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Renting vs. Buying a Home: How to Decide (EP.154)
17 juni 2021 · 1 uur 3 min
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. Lees meer
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]
Keepin…
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Prof. Johanna Peetz: Personal Spending, Time Perception, and Close Relationships (EP.153)
10 juni 2021 · 50 min
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. Lees meer
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 …
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Evaluating Systematic Equity Strategies (EP.152)
3 juni 2021 · 1 uur
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! Lees meer
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: …
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Professor Brad Cornell: A Skeptic's Look at the Cross Section of Expected Returns (EP.151)
27 mei 2021 · 51 min
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! Lees meer
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…
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The Ultimate Inflation Hedge (EP.150)
20 mei 2021 · 1 uur
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! Lees meer
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 abo…
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Professor Robert Novy-Marx: The Other Side of Value (EP.149)
13 mei 2021 · 1 uur 5 min
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. Lees meer
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. [0:1…
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Investing in Happiness (EP.148)
6 mei 2021 · 1 uur 2 min
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! Lees meer
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 …
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Paul Merriman: We are Talking Millions (EP.147)
29 april 2021 · 1 uur 20 min
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 Lees meer
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…
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Do Expected Stock Returns Wear a CAPE? (EP.146)
22 april 2021 · 1 uur
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! Lees meer
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 …
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Jennifer Risher: Talking About Money (EP.145)
15 april 2021 · 55 min
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. Lees meer
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…
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"Buying the Dip" (EP.144)
8 april 2021 · 1 uur
Today's episode doesn't have an external guest, but Benjamin and Cameron provide fascinating information on a vast range of topics. First, the discussion centers around the book that Cameron is currently reading and what it is teaching him about social networks, the ego-driven world of social media, and the benefits of anonymity online. The hosts share some of the findings from a very insightful discussion which took place on their anonymous community board platform around people's thoughts on the positive and negative impacts of work. Happiness and the factors that cause it are a big theme in today's show, as is the practice of 'buying the dip.' If you aren't familiar with this term, you should have a decent understanding of what it is and why you shouldn't do it by the time you finish listening. The hosts also discuss the incident that has been called "the largest financial meltdown since 2008," who the RR Model Portfolios are aimed at, and some of the ways people react to crises (in terms of their investments.) Tune in for a whirlwind education on some very important topics! Lees meer
Key Points From This Episode:
Benjamin and Cameron share statistics which show how the podcast is growing. [0:02:53]
How the hosts find the guests that they interview on the podcast. [0:03:10]
Staggering one year stock performance numbers. [0:04:22]
Why Cameron is reading The Hidden Psychology of Social Networks, and what he is learning from it. [0:06:56]
Community boards and the arguments for and against anonymous online communities. [0:08:02]
The "epic meltdown" which makes up the news story for today's episode. [0:10:17]
Where the value of the Rational Reminder Model Portfolios lies, who will benefit from them, and who probably won't. [0:13:53]
Tools which make implementation easy. [0:21:00]
Data on individuals participating in 401(k) plans and a discussion around how humans deal with crises. [0:22:12]
The conversation around connection, control, competence, context that was sp…
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Ashley Whillans: How to be (Time) Rich (EP.143)
1 april 2021 · 51 min
Technology has made our lives easier but it has also fragmented our leisure time, creating a near-universal feeling that we have too much to do and not enough time to do it. Today we speak with Harvard Business School Assistant Professor Ashley Whillans about how our views of money and experience of time poverty impact our sense of well-being. We open our conversation by exploring the idea of time poverty, with Ashley unpacking the many factors that contribute towards feeling time-poor. Diving into the specifics, we talk about how different income groups experience time poverty and how these feelings are influenced by job satisfaction. After looking into differences in how we value time and money, Ashley shares research into how lower-income women benefit as much from being given extra time as they do from being given money. We then discuss the predictors of whether someone will prioritize time or money before chatting about the best practices and tips that will save you time and boost your well-being. Later, we hear Ashley's insights into why wealth doesn't lead to happiness and the need to engage in meaningful activities that increase the value of your time. With such radical changes in our work environments, we reflect on how work-from-home often deepens our feelings of time poverty. We wrap our discussion with Ashley by touching on retiring early versus working for longer, why you don't need wealth to feel consistent happiness, and how you can incorporate time poverty into your financial planning. As Ashley's research shows, money can be as integral as time in living a happier, more fulfilling life. Tune in to hear more about the connection between time poverty and your well-being. Lees meer
Key Points From This Episode:
Introducing today's guest, Assistant Professor Ashley Whillans. [0:00:02]
Ashley unpacks the concept of time poverty. [0:02:24]
Exploring the relationship between time poverty and well-being. [0:03:17]
Whether financially wealthy people feel less ti…
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What is Financial Advice? (EP.142)
25 maart 2021 · 59 min
While there is no way of knowing what the best portfolio is, empirical data and financial economics have fixed the problems surrounding investing. But if we've fixed investing, then what's the point of financial advisors? Today we dive into this topic and reveal why financial advice is still valuable to the everyday investor. We open the episode by touching on our movies and books for the week, as well as the latest from the financial world. We then explore why, despite their failure at making predictions, experts are so important across many industries. After defining what financial advice is, co-host Benjamin Felix systematically unpacks the value that financial advisors provide as they relate to key areas including goal-setting and quantification; asset allocation; understanding your human capital and insurance needs; selecting the right financial products; and tailoring strategies to tax considerations. Later, Benjamin highlights how financial advisors can help investors overcome their biases while helping them align their investing goals with living a meaningful life. We close the episode with our Talking Sense segment, followed by the bad financial advice of the week. When so much data is available, it's necessary to revisit the relevancy of financial advisors. Join us to hear why they continue to play such a valuable role in helping people meet their investing goals. Lees meer
Key Points From This Episode:
Cameron shares the birthday message he received from Seinfeld's 'Soup Nazi.' [0:00:35]
We discuss community feedback and the documentary The Last Blockbuster. [0:02:53]
Details on financial educator Paul Merrimen, our next guest. [0:06:10]
Updates on podcast merchandise and shipping times. [0:07:32]
Elon Musk and Mark Carney; hear about our books of the week. [0:09:00]
We talk about the latest from the financial world. [0:10:14]
Introducing today's planning topic: What is financial advice? [0:18:40]
The role of financial planners when index fund investing i…
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Hal Hershfield: The Psychology of Long-term Decision Making (EP.141)
18 maart 2021 · 55 min
How do your perceptions of time influence your long-term decision-making and financial well-being? Today we speak with psychologist and UCLA Associate Professor Hal Hershfield to answer this abstract question. We open our conversation with Hal by exploring the concept of well-being. After chatting about the factors that impact financial well-being, Hal unpacks the balancing act that's required to live in the present while safeguarding your wealth to support your future self. Hal shares exercises that can help you develop a more vivid sense of your future self and we discuss how this can lead to better financial decisions. We then dive into the role that free time plays in determining your well-being, leading into a discussion on how financial advisors can steer their clients towards achieving their idea of well-being. Returning to the notion of your future self, Hal shares insight into the importance of self-compassion, dealing with life and preference changes, and how hitting age milestones lead to periods of personal reflection and financial reevaluation. Later, Hal gives listeners his take on annuities and how retirees perceive them. We wrap up another informative episode by looking into the link between perceived wealth and spending before touching on how Hal views success. Tune in to hear more about Hal's research and how it can give you a stronger and deeper conception of your financial future. Lees meer
Key Points From This Episode:
Introducing today's guest, decision-making expert Hal Hershfield. [0:00:03]
Exploring the definition of 'well-being.' [0:02:28]
Ways that Hal measures well-being. [0:03:46]
How financial behaviours and psychological factors impact financial well-being. [0:05:17]
Hear how your relationship with your future self affects wealth savings. [0:06:52]
Hal talks about how we can get closer to our future selves. [0:10:14]
Reflecting on exercises that can help you imagine your future self. [0:13:14]
We ask Hal when the present and the future…
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Where do Stock Returns Come From? (EP.140)
11 maart 2021 · 1 uur 3 min
Where do stock returns actually come from? The answers to this deceptively simple question might change your investing perspective. We dive into this foundational investing topic after sharing community updates and chatting about our books and TV series of the week. A key concept in understanding where returns come from, we unpack how stock returns are impacted when companies migrate across size and value portfolios. While exploring how migration differently affects value and growth stocks, we also break down why book equity and growth drive capital gains for growth portfolios but not for value stocks. Linked to this, we discuss stock convergence as they relate to growth and value stocks. Looking deeper into the stock returns, we assess research on why valuation changes in asset classes are critical in determining expected returns. We touch on how valuations lead to an unfair depiction of international stock performance before asking: how justified are valuation changes to value and growth stocks? From understanding stock returns, we jump into our mini-planning topic on Canadian work from home tax reductions, followed by our Talking Sense segment. We wrap our conversation by sharing some bad financial advice. Join us to hear what it is, and to learn more about the anatomy of stock returns. Lees meer
