The Rational Reminder Podcast

Latest Episodes:

S*** (Misguided) Financial Advisors Say (EP.203) Jun 02, 2022

Show notes

We have a jam-packed episode for all of our listeners today, with two guests, a lot of news, and many great resource recommendations. We start off by rounding up some recent updates from the world of finance and the Rational Reminder community, and spend some time talking about Ben's recent paper, titled 'Finding and Funding Good Life'. We are then joined by Robb Engen, for his third appearance on the show, to talk about how he helps his clients move on from unhealthy advisory relationships. Robb shares some of the surprising, disturbing, and ridiculous rebuttals that he has come into contact with over the years, and we reflect on the recent Twitter storm that occurred as a result of Robb sharing some of these. After this great chat with Robb, we are very happy to welcome back author of How to Change, Katy Milkman, who was recently a guest on the show, to discuss her reading habits, tips for memory, and how she balances producing and consuming both podcasts and books. To take part in this bounty of great information and inspiring ideas from these two guests, please make sure to join us today.

Key Points From This Episode:

Reflecting on and investigating Ben's paper, 'Finding and Funding Good Life'. [0:10:59]
How this podcast has increased our interest in learning about and sharing non-financial ideas. [0:15:30]
The part that hindsight and regret play in our estimations of happiness. [0:20:08]
Looking forward to our podcast miniseries in which we explore cryptocurrencies. [0:22:41]
The basics of the blockchain and digital cash in light of new technology. [0:29:02]
The context that sparked today's conversation with Robb. [0:35:49]
Robb explains his typical client, their portfolio, and why they contact him. [0:38:30]
How Robb approaches assessing a portfolio and communicating possible drawbacks. [0:40:43]
Ways in which active managers are practicing bad investment habits themselves. [0:44:02]
Tracking the progress from active to passive for those that Robb works with. [0:47:09]
Advice from Robb for managing the end of a relationship with an active manager. [0:48:15]
Robb shares some examples of how advisors have responded to 'break-up notices'. [0:52:07]
A round of Talking Cents cards with Rob; addressing social issues in a new business, quitting a job, saving versus spending, and more. [1:02:26]
Katy describes her reading habits and her use of audiobooks. [1:08:15]
Tips and tricks from Katy for information retention and idea compilation. [1:09:20]
Thoughts on the connected nature of the behavioural science community and the benefits that Katy sees in this. [1:13:39]
Some of the classic behavioural science books that Katy recommends. [1:15:07]
How Katy approaches podcasting, writing, and consuming the different mediums. [1:17:05]
Advice from Katy for anyone wanting to increase the amount that they read. [1:21:00]

Antti Ilmanen: The Building Blocks of Long-Run Returns (EP.202) May 26, 2022

Show notes

To carry on the trend of amazing guests on the show, today we welcome Antti Ilmanen. Antti is the co-head of the Portfolio Solutions Group at AQR, and the author of a couple of really impactful books that we highly recommend. His most recent is Investing Amid Low Expected Returns, and in today's chat, we get to hear all about the ideas contained in its pages, and the most important moments in his career that have shaped his philosophy. Antti received his PhD in Finance from the University of Chicago and has had a long career of working with high profile names that you might recognize from past episodes of this podcast. Our guest talks about the need for cultivating your patience in relation to your investment portfolio and shares many other great pieces of practical advice that you can implement today. We delve into some bad investment habits that Antti noted in his book and also touch on the usefulness of bonds, illiquid assets, trend following, and much more. Be sure to tune in today to hear all that this great mind has to offer.

