Yale vs. Norway, Income Splitting, and Avoiding Ponzi Schemes (EP.107)

As the expression goes, another day, another dollar. Today’s episode is a roundup of news and analysis with deeper dives into behavioural and risk-based market explanations, active management, and endowment investing models. We open with a book review of Essentialism: The Disciplined Pursuit of Less by Greg McKeown, a book that’s getting a lot of attention at the moment. Another topic that’s getting a lot of attention, we discuss how Tesla’s huge market cap growth makes it feel like it’s 1999. We also offer our opinions on why Tesla has been so highly valued despite increasing competition in the electric car market. Answering a listener question, we explore how Robinhood makes money through ‘payment for order flow’ and the debate about if this is in the retail client’s best interest. Following another listener question, we answer if the podcast suffers from confirmation bias and how you can never know the ‘why’ behind stock returns. We talk about risk versus behaviour market explanations and use sound clips from previous episodes to present views on this subject. We then discuss Yale and David Swensen’s endowment investment model, focusing on his strategy of finding uncorrelated asset classes and then hiring active managers to meet target allocations. We look at the model’s benefits and its similarities to Canada’s CCP before examining how Norway invests based on oppositional ideas of the marketplace. Near the end of the episode, we continue our conversation on spousal loans by listing more family income splitting strategies. Tune in to hear more from the financial world.

Key Points From This Episode:

• A quick book review of Essentialism: The Disciplined Pursuit of Less by Greg McKeown. [0:03:25]
• Key ideas of this book; being busy isn’t always a positive, and if you don’t prioritize your life then someone else will. [0:06:02]
• Why Tesla surpassing General Motors’ market cap makes it feel like it’s 1999. [0:07:32]
• Opinions on why Tesla has experienced such incredible growth. [0:09:06]
• How Robinhood makes money if they don’t charge any trade fees. [0:12:15]
• Discussion on whether Robinhood’s service benefits the end-user. [0:13:19]
• Dave Nadig’s take on Robinhood and why it’s a “tempest in a teapot.” [0:15:46]
• Answering the question; “does the podcast suffer from confirmation bias?” [0:17:30]
• How the podcast’s stance on behavioural versus risk-based explanations have softened. [0:18:38]
• Sound clips from previous episodes on the reasons for different stock returns. [0:21:00]
• Examining a paper arguing that active management can create value for investors. [0:23:10]
• Deep dive into our portfolio topic; Yale and the endowment investment model. [0:27:30]
• Why it’s so difficult to replicate David Swensen’s endowment investment success. [0:32:00]
• The correlation between endowment size and allocation to alternative asset classes. [0:34:30]
• How many endowment investment portfolios have performed poorly. [0:36:35]
• Differences between the Yale and Canadian endowment investment models. [0:40:15]
• How Norway operates the biggest wealth fund in the world. [0:45:40]
• How Norway’s model is completely at odds with the Yale endowment model. [0:48:20]
• Family income splitting opportunities in Canada that attract less tax. [0:52:00]
• [0:52:00]
• Why you should seek legal counsel when setting up family trusts and using family income splitting strategies. [1:00:05]
• Hear the crazy, bad financial advice of the week; Ponzi schemes are still selling. [1:06:15]