Welcome back to the show all about sensible investing in Canada! Today we have yet another masterclass with a wonderful guest, Sebastien Betermier. Sebastian is an Associate Professor of Finance at Desautels Faculty of Management at McGill University, where he teaches investment management, applied investments, and pension funds retirement systems. We have a deep, thoughtful, and precise conversation with him about his recent research and papers, much of which stands in contrast to our usual fare on the show. In our chat, we dive into the nuts and bolts of asset allocation, hedging risk, and his research into what demographics can teach us about investment behaviours and returns. We also hear from our guest about interesting topics of expected persistence and tilting towards value stocks, before shifting the conversation towards homeownership and property investment. Sebastien provides some sound advice around when it might be a good idea to purchase property over other asset classes, and we evaluate this position from a number of different investing perspectives. Lastly, we spend some time looking at pension plans, and what we can learn from those available in Canada right now.

Key Points From This Episode:

Sebastien explains the theoretical relationship between labor income and financial asset allocation. [0:04:30]
Findings on hedging labour income risks and the paper that Sebastien published on the subject. [0:06:47]
The relationships between risk and age, gender, wealth, and heterogeneity across households. [0:10:05]
Unpacking Sebastien's investigation into value and growth investors. [0:12:07]
The effect that the characteristics of labor income have on the rate of progression on the value ladder. [0:18:43]
What we can learn about expected persistence in the value premium. [0:22:39]
Weighing the possibility of predictive demographics for future value premiums. [0:24:29]
Advice for young investors looking to tilt towards value stocks. [0:27:50]
Explaining differing returns according to the characteristics of people. [0:29:41]
Sebastien explains the factors of markets, wealth, and age, in the pricing model. [0:31:24]
Understanding how investors tilt to age and wealth factors, and what these portfolios look like. [0:38:19]
The impact of age and wealth factors on wealth inequality, and how younger investors can combat this. [0:42:19]
Possible rationales for homeownership and the storage of wealth in housing. [0:44:26]
The household characteristics that are predictive of larger allocations to housing. [0:48:49]
Economic importance of risk-free benefits of homeownership. [0:52:15]
The decade-long rule of thumb for purchasing property; Sebastien weighs in. [0:55:31]
Why asset-only performance is not the only correct way to measure the success of the Canadian pension fund model. [0:58:50]
Differentiating asset-only performance and liability-hedging performance measurement. [1:02:29]
A list and explanation of the assets that Canadian pension funds use for hedging real liabilities. [1:04:03]
Lessons from the Canadian Pension Plan for individual investors and firms. [1:12:54]
Sebastien's personal definition of success: making the most of opportunities and a balanced life. [1:16:07]

CR Episode 166: H. P. Lovecraft’s Polaris