The world of personal finance is full of axioms, and new investors can get caught up in investing myths and ‘rules of thumb’ that are limiting at best and lead to underperformance and unnecessary losses at worst. In this week’s episode, we outline some of the common misconceptions that new investors have, the evidence (or lack thereof) surrounding them, and how to think more like a seasoned investor. Is value investing really a safer strategy with lower expected returns? Do you need to employ a Buffett-Lynch stock picking approach when value investing? Are all index funds good investments? Tune in to find out the answers to these questions and gain some insight into the relationship between risk and return, dividend investing versus total risk investing, and whether or not exclusively investing in US stocks is a good idea, plus so much more!   Key Points From This Episode:   Upcoming guests, including Professor Eugene Fama in Episode 200. [0:01:27] An update on our 22 in 22 Reading Challenge, with over 1,000 books read. [0:05:30] A review of The Great Depression: A Diary by Benjamin Roth and lessons learned. [0:07:18] A quick overview of The Bond King, the story of Bill Gross by Mary Childs. [0:17:10] This week’s news stories: 24/7 investing from Robinhood, stock splits, Wealthsimple portfolio changes, and more. [0:20:02] Our main topic: some of the common misconceptions that new investors have. [0:28:50] Whether or not value investing is a safer strategy with lower expected returns. [0:30:42] Some examples of where the myth that value stocks are safer comes from. [0:33:25] The fallacy that value investing requires discounted cash flow (DCF) analysis. [0:40:52] Why Warren Buffett’s outcome could be a challenge to systematic value investing. [0:43:41] Debunking the misconception at all index funds are good investments. [0:46:48] Conversely, Ben shares why not all actively managed funds are bad investments. [0:47:34] Why all exchange-traded funds (ETFs) tracking an asset class are not the same. [0:48:12] The myth that risk and return are always related and the cases when this isn’t true. [0:51:02] Ben shares his reflections on the misconception that dividend investing is less risky than total return investing. [0:53:14] Analysis that demonstrates whether or not dividends are actually safer. [0:56:09] Our last misconception for today: you should only invest in US stocks because they perform best. [0:59:40]

Bill Janeway, author of 'Doing Capitalism in the Innovation Economy', discusses the role of the state in innovation, venture capital operations, asset allocation for investors in innovative companies, reflections on financial bubbles, and insights into cryptocurrencies and decentralization.

Today on Rational Reminder we take a deep dive into the evolution of modern portfolio theory. We kick the show off with some updates and reviews on some of the brilliant shows and books we are watching right now. A key item from this selection is Stolen Focus: Why You Can’t Pay Attention and the points it makes about the value of flow state for learning and creativity. After this week’s news stories, we get into the main topic, and Ben starts with a breakdown of portfolio theory as it was laid out by Harry Markowitz in 1952. From there we talk about research that shaped the current understanding of portfolio theory, exploring the distinction between the mean-variance efficient portfolio and the multi-factor efficient portfolio, and how they theoretically combine to make the market portfolio. One of the biggest takeaways here is that your financial asset portfolios can look the same in terms of asset allocation but the person with more macroeconomic risk in the remainder of their financial situation is taking on more risk. Additionally, even if somebody is the perfect candidate to be the mean-variance investor and they could theoretically tilt toward value, it doesn’t necessarily mean they have to. We wrap up our conversation by inviting our good friend Larry Swedroe onto the show to speak about his love of reading and share his methods for incorporating what he learns from books into his work and thinking.   Key Points From This Episode:   Updates: Shows, books, upcoming guests, reviews, and our reading challenge. [0:00:22] A review on Stolen Focus: Why You Can’t Pay Attention. [0:11:00] News stories for the week: Wealthfront offers thematic ETFs and more. [0:18:47] Moving onto the main topic for today: How modern portfolio theory has changed since 1952. [0:23:00] Lessons to be taken away from Markowitz’s 1952 portfolio theory. [0:25:09] How the math changes when you have a risk-free asset in your portfolio problem. [0:26:59] The capital asset pricing model: the other foundational portfolio theory principle that comes from the mean-variance model. [0:29:08] Portfolio advice that stems from mean-variance optimization. [0:32:46] Building a tangency by expressing information beliefs. [0:36:06] Findings from Michael Jensen’s 1967 application of the CAPM. [0:37:04] Why diversification is important according to Markowitz’s portfolio theory. [0:38:02] Why the CAPM does not accurately reflect the relationship between risk and expected return. [0:39:49] The origins of multi-factor thinking and examples of multi-factor models. [0:41:10] How the allocation of the multi-factor efficient portfolio creates a third dimension. [0:49:29] How the theory predicts how people behave in aggregate. [0:52:44] Takeaways from today’s discussion to keep in mind when building your portfolio. [1:00:00] Larry Swedroe joins us to talk about the importance of reading. [1:03:32] The many subjects that Larry reads about. [1:04:12] How Larry’s reading habit works. [1:05:12] How to capture ideas you read for later use. [1:05:57] Larry’s storage system for all the books that he reads. [1:08:38] The effectiveness of making a public commitment to read more. [1:12:13]  

