The Rational Reminder Podcast

We are so happy to bring you all our 200th episode, and who better to have on the podcast on this auspicious occasion than the legendary, Professor Gene Fama? This is one of the most jam-packed episodes we have ever recorded, with Gene providing concise and thought-provoking answers to our many, many questions. After delving into the foundations of Gene's work and philosophy, covering market efficiency, and its competing theories, Gene entertains our queries about a wide range of ideas and models, and generously shares the decades worth of wisdom that he is so widely known for. We also find time to talk about retirement plans, inflation, cryptocurrencies, and the influence of machine learning. Towards the end of our conversation, our guest touches on some more personal ideas about productivity, his career, his partnership with Ken French, and what success means to him at this point. For a landmark episode, with a true hero of the evidence-based approach to investing, make sure not to miss this. Key Points From This Episode: The basics of market efficiency and its main implications for investors. [0:04:49] Limitations of the efficient markets model for explaining specific cases. [0:08:02] Gene's perspective on the inelastic markets hypothesis and his interest in it for the future. [0:09:36] The anomalies that brought down the capital asset pricing model. [0:10:26] Unpacking the three-factor and five-factor asset pricing models that Fama and French created. [0:11:43] Thoughts on the Q-factor model, factor premiums, and data dredging. [0:15:43] Gene's reflections on building data sets dating back to the 1920s. [0:17:13] The best way to estimate expected returns and expected factor premiums according to Gene. [0:19:52] Structuring portfolios and how different investors should approach this. [0:24:10] Considering international diversification for investors in Canada. [0:29:05] Further thoughts on asset pricing models. [0:32:47] The assets that are hedged against expected and unexpected inflation. [0:33:31] Gene illuminates the role of the Fed in relation to inflation. [0:36:43] Advice for typical retirees from Gene. [0:38:22] The challenges that Gene has experienced translating theory into practice. [0:40:16] Lesson from Gene's work with Dimension Fund Advisors. [0:43:47] Gene's reflections on his impact and having his theories implemented in practice. [0:45:32] Weighing the value and impact of behavioral finance. [0:47:53] Technology and active managers; is it any different for those aiming to achieve alpha in the current context? [0:50:46] Gene weighs in on cryptocurrencies and how his perspective might have shifted. [0:53:08] A look at the people who have had the biggest influence on Gene's career. [1:03:05] Thoughts on productivity and making the most of periods of clear thinking. [1:03:39] Our guest's personal definition of a successful life. [1:06:17]

As we near the 200th episode of our little podcast, we wanted to have a chat with our friend Aydin Mirzaee about one of our favourite topics: books. Before welcoming Aydin into the conversation we round up some important news, go deeper than ever into the fascinating subject of bonds, and share some thoughts on Setting the Table. As the host of the Supermanagers Podcast and the CEO of Fellow, Aydin has an unusual and stimulating perspective on many of our usual interests, and we get to hear from him about the development of his own reading habit, what he most enjoys reading, what would make him recommend a book to someone else, and few pieces of advice for strengthening your reading practices. Aydin also talks about why advice can be dangerous, increasing your ability to retain information, and he is generous enough to do a round of Talking Sense cards with us to finish off the episode. To hear it all, make sure to join us. Key Points From This Episode: Today's book review, looking at Setting the Table by Danny Meyers. [0:08:47] Christopher Bloomstran's thought-provoking critique of Ark Invest. [0:18:06] A follow-up on our ongoing discussion about bonds and look at their recovery time. [0:20:04] Comparing real returns across the different decades. [0:27:30] Research into a more complete view of the historical returns of stocks versus bonds. [0:39:31] How correlations come into the conversation about stocks and bonds. [0:42:54] Aydin describes his reading habits; audiobooks on a commute, hacks, and more. The different purposes of books and how Aydin uses business content to generate ideas. [0:49:40] Books as leverage and some thoughts from Aydin on his favourite genres. [0:52:27] Where Aydin sources his books and what it takes for him to decide to recommend books to others. [0:56:12] The role that podcasts play in Aydin's reading habits. [0:58:30] Aydin's advice for how to read more and his approach to encouraging his children. [0:59:12] Considering different ways to increase information retention. [1:02:11] A round of Talking Cents cards with Aydin! [1:03:34]

Gerard O'Reilly, Co-CEO and CIO of Dimensional Fund Advisors, talks about the firm's research-based culture and rules-based approach to investing. He discusses risk assessment, factor tilted portfolios, operating profitability, and the value of combining multiple metrics. He also highlights the benefits of including small-cap stocks in portfolios and the changes in Dimensional portfolios over the past decade. Gerard's scientific learnings inform his unique portfolio adjustments and Dimensional's integrated approach.

Many people have been contemplating the death of bonds, which is why for the main topic of today's episode we're going to be talking about their immortality. After a vicarious trip to The Masters, an overview of The Art of Insubordination, and an explanation of why we're concerned about the changes that WealthSimple has made to their business model, we get into the world of bonds. Bond returns have not been good this year, and bond index funds are down all round, but that doesn't mean that bonds are necessarily the riskier choice of investment in the long term, or that you should be feeling disheartened about them. Tune into our conversation today to hear why! Key Points From This Episode: The incredible experience of attending The Masters, and how you can win a ticket. [0:02:21] Three business-focused TV series that we highly recommend. [0:02:27] Upcoming guests, and some very positive listener reviews. [0:03:34] An overview of The Art of Insubordination. [0:09:16] Why change is challenging for most people, and the value of creating environments that encourage dissent. [0:11:12] How dissenters can make their actions more impactful, and what leaders can do to encourage dissent. [0:13:16] Key takeaways from The Art of Insubordination. [0:16:39] Why we are disappointed with the changes that Wealthsimple has made to their business. [0:18:47] Nuances that Wealthsimple has left out of their venture capital analysis. [0:23:51] Today's main topic: the immortality of bonds. [0:33:38] Statistics which highlight the fact that bond returns have not been good this year. [0:33:51] Why volatility is not the only risk that matters. [0:35:06] How Ken French defines risk. [0:37:51] Some of the pros and cons of bonds and stocks. [0:38:56] Calculations which show that stocks are not necessarily less volatile than bonds in the long run. [0:40:48] The five components of long-run predictive variance. [0:43:23] An explanation of a model we created for the dispersion of outcomes. [0:45:10] Why now is the time to get excited about bonds. [0:49:27] Today's first misconception: high growth sectors/regions/companies are good investments. [0:53:52] Today's second misconception: you can lose all of your money in stocks. [0:55:57]

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]

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]

Join Alex Edmans, a finance professor at the London Business School, as he challenges conventional views on ESG and investor responsibility. He introduces the concept of 'growing the pie,' emphasizing that social change should drive value creation. Alex critiques the quantitative measures of ESG, advocating for a deeper, qualitative understanding of corporate contributions. Highlighting the role of employee satisfaction and corporate culture, he shares how empowered individuals can significantly enhance organizational value. Prepare for a thought-provoking dive into responsible investing and its implications!

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]