Key Points From This Episode:
More updates from the community and co-host Benjamin's battle bot building. [0:00:20]
Hear about The Defiant Ones, our TV series of the week. [0:02:50]
From The Coaching Habit to Elon Musk, we share our latest book reviews. [0:04:50]
Introducing our investing topic: the anatomy of stock returns. [0:10:00]
Exploring how changes to a stock type affect value premiums and returns. [0:13:40]
Why small stocks tend to have high returns compared with big stocks. [0:17:00]
Understanding the value premiums that underpin stock types. [0:18:45]
What happens when a stock improves in type. [0:21:32]
Factors that lead to price increases in growth and valu…
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Prof. Jay Ritter: IPOs, SPACs, and the Hot Issue Market of 2020 (EP.139)
4 maart 2021 · 1 uur 8 min
We've previously compared IPOs to lotteries that are prone to inflated valuations and low returns. Today we welcome "Mr. IPO," Professor Jay Ritter onto the show for a deeper dive into IPO performance, for his insights into SPACs, and to hear his research into why economic growth doesn't correlate with stock returns. Early in the episode, Jay unpacks how long-term IPO returns perform against first-day trading. While exploring the role that venture capital plays in tech IPOs, Jay talks about why negative earnings don't affect tech IPOs in the short-term before sharing how skewness factors tend to impact young companies. Reflecting on how IPOs are usually underpriced, Jay discusses how the interests of companies are not aligned with the interests of IPO underwriters. After looking into IPO allocation, Jay compares the 2020 'hot IPO market' with the internet bubble of the late 90s. Later, we ask Jay about what special-purpose acquisition companies (SPACs) are and why they've exploded in recent years. His answers highlight their investing benefits, risks, and why SPACs might be a better option for companies than IPOs. We examine how SPACs have historically performed and then jump into our next topic; why economic growth isn't a good indicator that a country is worth investing in. He touches on why returns don't correlate with economic growth, the place of capital gains and dividend yields when investing abroad, and how innovations in an industry can lead to higher stock returns. We wrap up our conversation by asking Jay for his take on whether the stock market is efficient before hearing how he defines success in his life. Tune in to hear our incredible and informative talk with Jay Ritter. Lees meer
Key Points From This Episode:
Introducing today's guest, finance professor Jay Ritter. [0:00:03]
How long-run returns of IPOs perform against the first trading day. [0:03:06]
Industry differences in IPO returns and how venture capital affects tech IPOs. [0:03:33]
Why it's not a…
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Factor Investing in Fixed Income (EP.138)
25 februari 2021 · 1 uur 5 min
How we model our expected returns hugely impacts our financial decision-making, with poor models leading us to retire either too early or too late. Today's episode is a deep dive into two topics: how we model expected returns and how fixed income bonds fit into your portfolio allocation. We open the show by talking about the books and news of the week before unpacking the relationship between bond terms, credit, and fixed income returns. We then explore why it's easier to forecast the expected returns of bonds than stocks, with insights into how this affects your allocation. After reflecting on the predictive power of yield curves and expected capital appreciation and depreciation, we look into how the forward rate can be used to forecast expected term premiums. Touching on conflicting research, we present our conclusions on how you can determine your expected bond returns while also providing a summary of your risk premiums. We round off the topic by assessing alternatives to fixed income investments. From fixed income, we leap into the world of expected return assumptions and how they can best be modelled. We chat about the dangers of operating from poor expected returns models and discuss the successes and drawbacks of the most commonly used ones. While establishing the predictability underpinning average returns, we explain the limits on using historical returns to forecast expected returns. Later, we open up about PWL Capital's approach to measuring expected returns. We close off another informative episode by sharing this week's bad advice and answering left-field questions in our 'Talking Sense' segment. Tune in to hear more about the role of fixed income bonds and returns models in your portfolio. Lees meer
Key Points From This Episode:
We touch on future guest Jennifer Risher's book, We Need to Talk. [0:05:34]
Hear about the new Bitcoin ETFs and other cryptocurrency news. [0:08:30]
Introducing today's investment topic; fixed income products. [0:12:45]
Approache…
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David Blanchett: Researching Retirement (EP.137)
18 februari 2021 · 53 min
Today's extensive conversation with David Blanchett covers nearly all aspects of retirement planning. As the Head of Retirement Research for Morningstar, David has published extensively on the topic and speaks energetically about how you can best manage your retirement wealth. After a brief digression on Kentucky's Bourbon Chase Relay, we open the episode by discussing how an increase in your pre-retirement income can impact your plan. David shares his insights on what your plan should factor in, including earlier than anticipated retirement, inflation, healthcare costs, and whether you should invest in high-risk options to increase your retirement income. While reflecting on why success rate is a poor metric for weighing your strategy, we then chat about David's view on flexible retirement spending. A controversial subject for some, we dive into the role of annuities and how different annuities cater to varying retirement scenarios. Later, we touch on how human capital affects portfolio allocation and why it's challenging to evaluate real estate before hearing David's take on why financial advice is about helping a client accomplish their goals — and not about beating the market. Tune in for an ever-relevant overview of top retirement planning considerations. Lees meer
Key Points From This Episode:
Introducing today's guest, Morningstar Research Head David Blanchett. [0:00:03]
Swapping experiences of running the Bourbon Chase Relay. [0:02:34]
How rising pre-retirement income impacts your ability to retire comfortably. [0:04:19]
Rules of thumb in how you should approach salary increases. [0:05:21]
Why people end up retiring earlier than they expected to. [0:06:47]
What percentage of working income retirees should aim to replace. [0:08:06]
Whether your retirement plan should cover inflation and healthcare costs. [0:08:59]
Using worst-case scenarios to explain the consequences of risky investing. [0:11:52]
Why success rate can be a poor metric for retirement planning…
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Chasing Top Fund Managers (EP.136)
11 februari 2021 · 1 uur 2 min
When you see funds performing monumentally well, you may feel regretful for not investing in them earlier. There is, however, a long history of funds that skyrocketed only to have major falls from grace a brief period after. The bulk of today's episode is spent exploring this idea in the portfolio topic section but before getting into that, we kick the show off with some updates. We begin by talking about the GameStop short and whether this casts any new light on the concept of market efficiency. From there, we take a look at some recent news, particularly one story about the meteoric growth of New York-based investment managers ARK Invest, who recently hit $50B in assets under management up from $3B this time last year. This story acts as a great segue into the portfolio topic where Ben traces a history of funds that performed colossally well for a brief period but then plummeted thereafter. These funds were under the direction of 'star' fund managers with a focus on investing in tech disruptors. The discussion acts as a cautionary tale about overpaying for growth leading to poor realized returns. For the planning topic, we continue to shine a light on the 'Talking Cents' card game, a financial literacy outreach strategy created by The University of Chicago Financial Education Initiative. We invite the director of the Financial Education Initiative, Rebecca Maxcy, onto the show to speak about some of the thinking around this project and then discuss a few of the questions posed by the cards ourselves. Tune in today! Lees meer
Key Points From This Episode:
This week's updates: Gerard O'Reilly on The Long View podcast and more. [0:00:25.3]
Exploring the theme of questioning our beliefs with this week's book. [0:03:15.3]
News: What does the GameStop short mean for market efficiency? [0:06:10.3]
More news: The meteoric growth of the investment managers ARK Invest. [0:12:15.3]
Portfolio topic: Why funds with star managers have skyrocketed and subsequently plummeted. [0:15:…
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William Bengen: The 5% Rule for Retirement Spending (EP.135)
4 februari 2021 · 39 min
At a time when the financial community provided inconsistent retirement advice, the 4% withdrawal rate was a data-backed strategy that revolutionized retirement planning. Today we speak with William Bengen, a literal rocket scientist and the influential personal advisor who popularised the 4% withdrawal rate, A.K.A, the 4% rule. After exploring what the 4% rule entails and the impact that it had on the financial industry, we talk about updates that William has made to his theory since first publishing about it in 1994. We then unpack more of the rule, talking about its conservative nature, whether young retirees should adhere to it, and if there are situations where you should break the rule. Reflecting on criticisms of the 4% rule, we ask William about how it fits with the notion of dynamic spending. His answers highlight his approach in helping his clients to maintain the same lifestyle that they have when they enter retirement. Later, we touch on tips to keep track of your expenses, whether you should taper your retirement income, the role of bonds and small-cap stocks in your portfolio, and William's view that financial planning should be fee and not commission-based. We wrap up by discussing William's career and how he defines success for himself. For more insights into the 4% rule from the man who created it, tune in to hear our incredible conversation with William Bengen. Lees meer
Key Points From This Episode:
Introducing today's guest, financial advisor and 4% rule creator William Bengen. [0:00:15]
Exploring William's original 1994 research that led to the 4% rule. [0:03:58]
Hear why the 4% rule has been so impactful to the world of financial planning. [0:05:06]
William shares details about the 'hate mail' his findings inspired. [0:06:07]
Why William updated his theory to include small-cap stocks. [0:07:43]
William's view that you might be able to get away with withdrawal rates that are higher than 4.5%. [0:08:26]
Whether young retirees should adhere to the …
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The IPO Lottery, Planning for Wellness, and Talking Cents (EP.134)
28 januari 2021 · 1 uur 15 min
Skewed Factor IPO Investing and Financial Well-being Lees meer
Episode 134: Show Notes.