Key Points From This Episode:

The power and limitations of using historical data for calculating expected returns. [0:04:17]
Balancing historical data with market-implied expected returns. [0:07:47]
Antti comments on shifting into higher expected return equity markets. [0:11:37]
The role of bonds in revenue generation and why to not give up on them completely. [0:13:00]
Locating the roots of the positive premium that Antti associates with bonds. [0:16:35]
The effect of illiquid assets on expected returns. [0:19:44]
Why recent historical returns in real estate are not indicative of future expected returns. [0:23:40]
The response from institutional investors to lower expected returns. [0:26:09]
Situating value's current dip in a broader historical picture. [0:29:57]
Some comments on the recent performance of rates, growth, and value. [0:33:39]
Today's expected value returns in comparison with other points in history. [0:37:19]
Antti unpacks the idea of trend following and its performance during the most recent crash. [0:39:53]
Defining the defensive style premium and its relation to quality. [0:41:26]
Antti differentiates carry and value strategies from each other. [0:45:55]
An explanation of the importance of being 'long-short' to capturing the premium. [0:51:24]
Locating the difference between alternative risk premia and alpha. [0:55:31]
Practical tips for investors to wait out periods of poor performance. [0:57:45]
The need for investors to be more fee-conscious in today's, low-return world. [1:01:35]
Antti shares about what he calls the investor's 'premier bad habit'. [1:02:33]
The impact of Ken French on Antti's career and philosophy. [1:05:29]
How Antti defines success at this point in his life and the priority he gives to balance. [1:07:33]

The Relevance of Dividend Irrelevance (EP.201) May 19, 2022

Show notes

Today, on the Rational Reminder Podcast, we are tackling a few interesting topics that tie into recent and forthcoming conversations with our amazing guests. In this 'us only' episode, we are focusing on thematic ETFs and the truth about dividend investing. After a quick look at The Quick Fix by Jesse Singal, some reflections on the past six months at ARK Invest, and the lessons we can still learn from the dot-com crash, we get into the meat of today's episode by way of Ben's recent experiences on a discussion panel about the utility of thematic investing. From there, we transition into the 'relevance of dividend irrelevance' and share some of the most illuminating and pertinent findings. In the end, our argument is simply that dividends are not the way to go and are an inefficient policy on many fronts. This has not deterred many investors, however, and we get to grips with the kinds of behaviours associated with dividends before espousing what this can mean for you and your objectives. To catch all of this and links to some of the best research available, be sure to listen in with us today.

Key Points From This Episode:

Today's book review of The Quick Fix by Jesse Singal and its critique of popular psychology. [0:12:30]
Inflows at ARK Invest; the startling commitment that we are currently seeing. [0:21:48]
Reflections and information that we dug up on the dot-com crash in the '90s. [0:22:30]
Notes on thematic ETFs garnered from the recent panel Ben was on. [0:25:09]
Disentangling the relevance of dividend irrelevance. [0:35:45]
The performance of a dividend portfolio and a better idea of expected returns. [0:40:28]
Empirical findings about dividend investors and their actions in relation to yields, diversification, and more. [0:42:01]
The tax inefficiency of dividends and what this means for capital gains. [0:49:01]
Underlining the importance of dividend investor's consumption and its sensitivity to dividends. [0:51:31]
How the problem with dividends is compounded outside of the US. [0:57:11]

Prof. Eugene Fama (EP.200) May 12, 2022

Show notes

We are so happy to bring you all our 200th episode, and who better to have on the podcast on this auspicious occasion than the legendary, Professor Gene Fama? This is one of the most jam-packed episodes we have ever recorded, with Gene providing concise and thought-provoking answers to our many, many questions. After delving into the foundations of Gene's work and philosophy, covering market efficiency, and its competing theories, Gene entertains our queries about a wide range of ideas and models, and generously shares the decades worth of wisdom that he is so widely known for. We also find time to talk about retirement plans, inflation, cryptocurrencies, and the influence of machine learning. Towards the end of our conversation, our guest touches on some more personal ideas about productivity, his career, his partnership with Ken French, and what success means to him at this point. For a landmark episode, with a true hero of the evidence-based approach to investing, make sure not to miss this.