We always appreciate research-based arguments here at the Rational Reminder and when those arguments might rattle some assumptions we get particularly excited. Today we have an eye-opening conversation with finance professor Alex Edmans, in which he discusses his idea of growing the pie and how social change and value relate to investor decisions. Alex's work is deeply rooted in skepticism and a critical method of assessing evidence, an approach that has resulted in surprising and sometimes paradoxical findings. We get into a fascinating conversation dealing with employee satisfaction and ESG, with Alex challenging some commonly held beliefs around socially responsible investing, with the data to back it up. A strong theme that emerged during our chat is the need for these conversations to be grounded in research, instead of empty rhetoric, and Alex's data-rich perspective is a great inspiration. Towards the end of the episode, Alex talks about the practical, individual application of his ideas, and how an empowered employee can add value on any level. So, to hear all this and a whole lot more unmissable insight, join us on the show.   Key Points From This Episode:   Unpacking what Alex means by 'growing the pie' and differentiating this from other similar-sounding goals. [0:02:38] How to go about measuring the growth of the pie, and the pieces that cannot be measured. [0:05:14] Alex addresses Milton Friedman's famous quote about responsibility and profits. [0:06:48] The role of big asset managers in directing investment towards more socially responsible causes. [0:08:56] Thoughts on the value of divestment as a means to effect social change. [0:11:34] How much impact are typical ESG funds having currently? [0:15:05] The subjective discussion around sustainability and Alex's definition of what makes a company sustainable. [0:17:06] The inconvenient truth about sustainable funds' performance against the market. [0:20:56] Alex's research into the relationship between stock returns and employee satisfaction. [0:22:23] How to take a quantitative approach to employee satisfaction as an investor. [0:29:16] The practical application of information about happy workplaces for investors. [0:32:51] Alex's input on the problems associated with executive pay. [0:35:18] Counter-arguments to some of Alex's unpopular opinions and positions. [0:39:52] Tackling the tricky subject of board diversity at organizations. [0:41:27] Finding trustworthy evidence in the contemporary climate and combatting the post-truth era. [0:46:22] Using Alex's idea of growing the pie in everyday life; making the world better on an individual level. [0:48:46] The left-field study that Alex conducted linking Spotify playlists to stock performance. [0:52:16] Alex's perspective on his role as a finance professor and his purpose with regard to knowledge. [0:56:38] How Alex looks at success in his life and his goal of positively impacting people. [1:00:12]    

