The Rational Reminder Podcast

We have reached the end of another year, our third while doing this podcast. We are spending this episode on our customary year-end review, and we will be pulling segments from some of the great interviews we hosted over the course of 2021. In doing so, we hope to create a bit of summary of the year and the biggest lessons we all learned together. The podcast has continued to grow beyond our wildest expectations and we are so grateful to be on this journey with our ever-increasing community and audience. We touch on many themes in this recap, moving from general ideas about life, goals, happiness, abundance, and purpose, to more financial subjects of money values, retirement, and crypto, and then into the deeper technical aspects of investment such as value premiums, factors, bonds, and much more. We have tried our best to focus on the segments that we found most enlightening and that changed our perspective, and have highlighted them with reflections and commentary. So to hear it all, join us today, and we'll see you next year, for more of the Rational Reminder Podcast. Key Points From This Episode: Looking at some of the amazing numbers around the growth of our community. [0:02:37.2] A few shoutouts to the wonderful people who make this podcast possible. [0:04:27.8] Bill Schultheis on how to find and fund a good life. [0:08:34.5] Hal Hershfield's thoughts on making better decisions with your future wellbeing in mind. [0:10:44.3] Ashley Whillans on the relationship between time-poverty and wellbeing, and increased leisure time. [0:13:39.7] Jennifer Risher weighs in on the importance of performing meaningful work. [0:17:24.5] Robin Taub's family money value's from her book, The Wisest Investment: [0:20:04.1] Jennifer Risher's approach to managing money values at home. [0:22:27.7] Katy Milkman applies the central idea from How to Change to saving money. [0:23:22.7] Johanna Peetz on how to use the idea of a future self to reach a goal. [0:26:38.6] Paul Merriman shares his experiences of the relationship between money and a good life. [0:28:27.7] Adriana Robertson's legal perspective on the rise of index funds. [0:33:48.4] Jay Ritter on the question of market efficiency. [0:36:41.8] Hersh Shefrin's emphatic and nuanced advice about how to act in relation to the market. [0:38:20.3] John Cochrane on the shifting relative value of stocks. [0:39:43.3] Rob Arnott shares his thoughts on the drawbacks of cap-weighted indexing. [0:42:31.5] Antonio Picca on the drawbacks of a factor-based investment strategy. [0:47:01.6] John Cochrane on making decisions around owning value stocks. [0:48:10.7] Campbell Harvey talks about conditions for concentrated portfolios. [0:52:20.2] Bill Schultheis on tilting for factors versus sticking with market cap indices. [0:54:02.6] Adriana Robertson shares what the research tells us about the basis for investment decisions. [0:54:46.1] Hersh Shefrin on what really matters with regards to portfolio construction. [0:57:33.0] Antonio Picca on more active approaches and capturing premiums through rebalancing. [0:41:26.0] Brad Cornell explains the differences between a factor and a characteristic. [1:01:52.2] Rob Arnott, David Booth, and Antonio Picca weigh in on the question of value stocks at present. [1:04:22.6] Robert Novy-Marx's approach to cheap stocks and high profitability. [1:11:54.1] Dave Plecha on owning bonds today, in light of historically low interest rates. [1:15:12.0] Anna Lembke on how our daily and long-term decisions are influenced by dopamine. [1:18:20.0] Cullen Roche shares his thoughts on the future of market inflation. [1:22:57.2] Don Ezra's lessons for retirement and better preparation. [1:24:57.6] Anna Lembke on the results of increases in leisure time. [1:27:37.1] David Blanchett's thoughts on the evolving role of the financial advisor. [1:30:50.0] Don Ezra 'seven asset classes of life's abundance portfolio'. [1:33:42.9]

There is no doubt that housing in Canada is expensive, but are we really in a bubble? Today on the show we explore the user cost equation and how it can help us answer this question. Before the main topic, we get warmed up with a behind-the-scenes look at Dell's growth path in Cameron's review of Play Nice But Win. From there we address Peter Lynch's recent warning against passive investing as well as reiterate our position on the performance of small-cap value versus large-cap growth. Heading into our discussion on housing in Canada, we provide a working definition of a housing bubble and present the model used to work out user cost, addressing each factor in some detail. We discuss the risk premium for owning versus renting and highlight an interesting point on high price sensitivity during low-interest rates. The major takeaway after looking at Canada from within this framework is that user costs are in line with what they should be historically, and that saying we are in a housing bubble would be a little drastic! Key Points From This Episode: The effects of the plot of Sex and The City 2021on Peloton stocks. [0:00:20.1] A book review on Play Nice But Win which tells the story of Dell. [0:08:01.1] Mixed responses to the paper, 'Want to Be Happy? Hire a Financial Advisor'. [0:13:01.1] Active fund performance and thoughts on Peter Lynch's recent warning against passive investing. [0:17:14.1] Responding to listener disagreement with our research on the high returns of small-cap value ETFs. [0:22:46.1] The huge delta between the performance of ARC versus AVUV. [0:30:27.1] Using the concept of user cost to assess whether there is a housing bubble in Canada.[0:33:52.1] The different inputs into the model used to work out user cost. [0:38:22.1] The definition of a housing bubble and how the facts hold up. [0:39:36.1] The risk premium for owning instead of renting; why owning could be risky. [0:43:39.1] Perspectives on the chance that high prices could be driven by real estate investors.[0:47:03.1] An offsetting factor in the form of a reason for why owning is not risky. [0:49:06.1] If owning a home in Ontario is expensive from a user cost perspective.[0:52:45.1] Whether homeowners are willing to pay inflated prices for housing because they expect unrealistically high housing appreciation in the future. [0:53:54.1] Prices are sensitive to interest rates when interest rates are already low. [0:55:59.1] Tradeoffs, insurance, and taxes in this week's iteration of Talking Sense. [0:59:27.1]

