:21.3] The initial institutional responses that Mac received to his work with data. [0:20:46.5] How Wells Fargo contributed to the first commercially available index fund. [0:22:24.6] Mac's connection to Jack Bogle and the results of their relationship. [0:27:18.2] The seeds of iShares; Mac traces the beginnings at Wells Fargo. [0:29:57.7] Perspectives on why people still have belief in active investing. [0:33:19.4] Mac's memories of working with David Booth during the founding of Dimensional. [0:34:41.8] Differentiating between Dimensional funds and index funds. [0:36:44.3] Weighing concerns about the growth of indexing and how this may affect pricing and governance. [0:39:52.5] Mac's environmentalist philosophy and his thoughts on practical steps against climate change. [0:42:10.6] How Mac defines success in his life and its relationship to increased curiosity. [0:45:00.2]

We have reached the end of another year, our third while doing this podcast. We are spending this episode on our customary year-end review, and we will be pulling segments from some of the great interviews we hosted over the course of 2021. In doing so, we hope to create a bit of summary of the year and the biggest lessons we all learned together. The podcast has continued to grow beyond our wildest expectations and we are so grateful to be on this journey with our ever-increasing community and audience. We touch on many themes in this recap, moving from general ideas about life, goals, happiness, abundance, and purpose, to more financial subjects of money values, retirement, and crypto, and then into the deeper technical aspects of investment such as value premiums, factors, bonds, and much more. We have tried our best to focus on the segments that we found most enlightening and that changed our perspective, and have highlighted them with reflections and commentary. So to hear it all, join us today, and we'll see you next year, for more of the Rational Reminder Podcast. Key Points From This Episode: Looking at some of the amazing numbers around the growth of our community. [0:02:37.2] A few shoutouts to the wonderful people who make this podcast possible. [0:04:27.8] Bill Schultheis on how to find and fund a good life. [0:08:34.5] Hal Hershfield's thoughts on making better decisions with your future wellbeing in mind. [0:10:44.3] Ashley Whillans on the relationship between time-poverty and wellbeing, and increased leisure time. [0:13:39.7] Jennifer Risher weighs in on the importance of performing meaningful work. [0:17:24.5] Robin Taub's family money value's from her book, The Wisest Investment: [0:20:04.1] Jennifer Risher's approach to managing money values at home. [0:22:27.7] Katy Milkman applies the central idea from How to Change to saving money. [0:23:22.7] Johanna Peetz on how to use the idea of a future self to reach a goal. [0:26:38.6] Paul Merriman shares his experiences of the relationship between money and a good life. [0:28:27.7] Adriana Robertson's legal perspective on the rise of index funds. [0:33:48.4] Jay Ritter on the question of market efficiency. [0:36:41.8] Hersh Shefrin's emphatic and nuanced advice about how to act in relation to the market. [0:38:20.3] John Cochrane on the shifting relative value of stocks. [0:39:43.3] Rob Arnott shares his thoughts on the drawbacks of cap-weighted indexing. [0:42:31.5] Antonio Picca on the drawbacks of a factor-based investment strategy. [0:47:01.6] John Cochrane on making decisions around owning value stocks. [0:48:10.7] Campbell Harvey talks about conditions for concentrated portfolios. [0:52:20.2] Bill Schultheis on tilting for factors versus sticking with market cap indices. [0:54:02.6] Adriana Robertson shares what the research tells us about the basis for investment decisions. [0:54:46.1] Hersh Shefrin on what really matters with regards to portfolio construction. [0:57:33.0] Antonio Picca on more active approaches and capturing premiums through rebalancing. [0:41:26.0] Brad Cornell explains the differences between a factor and a characteristic. [1:01:52.2] Rob Arnott, David Booth, and Antonio Picca weigh in on the question of value stocks at present. [1:04:22.6] Robert Novy-Marx's approach to cheap stocks and high profitability. [1:11:54.1] Dave Plecha on owning bonds today, in light of historically low interest rates. [1:15:12.0] Anna Lembke on how our daily and long-term decisions are influenced by dopamine. [1:18:20.0] Cullen Roche shares his thoughts on the future of market inflation. [1:22:57.2] Don Ezra's lessons for retirement and better preparation. [1:24:57.6] Anna Lembke on the results of increases in leisure time. [1:27:37.1] David Blanchett's thoughts on the evolving role of the financial advisor. [1:30:50.0] Don Ezra 'seven asset classes of life's abundance portfolio'. [1:33:42.9]

There is no doubt that housing in Canada is expensive, but are we really in a bubble? Today on the show we explore the user cost equation and how it can help us answer this question. Before the main topic, we get warmed up with a behind-the-scenes look at Dell's growth path in Cameron's review of Play Nice But Win. From there we address Peter Lynch's recent warning against passive investing as well as reiterate our position on the performance of small-cap value versus large-cap growth. Heading into our discussion on housing in Canada, we provide a working definition of a housing bubble and present the model used to work out user cost, addressing each factor in some detail. We discuss the risk premium for owning versus renting and highlight an interesting point on high price sensitivity during low-interest rates. The major takeaway after looking at Canada from within this framework is that user costs are in line with what they should be historically, and that saying we are in a housing bubble would be a little drastic! Key Points From This Episode: The effects of the plot of Sex and The City 2021on Peloton stocks. [0:00:20.1] A book review on Play Nice But Win which tells the story of Dell. [0:08:01.1] Mixed responses to the paper, 'Want to Be Happy? Hire a Financial Advisor'. [0:13:01.1] Active fund performance and thoughts on Peter Lynch's recent warning against passive investing. [0:17:14.1] Responding to listener disagreement with our research on the high returns of small-cap value ETFs. [0:22:46.1] The huge delta between the performance of ARC versus AVUV. [0:30:27.1] Using the concept of user cost to assess whether there is a housing bubble in Canada.[0:33:52.1] The different inputs into the model used to work out user cost. [0:38:22.1] The definition of a housing bubble and how the facts hold up. [0:39:36.1] The risk premium for owning instead of renting; why owning could be risky. [0:43:39.1] Perspectives on the chance that high prices could be driven by real estate investors.[0:47:03.1] An offsetting factor in the form of a reason for why owning is not risky. [0:49:06.1] If owning a home in Ontario is expensive from a user cost perspective.[0:52:45.1] Whether homeowners are willing to pay inflated prices for housing because they expect unrealistically high housing appreciation in the future. [0:53:54.1] Prices are sensitive to interest rates when interest rates are already low. [0:55:59.1] Tradeoffs, insurance, and taxes in this week's iteration of Talking Sense. [0:59:27.1]

Of all of the possible disruptive uses of cryptocurrency and blockchain, decentralised finance (or DeFi) might be the one most likely to bring this technology to a wider audience; and challenge the established finance industry in the process. For this week's episode on crypto-based decentralised finance, we welcome economist and faculty member in the Finance Unit at Harvard Business School, Professor Marco Di Maggio. Tuning in, you'll learn everything you need to know about DeFi and cryptocurrency, from the most basic definitions to the potential macroeconomic and geopolitical implications of a decentralised reserve currency and the effects of decentralisation on monetary policy transmission. Tuning in, you'll learn the definitions for DAOs, DEX, NFTs and more, and Marco elaborates on some of the reasons that decentralisation is seen as an improvement over central systems as well as some of the issues that it represents. Make sure not to miss this enlightening conversation with Professor Marco Di Maggio as he shares his powerful contrasting perspectives on this inherently libertarian technology. Key Points From This Episode: Marco defines cryptocurrency; simply put, it's digital currency. [0:02:59] Find out what a DAO is; a community-led entity with no central authority. [0:03:58] How a DAO is different from a corporation in the way it values decentralisation. [0:05:56] Stablecoins as cryptocurrency pegged to fiat currency and backed by collateral. [0:07:07] Learn about decentralised exchanges or DEX, the bonding curve, and Uniswap. [0:09:28] Why decentralisation is seen as an improvement over centralisation; greater transparency and access requiring no counterparty. [0:12:32] When decentralisation is not a good solution given the lack of accountability. [0:14:40] Marco expands on some other issues with the technology, including its environmental impact, volatility, and regulatory uncertainty. [0:16:07] Understanding counterparty risk, returns, and interest rates in the DeFi space. [0:18:39] Why Marco considers blockchain and crypto DeFi a technological revolution. [0:21:41] How someone who owns a total stock market index fund, for example, can benefit from the potential economic gains of this revolution. [0:23:45] Bitcoin versus Ethereum and how Ethereum is used to develop DeFi apps. [0:26:06] Whether Marco predicts a winner-take-all outcome for blockchain technology. [0:28:23] Why rubber stamp regulation and clarity are important for the success of DeFi. [0:29:37] How to approach investing in the DeFi space, looking at risk, exposure, and value. [0:31:30] Marco explains why the Chinese central bank has launched the digital yuan and how the US is lagging behind this innovation [0:34:21] Find out how DeFi 'super apps' provide better solutions than online banks. [0:38:33] Distinguishing crypto from fiat currency and the macroeconomic and geopolitical implications of a decentralised reserve currency. [0:40:17] Marco on the potential effect of crypto-based DeFi on monetary policy transmission. [0:42:44] What NFTs are, why they sell for such high prices, and how they can be useful. [0:46:22] How Marco defines success: through the lens of others in his life. [0:49:30]

In today's episode of The Rational Reminder, we tackle the subject of inflation in a twofold manner. Firstly, there are details around how people perceive inflation that often get overlooked, and secondly, these expectations have investment implications that are worth unpacking. Before diving into the main topic, we talk about Colin Bryar's Working Backwards which tracks the role of failure and customer obsession in Amazon's growth path. After getting into this week's news and listener question, we begin the first part of our session on inflation. Some of the main points we make here are that everybody experiences inflation differently, that perceptions of inflation are connected to experience, and that biased inflation estimates can explain household borrowing and investing behaviour. This leads us to part two of our discussion, where we unpack how expected inflation influences asset pricing and the role of unexpected inflation in the performance of stocks and bonds. We attempt to locate other asset classes that can act as inflation hedges, but find that with the tradeoffs and poor correlations involved, it makes the most sense to vouch for a properly diversified portfolio of stocks and bonds with exposure to multiple sources of expected return. So before you base too much of your decision-making on inflation, be sure to consider some of the points we make in today's show. Key Points From This Episode: TV shows, listener feedback, Peloton's stock price, and RRP updates. [0:00:19.2] Lessons from Amazon's growth story in this week's book, Working Backwards. [0:07:55.2] News: Vanguard's 'High-Conviction Active Funds' and Wealthfront's intention to sell. [0:14:23.1] Whether size premium is influenced by a reduction in IPOs and publicly traded companies. [0:17:36.2] Main topic: Overlooked aspects of inflation and their implications on investing. [0:23:46.2] Metrics from the CPI and how everybody experiences inflation differently. [0:26:36.2] How to work out your personal inflation rate and what Ben and Cameron's are. [0:28:07.2] Inflation expectations are influenced by inflation experiences. [0:30:43.2] Biased inflation estimates can explain household borrowing/investing behaviour. [0:34:03.5] The implications of the fact that the CPI doesn't account for substitution. [0:36:07.2] Debunking the assumption that those close to retirement are most exposed to inflation. [0:39:13.2] How financial assets are priced using discount rates and the effects of unexpected inflation on them. [0:43:36.2] The effects of high, low, and expected inflation on stocks and bonds. [0:45:41.2] Whether other asset classes than stocks can be inflation hedges. [0:48:15.2] The relationship of different commodities to inflation at different periods and regions. [0:53:05.2] Questions of status, greed, and decisions in this week's Talking Sense. [0:56:54.2]

