Who Should Invest in (Cap Weighted) Index Funds? (EP.227)
The Rational Reminder Podcast
Markowitz Portfolio Theory
The optimal set of risky portfolios are mean, variance efficient. And the risky portfolio with the highest sharp ratio is called the tangency portfolio. In cap M, if cap M describes expected returns, the market portfolio is the tangency Portfolio. The I cap M considers a multi-period investor who in addition to mean invariance is concerned with the covariance of their portfolio and future return.
In today’s episode, we pull relevant quotes from past guests (namely John Cochrane, Gene Fama, and Jonathan Berk) to extricate who should own market cap funds. We look at the variable risks of value stocks and factor investing and hear counter-views on owning the market. We also delve into the hot topic of tax loss selling, with an overview of a recent Financial Analyst Journal paper on loss harvesting outcomes, sorted by investor profiles. This episode will get you up to date on the biggest finance news of the week, from crypto collapses to Amazon’s catapulting gains and losses. Tune in to hear all of this and more, including a recap of our conversation with Dave Goetsch and our Financial Literacy Month book reviews.
Key Points From This Episode:
- A neat way to keep track of the value of your purchases over time. (0:00:33)
- The results of the Rational Reminder financial literacy survey. (0:02:44)
- An overview of this episode’s topics. (0:05:45)
- Who should invest in market cap-weighted index funds. (0:07:28)
- How to determine whether you’re different from the average investor. (0:16:13)
- Gene Fama’s take on the possibility of identifying state factors. (0:22:13)
- The variable risks of value stocks. (0:23:25)
- What drives people to increase their value tilts over time. (0:25:11)
- The risks of factor investing, and trading in general. (0:28:26)
- Jonathan Berk’s take on owning the market. (0:31:53)
- A summary of who should invest in total market index funds. (0:33:20)
- The big crypto news of the week! (0:38:21)
- Other significant market news. (0:42:17)
- An overview of a recent Financial Analyst Journal paper on loss harvesting outcomes, sorted by investor profiles. (0:44:59)
- Our book reviews for Financial Literacy Month. (0:55:15)
- A recap of our conversation with Dave Goetsch. (1:01:47)
- A few of our listeners’ reviews. (1:02:50)
Participate in our RR CE Credits Survey: Participate in our Community Discussion about this Episode: Books From Today’s Episode:
The Geometry of Wealth: How to shape a life of money and meaning — https://amzn.to/3Od9J3N
Retirement Income for Life: Getting More without Saving More — https://amzn.to/3GpkHRN
We're Talking Millions!: 12 Simple Ways to Supercharge Your Retirement — https://amzn.to/3UI3uaE
Common Sense on Mutual Funds — https://amzn.to/3AjUsIM
The Investment Answer: Learn to Manage Your Money and Protect Your Financial Future — https://amzn.to/3UWeSPM
Money Like You Mean It: Personal Finance Tactics for the Real World — https://amzn.to/3g9bT7Q
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/
Shop Merch — https://shop.rationalreminder.ca/
Join the Community — https://community.rationalreminder.ca/
Follow us on Twitter — https://twitter.com/RationalRemind
Follow us on Instagram — @rationalreminder
Benjamin on Twitter — https://twitter.com/benjaminwfelix
Cameron on Twitter — https://twitter.com/CameronPassmore
'An Intertemporal Capital Asset Pricing Model' — https://www.jstor.org/stable/1913811
'Risk and Return of Value Stocks' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=112553
'The Value Premium' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=351060
'A Consumption-Based Explanation of Expected Stock Returns' — https://repository.upenn.edu/cgi/viewcontent.cgi?article=1146&context=fnce_papers
'Who Are the Value and Growth Investors?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2426823
'Is There a Replication Crisis in Finance?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3774514
'Amazon Becomes World’s First Public Company to Lose $1 Trillion in Market Value' — https://www.bloomberg.com/news/articles/2022-11-09/amazon-hits-unwelcome-milestone-with-1-trillion-in-value-lost?leadSource=uverify%20wall
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