There seem to be many differing opinions out there about investing in emerging markets, and unfortunately, many of these are inaccurate. This is mostly due to the fact that emerging markets and your involvement in them, perform in ways that are somewhat counterintuitive. In today's episode, we tackle this tricky subject from a number of angles and try to give all of our listeners a better understanding of the strengths and weaknesses of using emerging markets within your portfolio, without falling prey to some common traps. To kick off the episode we talk about some financial news and the interesting recent book Making Numbers Count, before diving into the main course of the show. Listeners can expect to come away with some new insight into the history of emerging markets theory, realistic emerging markets returns, the appropriate amount of caution to exercise when investing in them, and more. Towards the tail end of the show, we are joined by our friend Morgan Housel, author of the prominent new book, The Psychology of Money, and we briefly discuss reading habits and how implementing a few small practices for learning can have an extraordinary impact on ones' life. Don't miss out on this great show.   Key Points From This Episode:   Rounding up some interesting recent content; TV shows, articles, and more. [0:01:16] This week's book review of about the powerful, Making Numbers Count. [0:07:23] Standout data points; Twitter's valuation, Deere Corp, and more. [0:13:14] A few pieces of the most interesting financial news from the last week. [0:16:18] The roots of the idea of emerging markets and its appearance in the 1980s. [0:20:05] Unpacking the findings on emerging markets and the best examples of the thesis. [0:21:20] What to expect with regards to returns from emerging markets. [0:26:37] Reasons for the benefits of diversifying a portfolio using emerging markets. [0:29:26] The importance of market integration segmentation and how this relates to emerging markets. [0:33:46] Portfolio skewness and how assets contribute to this. [0:35:18] Reasons for surprising yields with emerging markets for Canadian investors. [0:41:26] The cautious place that emerging markets deserve in a balanced portfolio. [0:47:20] The dangers of mixing and matching products relating to emerging markets. [0:49:45] Morgan's opinion on how reading can take us beyond our mundane bubble. [0:51:38] The approach that Morgan uses to gain and learn the most from what he reads. [0:52:47] Decisions on what to start reading and exploring a variety of your interests. [0:54:03] Weighing the value of conversations and discussions about the books we have read. [0:57:32] Morgan's process for capturing and retaining useful information from books. [0:58:35] Parting advice from Morgan about finding the time for a healthy reading habit. [1:00:11]  

It is commonly believed that rational thought is threatened by emotion, but contemporary understandings of the brain paint a more complicated picture. Today’s guest is Leonard Mlodinow and he joins us to talk about why. As a mathematician and theoretical physicist, Leonard might seem like an odd fit for this topic at first glance. However, when Leonard’s desire to discover the secrets of the universe spilled over into a curiosity about the brain, he started publishing books on the subject, his most recent being Emotional: How Feelings Shape Our Thinking. In today’s show, Leonard argues that the brain is essentially an information processing organ and that emotions play an integral role in feeding it data. As such, there is no way to separate emotions from thinking, and in fact, they often aid the decision-making process, as well as play a vital role in motivating us. However, our emotions evolved in a different world to the one we live in today, meaning that there are situations where a certain emotion might be influencing a decision in a way we don’t want, and this is where the cultivation of emotional intelligence becomes a beneficial practice. So for all of this, as well as perspectives on its ramifications for sensible investing, be sure to tune in today!   Key Points From This Episode:   Introducing Leonard Mlodinow and his book, Emotional: How Feelings Shape Our Thinking. [0:00:19] The role of emotions in rational decision-making. [0:01:04] How the brain processes data and the role of emotions in this process. [0:04:09] Whether emotions are detrimental to decision making. [0:06:50] The situations our emotions evolved in and how our world has changed. [0:09:05] Whether it is wise or possible to separate emotions from rational thinking. [0:11:50] New findings from affective neuroscience about emotion. [0:13:36] Why simplistic categorizations of emotions and beliefs that they are associated with certain organs are wrong. [0:14:51] What ‘core affect’ is, its relationship to emotion, and how it affects decision making. [0:18:36] How to gauge when to make certain kinds of decisions. [0:22:12] What Leonard’s findings on emotion mean for evaluating risk tolerance in investment. [0:24:00] What role emotions play in theoretical physics and mathematics. [0:26:28] Wanting, liking, and determination: Where the feeling of motivation comes from. [0:30:45] How to develop emotional intelligence by cultivating awareness of how emotions affect decision-making. [0:34:21] Whether some emotions are more influential than others. [0:37:57] What causes people to have different emotional profiles. [0:39:41] How other people’s emotions affect us. [0:42:14] Considerations about the impact of a financial advisor’s emotional profile on their clients.[0:44:24] When and how to control emotions versus embrace them. [0:45:43] Why Leonard wrote Emotional when he is a theoretical physicist and mathematician. [0:50:24] How Leonard defines success in his life. [0:52:14]

In this special episode, we review the relationship between war and financial markets. War is a tragedy. We are not minimizing the humanitarian tragedy of what is happening in Ukraine by focusing on the potential impact on financial markets. But we are offering a Rational Reminder for investors in a stressful time. Wars and financial markets have coexisted, and often been intertwined, for hundreds of years. Countries that have lost major wars have had their financial markets decimated, while global markets have been relatively resilient, even to major conflicts. In addition to the historical perspective, we offer some timeless lessons for investors to remember in times of stress.