The contemporary world is saturated with ways in which we can experience rewards that were historically much more difficult to access. Although this idea of a world filled with dopamine fixes is not new, it can be continually surprising just how extreme this reality has become. Here on the show today to talk about this issue and her most recent book, Dopamine Nation, is Dr. Anna Lembke, and we have a fascinating and important conversation in which she unpacks the human body and mind in relation to the world around us at present. One of the main points from this chat is the weakness of humans, and how unaware we can be of the way our brains compel us to engage in behaviours and seek pleasure. We get into some strategies and solutions for healthier ways to exist, talking about mindfulness, awareness, and dopamine fasting, in the face of accelerating tech and overabundance. Dr. Lembke gives us a great introduction to dopamine and how it functions in our bodies, unpacks the four properties of addictive substances and activities, the different ways to frame and understand addiction, and shares some realistic ideas about moderation. So to hear all this and much more, tune in to this great episode of the Rational Reminder Podcast. Key Points From This Episode: An introduction to dopamine and its functions in the human body. [0:03:03.2] The human brain and the current overabundance of addictive experiences and substances. [0:05:36.1] Contemporary increasing in different types of addiction. [0:08:13.8] Considering the inherently negative connotation of the word 'addiction'. [0:11:44.4] The reasons that make gambling so addictive to the human mind. [0:14:12.7] Applying what we know about addiction and gambling to speculation and the stock market. [0:18:03.2] Why working also falls into the category of addictive behaviours. [0:21:46.8] Looking at the addictive nature of spending money and shopping. [0:24:01.5] A shocking story about water addiction from Dr. Lembke's practice. [0:25:12.1] Thoughts on recognizing addiction and possible ways to stop the behaviours. [0:26:22.2] Using in moderation; Dr. Lembke comments on the realities of this idea. [0:29:32.7] Long-term decision making versus a dopamine-laden environment; the battle of our time. [0:31:00.4] Understanding hormesis, seeking pleasure through pain, and embracing volatility in a portfolio. [0:34:54.6] The impacts of increased leisure time and the question of what we need. [0:38:47.6] Lembke's advice around retirement and the dangers of dopamine deficit states. [0:42:43.3] How the era of the pandemic has affected these trends in addiction. [0:45:20.2] The relationship between radical honesty and dopamine; how lying is related to reward pathways. [0:48:39.6] Radical honesty and better parenting; Dr. Lembke's thoughts on transparency. [0:54:01.3] Weighing the value of shame and its power as a socially regulating force. [0:55:51.2] Lembke's definition of success and its connection to being a good parent and becoming a positive force in the world. [1:00:01.6]

Today we have a guest join us on one of our 'us episodes', and we are very lucky to welcome Mathias Hasler to take part in the last section of today's podcast. Mathias is a Visiting Assistant Professor of Finance at Boston College, and his primary research focuses are empirical asset pricing, market efficiency, value investing, and corrections for data mining. In our chat with him today, we zoom in on a specific paper of his and its proposition about 'the six decisions' and their alternatives. Before we dive in with Mathias, we spend a little time with our usual round-up; looking at a new book by Hubert Joly, and fielding a very interesting listener question about value and investing in relation to green investments. Also, make sure to stay tuned for some thought-provoking Talking Sense cards with Mathias at the tail end of today's podcast. Key Points From This Episode: This week's book review for The Heart of Business and a look at some of its main ideas. [0:05:12.4] A quick recap of some fundamental information regarding inflation hedging. [0:09:45.1] A listener question about value and ESG investing, and the relationship between factors and sectors. [0:13:40.4] Unpacking the six decisions that Mathias outlines in his recent paper. [0:34:42.8] The process that Mathias went through testing his alternatives to the six decisions. [0:40:18.3] Differences between conditional and unconditional value premiums estimates. [0:43:39.5] The implications of Mathias' findings for investors pursuing value. [0:47:08.2] A round of Talking Sense cards with Mathias relating to saving and spending, job outcomes, and more. [0:49:20.1]

Today we are tackling the vitally important subject of financial literacy from the standpoint of parents wanting to educate their children. We have a true expert on the show today to help us with this discussion, and we cannot wait to share this highly actionable and impactful conversation with our audience. Robin Taub is a former CPA turned author, and her book, The Wisest Investment, approaches the need to educate children from an early age, and the best strategies that parents can use for this task. Robin previously worked at Citibank in derivatives marketing and brings the high-level expertise of accounting to her book and this episode of the podcast. We strongly support her perspective on financial education and believe the framework she discusses here and shares in her book is well worth any parent's time. In our conversation, we cover all the important bases; financial values, summer jobs, investment apps, human capital, and everything in between, so make sure to listen with us to hear it all. Key Points From This Episode: Unpacking Robin's beliefs about the importance of financial education in the family. [0:02:55.2] Financial education in the Canadian schooling system; Robin weighs in on its success. [0:04:08.6] The assessment that parents can make about being role models to their children. [0:06:53.1] The communication of values through the process of teaching and learning. [0:09:01.8] Ideas for the appropriate time to start teaching kids about money. [0:11:40.5] Using teachable moments to begin the conversation about money. [0:14:35.3] Thoughts about allowances and best practices for parents. [0:18:09.7] The evolution of money conversations as children grow older; increasing sophistication over the years. [0:23:46.9] Benefits and considerations when introducing the concept of working for money. [0:27:30.3] How social media can impact young people's spending, and how to mitigate these effects. [0:31:26.2] Robin weighs in on the question of cellphones and when children should get one. [0:38:42.6] Increasing financial responsibilities as children grow older, and beginning the conversation about investments. [0:40:37.3] The impact of investment apps and how to minimize the damage they can do. [0:45:21.1] Teaching children about philanthropy and the importance of sharing. [0:47:04.6] Weighing up the idea of getting a financial advisor involved in your child's life. [0:49:27.3] The concept of human capital and how to approach it in your family. [0:50:51.1] Robin's thoughts on conversations about entrepreneurship. [0:54:48.6] Breaking the cycle of financial problems in a household that is struggling. [0:57:54.3] Minimizing entitlement in a family of greater financial means. [0:59:42.8] Reasons for the shift that Robin made from her career as a CPA to becoming an author. [1:03:30.1] Robin's personal definition of success; finding satisfaction in the important areas of life. [1:05:20.5]

It sounds reasonable to say that investing in the most popular companies would produce the best returns, but this is just not how asset pricing works. Today on the show, we unpack the 'good company is a good investment' fallacy. Before diving into the main topic, we kick off our discussion on the subject of index funds with Robert Wigglesworth's Trillions. From there, we share some updates about custom indexing and home buying in Canada, along with the immense valuation of Tesla as well as Elon Musk's net worth. This acts as a great segue into the focus of today's show: a so-called good company has high historical returns, strong earnings growth, strong forecasted earnings growth, and high prices. But just because the good companies have done well historically, this does not mean they will continue to be a good investment. In fact, there is a premium that says that higher-priced stocks earn lower returns than lower-priced stocks and value stocks. We unpack several papers that explore the concept that it is the lesser-known companies that tend to have better returns. We also get into how growth extrapolation, the skewness effect, and the big market delusion plays into the good company is a good investment fallacy. Our discussion concludes with the idea that investors are better off paying attention to expected returns rather than falling victim to extrapolation errors. Tune in today! Key Points From This Episode: Introductory comments: modifications to the show, listener feedback, and more. [0:00:30.2] Book review of the week: Trillions by Robert Wigglesworth. [0:08:28.3] News updates: custom indexing, Tesla valuation, homebuyer gifts, and more. [0:12:23.2] Introducing today's topic: the 'good company is a good investment' fallacy. [0:19:30:9] Investing in good companies is irrational because of how asset pricing works. [0:20:44.7] The threat that crypto and decentralized applications pose to good companies. [0:21:50.5] Higher-priced stocks earn lower returns than lower-priced and value stocks. [0:24:40.3] Findings from papers exploring glamorous stocks and investor bias. [0:27:21.2] The problem of extrapolating growth too far into the future. [0:34:07.1] Behaviour patterns of lottery-like stocks with high expected skewness. [0:37:17.4] Declining prices and the big market delusion. [0:39:51.1] The high prices and low expected returns of the NIFTY 50 companies. [0:44:05.2] What the Fama French Five-Factor Model has to say about how assets are priced. [0:45:30.2] Talking Cents: Questions about the price we pay for riches. [0:46:50.2]

In our conversation this week, we take a deep dive into factor investing. We are joined by the formidable Antonio Picca, Head of Factor Strategies at Vanguard, to help us navigate this complicated topic. Antonio is one of the largest asset managers in the world, with over seven trillion dollars under management. Among his credentials is a Master's in Finance and Economics from the London School of Economics, as well as a Doctorate in Finance and Economics from Chicago, where he was also a teaching assistant with Gene Fama. During our discussion, we cover a broad series of questions on factor investing, while also venturing into deeply technical territory. We examine how one might make the transition to factor investing after gaining confidence in passive investing and unpack important questions around factor investing and risk. Another fascinating topic we cover is how factor investing resembles active investing, including some crucial distinctions. Next, we take a look at some of the negative connotations of active investing and investigate why those issues may not apply to factor investing. Antonio goes on to explain why factor investing is a natural extension of a broad equity market investing and illustrates how it aligns with Vanguard's philosophy, which is a belief in low-cost, long-term focus, and broad diversification. You won't want to miss this excellent opportunity to gain a deeper understanding of factor investing from one of the leading experts in the field. Tune in today to hear it all! Key Points From This Episode: Introducing today's guest Antonio Picca, Head of Factor Strategies at Vanguard. [00:00:17] How Antonio would explain factor investing to an existing Vanguard client who's already sold on the idea of low-cost, cap-weighted index investing. [00:03:16] Why clients need to be educated on factor investing, and why factor investing is a form of active investing. [00:04:31] The benefits of targeting other factors in addition to the market risk factor. [00:05:20] Some of the drawbacks to a strategy that targets other factors in addition to the market risk factor. [00:06:41] How Vanguard helps clients determine whether factor investing is the correct course of action for them. [00:08:19] The role that cap-weighted investing plays in the structure of factor products when capital forms the core of your investing, and factor portfolios are secondary. [00:09:35] How investors should think about sizing their factor position, relative to their market cap-weighted position. [00:11:12] How they decide which factors to target in Vanguard's product lineup. [00:12:37] Vanguard's approach to capacity when considering factors. [00:15:03] How Vanguard decided to target momentum as a standalone factor. [00:16:24] More on the liquidity factor and how Vanguard is targeting it. [00:17:40] A breakdown of what the value factor is. [00:20:12] Why factor investors should want to be active, rather than follow a factor index, despite the negative connotations that come with active investing. [00:22:25] Why negative connotations of active aren't applicable to active factor investing. [00:24:27] The frequency with which factor funds need to be rebalanced to effectively capture the factor premiums. [00:25:52] Instances where it is possible to quantify the benefit of more frequent rebalancing, or more flexible rebalancing. [00:27:01] Some of the days in early 2020 where there were market movements of multiple percentage points and how Vanguard made decisions accordingly. [00:28:05] Antonio's thoughts on the prospect of quantifying premiums for factors. [00:30:46] The paper that Vanguard is currently working on to determine whether it is possible to time factor premiums, or whether investors maintain consistent exposure to them. [00:32:32] How factor investing is different from traditional active management. [00:33:51] Some of the instances where a factor portfolio can replace an active manager. [00:35:40] Antonio's experience leading the factor group at Vanguard during a period when large-cap growth stocks have dominated so powerfully. [00:36:43] How Antonio addresses client concerns that factor premiums have changed or decreased. [00:39:30] Antonio's thoughts on winner-take-all companies and their proliferation. [00:41:47] What Antonio advises investors should be looking for when they're choosing a factor fund. [00:45:49] Some insights into how Antonio's clients are using factor products. [00:47:15] How Antonio approaches combining multiple factors. [00:48:33] Antonio shares his thoughts on do-it-yourself investors implementing factor portfolios and why he thinks advisors are essential. [00:50:21] How Antonio defines success in life and investing. [00:54:38]