Key Points From This Episode:

The basics of market efficiency and its main implications for investors. [0:04:49]
Limitations of the efficient markets model for explaining specific cases. [0:08:02]
Gene's perspective on the inelastic markets hypothesis and his interest in it for the future. [0:09:36]
The anomalies that brought down the capital asset pricing model. [0:10:26]
Unpacking the three-factor and five-factor asset pricing models that Fama and French created. [0:11:43]
Thoughts on the Q-factor model, factor premiums, and data dredging. [0:15:43]
Gene's reflections on building data sets dating back to the 1920s. [0:17:13]
The best way to estimate expected returns and expected factor premiums according to Gene. [0:19:52]
Structuring portfolios and how different investors should approach this. [0:24:10]
Considering international diversification for investors in Canada. [0:29:05]
Further thoughts on asset pricing models. [0:32:47]
The assets that are hedged against expected and unexpected inflation. [0:33:31]
Gene illuminates the role of the Fed in relation to inflation. [0:36:43]
Advice for typical retirees from Gene. [0:38:22]
The challenges that Gene has experienced translating theory into practice. [0:40:16]
Lesson from Gene's work with Dimension Fund Advisors. [0:43:47]
Gene's reflections on his impact and having his theories implemented in practice. [0:45:32]
Weighing the value and impact of behavioral finance. [0:47:53]
Technology and active managers; is it any different for those aiming to achieve alpha in the current context? [0:50:46]
Gene weighs in on cryptocurrencies and how his perspective might have shifted. [0:53:08]
A look at the people who have had the biggest influence on Gene's career. [1:03:05]
Thoughts on productivity and making the most of periods of clear thinking. [1:03:39]
Our guest's personal definition of a successful life. [1:06:17]

What Happens after Bonds Crash? (plus Reading with Aydin Mirzaee) (EP.199) May 05, 2022

Show notes

As we near the 200th episode of our little podcast, we wanted to have a chat with our friend Aydin Mirzaee about one of our favourite topics: books. Before welcoming Aydin into the conversation we round up some important news, go deeper than ever into the fascinating subject of bonds, and share some thoughts on Setting the Table. As the host of the Supermanagers Podcast and the CEO of Fellow, Aydin has an unusual and stimulating perspective on many of our usual interests, and we get to hear from him about the development of his own reading habit, what he most enjoys reading, what would make him recommend a book to someone else, and few pieces of advice for strengthening your reading practices. Aydin also talks about why advice can be dangerous, increasing your ability to retain information, and he is generous enough to do a round of Talking Sense cards with us to finish off the episode. To hear it all, make sure to join us.

Key Points From This Episode:

Today's book review, looking at Setting the Table by Danny Meyers. [0:08:47]
Christopher Bloomstran's thought-provoking critique of Ark Invest. [0:18:06]
A follow-up on our ongoing discussion about bonds and look at their recovery time. [0:20:04]
Comparing real returns across the different decades. [0:27:30]
Research into a more complete view of the historical returns of stocks versus bonds. [0:39:31]
How correlations come into the conversation about stocks and bonds. [0:42:54]
Aydin describes his reading habits; audiobooks on a commute, hacks, and more.
The different purposes of books and how Aydin uses business content to generate ideas. [0:49:40]
Books as leverage and some thoughts from Aydin on his favourite genres. [0:52:27]
Where Aydin sources his books and what it takes for him to decide to recommend books to others. [0:56:12]
The role that podcasts play in Aydin's reading habits. [0:58:30]
Aydin's advice for how to read more and his approach to encouraging his children. [0:59:12]
Considering different ways to increase information retention. [1:02:11]
A round of Talking Cents cards with Aydin! [1:03:34]

Gerard O'Reilly: Deep Dive with Dimensional's co-CEO & CIO (EP.198) Apr 28, 2022

Show notes

You don't need to be a rocket scientist to work at Dimensional Fund Advisors, but Gerard O'Reilly sees it as an asset, particularly when it comes to problem-solving. Now the Co-CEO and Chief Investment Officer of one of the fastest-growing US investment businesses, Gerard received a Ph.D. in aeronautics before entering fund management, attracted to Dimensional because of the opportunity it afforded him to learn from the world-leading economists at the company; including Eugene Fama, Myron Scholes, Merton Miller, Robert Merton, and Ken French. We recently sat down with Gerard to discuss the firm's research-based culture and rules-based approach to investing. In this episode, we get into the nitty-gritty regarding Dimensional's distinctive portfolio management decisions and the data sources they draw from and Gerard answers some technical questions regarding risk assessment, factor tilted portfolios, operating profitability, goodwill, and more. We also touch on the value of combining multiple metrics, why small-cap stocks deserve a place in your portfolio, and some of the biggest changes that Gerard has witnessed in Dimensional portfolios over the past decade, as well as how he applies his scientific learnings to make unique portfolio adjustments and some of the various benefits of Dimensional's integrated approach. Make sure not to miss this informative, insightful, and in-depth conversation with Dimensional CIO and Co-CEO, Gerard O'Reilly!