Many IPOs start with a bang, resulting in high first-day closing prices that attract retail investors. Today we unpack new and established research to explore how the hottest IPOs compare with average market returns. We open our conversation by first sharing community updates and details about the book and news of the week. After reflecting on how 2020 was one of the biggest IPO years since 2000, we talk about why IPOs tend to release in waves. We then chat about where IPO allocation usually goes and why most investors aren't given access to huge early returns. A key insight this episode, we dive into how retail investors impact IPO pricing and why IPO buy and hold returns often trail the market. Following this, we discuss the factors that skew IPO prices, why IPOs resemble lotteries, and whether there is an optimal model for when companies make an IPO. From IPOs we jump into our planning topic on well-being and behavioural coaching. We start by looking into the differences between financial well-being and funded contentment. Linked to this, we talk about other forms of capital that range from human and social capital to temporal capital. We examine the factors that impact your well-being before touching on why you should make decisions while considering all your forms of capital. Later, we debut a new feature and then offer our bad advice of the week. Tune in for another informative conversation on rational investing.
Key Points From This Episode:
From building battlebots to what they've been watching, hosts Benjamin and Cameron catch-up with listeners. [0:00:23]
Rational Reminder community updates and added features. [0:02:53]
Being a generalist over a specialist? Hear about the book of the week. [0:06:23]
Hear our news roundup for the week. [0:09:14]
Introducing today's portfolio topic: investing in IPOs. [0:15:30]
Exploring IPO waves, pricing, and why only high-value investor…
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Adriana Robertson: "Passive" Investing, and What Matters to Investors (EP.133)
21 januari 2021 · 48 min
The terms passive investing and index investing are often intertwined, but they are not exactly the same thing. Today's guest is Adriana Robertson, the Honourable Justice Frank Iacobucci Chair in Capital Markets Regulation and an associate professor of Law and Finance at the University of Toronto Faculty of Law and Rotman School of Management. Adriana is interested in index investing and, in this episode, we hear her views on whether or not index investing is passive. Hear facts from her paper on the S&P 500 Index fund specifically, and all of the reasons that it's not passive, as well as some of the issues that are potentially arising from the creation of so many indexes or so-called passive investments. A more recent paper by Adriana, published in The Journal of Finance, surveyed a representative sample of U.S. individual investors about how well leading academic theories describe their financial beliefs and decisions, and Adriana shares the differences in something like value growth from an academic perspective versus a real-world perspective. Find out how investors can go about evaluating the performance of their portfolios and what they should be looking for when deciding which index fund to invest in, as well as why index funds aren't a meaningful category anyway, factors from Adriana's surveys that might influence investor's equity allocation, and the trend towards indexing and whether it will overtake active portfolios. Tune in today for all this and more! Lees meer
Key Points From This Episode:
Whether or not it's sensible to call the S&P 500 Index fund a passive investment. [0:03:20]
How discretion affects the S&P 500 Index constituents and performance. [0:04:14]
Adriana reflects on Tesla joining the S&P 500 Index and the speculation there. [0:04:49]
Adriana's view of benchmarking and comparing other investments to the S&P 500. [0:05:34]
Why calling it rules-based investing rather than passive depends on the index. [0:07:35]
How investors can go about evalua…
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Cullen Roche: Understanding the Modern Monetary System (EP.132)
14 januari 2021 · 1 uur 12 min
With so many moving parts, it's difficult to develop a clear view of the US monetary system. Today we speak with Pragmatic Capitalism author and Founder of Orcam Financial Group Cullen Roche, leveraging his expertise to build a comprehensive understanding of the monetary system. We open our interview with Cullen by asking him the deceptively simple question, "what is money?" We then explore where money comes from, the role of the central bank in securing our money supply, and why poor capitalization restrains banks. After discussing where the value of money derives from, Cullen shares his insights on how decentralized digital currencies are challenged by their lack of flexibility and credit options. We talk more about the role of central banks before diving into quantitative easing; what it is, why it's used, and how interest rates impact its usage. Following this, Cullen unpacks whether quantitative easing leads to asset inflation along with the influence that stimulus policies have on inflation. Reflecting on the relationship between the Federal Reserve and US Treasury, Cullen shows why the US government is in no danger of becoming insolvent. We touch on the dollar's purchasing power, Cullen's view that time really is money, the role of gold in your portfolio, and why Cullen is such a big proponent of global investing. We wrap up our informative discussion by asking Cullen how he defines success in his life. Tune in to benefit from Cullen's clever and concise explanation of our modern economic system. Lees meer
Key Points From This Episode:
Introducing today's episode featuring Cullen Roche. [0:00:15]
We open our interview with Cullen asking the question, "What is money?" [0:03:50]
Exploring where money comes from and the role of banks in ensuring money supply. [0:06:14]
The factors that constrain a bank's lending ability. [0:09:26]
Cullen unpacks where the value of money comes from. [0:12:36]
Economic constraints posed by decentralized digital currencies. [0:15:08]…
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David Booth: The First Index Fund, Competing Fiercely, and Keeping it Simple (EP.131)
7 januari 2021 · 1 uur 9 min
At its core, managing wealth is about finding the best solutions for your clients. As he mentions in today's discussion with him, this sentiment has guided David Booth's storied career. As the Co-Founder and Executive Chairman of Dimensional Fund Advisors, David's career is so illustrious that he's been called the father of evidence-based investment products. We open our conversation by exploring David's career, beginning with his job as a shoe salesman in Kansas to developing the first index fund. We ask David if he had been able to foresee the power that "geeks" would have over the asset management business. His answers highlight how immature the industry was when he founded Dimensional Fund Advisors and how they had to first convince people before selling them on small cap funds. Reflecting on his early successes and challenges, David opens up about how his clients reacted when small caps underperformed. A key theme this episode, David emphasizes the importance of making decisions that are grounded in academic research. We then dive into several topics ranging from David's views on value portfolios to the stroke of luck that led Dimensional to open their products to financial advisors. After chatting about why Dimensional is now entering the ETF space, David shares his take on direct indexing and why he still favors simplicity over complexity. Near the end of the episode, we discuss how David built his company culture, how luck factored into his life, and how he defines success. An incredible conversation that touches on pivotal moments in the history of financial services, tune for more insights into the life and work of David Booth. Lees meer
Key Points From This Episode:
Introducing today's guest, Dimensional Fund Advisor Co-Founder David Booth. [0:00:14]
David talks about how his background informed his professional career. [0:03:57]
Hear about David's role in developing one of the first index funds. [0:06:13]
Why David's work creating index funds for Wells Fargo…
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A Year In Review (EP.130)
24 december 2020 · 1 uur 35 min
For this episode of the Rational Reminder Podcast, we review our year by playing back and discussing a collection of the most impactful moments of the show from 2020. This has been a drastic year filled with many learnings for us all, and in today's show, we cover topics of happiness, decision making, dealing with uncertainty, and the connection that financial planning and investing have to all of this. We collect some amazing gems of wisdom from guests like Annie Duke, Ken French, Michael Kitces, Patricia Lovett-Reid, and a whole lot more, whittling down an original list of over one hundred of this year's finest moments to a collection of just 45. The show starts out exploring themes of the connection between wealth and happiness, keeping cool in stressful times, and the transformations that crises kickstart. From there, we talk about the importance of models and systems for informing investing and behaviour in general, and the idea that unexpected outcomes swamp expected ones in the short term. We also look at what market history has to say about staying in your seat rather than market timing when things look bleak. Next up, we cover themes of the value of a flexible approach to retirement spending, how families should think about financial planning, whether 60/40 portfolios are dead, and why stock market returns in the U.S. are higher under Democratic presidents. Moving onto the subject of decision making, we explore some of our guests' thoughts on evaluating decisions, outcomes bias and the role of luck, and more. We also consider the topic of human capital, how it relates to investing, and what we should really be spending our time on. The subject of the convergence of brokerage firms and financial advisors then leads to a great exploration of the role of financial advisors. We wrap up with some extra special perspectives on how optimal financial planning should be geared around the person that you want to be rather than maximizing wealth for the sake of it. T… Lees meer
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Five Factor Investing with ETFs (EP.129)
17 december 2020 · 1 uur 8 min
