Episode 297 - Do Stocks Return 10-12% On Average? & Zero to Millionaire with Nicolas Bérubé
The Rational Reminder Podcast
Survivorship Bias and Historical U.S. Equity Premiums
Exploring the influence of survivorship bias and learning on U.S. equity premiums, the chapter reveals how these factors have shaped investor perceptions and valuations. From modeling techniques, it is determined that survivorship and learning effects contribute to 2% of the historical U.S. equity risk premium. Emphasizing the challenges of capturing market returns, the chapter also highlights the importance of realistic expected return assumptions and unbiased estimates based on historical analysis.
As human beings, our brains are wired to solve problems. This can make long-term investment strategies, like passive investing, surprisingly challenging, especially if you’re not accustomed to the ups and downs of the market – it can feel pretty unintuitive to stay the course when your instinct is to take more active steps to solve the problem! So, how can investors remain firm in their strategy and not get spooked by market changes? Joining us today to unpack this question is financial journalist, Nicolas Bérubé, whose new book From Zero to Millionaire: A Simple and Stress-Free Way to Invest in the Stock Market serves as a guide to investors on how to grow their wealth and achieve good portfolio diversification at a low cost. We talk with him about the contents of his book, his observations on financial media and its effect on investors, how to stay committed when making long-term investments, and more. We also spend the top half of the show discussing a popular idea we’ve seen posted by influencers online, namely that investing in stocks will give you a return of 10% or more per year on average, and the flaws in their arguments. Tune in for a deep dive into investor psychology, financial media, and much more!
Key Points From This Episode:
(0:01:42) A breakdown of the flaws in the trending online theory being posted by influencers claiming that investing in stocks will give you a return of 10% or more per year on average.
(0:09:17) Taking a longer-term view of the US stock market (and other global markets), how it’s changed in the past 100 years, and what this means for investors today.
(0:16:12) Relevant findings from various papers on US and global stock market returns, US stock market valuations, performance, the impact of survivorship bias, and more.
(0:27:01) Why it can be so difficult to capture market return as an investor, and a breakdown of how best to approach historical data.
(0:33:33) Talking with Nicolas Bérubé about what he learned from his failed options trade before he started studying markets and the research that helped him become a market optimist.
(0:38:24) An overview of Indo-American investor, Mohnish Pabrai, and what Nicolas learned from meeting him.
(0:41:05) Unpacking the difference between investing in the stock market and playing in the stock market and the importance of having an infinite vision when investing.
(0:44:52) How Nicolas would explain the benefits of index funds and index investing to a novice and why behaviour is the number one obstacle to investor outcomes.
(0:48:29) The effect of financial media on investors from Nicolas’s perspective as a journalist.
(0:51:52) Advice on whether to delegate your investment actions to a financial professional or do it yourself ie. automatic transfers using a robo advisor.
(0:56:14) What people should be looking for if they do seek out financial advice and Nicolas’s opinion on what investors struggle with most.
(0:59:58) Aftershow section: future topics for the show, why we’re excited to see more of Mark McGrath, updates on our 24 in 24 reading challenge, upcoming meetups, and more.
Links From Today’s Episode:
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 X — https://twitter.com/RationalRemind
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 X — https://twitter.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Cameron on X — https://twitter.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/ Mark McGrath on X — https://twitter.com/MarkMcGrathCFP
24 in 24 Reading Challenge — https://rationalreminder.ca/24in24
Nicolas Bérubé on LinkedIn — https://www.linkedin.com/in/nicolas-b%C3%A9rub%C3%A9-27b9b111b/
From Zero to Millionaire — https://fromzerotomillionaire.com/
The Motley Fool — https://www.fool.com/
Rob Carrick — https://www.theglobeandmail.com/authors/rob-carrick/
Andrew Hallam — https://andrewhallam.com/
Somebody Feed Phil — https://www.imdb.com/title/tt7752034/
Everybody Loves Raymond — https://www.imdb.com/title/tt0115167/
Shake Shack — https://shakeshack.com/#/
Figure 01 AI Robot Video on LinkedIn — https://www.linkedin.com/feed/update/urn:li:activity:7173681028664901634/
Books From Today’s Episode:
From Zero to Millionaire: A Simple and Stress-Free Way to Invest in the Stock Market — https://fromzerotomillionaire.com/
The Algebra of Wealth: A Simple Formula for Financial Security — https://www.amazon.com/Algebra-Wealth-Formula-Financial-Security/dp/0593714024
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing — https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393358380
Everyone Believes It; Most Will Be Wrong: Motley Thoughts on Investing and the Economy — https://www.amazon.com/Everyone-Believes-Most-Will-Wrong-ebook/dp/B00655BGBG
The One-Page Financial Plan: A Simple Way to Be Smart About Your Money — https://www.amazon.com/One-Page-Financial-Plan-Simple-Smart/dp/1591847559
Setting the Table: The Transforming Power of Hospitality in Business — https://www.amazon.com/Setting-Table-Transforming-Hospitality-Business/dp/0060742763
Papers From Today’s Episode:
‘The Equity Premium’ — https://onlinelibrary.wiley.com/doi/full/10.1111/1540-6261.00437
Scott Cederburg research: ‘Long-Horizon Losses in Stocks, Bonds, and Bills: Evidence from a Broad Sample of Developed Markets’ — https://www.paris-december.eu/sites/default/files//papers/2023/4393_scederburg_2023_complete.pdf
Jules H. Van Binsbergen Paper: Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach — https://rodneywhitecenter.wharton.upenn.edu/wp-content/uploads/2020/12/30-20.Wachter.VanBinsbergen.pdf
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