The Importance of Illiquidity in Investment

Understanding market efficiency is an important part of investment decision-making. It can help investors to identify the most appropriate investment strategies and develop realistic expectations for their returns. In this episode of the Rational Reminder Podcast, we sit down with Professor Burton Malkiel, the renowned economist, and author of the classic investing book A Random Walk Down Wall Street. Professor Malkiel is a distinguished figure in the world of economics and academia. He holds the prestigious title of Chemical Bank Chairman's Professor of Economics Emeritus and Senior Economist at Princeton, where he has made significant contributions to the field over the years. In our conversation, we discuss Professor Malkiel’s views on the stock market, the efficient market hypothesis, how behavioural finance relates to investing, and why index funds should be at the core of every portfolio. Throughout the episode, Professor Malkiel shares his insights on a wide range of topics related to personal finance and investing, including the benefits of index funds, the dangers of active stock picking, the impact of fees and taxes on investment returns, factor investing, and expensive asset classes. He also discusses research on socially responsible investing and how investors can incorporate ethical considerations into their portfolios without sacrificing performance. In this episode, listeners will gain a better understanding of the vital principles of investing and how to apply them to achieve their financial goals. Whether you're a novice investor or an experienced pro, this episode offers valuable insights and advice from one of the most respected economists in the field, Professor Malkiel.

Key Points From This Episode:

• Professor Malkiel explains the efficient market hypothesis and what the term “efficient market” means. (0:03:42)

• What the media tends to get wrong about the concept of market efficiency and the mathematical theory behind a random walk market. (0:07:04)

• We discuss investing in index funds rather than actively managed strategies. (0:09:44)

• How his book, Random Walk, was received by professionals and academics in the industry

  (0:13:08)

• Hear about the inspiration behind the concept covered in his book, and how his investment advice has changed over the last 50 years. (0:19:18)

• Why index funds have become widely accepted, and the difference between investing and speculating. (0:23:38)

• He unpacks why past market bubbles are vital for managers to understand and shares some wise words for those who want to participate in market speculation investing. (0:28:21)

• How the existence and persistence of bubbles throughout history relate to markets being efficient. (0:32:10)

• Find out how the multiple, non-diversifiable risks in today’s financial markets impact the advice in his book, and learn about factor investing. (0:35:42)

• He shares advice and insights for people looking to invest in cheaper funds and his perspective on trending investment strategies. (0:37:55)

• Learn how the general findings from behavioural finance influence his advice on investing in index funds. (0:41:33)

• We explore the value of risk parity strategies and the problem with backtests, and he shares his view on expensive asset classes. (0:44:09)

• What impact super-low bond yields had on the return of bonds, and whether you should focus on the value or yield. (0:54:16)

• The importance of saving as opposed to an optimal investment strategy to investor outcomes.

  (0:57:56)

• Insights into investing according to your desired outcomes and whether Professor Malkiel thinks it is better to rent or own a home. (1:03:55)

• We discuss inflation and possible future trends and the role of financial planners and investment advisors. (1:10:29)

• Hear his concerns regarding the growth of index fund assets. (1:14:52)

• Details about his book writing journey and his definition of success. (1:18:46)

Links From Today’s Episode:

Burt Malkiel — https://jrc.princeton.edu/people/burton-g-malkiel Wealthfront — https://www.wealthfront.com/ Theravance Biopharma — https://www.theravance.com/ Genmab A/S — https://www.genmab.com/

Rebalance IRA — https://www.rebalance360.com/

A Random Walk Down Wall Street: The Best Investment Guide That Money Can Buy — https://amzn.to/3BgepQz

Princeton University — https://www.princeton.edu/ The Yale School of Management — https://som.yale.edu/ Vanguard — https://investor.vanguard.com/corporate-portal/ Trillions — https://www.amazon.com/Trillions-Renegades-Invented-Changed-Finance/dp/ 0593087682 S&P Dow Jones Indices — https://www.spglobal.com/spdji/en/ S&P Dow Jones Indices SPIVA — https://www.spglobal.com/spdji/en/research-insights/spiva/ Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder- podcast/id1426530582. 
 Rational Reminder Website — https://rationalreminder.ca/ Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on YouTube — https://www.youtube.com/channel/ Rational Reminder Email — info@rationalreminder.ca
 Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ Benjamin on Twitter — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/ Cameron on Twitter — https://twitter.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/