After months of research, number-crunching, and receiving listener requests on the subject, today's episode is devoted to introducing our new model ETF portfolios — which promise to offer a smoother ride to getting reliable returns. We open our conversation with a financial news roundup and by touching on our book of the week. We then dive into the theory behind our model by first exploring how market assets are priced. We discuss historical views on asset pricing models before looking at what academia has done to overcome challenges to the idea of market efficiency. Host Benjamin Felix methodically shows how our model addresses the five systematic risk factors that are included in the Fama-French Five-Factor Model. From emerging markets to stock size, we share insights into what our model accounts for and how this should impact your portfolio distribution and premium expectations. After reflecting on how factor-loaded indexes get higher returns without extra risk, we talk about the ETFs that we use for factor exposure, as well as how you can apply our findings to your portfolio. We round-off today's show by chatting about the latest bad financial advice. Tune in to hear more about our findings in this, our last episode of 2020. Lees meer
Key Points From This Episode:
We share community and listener feedback and what you can expect from the show in 2021. [0:00:15]
Hear about The Almanack of Naval Ravikant, our book of the week. [0:04:35]
Relooking at the drive towards personalized portfolios. [0:07:28]
Insights into S&P 500 stocks having a greater dividend yield than the US Treasury. [0:08:52]
How ETFs are coming to dominate Wall Street. [0:09:56]
Dying without a will; exploring the case of Zappos CEO Tony Hsieh. [0:11:05]
Introducing today's portfolio topic — our new model portfolios, and why index funds make sense. [0:12:29]
The risks that inform how the market prices assets and your expected returns. [0:18:00]
How academics have addressed the joint hypothesis an…
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Morgan Housel: The Psychology of Money (EP.128)
10 december 2020 · 52 min
As author and financial expert Morgan Housel explains this episode, "people don't make financial decisions on a spreadsheet. They make financial decisions at the dinner table." Today we chat to Morgan about his key insights into financial decision-making — many of which are captured in his book, The Psychology of Money. Our conversation opens with an exploration of how investing success has less to do with what you know and more to do with how you manage your behaviour. We then look into the dangers of emulating top investors and how luck can fuel success. Reflecting the theme that people invest according to their unique circumstances, Morgan shares why he prioritizes endurance as an investor by minimizing his debt and having high cash reserves. After hearing his take on debt and whether young people should use leverage, we dive into how financial expectations impact investing and the importance of deciding what 'enough' means to you. We discuss the virtues of saving like a pessimist and investing like an optimist before looking into the role that financial advisors play in guiding their clients. In the latter part of the end of the episode, Morgan touches on active versus passive investing, the purpose that bonds serve in your portfolio, his top lesson from 2020, and why he's empathetic toward people who sell their portfolios during a downturn. Throughout our discussion, Morgan shares his clear understanding of how our psychology affects our relationship to money. Tune in and benefit from his incredible perspective. Lees meer
Key Points From This Episode:
Introducing today's guest, financial author Morgan Housel. [0:00:15]
Morgan shares his view that succeeding in investing has little to do with how you behave. [0:02:31]
Hear about the problems that can arise from trying to emulate top investors. [0:05:02]
Exploring the impact of luck on your success. [0:07:37]
The differences between being conservative and having a margin of safety. [0:08:35]
Insights into Morgan's …
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Fooled by Dividends, and the Future of Financial Planning Research (EP.127)
3 december 2020 · 54 min
There is a sharp divide between those who invest in dividend-paying stocks and those who don't. Underpinning this is the question of whether dividends are relevant to the evaluation of shares. Today we answer this question by digging into the data and parsing the maths before exploring what the future of financial planning looks like. But first, we open our episode with news from the Rational Reminder community — including the fact that we just passed one million podcast downloads. We then touch on lessons from Seth Godin's new inspiring book, along with the latest from the financial world. Following this, we dive into a discussion on dividend stocks. We begin by unpacking the assumptions behind Miller and Modigliani's theory of dividend irrelevance. Host Benjamin Felix presents a case study and applies the Fama-French Model to explain differences in returns on dividend portfolios and if dividends truly affect share valuation. After sharing our practical takeaways from Benjamin's analysis, we move onto our financial planning topic for the week. From technology to retirement decumulation and demographics, we discuss the five key areas which will most impact the future of financial planning. We then wrap up another informative episode with the bad financial advice for the week. Tune in for more insights into the role of dividend stocks and the future of financial planning. Lees meer
Key Points From This Episode:
Community news, Benjamin's 3D printing project, and celebrating our 1 millionth download. [0:00:15]
Drawing insights from a recent Ted Seides-Shane Parrish interview. [0:03:44]
Reflecting on Seth Godin's latest book, Practice: Shipping Creative Work. [0:06:44]
How our culture overvalues outcomes while neglecting the creative process. [0:07:46]
Why having meals delivered to you helps to limit decision fatigue. [0:08:28]
Hear about the new TFSA limits and Tesla's addition to the S&P 500. [0:09:25]
Exploring whether size affects premium in the US versus elsewhere.…
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Dr. Brian Portnoy and Josh Brown: Beyond the Orthodoxy - How Financial Pros Invest (EP.126)
26 november 2020 · 57 min
Dr. Brian Portnoy and Josh Brown's book How I Invest My Money, captures the stories and investment strategies of 25 top financial advisors. The book highlights that while there are established dogmas that tell you how and why you ought to invest, there is no 'one-size-fits-all' way to invest. Today we speak with Brian and Josh about the key insights that we can derive from their work. We open our conversation by exploring how they conceived and developed their book before talking about why fully rational investing is a myth. After diving into how we allocate money to solve our unique needs, Brian and Josh share how people use their portfolios to express themselves. We then discuss common investing themes in the book, including how most advisors have an aversion to debt, and how their experiences have guided their strategies and outlooks. From why we should place more value on social and human capital, we look into why financial planning has a profound impact on how you manage your investments. We touch on direct indexing, the relationship between money and happiness, and the unexpected yet incredible perspectives that came from giving advisors a license to tell their stories. Near the end of the episode, Brian and Josh reflect on how their book might have changed their views and how their work fits into their visions for the financial industry. Tune in to hear more on the usually secretive topic of how financial advisors invest their money. Lees meer
Key Points From This Episode:
Introducing Brian Portnoy and Josh Brown, authors of How I Invest My Money. [0:0:15]
Why we invest and reflections on commentary made by the Rational Reminder community. [0:02:58]
Josh shares his motivations for being transparent on where and how he invests. [0:05:25]
Hear about the genesis and subsequent development of Brian and Josh's book. [0:07:19]
The common needs that individual investors have beyond getting a return. [0:10:18]
How the uniqueness of everyone's life affects their investi…
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(Rationally) Investing in Technological Revolutions, Human Capital, and Asset Allocation (EP.125)
19 november 2020 · 1 uur 10 min
On today's show, we explore rational explanations for pricing bubbles, how the concept of human capital relates to financial decisions, and a whole lot more! We kick things off with a discussion of Ashley Whillans' book Time Smart, which explores proven strategies for improving your 'time affluence'. Diving into this week's portfolio topic, we use a previous discussion about Carlota Perez's model for technological revolutions as a springboard to introduce Lubos Pastor and Pietro Veronesi's mathematical arguments that present a rational explanation for pricing bubbles. Perez maintains that prices get bid up too high during technological revolutions due to 'frenzy' but we unpack two papers by Pastor and Veronesi where they argue differently, drawing on the concepts of uncertainty and discount rates. From there, we dive into the relationship between human capital, life insurance and asset allocation for our planning topic. We provide some definitions for the term 'human capital' and discuss how it differs from other forms of capital. A key idea we explore here is that the more risky your human capital is, the less life insurance you should take out. Along with this, you'll hear a few quick suggestions for how you should approach life insurance and bonds depending on age, financial wealth, risk aversion, and other factors. Tune in today! Lees meer
Key Points From This Episode:
Talking COVID, next week's guests and Rational Reminder Community updates. [0:0:18]
Book of the week: Rethinking conventional notions of time well spent in Time Smart. [0:04:07]
News updates: Stories about Bitcoin, marijuana stocks, and more. [0:08:56]
Portfolio Topic: Whether pricing bubbles are caused by rational behaviour. [0:14:19]
Unpacking Pastor and Veronesi's paper connecting uncertainty to high prices. [0:18:25]
Pricing bubbles as caused by discount rates; a second Pastor and Veronesi paper. [0:27:48]
'IPO waves' connected to the bubble discussion in a third Pastor and Veronesi paper. [0:3…
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Prof. Lubos Pastor: Equilibrium Models vs. Intuition (EP.124)
12 november 2020 · 1 uur 7 min