Today we welcome Rob Carrick back to the show to talk about a range of interesting topics, focusing on the Canadian housing market and some of the recent developments from the banking and investment space. Rob has such a balanced and measured approach, qualities that are visible in his long-standing work at The Globe and Mail. We start today's episode with some fun recommendations of books and TV content, before diving into the meat of our conversation. Rob weighs in on the range of perspectives on whether to rent or buy, offering the assurance that renting is a completely acceptable way to manage your needs and means. He also comments on the utility of robo-advisors, the impacts of the recent banking regulations, and shares his surprise at which of his articles have proved most popular. We always feel like we should have Rob on the show more often, and this episode is such a good argument for that very idea. So, to hear all Rob has to say, be sure to join us today. Key Points From This Episode: This week's book and TV recommendations; Impeachment, Capital, Trillions, and more. [0:00:39.2] A call for applicants here at PWL Capital, and some recent reviews for the show. [0:07:17.7] Looking at an excerpt from Azeem Azhar's book, The Exponential Age. [0:11:45.4] A recent study comparing renting and buying in Canada. [0:18:18.6] Rob's observations on the new banking rules in Canada and what they mean for the advisor community. [0:29:27.2] Thoughts on trends in the banking space and the roles of financial professionals. [0:36:07.1] Canada's adoption of indexing: measuring the speed of changes in the country. [0:38:38.7] The role of robo-advisors and why Rob believes strongly in their value. [0:41:48.5] Rob weighs in on the debate of buying versus renting property. [0:44:39.6] Generational flows of money from boomer parents to millennial and Gen Y children. [0:50:52.3] Rob's message to Canadians feeling like they are stuck renting. [0:54:24.1] Some of Rob's most popular articles from over the years. [0:55:20.7] Lessons from Sweden's housing market and considering Canada's possible future. [0:59:03.6] A round of Talking Sense cards with Rob dealing with most prized possessions, lending, and happiness. [1:02:26.3] Assessing some of Robert Kyosaki's recent comments on a looming crash. [1:08:29.1] The present is exciting in finance; why Rob is enjoying the ride. [1:14:22.5]

For this week's episode (our longest to date), we get together with the legendary Professor Campbell R. Harvey and take a deep dive into a diverse range of topics that draw on his incredible breadth of knowledge and extensive research. Campbell is the Professor of International Business at Duke University and is also a Research Associate at the National Bureau of Economic Research. In 2016 he served as the President of the American Finance Association, and from 2006 to 2012 he occupied the incredibly demanding role of Editor for the Journal of Finance. One of his earliest achievements was identifying the inverted yield curve's ability to predict a recession, a highly regarded metric that is near-ubiquitous in its implementation. For the first half of our conversation, we focus on his research in areas like skewness and emerging economies. We cover specific topics like the factor zoo, why it's problematic, and how Campbell, along with his student Yan Lui, found through their research that approximately half of the published empirical research in finance at the time was, in fact, false. We also unpack his most downloaded paper entitled The Golden Dilemma and get into the intricacies of why gold is an unreliable inflation hedge. For the latter half of our conversation, we hear about Campbell's latest book DeFi and the Future of Finance along with his most recent research. Discover how Campbell first became interested in the topic several years ago and decided to put together a course for his students. We also delve into the rise of decentralized finance (DeFi) and how we can expect it to shape global finance, trading, and the future of the internet. Join us today for this essential episode on everything from the pitfalls of academia, to emerging markets, to Bitcoin, and much more! Key Points From This Episode: Introducing this week's guest Professor Campbell Harvey. [00:02:46] How Campbell's research brought him to Chicago's Ph.D. program. [00:03:55] How Campbell identified that an inverted yield curve had preceded the past four recessions and could be a reliable economic predictor. [00:07:03] Hear about Campbell's research on skewness, as opposed to simply mean and variance, which is often the focus of portfolio theory. [00:11:40] Why it's surprising that skewness is still largely disregarded in favor of mean and variance. [00:16:42] Why mean and variance are insufficient for measuring risk when comparing a concentrated portfolio with a more diversified portfolio. [00:20:45] Some of the special considerations that Campbell prioritizes when assessing emerging markets in context and managing an overall portfolio.[00:22:04] Observations on the cost of capital being higher before integration and liberalization. [00:25:11] The implications that Campbell's research on emerging markets has on asset allocation. [00:26:51] Dynamic asset allocation, Campbell's research in emerging markets, and how those lessons can be applied when investing in emerging markets at a time when the cost of capital is high. [00:30:04] The factor zoo, why it's problematic, and how it is caused by data mining. [00:32:26] How Campbell and his student Yan Lui estimated that half of the published empirical research in finance was false and how this has occurred in other industries due to data mining. [00:33:02] How economic incentives from the investment industry inform research. [00:39:38] The important distinction between academic research and practitioner research, and asset management. [00:44:15] The extent to which asset management research could be considered to be more reliable than academic research. [00:47:23] Some of the mistakes that investors make when they pursue these factor premiums that have been identified [00:49:29] Machine learning and its impact on investment decisions for retail and institutional investors. [00:56:06] Whether the benefits of potential alpha from machine learning will be passed on to investors or remain within a firm as their scale increases. [01:00:22] Campbell's research on traditional active management within the context of a firm's ability to continue delivering alpha in the future, and how that incrementally decreases as their asset base increases. [01:06:23] The arguments in favor of allocating gold to a portfolio, especially at times of higher inflation, and whether it holds up to scrutiny. [01:09:54] How technological changes can affect the real expected return. [01:16:51] Why gold can be a valuable asset in diversifying your portfolio. [01:17:22] How Campbell became interested in DeFi, cryptocurrency, and blockchain technology. [01:19:19] How digitized finance cuts out the inefficiency of having a middle person and fosters inclusion and financial democracy. [01:26:35] Harvey's thoughts on how cryptocurrencies facilitate criminal and fraudulent activity. [01:31:07] How DeFi could disrupt traditional asset management and how to prepare for those changes. [01:36:43] How to invest in DeFi even though it

For decades, owning a home has been seen as a hallmark of the 'American dream' and a major life milestone. While we take it for granted that home ownership is good, we make the argument in today's episode that, from the perspective of subjective well-being, owning a home isn't necessarily the key to happiness. This conversation covers the non-financial aspects of homeownership and why owning a home isn't necessarily superior to renting one. This is supported by data from a number of different studies that describe the relationship between experienced happiness and life evaluation, and how the decision to buy or rent relates to effective forecasting, for example. Benjamin unpacks concepts like focalism, hedonic adaptation, and buyer's remorse, as well as social comparison and happiness when it comes to material purchases like homes. He concludes with the following words of wisdom: buying a house will not make you happy, but that doesn't mean it's a bad decision. During the course of today's episode, we also touch on Shane Parrish's The Great Mental Models Volume 3: Systems and Mathematics, how individuals engage in panic selling according to the recent MIT study, 'When Do Investors Freak Out?', and some of the listener discussion points that arose from our in-depth conversation with John Cochrane in Episode 169. Tune in today for all this, plus so much more! Key Points From This Episode: Find out why you should listen to Tim Ferriss' interview with Micheal Dell. [0:07:06] Today's recommended book: The Great Mental Models Volume 3 by Shane Parrish. [0:08:05] Unpacking how individuals engage in panic selling according to the MIT study, 'When Do Investors Freak Out?' [0:11:10] We weigh in on three top Canadian banks halting sales of third-party mutual funds in preparation for Know Your Product (KYP) rule reform. [0:13:53] Ben highlights some listener discussion points following the John Cochrane episode. [0:16:34] Learn how predictable returns result from unpredictable cashflows in the long run. [0:18:23] What this means for long-term investors: focus on cashflow payoffs, not returns. [0:18:59] Why stocks are less risky for long-term investors if returns are predictable, which introduces horizon effects and impacts portfolio theory. [0:20:49] Key takeaways: outside income streams as additional asset classes, value versus growth, pure wealth investors versus labor market investors. [0:21:42] Introducing Ben's topic for this week: does owning a home make you happy? [0:28:15] Some perceptions about the correlation between homeownership and happiness. [0:29:53] Why the non-financial aspects of renting might make it superior to home ownership. [0:31:50] Expanding on the 2011 paper, 'The American Dream or the American Delusion?' [0:32:10] Conclusions from the 2019 paper, 'Homeownership and Happiness', that Swiss homeowners are no happier or even less happy than renters. [0:33:57] The relationship between ownership and slightly elevated reflective life satisfaction; the difference between experienced happiness and life evaluation. [0:34:15] Ben reflects on how the decision to buy or rent relates to affective forecasting. [0:35:02] Focalism: how experience is shaped by how we spend our time rather than more stable circumstances like paying for housing. [0:37:50] How to deal with poor affective forecasting, hedonic adaptation, and buyer's remorse by making smaller, more frequent experiential purchases. [0:41:26] What Elizabeth Dunn and Michael Norton have to say about homeownership in Happy Money. [0:43:14] Social comparison and happiness when it comes to material purchases like homes. [0:43:57] How housing impacts life satisfaction: quality, economic effects, prestige, freedom. [0:46:09] Ben on how working from home can exacerbate possible issues for homeowners. [0:51:28] Concluding this topic: why homeowners are not automatically happier than renters. [0:52:05] Personally, Ben shares why he would rather own more of his time than his home. [0:53:27] Suggested reading, including Positive Psychology and The Happiness Hypothesis. [0:54:35] Talking Sense: whether success is based on money, cost versus value, and more! [0:57:38]