Today’s guest is Neil Pasricha and he joins us to discuss how to read more. Before our time with Neil, Ben and Cameron lead the discussion, working through a range of topics including how to grasp large numbers, the value of ‘humbitious’ leadership, and how to get a better understanding of regret. When Neil jumps into the conversation, he starts by making an argument for reading, telling us how it is the best form of compressed knowledge we have, and that readers effectively live a new life each time they read a book. We hear about how Neil got back into reading later in his life and the role it has played in shaping so many of his most significant projects over the last few years. He answers some common objections that people have to reading, busting the myth that there is no time for reading or that only certain kinds of books are worth it. In light of our current reading challenge, we hear Neil’s views on whether making a public commitment is an effective approach to reading more. Wrapping up, Neil makes a great point about the importance of finding the right books for your personality and gives some helpful tips for how to do so.    Key Points From This Episode:   Updates: things to watch, our reading challenge, top books, and more. [0:00:19] How Cameron stumbled upon today’s guest, Neil Pasricha. [0:02:34] Finding ways to grasp big numbers in Making Numbers Count. [0:04:27] Discussing the value of humble but ambitious leaders in [0:10:01] This week’s news: Wealth Front is contesting the value premium. [0:15:42] The importance of understanding regret for making financial decisions. [0:25:00] The main types of regret and things that people feel this emotion about. [0:31:58] How to prevent future regret and manage current regret. [0:38:10] Cameron’s quasi-obsession with enabling teams as they scale. [0:45:00] The tool Cameron and Ben are going to build to survey financial goals. [0:47:45] Neil Pasricha joins us to talk about how to read more. [0:50:05] Access to compressed knowledge and why reading is so important. [0:50:23] Whether Neil’s advice for how to read more has changed as the world has. [0:51:53] Why Neil started reading more and how that morphed into his podcast. [0:52:14] Objections to people’s arguments for why they don’t read more. [0:54:20] Whether it is important to have a physical space dedicated to reading. [0:56:57] Perspectives on making a public commitment to reading more. [0:58:24] How Neil finds new books to read. [0:59:20] Whether Neil finishes every book he starts. [1:01:09] Why the device that we use to read matters. [1:02:44] Which kinds of books Neil keeps on his bookshelf. [1:04:40]

Goal-setting has been a divisive subject of discussion for us here on the Rational Reminder Podcast, and today we dive a bit deeper into the topic with the help of the amazing Ayelet Fishbach, author of the recent book Get It Done. Ayelet is an expert in motivation and a Professor of Behavioral Science and Marketing at the Chicago Booth School of Business. Her focus in her work is researching social psychology, management and consumer behaviour, and having her on the show to share some of this amazing insight is a real honour! In our conversation, we cover many sides of the goal-setting process, exploring the vast array of research that Ayelet has done and has examined. We talk about the difference between intrinsic and extrinsic goals, the outcomes of tracking progress, what makes an effective goal, and what is meant by a 'goal-system'. Ayelet also shares how this research can inform tasks such as retirement planning, and the work of financial advisors. So for this and a whole lot more that is bound to be illuminating, fascinating, and potentially life-altering, be sure to join us on the show.   Key Points From This Episode:   Using goal-setting to address our inability to predict elements of the future. [0:03:50] Differentiating between intrinsic and extrinsic goals. [0:05:00] Ayelet lists some examples of effective goals and their qualities. [0:06:37] The dangers of avoidance and unhealthy goals and how to recognize these. [0:10:48] Exploring the parts of human psychology that push us to always want more. [0:14:46] How quantifiable, self-set targets for goals can aid the process of achieving them. [0:17:18] Weighing the benefits of creating incentives associated with the goals you set. [0:21:45] The roots of intrinsic motivation and how to foster more of these. [0:25:13] Making the pursuit of a goal enjoyable and why this is so important. [0:29:21] How these findings on goal-setting relate to long-term retirement planning. [0:32:10] Ways for financial advisors to make certain processes and tasks more enjoyable for their clients. [0:33:36] The impact of tracking and monitoring progress towards a goal. [0:35:03] Learning from failure and why this can be an unreliable strategy for achievement. [0:39:36] Ayelet describes a goal system and its most important components. [0:43:06] Writing out goal systems and an explanation of the chart that is included in Get It Done. [0:46:17] Prioritization and how to choose between conflicting goals. [0:48:02] Strategies for keeping on track with resolutions; the role of intrinsic motivation and the question of temptations. [0:50:14] How other people and our social environment influence our ability to reach our goals. [0:55:04] Ayelet responds to Ben and Cameron's tendency to avoid setting bigger goals. [0:56:41] How Ayelet goes about setting goals for herself, and how she applies her expertise to her role as a parent. [1:00:53] Learning as the marker of success; why Ayelet feels that she never left school. [1:03:42]  