Professor Lubos Pastor's brilliant and varied research has been consistently referenced on this podcast. From how politics impacts stock returns to measuring the skill of active fund managers, Lubos joins us today as we explore some of the 'greatest hits' of his research. With Lubos's position on the board of the Slovakian Central bank, we ask him about how quantitative easing can be used to strengthen the economy. His answers highlight how easing can prop up asset prices and raise inflation — and why inflation is the "least bad" option to deal with post-pandemic debt. We then discuss Lubos's research on how political cycles affect stock returns and why stock returns are higher when a Democrat is in the White House. After diving into how stock prices respond to political uncertainty, we look at why green assets tend to generate higher stock prices but low expected returns. While talking about his research on measuring volatility, Lubos argues against the conventional wisdom that stocks are stable, in the long run. We touch on how this can affect your retirement asset allocation before chatting about whether young people should use leverage. With so many people moving from active to passive and index fund investing, we analyze the relationship between the scale of active funds and the skill of active managers. Near the end of the episode, we talk about the effect that market-wide liquidity has on stock prices and why you cannot diversify away from liquidity risk. Our conversation with Lubos is filled with insights, each of which could inspire hours worth of discussion. Tune in to hear more from our discussion with Professor Lubos Pastor. Lees meer
Key Points From This Episode:
Introducing Professor of Finance and today's guest, Lubos Pastor. [0:0:15]
The role of central banks and the goal of quantitative easing. [0:05:06]
Whether quantitative easing props up asset prices. [0:07:58]
Exploring different findings on quantitative easing by central banks and academics. [0:08:…
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(Irrationally) Investing in Technological Revolutions, Household CFO Job Analysis, and Learning to Sell Mutual Funds (EP.123)
5 november 2020 · 1 uur 19 min
As counter-intuitive as it may seem, most of the companies that push us into the next technological revolution deliver poor investment returns. Today we look at current and historical data to show why this is the case but first, we chat about the top financial news of the week. Borrowing heavily from Carlota Perez's Technological Revolutions and Financial Capital, we then explore how the links between tech revolutions and investing adhere to a consistent model. Following this model, we discuss how our current information-led revolution is as impactful as revolutions experienced in previous generations. We touch on the factors that lead to innovation, historical perspectives of technology companies, and the many investing phases resulting from tech revolutions. Despite making for poor returns, we talk about why the frenzy of investing that accompanies innovation is good for that industry and leads to a golden age of tech adoption and growth. A key takeaway, we dive into how investors are paying too much for the expected growth of new companies and that there is little to no link between massive growth and high stock returns. From guessing the next IPO winner, we move to our planning topic of the week — how to be a successful household CFO. We close this episode with our bad financial advice of the week. There's a lot of pressure in the market to invest in tech. Despite that, tune in to hear why you shouldn't invest in the next technological revolution. Lees meer
Key Points From This Episode:
Hear about host Benjamin Felix's burgeoning 3D printing addiction. [0:0:06]
Sharing listener feedback and messages from the Rational Reminder community. [0:02:02]
Robinhood and why users are treated as the product, not the customer. [0:04:33]
News on what might be the largest cash raise in IPO history. [0:07:25]
How most ETF assets are in products that were launched prior to 2015. [0:09:24]
Benjamin shares details about his project exploring the value of investing in tech revolutio…
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Prof. Moshe Milevsky: Solving the Retirement Equation (EP.122)
29 oktober 2020 · 54 min
There are seven equations that, if understood, will put you in the best possible position to tackle your retirement plan. Today we speak with business professor Moshe Milevsky about these equations, which he's written extensively about in his best-selling book, The 7 Most Important Equations for Your Retirement. After introducing Moshe, we dive straight into the first equation that maps out the longevity of your money. Following this, we talk about determining how long you will live by comparing your biological and chronological ages. Regarding the third equation, Moshe provides his insights into evaluating the usefulness of an annuity plan, and at what age they become relevant to you. We then chat about what annuity plans are offered in Canada versus elsewhere and why people don't want to buy annuities during a bull market. Despite the popularity of the '4% spending rule' — which we also unpack — Moshe discusses the importance of being adaptable with your retirement spending rates. Reflecting on the key theme of another of his books, we explore the question of whether people are stocks or bonds. Moshe shares some investing advice for younger listeners and touches on what the ideal mix of stocks, bonds, and human capital looks like. For the last equation, we look into the impact of probability frameworks and why financial advisors need to understand the math behind retirement plan probabilities to make meaningful recommendations. Throughout our discussion, Moshe presents coherent answers and pragmatic advice. Tune in and learn more about the equations needed to build the best possible retirement plan. Lees meer
Key Points From This Episode:
Introducing today's guest, Professor Moshe Milevsky, and his work. [0:0:15]
Exploring Moshe's book, The 7 Most Important Equations for Your Retirement. [0:02:57]
Mapping the longevity of your money according to Moshe's 'Fibonacci Equation.' [0:03:25]
Determining how long you will live when planning your retirement funds. [0:04:37]
U…
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Day Trading and Overconfidence (EP.121)
22 oktober 2020 · 1 uur 5 min
Despite the mountain of evidence against it, day trading is thriving. Today we dive into the research and explore why the practice is alive and well before answering the question — "Can too much confidence lose you money?" After touching on investing news, listener feedback, our books of the week, and our take on the 'Ultimate Ned Debate,' we open our discussion on day trading. In our conversation, we look at the results of numerous papers on the topic, none of which present-day trading as sound financial practice. We shed light on the reasons that people day trade, the performance differences between traders, what a day trader's learning process looks like, stock-picking strategies, and why it's impossible, except in outlier cases, to earn a living as a day trader. As we unpack the literature, we discuss key insights on the impact of day trading on the financial world. From one investing sin to another, we talk about how overconfidence can harm your investment performance. We balance the positives and negatives of having confidence, highlighting how too much confidence can lead to poor decision-making and a false sense of how much you know. Tune in to hear some of the latest investing news and to learn more about the pitfalls of day trading and overconfidence. Lees meer
Key Points From This Episode:
Acknowledging the 33rd anniversary of Black Monday. [0:01:08]
How the podcast is faring against other podcasts within the investing category. [0:02:07]
News on past and upcoming episodes and responding to listener feedback. [0:04:09]
From technological revolutions to starting with a 'why', we explore the books of the week. [0:07:23]
Top news story; Fidelity Magellan Fund is moving to an ETF format. [0:12:06]
Weighing in on the "Ultimate Nerd Debate" on the value and risks of small-cap allocation. [0:14:45]
Why performance doesn't change when you invest in a fund using a different currency. [0:19:12]
Introducing today's portfolio and planning topics — day trading and ove…
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Annie Duke: How to Decide (EP.120)
15 oktober 2020 · 54 min
Good decision-making is a fundamental part of achieving our goals, so getting better at it would be in anybody's best interest. Here to talk about making better decisions is Annie Duke, expert poker player and author of How to Decide: Simple Tools for Making Better Decisions, and Thinking in Bets. Annie starts by defining what a good decision should look like and some of the steps involved. From there, we explore the idea of how to accommodate the fact that our preferences change and we sometimes do not even know what they are in our decision-making processes. Uncertainty is a big part of what makes future choices difficult, and Annie talks about how it is caused by either luck or ignorance, the latter of which we can control, thereby reducing uncertainty as much as possible. Another big theme today how to know which decisions to spend time on and which not to. We waste a lot of time on choices that do not affect our happiness much, and on the other end of the scale, big choices often are hard because the different outcomes they present look quite similar. Annie gives us a few tools to deal with both scenarios. Toward the end, Annie dives deeper into what a good decision involves, talking about the need to step outside our beliefs by building an evidentiary record of the process which involves outside input. Tune in for a fascinating conversation that will help you get better at choosing. Lees meer
Key Points From This Episode:
Introducing today's guest, Annie Duke, and her work on decision-making. [0:00:16.3]
The definition of a good decision and the steps involved in making one. [0:02:51.3]
Examining probabilities of potential choices and the beliefs informing the examination. [0:05:00.3]
Factoring in the possibility of preferences changing while making decisions. [0:08:56.3]
Beliefs as formed by actions, and how to not see a change in course as failure. [0:13:30.3]
When our preferences are clear and when they are not. [0:15:00.3]
Dealing two kinds of uncertainty, …
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The Stock Market vs. Elections, and Incentives in Financial Planning (EP.119)
