The Rational Reminder Podcast RR 231: Investing Basics and Common Questions (plus Reading Habits w/ Amer Kaissi) (EP.231)
Investing Basics
- Investors want positive real returns to offset inflation and fund future expenses.
- Companies raise capital through debt (bonds) or equity (stocks), each having different risk-return profiles.
Market Prices
- Market prices reflect collective information from competing traders, not individual expertise.
- No single investor has all the information, but aggregated market prices represent a good estimate.
Risk & Diversification
- Systematic (priced) risk is inherent and offers expected returns; idiosyncratic risk (unpriced) is company-specific.
- Diversification mitigates idiosyncratic risk, important since most stocks underperform.
Today is our final episode featuring just the two of us before our annual wrap-up show, and we thought we would use this opportunity to cover some important foundational aspects of rational investing. Ben goes over some of the most fundamental concepts about market prices, risk, and actual returns before answering five common questions that relate to this level of information. From investing in an employer's stock to predicting the future and real estate comparisons, these five touch-points are always worth returning to, and should even interest the more experienced of our listeners. For the second half of the show, we offer a quick book review of The Culture Playbook by Daniel Coyle, and have a brief and illuminating conversation with Professor Amer Kaissi about his book, Humbitious, and some of his thoughts on the part that reading plays in rich and progressive life. Press play to catch all this and more on the Rational Reminder Podcast.
Key Points From This Episode:
- Picking up a thread from our discussion on the 2% Rule. (0:06:05)
- Getting to grips with investing basics. (0:10:45)
- How market prices work in response to traders' actions and risk. (0:17:59)
- The main determinants of actual returns and starting points for your portfolio. (0:23:15)
- Unknowable futures and the eternal doom and gloom predictions. (0:35:43)
- Assessing the value of owning an employer's stock. (0:38:21)
- Holding stock picks in Tax-Free Savings Accounts. (0:42:07)
- How to prepare a portfolio when a recession is predicted. (0:43:49)
- Comparing investments in real estate with the stock market. (0:45:14)
- Weighing the value of building and emergency fund. (0:47:11)
- A thirty-second recap of our episode with Cliff Asness. (0:50:06)
- Today's book review focussing on the lesson from The Culture Playbook by Daniel Coyle. (0:51:48)
- Professor Kaissi shares a quick summary of his book, Humbitious. (0:58:40)
- The potential to develop characteristics and the role that reading plays. (0:59:38)
- Professor Kaissi talks about his reading habits. (1:02:12)
- Application of ideas from books and how Professor Kaissi captures and organizes information in his own reading. (1:05:15)
- A few of Professor Kaissi's favourite book recommendations and how to increase your reading habit. (1:08:52)
Participate in our Community Discussion about this Episode: Books From Today’s Episode:
Humbitious: The Power of Low-Ego, High-Drive Leadership — https://amzn.to/3WjHjry
Mindset — https://amzn.to/3Wzl7Kr
Quiet — https://amzn.to/3htlN4X
The Five Dysfunctions of a Team — https://amzn.to/3YmKqRv
The SPEED of Trust — https://amzn.to/3UWCljq
Top Five Regrets of the Dying — https://amzn.to/3uQcUWf
The Assertiveness Workbook — https://amzn.to/3VVDVUf
How to Raise Your Self Esteem — https://amzn.to/3BDM33p
Ego Is the Enemy — https://amzn.to/3BAyCkZ
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
Amer Kaissi on Twitter — https://twitter.com/amerkaissi10
Amer Kaissi on LinkedIn — https://www.linkedin.com/in/amer-kaissi-ph-d-38258919/
Amer Kaissi — http://www.amerkaissi.com
'The Value of Goals-Based Financial Planning' — https://www.financialplanningassociation.org/article/journal/JUN15-value-goals-based-financial-planning
'Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock' — http://independent401kadvisors.com/library_articles/ExcessiveExtrapolation.pdf
'The Agony of Ecstasy: The risks and rewards of a concentrated stock position' — https://assets.jpmprivatebank.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/agony-ecstasy-2021.pdf
'The financial resilience and financial well-being of Canadians during the COVID-19 pandemic' — https://www150.statcan.gc.ca/n1/pub/75f0002m/75f0002m2021008-eng.htm