Today's conversation is an extremely enlightened and highly detailed one, that you may want to return to, in order to accrue all of its value. We host John Cochrane, an economist specializing in financial economics and macroeconomics. John has a popular blog and podcast called The Grumpy Economist and also hosts the GoodFellows Podcast. He is a Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution and a senior fellow at Stanford Institute for Economic Policy Research, and was a Professor at the Booth School of Business at the University of Chicago. In this fascinating chat, John shares so much of his expertise, going in-depth on the subjects that we and our audience are constantly exploring and excited about. We discuss long-horizon stocks, market inefficiency and return predictability, classic portfolio theory, risk-less assets, and performance evaluation. John also shares his perspectives on the future of centralized finances, digital and cryptocurrencies, and where the business of financial advice is headed. So for all this and more from a leader in his field, be sure to join us for this great episode of the Rational Reminder. Key Points From This Episode: Breaking down the basics of why stock prices go up and looking at the market as a whole. [0:02:05.8] The information contained in valuation ratios about long-horizon stock returns. [0:04:25.3] Market inefficiency and return predictability; unpacking the opinions on the correlation. [0:07:17.8] What the research on available information and market timing tells us about predictability. [0:12:59.6] Under-appreciating risk and asking important questions about dividend growth in the future. [0:18:46.5] The huge impact that predictability can have on classic portfolio theory. [0:22:36.2] Volatility aversion and communicating important concepts across divides. [0:28:11.7] John explains the risk-less asset for the long-term investor. [0:30:12.6] Using the example of bonds to get to grips with performance evaluation. [0:36:26.8] Unpacking the roots of wealth inequality and the best perspectives for understanding it. [0:40:30.4] Misguided thoughts about the market and the usefulness of keeping general equilibrium in mind. [0:44:14.1] Market portfolios and the zero-sum game; hedging state variable risk. [0:52:40.5] Decisions about the ability to bear the value risk premium and allocation. [0:58:10.7] John's thoughts on the future of financial advice. [1:01:27.8] Describing the fiscal theory of the price level and its predictions about inflation. [1:06:03.6] Cryptocurrencies and value maintenance; John's perspective. [1:13:12.8] Assessing the longevity of traditional or centralized finance. [1:19:15.4] John's own definition of success in the different areas of his life. [01:22:06.1]

Today we have a somewhat unique episode for all of our listeners, rounding up the news and information from the world of finance and investment before we welcome Ben Rabidoux back to the show. Ben was a guest on Episode 96, which aired early during the pandemic last year, and we are so happy to have him here for another appearance, to touch in with his real estate expertise, and his thoughts on the current issues facing the Canadian housing market. Ben is the Founder of Edge Realty Analytics and North Cove Advisors and is essentially a real estate analyst, which means he has many clients that are institutional investors and fund managers, who he helps with the real estate side of their portfolios. In this conversation, Ben gives us loads of insight into the current landscape of Canadian real estate, the roots of the contemporary conditions, and what the data can teach us about the high prices that are so prevalent at present. We also hear from Ben about some potential policy solutions, and how the pandemic has affected the rental market. So for all this and a whole lot more in today's episode, be sure to join us on the Rational Reminder Podcast. Key Points From This Episode: Some of the best media we have encountered recently; podcasts, documentaries, and more. [0:02:01.3] News from the community and why we had to ban a user for the first time. [0:03:46.1] Quick book reviews of the illuminating DeFi and the Future of Finance and Blockchain Bubble or Revolution. [0:07:05.8] Changes in the world of finance and investment; Walgreens' new bank account and beyond. [0:12:22.3] Today's listener question dealing with research-based investment decisions and frequently cited papers. [0:15:27.5] Recent research from Robert Novy-Marx and Fama and French on US value premiums and factors that matter. [0:22:01.3] How to view the possibility of a replication crisis in finance. [0:31:10.8] Findings on US exceptionalism and the relationship between national economic growth and returns. [0:33:49.6] Market crashes and the correlations between different countries. [0:37:12.6] Reflecting on Ben's appearance on the podcast during the early weeks of the pandemic. [0:39:38.3] The last few decades of the 20th century and how that explains the current climate. [0:43:50.2] The chronic issue of under-supply of housing from the industry. [0:45:30.1] Housing policies that would support the current rates of population growth. [0:48:20.4] Examples and thoughts on the recent house price increases. [0:48:48.6] Statistics of homes bought by investors; surprising numbers and data on purchases. [0:52:58.2] News from the rental market and the interesting ways the pandemic affected it. [0:57:05.1] Common Canadian perspectives on the potential for housing pricing to decline. [1:00:58.4] Ben's thoughts on possible solutions to the current problems in the housing sector. [1:03:47.6] The significant role of the private debt market in Canadian real estate. [1:08:02.2] What we can learn from historic data about the current housing prices. [1:12:15.1] Ben joins us for a round of questions from our Talking Sense cards about savings, happiness, and flow states! [1:15:27.4]

In many episodes of this podcast we refer to the psychological component of investing, and today we are very happy to host a global authority on the subject and share an absolute masterclass about behavioural psychology as it relates to our finances and the decisions we make. We welcome Professor Hersh Shefrin to the show, who is the author of many books including the seminal Beyond Greed and Fear, which he wrote in the last 1990s, and still holds much value and relevance in today's climate. Professor Shefrin is kind enough to share some reflections on how his understanding of the themes discussed in the book has evolved since those days and unpacks some great pieces from the book for listeners to digest. We get into some specific and technical questions about investing, looking at pursuing the alpha, momentum, and index funds, before our guest also weighs in with some broader, more philosophical responses to our queries. The conversation covers the psychological needs of investors, expected returns, and of course biases. Listeners can expect to come away with a clearer and more detailed picture of ideas we often reference, so make sure to join us for this incredible exploration with Hersh. Key Points From This Episode: The key message about market psychology from Beyond Greed and Fear. [0:03:23.1] Beyond Greed and Fear's three themes: heuristic-driven bias, framing effects, and inefficient markets. [0:04:39.3] Reflecting on these themes in a modern context and how our understanding has been refined. [0:12:53.6] Considering index funds in light of market efficiency frameworks. [0:21:08.3] Assessing one's ability to pursue the alpha and Professor Shefrin's advice to this end. [0:27:14.1] Possible reasons for large numbers of active money managers at institutions. [0:30:20.6] Understanding risk-based asset pricing models and expectations of higher returns when investing in riskier stocks. [0:34:41.8] The impact of behaviour-based versus risk-based explanations for investors. [0:40:00.2] Utilizing momentum in a portfolio: Professor Shefrin's explanation of this interesting phenomenon. [0:41:58.6] Comparing the current trading landscape with the advent of online trading in the '90s. [0:46:25.5] The addictive potential of stock trading; what we know about the neuroscience. [0:49:02.3] Unpacking the idea of growth opportunities bias and implicit assumptions about averages. [0:52:14.4] Weighing the relevance of the mean-variance framework to individual investors. [0:57:48.2] 'Carrying a psychological call option'; why Professor Shefrin's depicts advisors in this way. [0:59:09.3] Professor Shefrin's perspective on the interchangeability of dividends and capital gains. [1:04:42.9] The big influence that Professor Shefrin's uncle had on his career! [1:08:53.1] How Professor Shefrin defines success in his personal life and career. [1:12:12.7]

In this week's episode, Cameron and Benjamin share what's on their mind and delve into listener questions on subjects ranging from the CAPE ratio to how to go about changing someone's mind. Tuning in you'll get a preview of some of the formidable guests featured on future episodes, like John Cochrane and Hersh Shefrin. We also cover book recommendations and unpack the concept of libertarian paternalism from the highly influential best-seller, Nudge: The Final Edition by Richard Thaler and Cass Sunstein, and how it can be a force for good. We cover various facets of passive investing and index funds including how, despite its proven effectiveness, many people continue to take a dim view of it. Learn why certain personality types may be more drawn to active investing and why. We also share tips for reasoning with skeptics, including some useful questions to ask when things get heated. Next, we take an in-depth look at index funds and global returns over the last century based on the research of Dimson, Marsh, and Staunton and their book Triumph of the Optimists. We also answer questions from our Talking Cents Cards and take a look at the best bad advice from the previous week. This episode is packed with fascinating anecdotes and excellent recommendations that you won't want to miss! Tune in today! Key Points From This Episode: We reflect on some of the reviews and feedback we've received over the past week. [0:03:00.7] An overview of the guests that listeners can look forward to on future episodes. [0:06:15.8] Talking Cents Cards and how they can introduce your family to conversations about money. [0:07:01.2] Introducing Nudge: The Final Edition by Richard Thaler and Cass Sunstein, and the concept of libertarian paternalism. [0:08:50.0] Cameron shares his story of the week, an article from Magnify Money on how emotions can influence investor decisions. [0:13:53.3] An update on our response to a listener question on the CAPE ratio by discussing the work of John Cochrane on determining predictability. [0:17:24.2] We unpack a listener question on whether one should be looking to convert family members who fit into the average, active investor archetype. [0:21:47.6] What Benjamin has learned from Think Again by Adam Grant, about how to talk to people you disagree with. [0:24:15] How Benjamin experienced a revelation on index funds. [0:29:28.5] An examination of index funds and global returns over the last century based on the research of Dimson, Marsh, and Staunton and their book Triumph of the Optimists. [0:36:30.3] An in-depth look at how global events factor into Dimson, Marsh, and Staunton's data. [0:39:35.9] How dictatorships, civil troubles, wars, unsuccessful economic and monetary policies, and communism have prevented countries from transitioning from emerging to developed. [0:42:43] Cameron and Benjamin answer a Talking Cents card question by sharing the first big purchases that they saved up for. [0:50:47.6] Cameron and Benjamin answer a second card question: What is a creative way to save money in today's digital era? [0:52:53.8] Hear this week's bad advice from an Entrepreneur article titled: 7 Downsides to Passive Investing and Why it Can Be Bad for Your Portfolio. [0:54:09.2]

The evergreen subject of retirement planning is something that we prioritize here at the Rational Reminder Podcast, and today we have a very interesting conversation in which we explore the topic from a slightly different perspective. We are joined by Gordon Irlam, who is a notable researcher with a wealth of experience from the world of tech and beyond. We have the chance to ask Gordon about bonds, annuities, and optimal allocations for different outlooks, and also get his perspective on charitable giving, effective altruism, and different spending plans. Gordon has conducted some amazing research and even developed his own tools to help investors calculate the variables of their situations. This episode is a great gateway for listeners to explore these concepts, as well as make use of Gordon's resources. Our guest's personal story is equally fascinating, after working with Google early on, and subsequently starting a company that was then acquired by Google, Gordon has leveraged his experience and finances in order to continue asking questions that interest him and will definitely interest our listeners. So for this standout conversation with a great mind, be sure to take a listen. Key Points From This Episode: Looking back on the Google equity that Gordon sold and how he feels about the decision now. [0:03:00.8] Google's acquisition of a company that Gordon started and the impact of this financial windfall. [0:04:33.1] Gordon's explanation of effective altruism and how he utilizes the idea. [0:06:25.3] Approaches to asset allocation for foundations and how this differs from personal funds. [0:10:28.7] Comparing practitioner and economist approaches to financial planning. [0:15:59.7] An explanation of stochastic dynamic programming and its strengths. [0:17:45.5] Why Gordon now favors reinforcement learning over stochastic dynamic programming. [0:20:12.6] Considering the role of annuities in Gordon's optimal model for retirement planning. [0:25:05.3] Constant spending versus variable spending in the optimal retirement plan. [0:27:55.2] Gordon's practical advice for entering retirement and tracking spending. [0:29:35.8] Exploring mean reversion in stock returns for tactical planning. [0:32:16.6] A message from Gordon about fixed guaranteed income and the value of long-duration inflation index bonds. [0:35:18.7] Advice to younger individuals and investors; the importance of saving. [0:36:18.9] Thoughts on possible future innovations for the problem of better portfolio building. [0:37:45.3] Gordon's definition of success: the ability to work on interesting and important problems. [0:40:26.2]