Key Points From This Episode:

Market-cap-weighted passive strategies versus Dimensional's rules-based higher expected return strategy. [0:03:45]
Assessing risk based on the Intertemporal Capital Asset Pricing Model (ICAPM). [0:07:07]
Diversification in a factor tilted portfolio versus a cap-weighted market portfolio. [0:10:57]
What criteria the variables that Dimensional uses need to meet before they're considered dimensions of expected returns. [0:13:00]
Sources Dimensional draws from regarding portfolio decisions and implementation. [0:16:09]
How Gerard decides between underweighting or excluding securities in portfolios. [0:19:59]
Why Dimensional uses operating profitability rather than cash-based profitability. [0:22:38]
Gerard's view on intangible assets, goodwill, and Dimensional's investment strategy. [0:29:31]
The value of including internally developed intangibles in value and profitability metrics. [0:37:49]
Gerard reflects on the opinion that Fama and French's findings are no longer valid. [0:42:58]
Whether or not it's better to combine multiple metrics to measure relative price. [0:46:41]
How Dimensional targets value and profitability together (for large and small caps). [0:50:39]
How Gerard thinks about capacity for investment strategies in small and micro-cap stocks as Dimensional continues to grow. [0:54:03]
Understanding how entering into the ETF market has impacted his thinking. [0:57:24]
Expected premiums for owning smaller stocks over larger ones. [0:58:50]
The importance of security lending revenue for expected returns on Dimensional funds; improving the investor experience. [1:00:12]
How Dimensional deals with sector weights and the role that diversification plays. [1:04:12]
Why they decided to implement credit, despite research to suggest that it doesn't add an independent source of expected returns. [1:06:08]
Some of the biggest changes in Dimensional portfolios over the past 10 years. [1:10:23]
How Gerard applies his scientific learnings to make unique portfolio adjustments. [1:12:52]
Comparing Dimensional's core and vector strategies with a combined cap-weighted portfolio; from fees to the benefits of hindsight and more. [1:15:15]
Papers that seemed compelling but were deemed ineffective by their research team. [1:19:11]
Insight into Dimensional's decision to make their internal research public. [1:21:42]
Why their rules-based approach is the hardest part of Dimensional to replicate. [1:25:55]
What to be aware of when comparing backtests: how data can be manipulated. [1:30:06]
Valuable lessons and perspectives Gerard has learned from their competitors. [1:32:22]
Commonalities between aeronautics and asset management, like problem-solving. [1:35:20]
Why Gerard believes that having his own financial advisor is invaluable. [1:36:55]
Gerard explains why we might expect factor premiums to persist in equilibrium. [1:38:28]

The Immortality of Bonds (EP.197) Apr 21, 2022

Show notes

Many people have been contemplating the death of bonds, which is why for the main topic of today's episode we're going to be talking about their immortality. After a vicarious trip to The Masters, an overview of The Art of Insubordination, and an explanation of why we're concerned about the changes that WealthSimple has made to their business model, we get into the world of bonds. Bond returns have not been good this year, and bond index funds are down all round, but that doesn't mean that bonds are necessarily the riskier choice of investment in the long term, or that you should be feeling disheartened about them. Tune into our conversation today to hear why!