8 oktober 2020 · 1 uur 12 min
Thank you for tuning in to this episode of the Rational Reminder. We start this show with some great news about the comment section and our migration to Discourse. Having an open dialogue has always been crucial for us—it has even led to our latest hire—so we felt it was time to add more structure to it. We then talk about mortgage rates and why so many people do not know that it is possible to negotiate them down even further. There is often a big gap between what is publicly advertised and what you can actually get, so it's worth shopping around. Following this, we touch on IPOs, SPACs, and why some are saying it is similar to 1999. In the heart of this discussion, we unpack the relationship between the US election and stock market returns. If you are like Ben, perhaps you thought there is not much material difference, and while over the short-term there is not, the election cycle data is truly astonishing. We find out the fascinating explanation of why there are higher excess returns under Democratic leadership, and it is probably not what you think! Moving on, we chat with our newest advisor Jordan Tarasoff where he sheds light on his previous employment at a sales and product-centric advisory firm. We talk about how this affects both the customer and the advisor, and Jordan ends with talking about his positive time at PWL so far. To hear more, be sure to tune in today! Lees meer
Key Points From This Episode:
Some great news about migrating the comment section to Discourse. [0:00:09.3]
The new PWL team member we are welcoming and our shop opening. [0:01:27.3]
Why Cameron recommends everyone watch The Social Dilemma. [0:04:19.3]
Recommended books: Open and Succession Planning for Financial Advisors. [0:08:27.3]
Results from a survey around people's knowledge of mortgage rates. [0:11:43.3]
Some of the reasons that mortgages can be tricky. [0:14:20.3]
What is happening with IPOs and why it is being likened to 1999. [0:15:26.3]
Insights from Hendrick Bessembinder ab…
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The Psychology of Investing — Bounded Rationality with Victor Ricciardi (EP.118)
1 oktober 2020 · 44 min
What are the psychological conditions that allow investors to make rational decisions, and how do these processes of decision-making occur? These are the questions that our guest, Victor Ricciardi, is dedicated to answering and what he is here on the show today to talk about! Victor is the Visiting Assistant Professor of Finance at Washington and Lee University as well as the Coordinator of Behavioral and Experimental Research at the Social Science Research Network. He has an MBA in finance and an advanced professional certificate in economics from St. John's University and holds graduate certificates in personal financial planning and financial therapy from Kansas State University. Victor is the co-author of Investor Behavior: The Psychology of Financial Planning and Investing, in which he and H. Kent Baker explore and unpack the exact topics we look at in this episode. In our conversation, we talk about the steps that investors can take in order to make better decisions, and for Victor, this means maintaining a balanced portfolio and recording the circumstances and conditions in which decisions are made. Victor's starting point for better investing is self-knowledge and understanding one's own psychology and risk tolerance. He also underlines becoming familiar with the environments that allow you to make the best decisions and refining this wisdom over time. We also dig into the topics of the subconscious, checking biases, and financial therapy, so make sure to join us to hear it all. Lees meer
Key Points From This Episode:
The history of academic studies on investor behaviour. [0:02:11.2]
Victor's thoughts on the rational decisions investors should aim for. [0:04:50.5]
The idea of 'bounded rationality'; sufficing and the factors that influence decisions. [0:06:38.9]
Benefits and dangers of group investments — more or less rationality. [0:09:43.2]
Weighing the usefulness of heuristics in the investment process. [0:11:54.1]
The role of the subconscious in human decis…
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A Message from the Bank of Canada, and Safe Withdrawal Rates with Factor Tilts (EP.117)
24 september 2020 · 1 uur 21 min
For the first part of today's discussion, we are joined by Don Coletti from The Central Bank of Canada. He is here to talk about their upcoming recommendation for a monetary policy framework for the next five years which is incorporating public feedback into its development through the survey, Lets Talk Inflation. From there, we touch on some favourite books, Starbucks's stored value card liabilities, the benefits of keeping inheritance in a separate account, new standards for financial planners and advisors proposed by the FSRA, and why SoftBank did not pile into call options and cause the rally in tech as the previous headlines suggested. Heading into the meat of the episode next, Ben shares some findings from a model he built inspired by a program written by one of this show's listeners that tests historical safe withdrawal rates for factor loaded portfolios. Ben gets into a series of papers that speak to the diversification benefit of adding factors in this section too. He wraps up the discussion with a spanner in the works though, which looks at this question through the lens of time-series momentum rather than cross-sectional momentum. Here, he considers trend following as another type of diversification that has shown favourable impacts on portfolio returns in the data that exists. As usual, we wrap up with our bad advice of the week, hearing Cameron relate the bizarre 'findings' of a Forbes article claiming that active management beats passive investing in the face of piles of data to the contrary! Lees meer
Key Points From This Episode:
Updates: An upcoming guest, great reviews of this show, and the brilliant discussions thread. [0:00:23.0]
Introducing Don Coletti to talk about The Bank of Canada's outreach programme. [0:04:52.0]
Alternative approaches to monetary policy the Bank of Canada is considering. [0:07:19.0]
Thoughts on the US Federal Reserve's change to average inflation targeting. [0:11:43.0]
How open the Bank of Canada is to making a change. [0:13:…
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Recovering from Active Management through Education (EP.116)
17 september 2020 · 58 min
Joining us on the Rational Reminder today is one of the pioneers in the space of evidence-based investing, and someone who has been a massive inspiration to us, Mark Hebner! His website, Index Fund Advisors, was one of the first to start explaining the ideas of an evidence-based approach and the power of indexing, way back in the 1990s. We get to hear from Mark about his transition from misled active investor to his discovery of indexing and how this led to him founding Index Fund Advisors. One of Mark's mantras is to replace speculation with education, an idea he has held dear since his first forays into passive strategies and a message he delivers to his new clients repeatedly. Mark also tells us about the niche he filled with his business, visually presenting the evidence that was being ignored, in a way that was both easy to understanding and also convincing for investors. Our conversation covers the troubled waters of DIY investing, why Mark believes that an advisor is a necessary part of a good approach, as well as the parts of wealth management that are not actual investing. Mark unpacks his definition of risk and how best to think about it before we get into the topic of taxation. So for all this valuable information from a true authority, be sure to listen in with us and hear what Mark has to say! Lees meer
Key Points From This Episode:
The events that led up to Mark founding Index Fund Advisors. [0:03:18.7]
Mark's 12 step process for getting out of active investing and the importance of the first one. [0:11:41.3]
Advice for avoiding the allure of active management — the idea of the Ulysses Pact. [0:16:12.2]
Thoughts on large-cap growth stocks and the lessons we learn from history. [0:18:34.6]
You cannot cheat risk; rules that have remained the same since 1720. [0:22:37.3]
The folly of market timing and Mark's approach for explaining this. [0:27:55.1]
Understanding tax and how it should impact and propel passive strategies. [0:33:10.1]
The best way to think…
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Actively Managed Funds vs. COVID-19, Behavioral Nudges, and a Sustainable Investing Update (EP.115)
10 september 2020 · 1 uur 22 min
Our focus for this episode of the Rational Reminder is split into two sections; first, we cycle through our regular features, looking at a number of studies and articles of interest, the market during the pandemic, and our bad advice segment, and then Benjamin is joined by Tim Nash to talk about ethical investing and comment on Wealthsimple's new sustainable portfolio. We start off our weekly round-up talking about the idea of broadening a knowledge-base and how reading widely and diversely on all manner of subjects can influence and benefit your investing. From there, we turn to the topic of quantitive easing before exploring Tim Wu's thesis about information empires and how they cyclically influence economics. We then dive into the Ontario Securities Commission Investor Experience Study and Lubos Pastor's paper, 'Mutual Fund Performance and Flows During the COVID-19 Crisis'. Both of these shed light on investor behaviour and market performance during 2020 and also offer some interesting findings on the strength of some active management. Daniel Crosby has laid out what he calls '22 Behavioral Nudges to Optimize Client Outcomes', which we then run through, touching on each of his ideas and commenting where necessary. Our bad advice of the week comes from TikTok, and we listen in on two, worryingly misleading clips from TikTok personalities — the social platform may not be the best place to find sound financial advice! For the last part of the show we hear from Tim Nash; he shares his thoughts on Ken French's appearance on the show recently and what the pandemic has proven about sustainable funds going forward. So for all of this and a whole more, in a jam-packed episode, be sure to listen in with us! Lees meer
Key Points From This Episode:
The importance of a wide range of reading material and looking at Peter Thiel's Zero to One. [0:03:35.2]
Quantitative easing and the important work that Frances Coppola has done on the subject. [0:09:22.8]
Tim's Wu's economic theory a…