Today's episode is the first that takes a new format we are piloting, where we compile clips from the most valuable conversations we have had in different episodes on a given topic. To kick it all off we will be devoting this episode to inflation-adjusted retirement spending and the nuances of the 4% rule. We start off with a clip from our conversation with Bill Bengen, creator of the 4% rule, where he explains the concept. From there, we pull up an excerpt from an interview with Wade Pfau, hearing him weigh in on how this rule only works in the context of the US and Canada. Next up, Fred Vetesse talks about the changes in stock and bond yields and how they further problematize the 4% rule. After that, Professor Moshe Molevsky makes the case for flexible spending, followed by Michale Kitces with his favourite variable spending rules. We grab a segment from our chat with Scott Rieckens where he argues that the 4% rule should be seen as more of a guideline for making financial decisions than a rule. Bill Bengen's interview then features again as we hear his comments on the effects of small-cap value stocks and cyclically adjusted price-earnings on safe withdrawal rates. Tune in for this fascinating set of highlights, the main point of which is that the 4% rule should rather be used as a guideline for financial planning and that where actual spending is concerned, a flexible approach is more sensible. Key Points From This Episode: Bill Bengen, creator of the 4% rule, explains how the concept relates to inflation-adjusted retirement spending. [0:03:50.8] Wade Pfau speaks about how the 4% rule doesn't work in an international context. [0:09:15.0] Fred Vettesse lays out the contrast between today and the period Bill studied. [0:12:31.1] The importance of having flexibility in retirement spending with Moshe Milevsky. [0:14:51.8] Variable spending rules with Michael Kitces; ratcheting, guardrails, and more. [0:19:27.3] Scott Rieckens on the 4% rule as a tool for making financial decisions. [0:32:33.8] Bill Bengen comments on the problems that have been found with the 4% rule. [0:38:35.7] The effects of small-cap value stocks on the safe withdrawal rate with Bill Bengen. [0:42:52.8] The effects of cyclically adjusted price-earnings on safe withdrawal rates with Bill Bengen. [0:47:20.6] Final thoughts on the 4% rule with Ben and Cameron. [0:51:37.8]

Even among rational investors with diversified portfolios, there seems to be less known about the inner workings of the bond portion of their investments. Here on the show today to help us get a better understanding of fixed income investments is none other than Dave Plecha, Global Head of Fixed Income at Dimensional Fund Advisors. Dave is one of the authorities on the subject of bonds and is amazing at articulating the concepts at play in this arena. This conversation goes in-depth, but is also a great starting point for investors to begin thinking about this part of a portfolio, and deepen an understanding of something that is so often misunderstood or misused. As you will hear, Dave has a real passion for this subject and has been presenting and speaking on precisely this work for the last twenty years. We cover a lot of ground with Dave, talking about why his approach might be confused with a certain type of market timing, the impacts of inflation, the current low interest rates and if these affect bond investments, an explanation of forward rates, and so much more that you will not want to miss. We even find time for a quick story about Dave's early days working with Eugene Fama, so make sure to stay tuned in for that. Key Points From This Episode: Assessing the role of bonds in a portfolio, in relation to the current low interest rates. [0:02:30.3] Concerns over negative interest rates for bond investors. [0:05:30.1] Bonds and real returns; the impact of inflation on Canada's market. [0:09:30.7] Dave's perspective on the argument for long bonds as diversifying assets. [0:15:39.4] Comparing and contrasting the bond market with the stock market. [0:17:55.7] The trading of bonds and what differentiates it from trading stocks. [0:22:29.5] The volatility of last March and Dave's reflections on trading during that period. [0:27:17.8] Differentiating Dimensional's approach to bonds from the other big firms'. [0:29:21.7] The primary factors that influence expected returns in fixed income. [0:31:40.4] Understanding forward rates and the information they provide about expected returns. [0:37:26.7] Building better investing strategies using forwards rates. [0:40:43.5] Clarifying expected premiums for maturity in a variable maturity strategy. [0:44:06.7] Dave explains why market timing does not work with regard to fixed income. [0:46:30.4] Quantifying the differences in expected returns from the index and Dimensional. [0:51:01.7] A great argument from Dave for maintaining a diversified approach to all investments. [0:52:31.51] The connection between present observable credit spreads and future realized payments. [0:55:48.5] The game-changing development of Trace in the bond market. [0:59:40.2] Applying the Dimensional approach as a do-it-yourself investor. [1:05:57.7] A great story from Dave about his early days working with Eugene Fama. [1:10:25.2] How Dave defines success in his life and work these days. [1:11:30.1]

Today our main topic expands on a recent episode in which we talked about what constitutes good financial advice, and here we look at how to go about finding the kind of advice that you want and need. It is one thing to know what it is, but that does mean it is straightforward to locate an advisor or firm that provides it. After our opening salvo of some media recommendations and a review of the fascinating book on different ideas on leadership, called The Starfish and the Spider, we dive into a listener question about where to geographically weight your investments and the idea of underweighting the US equity of your portfolio. This leads to a much bigger consideration of the research, which we try to breeze through, and in sum seems to lead us back to the idea of the non-predictability of markets. For our main subject, we share an extensive list of questions to ask yourself before even beginning any conversations with advisors, and using your answers to determine the kind of advisor you need. From there, we get into the questions you can ask the advisor and firms you approach in order to make sure you find the best fit for your needs. We talk about credentials, investment philosophies, firm policies, and everything in between, and we will be posting this full list on our community platform for your reference too. Stay tuned for today's Talking Sense card, and Bad Advice of the Week too, and make sure to tune in for the great guests we have lined up in the coming weeks. Key Points From This Episode: The positions that we are currently looking to fill here at the podcast! [0:05:48.2] This week's book of the week: unpacking The Starfish and the Spider and its lessons on leadership. [0:09:53.1] Looking at an interesting blog post about the power of systems over goals. [0:12:57.8] A listener question dealing with underweighting US equity in comparison to emerging markets. [0:14:40.5] Plotting trend lines and the inconsistent relationship between forecasts and outcomes. [0:23:02.4] Adjusting the standard errors, when using overlapping data samples. [0:27:48.3] Bootstrapped simulations for defining predictability and market timing. [0:29:20.2] Good financial advice and how to make sure you find it. [0:32:02.8] The three channels through which you can access advice; commission-based, asset-based fee advice, and fee-only. [0:33:30.2] The conflict of interest that arises with us delivering our thoughts on this topic. [0:36:28.8] Credentials and qualifications to look out for in Canada and abroad. [0:38:20.3] Starting with what you want from an advisor and departing from clearly defined goals. [0:41:12.7] Questions to ask yourself before selecting an advisor about your assets, self-management, and more. [0:45:22.8] The conversations to have with your chosen type of advisor; services provided, compensation, and more. [0:48:55.2] Getting to grips with the investment philosophy of an advisor and their firm. [0:54:50.1] This week's Talking Sense segment: choosing between a lump sum or installments. [0:57:28.2] Bad advice of the week and the seven reasons to own individually-managed portfolios of stocks. [0:58:14.6]

Today we are so happy to welcome the amazing Katy Milkman to the show. Katy is the author of the impressive and inspiring new book, How to Change: The Science of Getting from Where You Are to Where You Want to Be, and in this episode, we get the inside scoop from her about her work, with specific attention to how it can be applied to investment and finances. Emerging from an engineering background, Katy has a powerful and unique skillset to be tackling the social sciences, and we hear from her about how this path has impacted her thoughts on data quality and the areas she has chosen to research. Our guest shares some very interesting and sometimes surprising information on the idea of fresh starts, commitment devices, and ambitious goals, before we tackle the fascinating subjects of laziness and confidence in relation to our saving habits. Listeners can expect to come away with some renewed reasons for data-driven decisions as well as some new impetus to double down on healthy change. We cannot recommend Katy's book highly enough, so tune in to hear what she has to say and make sure to purchase this amazing read. Key Points From This Episode: Unpacking the idea of a 'fresh start' and the ideal times for this. [00:02:26.2] Instances when fresh starts might be harmful instead of helpful. [00:07:28.1] Better methods for adhering to goals around saving money. [00:12:04.6] Commitment devices and how these can aid people in avoiding dipping into savings. [00:19:04.3] The value of ambitious goals and the impacts of different kinds of goal setting. [00:22:13.7] Using the power of a new identity in the process of goal setting around retirement savings. [00:26:00.8] Katy's suggestions for taking responsibility for independent saving. [00:29:58.7] Thoughts on laziness; utilizing this inherent tendency for our benefit. [00:31:43.6] Katy's perspective on habit-forming; habit loops, consistency, and triggering certain behaviours through rewards. [00:35:40.6] Decision-making and confidence; how much it matters and how to increase it. [00:42:11.4] More productive conversations around advice, assistance, and expertise. [00:46:31.2] The influence of community on our success; how determinant the people around us are. [00:49:38.6] Considering the permanence or perpetual struggle of behavioural change. [00:52:20.6] How accountability and the role of third parties can initiate meaningful change. [00:54:21.1] Katy's concerns over data quality and how this has impacted the areas of her research. [00:55:24.9] How Katy defines success in her life: leaving the world a better place and enjoyment. [00:56:49.8]

Today we get the chance to take some very interesting listener questions and dig into fascinating findings on day trading in 2020. To kick things off we have a quick review of Simon Sinek's insightful new book, The Infinite Game before rounding up some of the news from the investing space. Then it's time to tackle a number of questions from a member of our thriving community and break down some helpful responses to queries about bonds, retirement, convexity, different types of ETFs, and more. We were lucky enough to draw on some great wisdom within our network of advisors to help us answer these complex questions, so you will not want to miss the specifics that we dive into. From there, we dive into the main course of today's show, exploring the topic of day trading in 2020. With the rise of mobile trading on apps like Robinhood, there has been a spike in what some may call casual or free trading. We unpack some of the surprising and not-so-surprising findings on the impact of Robinhood's model, looking at the community's trend towards herding and how the smartphone platforms are changing the way people invest. The main conclusion here may not be a big surprise to any of our listeners, with the higher frequency of transactions leading to worse returns in the long run. For all this, plus some Talking Sense questions cards, and a whole lot more, listen in with us. Key Points From This Episode: This week's book review of The Infinite Game by Simon Sinek. [0:06:02.7] News from the world of investing: Vanguard's latest move into indexing, and more. [0:10:30.8] A series of listener questions dealing with bonds and retirement. [0:15:51.2] An argument for federal government bonds when prioritizing liquidity. [0:18:26.7] Understanding convexity and 'bullet' portfolios in this context. [0:20:36.7] Ten-year treasury ETFs versus all duration ETFs. [0:23:52.4] Weighing provincial bonds and their lack of liquidity against Canada's governmental bonds. [0:26:12.1] Looking into what the research shows us about day trading during last year. [0:29:01.6] Available data on Robinhood users and their general tendency to herd investments. [0:33:40.7] The losses incurred by the Robinhood community during herding. [0:38:29.0] Digging a little deeper on transaction costs and how this actually plays out at Robinhood. [0:44:20.1] Market efficiency as it relates to these new ways of 'free' trading. [0:48:29.6] Another round of Talking Sense cards; things to save and decision hindsight. [0:52:32.1] Bad advice of the week courtesy of Canada's big banks. [0:59:18.6]