Key Points From This Episode:

The incredible experience of attending The Masters, and how you can win a ticket. [0:02:21]
Three business-focused TV series that we highly recommend. [0:02:27]
Upcoming guests, and some very positive listener reviews. [0:03:34]
An overview of The Art of Insubordination. [0:09:16]
Why change is challenging for most people, and the value of creating environments that encourage dissent. [0:11:12]
How dissenters can make their actions more impactful, and what leaders can do to encourage dissent. [0:13:16]
Key takeaways from The Art of Insubordination. [0:16:39]
Why we are disappointed with the changes that Wealthsimple has made to their business. [0:18:47]
Nuances that Wealthsimple has left out of their venture capital analysis. [0:23:51]
Today's main topic: the immortality of bonds. [0:33:38]
Statistics which highlight the fact that bond returns have not been good this year. [0:33:51]
Why volatility is not the only risk that matters. [0:35:06]
How Ken French defines risk. [0:37:51]
Some of the pros and cons of bonds and stocks. [0:38:56]
Calculations which show that stocks are not necessarily less volatile than bonds in the long run. [0:40:48]
The five components of long-run predictive variance. [0:43:23]
An explanation of a model we created for the dispersion of outcomes. [0:45:10]
Why now is the time to get excited about bonds. [0:49:27]
Today's first misconception: high growth sectors/regions/companies are good investments. [0:53:52]
Today's second misconception: you can lose all of your money in stocks. [0:55:57]

Sebastien Betermier: Hedging, Sentiment, and the Cross-Section of Equity Premia (EP.196) Apr 14, 2022

Show notes

Welcome back to the show all about sensible investing in Canada! Today we have yet another masterclass with a wonderful guest, Sebastien Betermier. Sebastian is an Associate Professor of Finance at Desautels Faculty of Management at McGill University, where he teaches investment management, applied investments, and pension funds retirement systems. We have a deep, thoughtful, and precise conversation with him about his recent research and papers, much of which stands in contrast to our usual fare on the show. In our chat, we dive into the nuts and bolts of asset allocation, hedging risk, and his research into what demographics can teach us about investment behaviours and returns. We also hear from our guest about interesting topics of expected persistence and tilting towards value stocks, before shifting the conversation towards homeownership and property investment. Sebastien provides some sound advice around when it might be a good idea to purchase property over other asset classes, and we evaluate this position from a number of different investing perspectives. Lastly, we spend some time looking at pension plans, and what we can learn from those available in Canada right now.

Key Points From This Episode:

Sebastien explains the theoretical relationship between labor income and financial asset allocation. [0:04:30]
Findings on hedging labour income risks and the paper that Sebastien published on the subject. [0:06:47]
The relationships between risk and age, gender, wealth, and heterogeneity across households. [0:10:05]
Unpacking Sebastien's investigation into value and growth investors. [0:12:07]
The effect that the characteristics of labor income have on the rate of progression on the value ladder. [0:18:43]
What we can learn about expected persistence in the value premium. [0:22:39]
Weighing the possibility of predictive demographics for future value premiums. [0:24:29]
Advice for young investors looking to tilt towards value stocks. [0:27:50]
Explaining differing returns according to the characteristics of people. [0:29:41]
Sebastien explains the factors of markets, wealth, and age, in the pricing model. [0:31:24]
Understanding how investors tilt to age and wealth factors, and what these portfolios look like. [0:38:19]
The impact of age and wealth factors on wealth inequality, and how younger investors can combat this. [0:42:19]
Possible rationales for homeownership and the storage of wealth in housing. [0:44:26]
The household characteristics that are predictive of larger allocations to housing. [0:48:49]
Economic importance of risk-free benefits of homeownership. [0:52:15]
The decade-long rule of thumb for purchasing property; Sebastien weighs in. [0:55:31]
Why asset-only performance is not the only correct way to measure the success of the Canadian pension fund model. [0:58:50]
Differentiating asset-only performance and liability-hedging performance measurement. [1:02:29]
A list and explanation of the assets that Canadian pension funds use for hedging real liabilities. [1:04:03]
Lessons from the Canadian Pension Plan for individual investors and firms. [1:12:54]
Sebastien's personal definition of success: making the most of opportunities and a balanced life. [1:16:07]

Common Misconceptions Among Beginner Investors (EP.195) Apr 07, 2022

Show notes

The world of personal finance is full of axioms, and new investors can get caught up in investing myths and 'rules of thumb' that are limiting at best and lead to underperformance and unnecessary losses at worst. In this week's episode, we outline some of the common misconceptions that new investors have, the evidence (or lack thereof) surrounding them, and how to think more like a seasoned investor. Is value investing really a safer strategy with lower expected returns? Do you need to employ a Buffett-Lynch stock picking approach when value investing? Are all index funds good investments? Tune in to find out the answers to these questions and gain some insight into the relationship between risk and return, dividend investing versus total risk investing, and whether or not exclusively investing in US stocks is a good idea, plus so much more!