Of all of the possible disruptive uses of cryptocurrency and blockchain, decentralised finance (or DeFi) might be the one most likely to bring this technology to a wider audience; and challenge the established finance industry in the process. For this week's episode on crypto-based decentralised finance, we welcome economist and faculty member in the Finance Unit at Harvard Business School, Professor Marco Di Maggio. Tuning in, you'll learn everything you need to know about DeFi and cryptocurrency, from the most basic definitions to the potential macroeconomic and geopolitical implications of a decentralised reserve currency and the effects of decentralisation on monetary policy transmission. Tuning in, you'll learn the definitions for DAOs, DEX, NFTs and more, and Marco elaborates on some of the reasons that decentralisation is seen as an improvement over central systems as well as some of the issues that it represents. Make sure not to miss this enlightening conversation with Professor Marco Di Maggio as he shares his powerful contrasting perspectives on this inherently libertarian technology. Key Points From This Episode: Marco defines cryptocurrency; simply put, it's digital currency. [0:02:59] Find out what a DAO is; a community-led entity with no central authority. [0:03:58] How a DAO is different from a corporation in the way it values decentralisation. [0:05:56] Stablecoins as cryptocurrency pegged to fiat currency and backed by collateral. [0:07:07] Learn about decentralised exchanges or DEX, the bonding curve, and Uniswap. [0:09:28] Why decentralisation is seen as an improvement over centralisation; greater transparency and access requiring no counterparty. [0:12:32] When decentralisation is not a good solution given the lack of accountability. [0:14:40] Marco expands on some other issues with the technology, including its environmental impact, volatility, and regulatory uncertainty. [0:16:07] Understanding counterparty risk, returns, and interest rates in the DeFi space. [0:18:39] Why Marco considers blockchain and crypto DeFi a technological revolution. [0:21:41] How someone who owns a total stock market index fund, for example, can benefit from the potential economic gains of this revolution. [0:23:45] Bitcoin versus Ethereum and how Ethereum is used to develop DeFi apps. [0:26:06] Whether Marco predicts a winner-take-all outcome for blockchain technology. [0:28:23] Why rubber stamp regulation and clarity are important for the success of DeFi. [0:29:37] How to approach investing in the DeFi space, looking at risk, exposure, and value. [0:31:30] Marco explains why the Chinese central bank has launched the digital yuan and how the US is lagging behind this innovation [0:34:21] Find out how DeFi 'super apps' provide better solutions than online banks. [0:38:33] Distinguishing crypto from fiat currency and the macroeconomic and geopolitical implications of a decentralised reserve currency. [0:40:17] Marco on the potential effect of crypto-based DeFi on monetary policy transmission. [0:42:44] What NFTs are, why they sell for such high prices, and how they can be useful. [0:46:22] How Marco defines success: through the lens of others in his life. [0:49:30]