The work of Bill Schultheis has had a profound effect on us here at the Rational Reminder Podcast, and eventually having him join us on the show is truly an honour! Bill is the author of the Coffeehouse Investor series and is currently the Principal and Senior Advisor at Soundmark, in Kirkland, Washington. Throughout his career Bill has dedicated himself to helping his clients make the choices that best serve them and their particular needs, and his approach has continued to grow and improve over the decades he has been in the game. We have a wonderful conversation with Bill, charting his course from his early days on Wall Street, to writing his first book and starting Soundmark, to where is today. Bill gives us some great insider insight into the important concepts from his books and also talks about current issues in the financial world, like the impact of cryptocurrencies. Towards the end of our conversation, we get even more philosophical with our guest sharing some thoughts on what constitutes a 'rich life', and the importance of listening to your heart when it comes to your big decisions. So for this and much more from an inspiring and sensible voice, be sure to join us today! Key Points From This Episode: Bill's upbringing on a farm in Washington with a large family. [0:04:16.2] The route that Bill took to publishing his first book as a way to share the wisdom of indexing. [0:06:40.7] The beginnings of Soundmark and the first clients that Bill started helping. [0:10:13.4] Bill's most recent book and the three ground rules it lays out for readers. [0:12:36.3] Unpacking the 'coffeehouse investor' model portfolio. [0:18:20.7] How Bill approaches and explains diversification to his clients. [0:21:54.7] Thoughts on presenting data and challenging strongly held views from clients. [0:23:14.1] The impact of cryptocurrencies and commission-free trading on indexing. [0:25:53.6] Comparing the commonly held investing approaches of now and the 1990s. [0:29:01.0] The approaches to wealth building that Bill recommends to younger people. [0:30:52.7] How a persistent attitude served Bill when looking for a publisher for his book. [0:33:07.4] The basic strengths and weaknesses of index funds. [0:34:56.3] Bill's idea of a 'rich life' and what this means to him. [0:39:55.2] How to 'dial in your power settings' with your financial planning and common mistakes to avoid. [0:41:19.2] Listening to your heart and finding the financial and professional life that feels right. [0:44:52.7] How dissatisfaction can lead to unhealthy spending habits! [0:48:37.5] Bill's thoughts on the FIRE concept; pros and cons of adopting the philosophy. [0:50:31.4] The impact that The Millionaire Next Door has had on Bill's life and work. [0:51:48.2] How Bill defines success and the value he places on kindness. [0:52:51.7]

Welcome back to another episode of the Rational Reminder Podcast, where we give you the most considered and evidence-based information about investing in Canada. Our focus for this episode is the topic of tax loss harvesting, a subject we have touched on before but felt warranted a revisit, with some updates. To kick off the show, we review Playing to Win, looking at the illuminating perspective it offers with regards to strategy and preparation. From there we turn to some recent investing news on ETFs and Robinhood, before we get into the main course of today's show. There are plenty of pitches and arguments for why tax loss selling can be very rewarding, and while these are not necessarily false, there are certain ways in which the information can be misleading, or not comprehensive for all investors. We discuss how best to think about the supposed gains, noting the importance of high expected returns and the time frame in which a case study is made. We also think about some of the potentially negative results of letting tax drive your investment decisions, despite the seeming attractiveness of this route. One of the most important points here is the adjustment needed in order to apply these strategies to the Canadian market, as many of the pitches and research are based in the US system, which has significant differences when it comes to taxation. We highlight some red flags to look out for and give some more general warnings around rushing into investments that lean too heavily in this direction. So for all this and a bunch more great advice for your portfolio, join us for the show. Key Points From This Episode: This week's book review of Playing to Win by Roger Martin and A G Lafley. [0:08:43.3] Continued increases for ETFs and comparing the statistics with recent history. [0:12:30.7] Some amazing statistics about Robinhood users and cryptocurrency investments! [0:15:18.5] A reintroduction to, and revisited analysis of, tax loss harvesting. [0:18:20.8] The best times to consider tax loss selling; waiting for high expected returns. [0:27:55.5] Recent findings on the tax alpha and modifying the arguments and assumptions. [0:33:20.5] Creating a new base case to work from with some helpful adjustments. [0:38:41.3] The importance of the time period when looking at historical returns for tax loss selling. [0:43:10.1] Cases in which we believe tax loss selling makes the most sense. [0:46:14.3] Looking at the tax implications of pooling funds with other investors. [0:49:02.7] Locating these tax loss strategies within a specifically Canadian context. [0:52:18.5] A couple Talking Sense cards dealing with leading and following, and protection. [0:55:25.5] Bad advice of the week; looking at pensions in the UK. [0:58:03.5]

Today we welcome Rob Arnott to the show! Rob is the founder of Research Affiliates and is a prolific writer who has published hundreds of articles for many different journals. We know firsthand, the power of Rob's work, and how it can alter the way you think about investing, and this depth of knowledge, coupled with his ability to make complex topics understandable makes him a dream guest for us! Rob is the co-author of The Fundamental Index, and we get some insight into this subject along with many other groundbreaking areas he has worked on. We cannot stress enough the rarity of Rob's gift for getting difficult ideas across in a deliberate and approachable way, and this is apparent through this illuminating conversation. For us, it was quite surreal to speak to someone so influential, and listeners can expect to come away with a greater understanding of 'smart-beta', intangible assets, forecasting, and some insight into the interesting areas of earnings dilution and 'the big market delusion', before Rob shares some very surprising information on factor momentum at the end of our chat. So for this and a whole lot more, in a truly stand-out episode, be sure to listen in! Key Points From This Episode: Rob's perspective on the drawbacks of cap-weighted indexing. [0:02:47.2] Getting to grips with 'smart-beta' and its links to RAFI. [0:06:21.6] Building a fundamental index and what the weights are based on. [0:11:17.4] Misconceptions of the value of backtesting when making investment decisions. [0:13:43.3] The prevalence of extreme factor-drawdowns for investments. [0:17:22.7] Weighing the importance of intangible assets and what to trust in this regard. [0:23:32.8] Value stocks in the current drawdown; value's relative cheapening over recent years. [0:25:53.8] Stories about the inner workings of a company and how this can vary in importance. [0:28:41.5] Unpacking 'the big market delusion' and the paper that Rob co-authored on the subject. [0:33:33.2] Rob's work on earnings dilution and how it relates to bubble-formation. [0:37:00.9] How the findings on earnings dilution impact strategies towards disruptive industries. [0:40:19.9] Forecasting the expected returns of a factor portfolio and utilizing Research Affiliates website! [0:44:03.0] The possibility of adding value through timing exposure to factors. [0:47:26.7] The truth about momentum in historical back-tests in the last few decades. [0:49:12.8] Rob explains the real costs of trading! [0:55:42.7] Momentum's primary existence in factors, ahead of individual stocks and sectors. [0:58:44.8] How Rob currently defines success in his life. [1:07:38.7]

The looming issue of climate change has far-reaching implications, not least of which are relevant to the financial and investment world. Today we spend some time considering these impacts, with a focus on the question of whether climate risk is a priced investment. The short answer, conferred by the numerous academic explorations into the subject, is yes. This answer, however, still leaves investors with many options and contrasting possible approaches as to how to act. We get into some of the different avenues to explore when considering your best route, taking into account both ethical constraints and returns, as well as a long-term vision of sustainability. We also talk about why big companies with less of a focus on ethics may be tempted to go green for financial reasons, how investors might enact a moral stance by investing in fewer green companies, and many more surprising possibilities that arise out of the current findings. Rounding out all this serious discussion, we squeeze in an interesting book review from Hans Rosling, some Talking Sense questions, and of course, bad advice of the week, all of which you are not going to want to miss. Key Points From This Episode: This week's book review, looking at Hans Rosling's Factfulness. [0:08:09.2] Recent financial and investment news; penalties, TFSAs, and a big shift from Wealthfront. [0:14:36.7] The question of climate change and markets connected to the use of fossil fuels. [0:19:04.5] Expected rate of returns in relation to the costs of capital, and the idea of climate hedging. [0:26:46.2] Looking at empirical evidence on the pricing of climate risk. [0:28:40.1] Recent scholarly findings on the subject of whether climate risk is priced. [0:31:50.3] Summing up the academic arguments for why and how pricing of climate risks operates. [0:38:35.7] The cost of capital incentives for companies to reduce their exposure to climate risk. [0:40:19.3] Participating in the transition of companies to greener and more sustainable practices by investing in them. [0:45:12.9] Financial needs for different age groups, at the beginning and the end of a lifetime. [0:48:17.6] Personal savings goals versus generosity towards loved ones. [0:51:47.2] This week's Bad Advice of the Week: making inflation trades in cryptocurrencies and gold. [0:53:27.1]

One of the major topics we hope to help our listeners with is retirement planning, and today we have a really informative and illuminating conversation with a true expert in the field, Don Ezra. His approach is typified by his focus on retirement and happiness, and their important intersection, subjects he has broached in his many published books, notably Life Two, and Happiness. Don is a self-professed financial nerd, so you know that he will fit right in on this podcast! His advice is relatable and easy to understand, a result of working on his own retirement along the way. Don is an actuary by trade and helped establish Russell Investments Canada in 1984, through which he worked on many huge pension funds across the world, endowing him with amazing expertise in the space. In our conversation, Don gives us such a wide-ranging view of his approach, and the amazing conglomeration of ideas he has amassed on the subject of better retirement, or as he likes to call it, graduation from full-time employment! He breaks things down in easy and catchy ways, giving us some fundamental questions that can help initially guide the retiree, around purpose, action, and money. From there he talks about the seven asset classes of your life's abundance portfolio, needs versus wants, and even finds a spot to comment on the strengths and weakness of the FIRE philosophy. So for all this and much more, join us on the Rational Reminder today! Key Points From This Episode: Don's feelings around the time of his retirement from such a successful career! [0:02:10.4] The common feeling of discombobulation around retirement and Don's thoughts on addressing it. [0:03:41.2] Questions people should be asking and answering as they approach retirement. [0:06:45.8] Safety, growth, longevity; the three things we need for our finances in retirement. [0:08:49.7] Don explains the sequence of returns and some misconceptions about averages. [0:10:21.1] Weighing the uncertainty of life expectancy against that of random stock returns. [0:12:24.8] Better ways to calculate life expectancy for individuals and couples. [0:15:15.7] Don's advice to the average person looking to build a diversified portfolio for retirement. [0:16:54.1] How Don has approached his own portfolio and generating retirement income. [0:21:10.8] The importance of flexibility and adjusting a retirement budget over time. [0:23:48.7] When retirees should be seriously considering annuities. [0:25:52.1] The dimension that inflation adds to these questions for people in retirement. [0:27:49.4] Assumptions that Don uses for his life expectancy planning. [0:34:06.1] Calculating what is needed against what you have; Don explains the personal funded ratio! [0:36:33.7] Lessons that Don learned during his work with huge pension funds before retirement.[0:38:35.4] The question of filling one's time in retirement; staying busy and maintaining purpose. [0:41:29.5] Don breaks down the seven asset classes of your life's abundance portfolio. [0:45:22.1] A look at the different parts of the FIRE movement and its success and failures. [0:48:38.5] A few approaches to challenge below-average advice from any expert. [0:50:42.1] Fostering healthy ambitions and dreams for the years of your retirement. [0:55:24.5] Better conversations with family around money, inheritance, and financial planning. [0:57:21.2] The emotional legacy that Don views as the success of his life! [1:01:16.8]