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Patricia Lovett-Reid: Financial Wellness in a Crisis (EP.114)
3 september 2020 · 45 min
When it comes to your financial life, you can have endless conversations about asset allocation but we often neglect the impact of communication and asking difficult questions. Today we speak with Chief Financial Commentator and awarded media personality, Pattie Lovett-Reid. We start the discussion by COVID silver-linings and the financial lessons that people have been learning due to the pandemic. Pattie explores how people's views of risk have shifted, along with the realization that our portfolios may not be as watertight as we had thought. We dive into financial control and Pattie emphasizes how better family dialogue and managing your emotions are key elements. After talking about how the COVID crisis is different from previous crises, Pattie talks about how stress impacts people's financial decision-making. We ask Pattie for advice on teaching children about finances, and she uses examples from her own life to show how you can instill financial responsibility in your kids. From kids to partnerships, Pattie highlights why you should be on the same financial page as your partner before explaining the concept of financial abuse. We touch on what job-seekers should consider as they apply for jobs, tips for retirees facing the challenge of low-income rates, offering financial advice through Instagram, and how the work-from-home trend is affecting real estate. Our conversation this episode filled with practical advice, and Pattie's approach focuses on the importance of asking difficult questions and communication, be that with your family, partner, or financial advisor. Tune in to hear more about why asking difficult questions is critical to controlling your finances. Lees meer
Key Points From This Episode:
Introducing this episode's guest, Pattie Lovett-Reid. [0:00:15]
Key financial lessons that people have learned from the COVID-19 pandemic. [0:04:01]
How the way that people view their portfolios has changed due to the pandemic. [0:05:08]
Pattie's insights into what p…
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Mega Cap Growth Stocks (FAAMG, TSLA), RESP Withdrawals, and a Golden Portfolio (EP.113)
27 augustus 2020 · 58 min
The hype to invest in high-cap tech companies is deafening. In this episode, we share what you need to know before buying FANG company stocks. Although FANG is the popular term, our analysis includes Facebook, Apple, Amazon, Alphabet, Tesla, and Microsoft — so it's closer to the less slick-sounding FAAATM. Before we dive into that, we talk about the show's books of the week and how ETFs and mutual funds have been performing compared to July of 2019. We then set the scene for how FANG businesses fit into the market-place and how we measure their success by their size and relative price. As these are the companies that are changing the fabric of society, we discuss how it is fitting that companies like Apple represent a whopping 6% of the US market. To put this in historical context, we explore AT&T's past and how market-share tends to reflect the level of innovation introduced by businesses. The upshot of this is that the huge market-share that FANG companies have carved out is not as new of a phenomenon as it may seem. We then unpack how stock prices are valued and the impact that expectation has on stock valuation and returns. After talking about why we might be overpaying for growth stocks, we commiserate over the pain of being a value-titled index investor at times when large-cap growth stocks dominate both the discussion and the marketplace. We round this section by touching on the US stocks' performance compared to US treasury bills, whether you should be looking for the next Amazon, and why you need to quantitatively look at a company's business quality. From FANG we jump into our planning topic of the week — a review of the withdrawal rules for the Registered Education Savings Plan (RESP). Near the end of the episode, we share some bad financial advice for the week courtesy of TMZ and the idea that you should start your portfolio with 100% gold. Tune in to hear more from the world of rational investing. Lees meer
Key Points From This Episode:
From Blackstone to Bloo…
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Michael Kitces on Retirement Research and the Business of Financial Advice (EP.112)
20 augustus 2020 · 1 uur 16 min
Michael Kitces is one of the world's leading experts in financial services but is also a trusted authority in retirement planning research, and today he joins us for a brilliant conversation that covers both topics. Michael is the Head of Planning Strategy at Buckingham Wealth Partners, Co-Founder of XY Planning Network, AdvicePay, and fpPathfinder, and also hosts the much-admired Financial Advisor Success podcast. In the first section of the show, we shoot our questions about retirement planning Michael's way, exploring sequence of returns risk and the implications it presents for spending and portfolio management through retirement. Michael weighs in on three approaches to variable spending, why people can do what they love and still retire well, and his research on the 'rising equity glidepath'. He also speaks about why it's normal to start saving after you hit forty, and why withdrawal policy statements can help you have a better idea of when your portfolio is in the red. This leads us into the financial services segment of the show and we start out hearing Michael compare the assets under management model to the fee for service one, and how XY Planning helps those who can't afford the first by implementing the second. From there, we dive deeper into the limits of more affordable AUM models, Michael's thoughts on which draw on theories of human nature and also function as an advisor underwriting how-to for investors. Toward the end of the show, Michael does an amazing job of contextualizing the merge of the brokerage and advisory sides of the financial system and what this means for investors. For all this and a closing exchange about the incredible work Michael is doing to lift standards for the industry through his podcast and more, be sure to tune in! Lees meer
Key Points From This Episode:
Introducing Michael Kitces, a leader in financial services and retirement planning. [0:00:15.7]
Market fluctuation and how early retirement affects sequence of returns risk. [0:…
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Gold, Insuring your Insurance, and Bank Sales Pitches (EP.111)
13 augustus 2020 · 1 uur 9 min
With the gold price reaching record highs, we revisit the contentious issue of whether you should add gold to your portfolio. Before mining that topic, we talk about Super Pumped: The Battle for Uber and Am I Being Too Subtle? — our book recommendations of the week. We then touch on key news stories including how the recent Apple stock split has affected its position in the Dow index. After fielding a listener question about why central banks care about deflation, we share the reasons for and against investing in gold. We discuss where gold derives its value along with the concept of the 'golden constant' which states that the value of gold will keep pace with inflation in the extreme long-term. Host Benjamin Felix brings in research to show why gold is a bad inflation hedge due to its short-term price volatility. He also brings in data to look at how gold performs under hyper-inflation and then speculates on how supply shock from finding new sources of gold would impact its market value. Often used as a reason to invest in gold, we provide our take on John Bogle's statement that you should invest 5% of your portfolio in gold. Despite seeming to be a middling investment, we then talk about why so many central banks own gold. Near the end of the episode, we briefly explore the life insurance organization Assuris and which account you should draw from when buying a home. Lastly, we draw insights from this episode's bad advice of the week. Tune in to hear more rational reminders from the investment world. Lees meer
Key Points From This Episode:
Media recommendations ranging from Too Much and Never Enough to Ray Donovan. [0:01:39]
Updates on the model portfolios being written by Ben. [0:02:58]
This week's book recommendations: Super Pumped and Am I Being Too Subtle? [0:04:40]
Dives into key stories of the week; Apple's share split and Vanguard Investor's trading practices. [0:09:13]
Answering a listener question about why central banks care about deflation. [0:11:13]
Intr…
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Craig Alexander: No Crisis Should Ever go to Waste (EP.110)
6 augustus 2020 · 1 uur 7 min
Often called a 'once in one hundred years event', the COVID-19 pandemic is having a profound impact on the economy. Today's guest is Craig Alexander, Deloitte's Chief Economist, who brings his 29 years of experience analyzing the economy to answer our questions about the marketplace. We start the conversation by exploring how the pandemic is affecting small businesses, with Craig adding insights into what the government should be doing to help. Craig discusses how the pandemic has revealed inadequacies with Canada's employment insurance and why Canada needs to improve both its income support and its skills frameworks. A key theme in the episode, Chris presents the idea that businesses "Shouldn't let a crisis go to waste." As such, Chris thinks that this crisis is a chance for businesses to reassess their models, especially as certain pre-pandemic trends will continue to disrupt business. Chris also highlights the importance of high-quality childcare services to ensure both long and short-term economic recovery. From childcare, we leap to real estate before Chris provides his perspective on the interplay between the stock market and the economy. After the hosts question the value of economic forecasts, Chris makes a strong case for them, showing how they help organizations to develop plans based on several best and worst-case scenarios. Next, we ask Chris about investing in these times of economic uncertainty and if there is a risk of increased inflation in the future. Near the end of the episode, Chris talks about which industries will most likely grow in the future. Tune in to learn more from Chris's incredible economic perspective. Lees meer
Key Points From This Episode:
Presenting Craig Alexander's bona fides and the insights gained from this episode. [0:00:39]
How the pandemic has impacted the economy, especially small businesses. [0:03:10]