Identifying investment goals is a critical step in developing a sound financial plan that helps investors reach their objectives. Studies have shown that using a goals-based framework in financial planning can lead to an increase in wealth for investors and has the potential to strengthen planner-client relationships; but what goals should you be setting? And why is it often so difficult to make these kinds of decisions? In today’s episode, Benjamin dives into some of the research he is conducting about goals-based financial planning for the paper he is writing on the topic, and we discuss why defining and prioritizing goals in the financial planning process is so important (and why it can be so challenging), as well as some practical guidelines to help you set effective goals. Additionally, you’ll learn all about our 22 in 22 Reading Challenge, which we officially launch today with the help of Heather Reisman, book lover, entrepreneur, and CEO of Indigo, Canada’s largest books, gift, and toy retailer. Heather is also the co-creator of the Kobo reading device, a former governor of the Toronto Stock Exchange, and the co-executive producer of the documentary, Fed Up. As you know, the objective of this podcast is to help improve listener’s lives by communicating ideas about sensible investing and financial decision making; and reading is a big part of that. Make sure to tune in to find out where to sign up for the challenge, take note of our book recommendations, and more!   Key Points From This Episode:   Learn more about the 22 in 22 Reading Challenge and where to sign up for it. [0:00:35] Introducing today’s special guest, Indigo CEO, Heather Reisman. [0:03:55] Some of the exciting guests you can expect to hear from on the show in future. [0:06:38] Our watchlist recommendations for you, including Ray Donovan: The Movie. [0:08:43] Cameron’s book recommendation: The Culture Code by Daniel Coyle. [0:10:05] Benjamin shares his views on Facebook's one-day $232 billion drop in value. [0:17:16] Why a great company is not necessarily a great investment. [0:22:32] Reflecting on the Talking Cents cards we did with Andrew Hallam in Episode 186. [0:23:45] Onto today’s main topics: how to make sound, goals-based financial decisions. [0:27:20] Why defining and prioritizing goals in the financial planning process is important. [0:30:33] Find out what goals you should set and why it’s difficult to make those decisions. [0:31:19] Practical guidelines to help you set goals from Bond, Carlson, and Keeney in 2010. [0:33:47] Hear some of the goals from the master list that Morningstar put together. [0:36:15] Learn what an effective goal looks like according to Ayelet Fishbach. [0:37:21] Whether you should use approach goals or avoidance goals. [0:39:42] How you can turn your goals into action by creating challenging, measurable, actionable, and self-set targets that don’t feel like chores. [0:42:51] Creating more intrinsic motivation when setting long-term financial planning goals. [0:45:58] Why pursuing goals is more about the journey than it is about actually achieving it. [0:47:08] How top level abstract goals are served by multifinal, equifinal, and unifinal means. [0:48:48] Resolving goal conflicts by prioritizing some goals over others or compromising. [0:50:11] Kicking off the 22 in 22 Reading Challenge with special guest, Heather Reisman. [0:53:12] Why Heather believes reading is so important, starting with the pure joy it brings. [0:53:44] How she decides what to read, whether it’s via recommendations or based on her specific interests at the time. [0:55:59] What her daily reading habits look like that enable her to read 75 books a year. [0:53:30] How reading helps with some mental health issues that stem from social media. [1:01:25] Why she advocates for long-form reading, regardless of whether or not it’s digital. [1:03:38] Learn about the origins and the mission of the Indigo Love of Reading Foundation. [1:05:50] How a community like 22 in 22 might help someone who wants to read more. [1:10:25] Heather’s parting words of advice for listeners: be deliberate about your habits! [1:12:37]