Welcome back to another episode of the sensible money show. The focus this week is the age-old question of housing; whether to buy or to rent. After our preliminary remarks, book review, and a new TV recommendation, we get down to brass tacks on the important things to look at when assessing your living situation. There are some commonly held views on the expenses and sacrifices associated with real estate, and we do our best to share some of the facts as they stand. We get into some meaningful ways to truly compare the costs of each option, looking at the financial aspects, risk, quality of life, and related psychological elements to the debate. The truth is that there will be costs associated with each, but that they may not always lie where you think they do! For instance, it is commonly believed that it is less risky to own than to rent, however, the evidence suggests otherwise. Similarly, many of us assume that the costs of owning a property are greatly diminished once it is paid off, again, this is not necessarily true. Our main argument here is to base your choices on factors more closely related to your physical and mental health, things like stress and relaxation due to noise and travel times. Key Points From This Episode: This week's highly recommended book, Noise. [0:05:37.3] Unpacking the new article by Larry Swedroe titled 'The Misguided Faith in the Fiduciary Standard' [0:11:50.7] A few thoughts on FIRE, positive psychology, and moral judgments. [0:16:49.2] The big decision that so many of us are faced with: buy or rent? [0:20:41.7] Flawed logic around mortgage payments and rental costs. [0:25:55.5] Opportunity and maintenance costs and the truth about depreciation. [0:29:51.7] Equating the total costs of renting and owning and making a judgment based on this. [0:36:53.8] The ratio of prices to rent in Canada currently and in the last few decades. [0:39:47.9] Risk and homeownership; why renting is less risky in many ways. [0:40:50.8] Keeping the focus on living a good life when making real estate decisions. [0:45:15.7] The surprising relationship between owning a property and a sense of control. [0:49:16.8] Weighing all the factors and making an informed decision based on wellbeing. [0:55:30.4] This week's Talking Sense segment dealing saving, speed of decision-making. [0:56:08.8] Bad advice of the week: Fidelity's investment initiative aimed at teenagers. [1:00:34.4]

Today we speak to Professor Johanna Peetz about how the errors people make about predicting their futures affect financial planning and relationships. Professor Peetz is an Associate Professor of Psychology at Carleton University and her three main research interests are time perception, personal spending, and close relationships. We kick the conversation off on the topic of biased spending estimates, the idea that people are bad at budgeting, and Professor Peetz gets into the main causes and implications of this issue. Our guest gives pointers for how to make less biased predictions for spending and makes a great point about how people with more aggressive saving goals often don't spend less. We move onto the subject of long-term financial planning and motivation, and Professor Peetz weighs in on a few methods to get better at breaking down big goals into steps as a way of keeping motivation up. Another big discussion from today is how this idea of behaviour predictions fits into the context of healthy relationships. We talk about the connection between partner-satisfying decisions and happiness, and how partners should view each other's ability to keep promises. So for all this and more on how to get better at knowing your personality traits and the effects this can have on finances and relationships, tune in today. Key Points From This Episode: Introducing Professor Johanna Peetz and her research on predictive errors. [0:00:48.2] If people are good at predicting how much money they're going to spend in the future. [0:03:05.2] The causes and implications of these biased spending estimates. [0:04:33.5] What people can do keep their spending in line with their goals. [0:06:53.5] The financial literacy gap between men and women. [0:13:37.5] Increasing motivation to reach long-term financial goals based on a future self. [0:17:05.7] Setting goals using intrinsic over extrinsic reasons. [0:21:40.5] How financial planners can help their clients find and reach their goals. [0:23:56.5] The relationship between pro-social behaviour and happiness. [0:24:51.5] How good people are at predicting relationship-enhancing behaviour. [0:28:27.0] Dealing with money-related relationship conflict amongst being bad at predicting behaviour and spending. [0:32:39.0] How unpacking expenses can help people make less biased spending predictions. [0:34:26.0] Different ways of responding to boredom in a relationship. [0:39:34.0] Taking the perspective of the other person to improve the forecast of relationship-enhancing behaviours. [0:43:10.0] What Professor Peetz is working on now that makes her most excited. [0:46:05.0] How knowing your personality traits can help you make better financial decisions. [0:48:20.0] Our guest's definition of success. [0:49:09.0]

Welcome back to your favourite Canadian podcast about sensible investing! Today we are focusing on evaluating equity strategies and wondering aloud whether you should be chasing these anomalies, thinking about the costs and turnover, and how these products are being implemented. These are just some of the important questions that can be asked on this subject, and we do our best to cover the most vital points in this episode. We start things off with our customary book review segment, taking a look at Katy Milkman's fascinating new title How to Change and the thesis it lays out on the continuum from now into the future. We then turn to a few interesting and pertinent news stories dealing with the CPP and clarifying the role of fund managers! After the preamble, we get into the main course of today's show and talk about some of the most prominent literature on the subject of equity strategies before laying out some criteria for useful data in this discussion. Our main point can be simplified as such: in the event of selecting systemic equity strategies with hopes of beating the market, there are many additional tradeoffs and costs that should be considered, many more than we even have time here to go through! To close out the show we take on a few questions for our Talking Sense segment and share some somewhat relieving news for our bad advice of the week! Key Points From This Episode: A retraction and re-review of the last episode's book of the week, Effortless! [0:04:26.4] This week's book review of the exciting new title from Katy Milkman, How to Change. [0:06:35.6] A round-up of recent news stories from the WSJ, The Globe and Mail. [0:10:32.2] The surprising results of the Canadian year-end SPIVA scorecard. [0:14:55.8] Investment topic of the week: evaluating equity strategies and the inspiration behind it. [0:17:24.5] The identification of systematic factors; Fama and French's original findings and newer research. [0:21:15.9] Conditions for useful data: persistent over time and pervasive across markets, strong economic rationale, and non-reliance on rising valuations. [0:23:44.3] The two forms of implementation costs that the data needs to survive: implicit and explicit. [0:32:40.1] The importance and impact of taking transaction costs into account for your portfolio. [0:35:53.0] The rough estimations that Ben put together in 2019 for a fund premium regression. [0:38:54.6] The 'what if I am wrong' check; the usefulness of maintaining a healthy level of skepticism. [0:42:22.5] Summarizing today's argument about additional costs and tradeoffs when selecting equity strategies. [0:46:01.7] Talking Sense segment; thoughts on money's purpose, and goals and sacrifices. [0:46:39.1] This week's bad advice! The amazing claims of TFSA maximizer schemes. [0:52:21.0]

There is an overarching investment philosophy that permeates most of what we do here at the Rational Reminder Podcast, and while some guests' positions might differ at times, it is rare that we have someone on the show whose approach is as strongly contrasted with ours, as Professor Brad Cornell. Professor Cornell's arguments are so well-founded and researched that they require a re-examination of positions that we feel have been a given for us for a long time. He is the author of about 150 referenced articles, four books, and has conducted hugely interesting work on the current state of value investing. His research with Aswath Damodaran, and insights into Tesla's valuation provide great food for thought, and we get into all of this on today's show! Our conversation also covers ways to go about picking a fund manager and a slightly different lens through which to view past performance. We feel truly grateful to have such a different, yet valid, perspective expressed so well here, and cannot wait to share this highly useful information with all of our listeners. Tune in to hear it all from Professor Brad Cornell! Key Points From This Episode: The difference between a stock characteristic and a stock risk factor loading. [0:03:30.2] Some of the challenges in using characteristics to develop an investment strategy. [0:05:43.8] The problem of non-stationary frameworks as a starting point for investing. [0:07:33.4] How little we know about the cross-section of expected stock returns. [0:08:32.1] Concentrated, characteristic-focused portfolios versus something more diversified. [0:11:12.7] Unpacking the 'big market delusion' and the huge power of the narrative. [0:12:11.4] Looking at the example of the electric car market and what it teaches us. [0:16:18.4] Professor Cornell's thoughts on how to pick a fund manager. [0:21:23.0] Assessing the issues with mean reverting performance. [00:25:58] The most relevant ratio: price to a value estimat [00:30:35.2] Some thoughts from Professor Cornell on the rise in ESG investment. [00:32:22.5] Approaches to the expected equity risk premium for investors and planners. [00:39:45.0] Bringing in historical context to the conversation about predictability. [0:45:16.1] Professor Cornell's approach to calming down investors' reactivity to volatility. [0:47:56.5] A great definition of success from Professor Cornell! [00:49:57.2]

Is it possible to hedge your investments against different levels of inflation? This is the question we ask in today's episode, as we run through a variety of different investment approaches and commodities. While the answer may not come as a huge surprise, it is definitely worth the walk-through and getting to grips with what the literature can tell us in each scenario. After rounding up some news and a few reviews relevant to our usual subject matter, we dive straight into this topic, tackling the performance of stocks and bonds, gold, international stocks, value stocks, and more! We also share some general thoughts and questions to ask during periods where inflation is high, before positing our view that there is no single successful hedge against inflation, but rather our usual position of an adjusted and diversified portfolio will serve you as well in this regard as in others. We finish off this episode with a few of our usual quick cards, and this week's disturbing bad advice! So tune in to hear all about what you should know about expected and unexpected inflation and a whole lot more! Key Points From This Episode: The exciting recent decisions around succession that were made at PWL! [0:00:22.4] Ben's review of Greg McKeown's new book Effortless and Netflix's Money, Explained. [0:04:51.7] A quick round up of some big money news from around the country. [0:08:25.2] Reflecting on the recent performance of Wealthsimple portfolios. [0:13:26.6] 'The ultimate inflation hedge'; looking at returns under different conditions through the years. [0:19:50.1] Looking at the performance of stocks and bonds during high inflationary periods. [0:25:04.6] What to do and what to ask in situations with higher-than-expected inflation. [0:32:21.0] Weighing the value of gold as an inflation hedge; 'The Golden Dilemma' and 'The Golden Constant'. [0:39:50.3] The performance of international stocks during a period of high inflation. [0:44:05.8] What the research shows about value stocks and and their relation to inflationary periods. [0:45:55.2] The answer to the question: no perfect hedges against inflation! [0:52:04.7] Today's cards; saving versus spending, and tools versus treasures. [0:55:20.3] Bad advice of the week courtesy of the Investment Executive! [0:56:56.0]

Today's guest is Professor Robert Novy-Marx, the Lori and Alan Zekelman Distinguished Professor of Business Administration at Simon Business School of the University of Rochester. Professor Novy-Marx is best known for his articulation of the profitability factor and has also done a ton of great work on momentum and low volatility. We kick our conversation off with Professor Novy-Marx's thoughts on how profitability should inform portfolios. From there we hear why Professor Novy-Marx has a problem with evaluating the performance of a multi-signal strategy the same way that we would a single-signal strategy. He then talks about the trade-off between concentrated versus diversified factor exposure for capturing premiums. Next, we discuss why there is no good empirical evidence that we can time premiums. Professor Novy-Marx makes a great argument for why the regressions people use to say that the value spread works to predict the value premium can't be taken seriously. Our conversation moves to focus on how our guest defines price momentum and what drives it, and the nuances of investing in momentum. We then hear his perspectives on the low volatility anomaly and how profitability helps to explain it. After that, we talk about whether investing in a low-vol fund is a way of accessing value and profitability, and why the five-factor model is a trustworthy factor model for regular investors. In the last part of our conversation, we talk to Professor Novy-Marx about his approach to critiquing other methods before ending off with his definition of success. Tune in for this excellent evergreen conversation. Key Points From This Episode: We introduce today's guest, Professor Robert Novy-Marx, and his work. [0:00:17] The significance of the relationship between profitability and stock returns for asset pricing. [0:02:45] How the risk-based story around profitability is completely counterintuitive. [0:08:51] The best way to go about using profitability in portfolios. [0:12:34] When to target premiums individually and then combine them after the fact. [0:14:48] How profitability is different from quality. [0:16:26] Risks of building strategies that draw insight from different signals to identify a premium. [0:18:10] The trade-off between concentrated versus diversified factor exposure for capturing premiums. [0:23:33] Whether the recent decade's run of underperformance impacts Professor Novy-Marx's view of the value premium. [0:25:10] The vagueness of the equity premium and if it is possible to time premiums. [0:27:58] How Professor Novy-Marx defines momentum and what drives it. [0:32:32] Whether investors should be using momentum in portfolios. [0:38:47] Professor Novy-Marx's perspectives on the low volatility anomaly. [0:44:19] Whether investing in a low-vol fund is a way of accessing value and profitability. [0:32:32] Why regular investors need factor models and how to choose one. [0:51:58] Whether it is reasonable to pursue factor premiums in a smaller market like Canada. [0:57:45] Professor Novy-Marx weighs in on writing papers that critique other methods. [0:58:44] Why Professor Novy-Marx consults for Dimensional Fund Advisors. [1:01:15] Insights Professor Novy-Marx has carried over from his years as a professional triathlete. [1:01:15] How Professor Novy-Marx defines success. [1:01:15]