Craig talks about inadequacies in the current employment insurance system. [0:05:06]
The challenge of repurposing the job marke…
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Understanding the Fed's Money Printer, and Lessons from the Crisis (EP.109)
30 juli 2020 · 1 uur 3 min
Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. But what exactly does that mean? In today's episode, Benjamin and Cameron are going to address this topic, avoiding highly politicized aspects, like whether or not central banks should be involved in the economy in the first place, and focusing purely on the operational perspective of quantitative easing – what is it, how it works, and what the intended transmission mechanisms are. Benjamin explains what he has learned through his extensive research, from what money printing and the stock market have to do with one another, where the money for loans comes from, how central banks can influence lending rates, and the difference between regular open market operations and quantitative easing. We also cover how quantitative easing works, the relationship between bank reserves and money in the economy, and what causes inflation, as well as the effect of quantitative easing has on stock prices (if any). We also catch up on recent news stories, and Cameron takes us through five key personal finance lessons we can learn from this crisis. If you're looking to understand quantitative easing, this episode will hopefully become a useful resource! Tune in today. Lees meer
Key Points From This Episode:
This week's book of the week is Mindf*ck: Cambridge Analytica and the Plot to Break America by Canadian, Christopher Wylie [0:04:38]
A chart showing the ratio of the Nasdaq 100 index divided by the Russell 2000 [0:08:22]
University endowment sued for active investing by 94-year-old Clarence Herbst. [0:10:02]
This was not the first time Clarence Herbst had an issue with his alma mater. [0:13:05]
Multimillion-dollar mismanagement of public pension funds in Maryland, 2014. [0:13:22]
Benjamin introduces the main topic, quantitative easing (QE), a central bank action. [0:14:42]
What do money printing and the …
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Dr. William Bernstein: Praying for a Bear Market (EP.108)
23 juli 2020 · 44 min
In keeping with our recent tide of incredible guests, today's one is no exception. Dr. William Bernstein, a financial theorist, advisor, and neurologist, joins us to share some of his incredible insights. As the author of several seminal books such as The Intelligent Asset Allocator and The Four Pillars of Investing, Dr. Bernstein has made his mark applying his medical evidence-based approach to investing. These works have had a particularly strong influence on Cameron when he made the transition from active mutual funds earlier in his career, so it was an incredible honour to have him on the show. In this episode, we dive into a range of topics. We kick off with the importance of understanding investment theories and market history along with why Dr. Bernstein believes young investors should cross their fingers and hope for a bear market. We then take a look at how overconfidence and ill-discipline affect investment decisions and how investors can test their risk appetite in real-time. From there, we turn our attention to small-cap and value stocks and Dr. Bernstein's take on them and the role they should play in your portfolio. We round the show off by discussing the real economic issue that Dr. Bernstein thinks the pandemic is bringing to the fore in the US, the parallels he has seen between his medical and his financial advisory career, and some of his frustrations in communicating financial advice. Be sure to tune into this phenomenal episode. Lees meer
Key Points From This Episode:
Learn more about today's guest, Dr. William Bernstein, and his background. [0:01:06.0]
An overview of value averaging and how it's different from dollar-cost averaging. [0:02:37.0]
Why Dr. Bernstein believes it's so important for investors to understand investing theory. [0:05:14.0]
What it means to understand the several facets of market history. [0:06:28.0]
Insights into return sequence and why young investors should hope for bear markets. [0:08:11.0]
Why generational underperforman…
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Yale vs. Norway, Income Splitting, and Avoiding Ponzi Schemes (EP.107)
16 juli 2020 · 1 uur 10 min
As the expression goes, another day, another dollar. Today's episode is a roundup of news and analysis with deeper dives into behavioural and risk-based market explanations, active management, and endowment investing models. We open with a book review of Essentialism: The Disciplined Pursuit of Less by Greg McKeown, a book that's getting a lot of attention at the moment. Another topic that's getting a lot of attention, we discuss how Tesla's huge market cap growth makes it feel like it's 1999. We also offer our opinions on why Tesla has been so highly valued despite increasing competition in the electric car market. Answering a listener question, we explore how Robinhood makes money through 'payment for order flow' and the debate about if this is in the retail client's best interest. Following another listener question, we answer if the podcast suffers from confirmation bias and how you can never know the 'why' behind stock returns. We talk about risk versus behaviour market explanations and use sound clips from previous episodes to present views on this subject. We then discuss Yale and David Swensen's endowment investment model, focusing on his strategy of finding uncorrelated asset classes and then hiring active managers to meet target allocations. We look at the model's benefits and its similarities to Canada's CCP before examining how Norway invests based on oppositional ideas of the marketplace. Near the end of the episode, we continue our conversation on spousal loans by listing more family income splitting strategies. Tune in to hear more from the financial world. Lees meer
Key Points From This Episode:
A quick book review of Essentialism: The Disciplined Pursuit of Less by Greg McKeown. [0:03:25]
Key ideas of this book; being busy isn't always a positive, and if you don't prioritize your life then someone else will. [0:06:02]
Why Tesla surpassing General Motors' market cap makes it feel like it's 1999. [0:07:32]
Opinions on why Tesla has experienced such incred…
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Jim Stanford on The Economics of Capitalism in a Crisis (EP.106)
9 juli 2020 · 57 min
Today's guest is Dr. Jim Stanford, Economist and Director of the Centre for Future Work and author of Economics for Everyone. We kick things off with Jim hearing his perspectives on what makes this recession unprecedented before he argues that a traditional approach to macroeconomic policy won't be enough to augment more than a crippled and unstable recovery. This situation might hold a silver lining though and Jim sketches out the opportunity it provides for rethinking employment ethics. After weighing in on why the deficits caused by a much-needed post-war style economic reconstruction might not such a bad thing, Jim does an amazing job of explaining the connections and differences between quantitative easing and government deficit. On this topic, he talks about why fears around credit creation are centered on an outdated concept of banking, and the potential quantitative easing has for facilitating investment and economic activity in this recession rather than buying corporate assets in the secondary market. From there, we talk about wealth distribution, the inevitability of an economic system that supersedes capitalism, and the concept of the political economy. Jim gets into how issues about history, norms, culture, and power – things that don't show up in your usual supply and demand graphs – are actually crucial inputs for understanding the economy and understanding economics. Don't miss this incredible conversation about ethics and capitalism with today's guest. Lees meer
Key Points From This Episode:
Introducing Jim Stanford and his work on economics and quantitative easing. [0:00:05.3]
What makes this recession unprecedented; the 'Loch Ness Monster' recovery. [0:03:16.2]
How many of the most vulnerable groups are experiencing more job losses. 0:06:27.3]
Challenges of remote work and implications that only 25-30% of jobs can be done remotely. [0:09:32.3]
Impacts of social distancing on the economy, a socially constructed phenomenon. [0:12:07.7]
Avoiding the Lo…
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Dimensional's ETFs, Private Equity, and Prescribed Rate Loans (EP.105)
2 juli 2020 · 1 uur 10 min
With private equity investments increasing in popularity, you may feel the pressure to expand your portfolio. Today's episode, we look at the data behind private equity returns to see if these investments add something to your portfolio that you couldn't get elsewhere. But first, we discuss some big news — that slow-moving Dimensional Fund Advisors are entering the ETF marketplace. After looking at the implications of this move, we use a Harvard paper as our springboard into the topic of private equity. By exploring the shift in demand for private equity, the paper establishes the context for why investors, especially institutions, are seeking higher returns. Looking at research from AQR, we talk about their finding that private equity returns are overvalued, despite them being historically good investments. You'll hear how the risks underlying private equity are obscured by a 'return smoothing effect' and why people are willing to overpay to get smooth returns. We examine how the gap between private and public equity returns has narrowed along with AQR's argument that market changes have caused private equity investments to perform poorly. After AQR, we move onto a paper by Erik Stafford which shows that small-cap investing yields similar returns to private equity — with the advantage that you don't have to pay high private equity fees. We round off the episode with a discussion on the benefits of spousal loans before talking about this week's bad financial advice. This is a valuable episode for those wondering about adding private equity to their portfolios. Listen to find out why that might not be in your best interest. Lees meer
Key Points From This Episode:
Updates on our brilliant future guests — Jim Stanford and William Bernstein. [0:01:50]
That Jim Stanford's book provides an excellent view of money and banking in capitalism. [0:02:49]
The big news; Dimensional Fund Advisors are entering the ETF marketplace. [0:04:50]
The similarity between Avantis Investments a…