Key Points From This Episode:

Upcoming guests, including Professor Eugene Fama in Episode 200. [0:01:27]
An update on our 22 in 22 Reading Challenge, with over 1,000 books read. [0:05:30]
A review of The Great Depression: A Diary by Benjamin Roth and lessons learned. [0:07:18]
A quick overview of The Bond King, the story of Bill Gross by Mary Childs. [0:17:10]
This week's news stories: 24/7 investing from Robinhood, stock splits, Wealthsimple portfolio changes, and more. [0:20:02]
Our main topic: some of the common misconceptions that new investors have. [0:28:50]
Whether or not value investing is a safer strategy with lower expected returns. [0:30:42]
Some examples of where the myth that value stocks are safer comes from. [0:33:25]
The fallacy that value investing requires discounted cash flow (DCF) analysis. [0:40:52]
Why Warren Buffett's outcome could be a challenge to systematic value investing. [0:43:41]
Debunking the misconception at all index funds are good investments. [0:46:48]
Conversely, Ben shares why not all actively managed funds are bad investments. [0:47:34]
Why all exchange-traded funds (ETFs) tracking an asset class are not the same. [0:48:12]
The myth that risk and return are always related and the cases when this isn't true. [0:51:02]
Ben shares his reflections on the misconception that dividend investing is less risky than total return investing. [0:53:14]
Analysis that demonstrates whether or not dividends are actually safer. [0:56:09]
Our last misconception for today: you should only invest in US stocks because they perform best. [0:59:40]

Bill Janeway: Investing in the Innovation Economy (EP.194) Mar 31, 2022

Show notes

When it comes to the uncertain future of financial markets and technological innovation, a deep understanding of history and the roots of the systems at play in our contemporary climate is often overlooked. This is the argument made by Bill Janeway, our guest on the show today and the author of Doing Capitalism in the Innovation Economy. We have a fascinating conversation with Bill who has vast experience in both the academic and venture capital spheres, having spent years working in both sectors. Bill does an amazing job of sharing his expertise, talking about the role of the state in innovation, how venture capital actually operates, and what the innovation economy means for those who are not on the vanguard of technological progress. We discuss how investors can think about allocating their assets in relation to innovative companies, Bill's reflections and advice regarding financial bubbles, and how Bill applies his understanding to current questions about cryptocurrencies and decentralization. Bill's lifelong passion and commitment to learning about the history of economics and the financial markets makes him a deeply valuable resource and having him on the show was so illuminating, we hope you enjoy the conversation as much as we did.

Key Points From This Episode:

Bill explains his concept of the 'three-player game' and how it brings together two important histories. [0:03:13]
The role of venture capital in technological innovation in the last 50 years. [0:05:16]
Findings on the returns experienced by entrepreneurs in light of VC structures. [0:10:22]
Thinking about venture capital as a private investor; best approaches for asset allocation. [0:15:05]
Investing in innovation and assessing secondary market public equity benefits. [0:20:02]
Bill explores the relationship between innovation and financial bubbles. [0:31:43]
Waste and innovation; what we should expect as we progress. [0:35:43]
The people left behind by innovation; who has taken the role of trade unions? [0:41:09]
Bill weighs in on the question of cryptocurrencies and their place in the conversation about innovation. [0:45:38]
Investment in crypto from big firms; separating the 'adults' from the crooks. [0:51:36]
Why a deep understanding of history is paramount to sustainable innovation. [0:53:10]
Bill's personal definition of success; staying motivated for work! [0:55:15]

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