Today we dive deep into the connection between happiness and money, looking at a host of theories and studies that have examined the important factors in this discussion. The main material referenced is the fascinating, The Happiness Hypothesis by Jonathan Haidt, and during the episode, we get to look at a great selection of the findings and claims in the book. To kick things off, we consider the broad ideas around how money can stimulate happiness, as well as its addictive aspects, before examining a few of the most prominent lenses used for measuring different kinds of happiness. Talking about the ideas of Hedonia and Eudaimonia, the influence of forecasting and the future, and the effects of different kinds of spending, we see the common threads as well as the distinctions between these models of measurement. Ultimately all of this material should hopefully enable us to live out a better life with this information in mind, and we spend some time reflecting on some of the key takeaways that seem to come to the surface in the happiness debate. To finish off, we field some listener questions on avoiding spending, and returns on investment, before diving into this week's bad advice featuring a video starring Warren Buffett, Charlie Munger, and Mark Cuban! Key Points From This Episode: A great book recommendation for getting to grips with branding and building relationships with consumers. [0:03:52.2] The interesting statement released by IIROC regarding conflicts of interest. [0:07:14.7] Barry Ritholtz's interview with Jack Brennan and their perspectives on index funds. [0:10:44.1] Books and studies on the subjects of happiness, finances, and addiction. [0:12:21.4] Different theories for the largest determining factors for happiness. [0:20:21.3] Hedonia and Eudaimonia; two different types of pleasure and their measurement. [0:24:47.6] Experienced happiness and experienced unhappiness; statistics from around the world. [0:32:04.1] Spending and happiness and the debate around the human ability to accurately forecast. [0:40:21.7] Designing a happy life based on all the research in the field. [0:44:48.8] Inverting the goal-setting process and working backward from what you don't want! [0:47:33.9] Love and work as the two most crucial ingredients for human happiness. [0:49:47.3] Avoiding the temptation of spending when aiming to save money. [0:51:15.6] Examples of investments that have paid off for Cameron and Benjamin. [0:52:31.1] Bad advice of the week; Buffett, Cuban, and Munger on diversification. [0:54:03.7]

It takes only a handful of smart choices to convert regular savings into a secure future. Today we welcome famed financial educator Paul Merriman onto the show to discuss how the right habits and investing approach can add millions to your retirement nest egg. After chatting about his personal and professional background, we dive into Paul's investing philosophy and how it's been influenced by the work of Eugene Fama. A significant theme in this episode, we then talk about why Vanguard's portfolio allocation ensures that clients have the smoothest possible emotional relationship with their investments. This leads to a discussion on the benefits of simple versus complex funds and how simple funds fit with the preferences of many do-it-yourself investors. Linked to this, Paul explains why it's emotion and not strategy that gets in the way of successful investing before exploring the challenges of sticking to portfolios that are heavily weighted in small-cap value stocks. Reflecting on his career as an advisor, we ask Paul about his difficulties in working with clients as well as the role of financial advisors. Later, Paul unpacks some of the top habits and beliefs that lead to investing success; a key focus of his new book, We're Talking Millions. We wrap up our conversation by touching on target date glide paths, how Paul's foundation educates investors, and the relationship between money and a life well-lived. With such an illustrious career in financial education, tune in to benefit from Paul's investing advice. Key Points From This Episode: We introduce today's episode with financial educator Paul Merriman. [0:00:17] Paul shares details about his personal and professional history. [0:03:16] How Eugene Fama's work impacted the way that Paul built his firm. [0:06:55] What PWL Advisors went through to access Dimensional's products. [0:08:21] Insights into the fateful chat that Paul had with Jack Bogle in 2017. [0:09:08] How Paul helps his clients balance fee frugality with expected returns. [0:13:29] Exploring the trade-offs between simple and complex funds. [0:16:49] Paul compares his former buy-and-hold strategy with his simpler new approach. [0:19:06] The costs of do-it-yourself investors having an overly-complicated portfolio. [0:22:46] The rationale underpinning the small-cap value strategy. [0:27:20] Why it's so difficult to only invest in small-cap value stocks. [0:25:36] What Paul would say to clients who want to ditch their small-cap value stocks. [0:37:32] Paul reflects on challenges when communicating with investors. [0:40:39] We ask Paul about the value of financial advice and financial advisors. [0:46:32] Discover the habits that every investor should follow. [0:51:29] What Paul is trying to achieve with the Merriman Education Foundation. [0:58:21] Pros and cons to target date glide path funds. [01:02:00] We chat about Paul's radio show from the previous decade. [0:50:35] Hear Paul's top lessons on the relationship between money and a life well-lived. [01:08:51] How Paul defines success. [01:16:29]

As many of you already know, we have been working hard to figure out the best way to model expected stock returns for financial planning and asset allocation. It has a lot of history in financial literature, which is to be expected, given the importance of the figure. In today's episode, we're looking all the way back to 1985, when Rajnish Mehra and Edward C.Prescott called the equity premium a puzzle, through to the present day, when the equity risk premium has only gotten larger. We dive into some of the theories for resolving the equity premium puzzle, explain why US stock market data isn't the best way to estimate future premiums, thanks to its survivorship bias, and some of the general issues with interpreting past returns. Benjamin also gets into predictability, which is not as obvious as it seems, and highlights some of the information from the simulation he performed, and the big breakthroughs from running the numbers. All this and more in today's episode on expected stock returns, so make sure to tune in today! Key Points From This Episode: Kicking off with the fallout from the collapse of Archegos Capital, the death of Bernie Madoff, and the story of the $100 million New Jersey deli. [0:06:35] Reflecting on the recent article, 'Could Index Funds be 'Worse Than Marxism'?'. [0:11:05] On to today's topic: do expected stock returns wear a cape? [0:13:05] Theories for resolving the equity premium puzzle; either the model is wrong or the historical premium was higher than it will be in the future. [0:14:14] Hear John H. Cochrane's theory from his 1997 paper, 'Where is the Market Going?' [0:14:42] Why we can't use historic US stock market data to approximate future premiums. [0:14:57] Other issues with looking to past returns, like no proof that the equity premium was stationary. [0:15:23] Why time periods characterized by decreasing risk should effectively see decreased discount rates too. [0:16:04] Dimson, Marsh, and Staunton (DMS) on expected stock returns using out of sample data. [0:16:40] Hear some of the equity risk premium stats from their world index versus the US. [0:19:38] How annual returns have been relatively unaffected by global financial crises. [0:21:15] From looking back, to what to expect going forward: the issues with interpreting past returns. [0:22:10] Why, according to DMS, expected returns equal the growth rate in dividends plus the dividend yield. [0:25:26] Hear the actual figures, which reflect the minor contribution of multiple expansion. [0:26:49] What a company is worth if it doesn't distribute capital to shareholders. [0:29:03] Find out why the expected geometric equity risk premium works out to 3.5 percent. [0:30:13] While the DMS approach is reasonable, it still doesn't account for whether expected returns are constant through time or if they vary. [0:32:21] Predictable stock returns dictate that changing risk aversion over time measurably affects risk premiums after good and bad events. [0:34:45] Diving into the vast literature on return predictability, including a paper by Goyal and Welch. [0:35:12] Why predictability is not as obvious as it seems, thanks to our sample data. [0:36:15] What we can learn from 'Long Horizon Predictability' by Boudoukh, Israel, and Richardson. [0:39:30] R-squared and market timing decisions; why it would need to be higher than it was historically. [0:40:32] Hear about the world index analysis Benjamin performed and what it proves about risk premiums over 30 and 60 year periods. [0:42:31] Bootstrap simulations and why they are criticized; because they ignore mean relationship, you get a much wider distribution of outcomes. [0:44:50] Big breakthroughs from running through these numbers, like noting the upward bias and tighter distribution in long-run historical data. [0:50:34] How to apply this on your own, using the 3.5 percent risk premium in the long run. [0:52:23] Some of the other interesting things we noted during these simulations. [0:53:10] We pull two cards: choosing between a holiday and a pet, and borrowing money with interest. [0:53:56] Bad advice of the week: a free lunch-esque article on investing in private credit. [0:55:53]

From YouTube channels to get-rich playbooks, whole industries are devoted to the subject of building wealth. But few books present a clear and honest view of what it's like to have a lot of money. Today we welcome author Jennifer Risher onto the show to share her insights on living with wealth. Early in the episode, we explore how Jennifer and her husband 'hit the lottery twice' by being given stock options for both Microsoft and Amazon before they went public. Jennifer then shares details about the key premise of her book: people with wealth never talk about their money. Informed by her experience of having sudden wealth, we discuss why gaining wealth doesn't significantly change people despite it leading to feelings of isolation. After talking about how wealthy people rarely feel that they have enough, we unpack the many benefits that come from talking about your wealth. As Jennifer explains, using examples from her life, communicating your feelings about money is a solution to many relationship issues that arise from having wealth. Linked to this, we dive into how you can raise balanced children whose outlooks aren't spoiled by affluence. Later, we touch on the role of giving, Jennifer's top advice for newly wealthy people, and how Jennifer views work now that it's optional for her. We wrap up our conversation by hearing about how the wealthy make a positive impact on society. In this episode, we dispel many myths about being rich. Tune in for more on why we need to be talking about wealth. Key Points From This Episode: Details about author Jennifer Risher, today's guest. [0:00:17] Jennifer shares why she wrote her book and the problems that it addresses. [0:02:43] Exploring the question: how much does wealth change you? [0:06:55] What wealth has given to Jennifer and what it hasn't. [0:09:10] Jennifer describes the feelings that came with suddenly becoming wealthy. [0:10:14] The process informing Jennifer's decision that she had 'enough.' [0:13:41] Hear Jennifer's advice for couples who have different definitions of 'enough.' [0:16:49] How few wealthy people don't feel that they have sufficient wealth. [0:19:03] The important role that financial advisors play aligning wealth with people's values. [0:20:13] How Jennifer's book is opening up the conversation on wealth. [0:23:09] Challenges around raising children in a state of affluence. [0:25:36] Why modelling virtuous behaviour is key in raising balanced children. [0:28:40] What Jennifer learned from speaking to other wealthy couples. [0:30:23] How having wealth can impact your relationships. [0:34:06] Overcoming the taboo of talking about money. [0:38:52] Ways to view work when working is optional for you. [0:42:28] Jennifer unpacks her biggest lessons on giving. [0:44:00] Jennifer shares her advice for newly wealthy people. [0:50:35] What the wealthy can do to improve society. [0:51:59] Hear how Jennifer defines success for herself. [0:53:34]