In today's episode of The Rational Reminder, we tackle the subject of inflation in a twofold manner. Firstly, there are details around how people perceive inflation that often get overlooked, and secondly, these expectations have investment implications that are worth unpacking. Before diving into the main topic, we talk about Colin Bryar's Working Backwards which tracks the role of failure and customer obsession in Amazon's growth path. After getting into this week's news and listener question, we begin the first part of our session on inflation. Some of the main points we make here are that everybody experiences inflation differently, that perceptions of inflation are connected to experience, and that biased inflation estimates can explain household borrowing and investing behaviour. This leads us to part two of our discussion, where we unpack how expected inflation influences asset pricing and the role of unexpected inflation in the performance of stocks and bonds. We attempt to locate other asset classes that can act as inflation hedges, but find that with the tradeoffs and poor correlations involved, it makes the most sense to vouch for a properly diversified portfolio of stocks and bonds with exposure to multiple sources of expected return. So before you base too much of your decision-making on inflation, be sure to consider some of the points we make in today's show. Key Points From This Episode: TV shows, listener feedback, Peloton's stock price, and RRP updates. [0:00:19.2] Lessons from Amazon's growth story in this week's book, Working Backwards. [0:07:55.2] News: Vanguard's 'High-Conviction Active Funds' and Wealthfront's intention to sell. [0:14:23.1] Whether size premium is influenced by a reduction in IPOs and publicly traded companies. [0:17:36.2] Main topic: Overlooked aspects of inflation and their implications on investing. [0:23:46.2] Metrics from the CPI and how everybody experiences inflation differently. [0:26:36.2] How to work out your personal inflation rate and what Ben and Cameron's are. [0:28:07.2] Inflation expectations are influenced by inflation experiences. [0:30:43.2] Biased inflation estimates can explain household borrowing/investing behaviour. [0:34:03.5] The implications of the fact that the CPI doesn't account for substitution. [0:36:07.2] Debunking the assumption that those close to retirement are most exposed to inflation. [0:39:13.2] How financial assets are priced using discount rates and the effects of unexpected inflation on them. [0:43:36.2] The effects of high, low, and expected inflation on stocks and bonds. [0:45:41.2] Whether other asset classes than stocks can be inflation hedges. [0:48:15.2] The relationship of different commodities to inflation at different periods and regions. [0:53:05.2] Questions of status, greed, and decisions in this week's Talking Sense. [0:56:54.2]

The contemporary world is saturated with ways in which we can experience rewards that were historically much more difficult to access. Although this idea of a world filled with dopamine fixes is not new, it can be continually surprising just how extreme this reality has become. Here on the show today to talk about this issue and her most recent book, Dopamine Nation, is Dr. Anna Lembke, and we have a fascinating and important conversation in which she unpacks the human body and mind in relation to the world around us at present. One of the main points from this chat is the weakness of humans, and how unaware we can be of the way our brains compel us to engage in behaviours and seek pleasure. We get into some strategies and solutions for healthier ways to exist, talking about mindfulness, awareness, and dopamine fasting, in the face of accelerating tech and overabundance. Dr. Lembke gives us a great introduction to dopamine and how it functions in our bodies, unpacks the four properties of addictive substances and activities, the different ways to frame and understand addiction, and shares some realistic ideas about moderation. So to hear all this and much more, tune in to this great episode of the Rational Reminder Podcast. Key Points From This Episode: An introduction to dopamine and its functions in the human body. [0:03:03.2] The human brain and the current overabundance of addictive experiences and substances. [0:05:36.1] Contemporary increasing in different types of addiction. [0:08:13.8] Considering the inherently negative connotation of the word 'addiction'. [0:11:44.4] The reasons that make gambling so addictive to the human mind. [0:14:12.7] Applying what we know about addiction and gambling to speculation and the stock market. [0:18:03.2] Why working also falls into the category of addictive behaviours. [0:21:46.8] Looking at the addictive nature of spending money and shopping. [0:24:01.5] A shocking story about water addiction from Dr. Lembke's practice. [0:25:12.1] Thoughts on recognizing addiction and possible ways to stop the behaviours. [0:26:22.2] Using in moderation; Dr. Lembke comments on the realities of this idea. [0:29:32.7] Long-term decision making versus a dopamine-laden environment; the battle of our time. [0:31:00.4] Understanding hormesis, seeking pleasure through pain, and embracing volatility in a portfolio. [0:34:54.6] The impacts of increased leisure time and the question of what we need. [0:38:47.6] Lembke's advice around retirement and the dangers of dopamine deficit states. [0:42:43.3] How the era of the pandemic has affected these trends in addiction. [0:45:20.2] The relationship between radical honesty and dopamine; how lying is related to reward pathways. [0:48:39.6] Radical honesty and better parenting; Dr. Lembke's thoughts on transparency. [0:54:01.3] Weighing the value of shame and its power as a socially regulating force. [0:55:51.2] Lembke's definition of success and its connection to being a good parent and becoming a positive force in the world. [1:00:01.6]

Today we have a guest join us on one of our 'us episodes', and we are very lucky to welcome Mathias Hasler to take part in the last section of today's podcast. Mathias is a Visiting Assistant Professor of Finance at Boston College, and his primary research focuses are empirical asset pricing, market efficiency, value investing, and corrections for data mining. In our chat with him today, we zoom in on a specific paper of his and its proposition about 'the six decisions' and their alternatives. Before we dive in with Mathias, we spend a little time with our usual round-up; looking at a new book by Hubert Joly, and fielding a very interesting listener question about value and investing in relation to green investments. Also, make sure to stay tuned for some thought-provoking Talking Sense cards with Mathias at the tail end of today's podcast. Key Points From This Episode: This week's book review for The Heart of Business and a look at some of its main ideas. [0:05:12.4] A quick recap of some fundamental information regarding inflation hedging. [0:09:45.1] A listener question about value and ESG investing, and the relationship between factors and sectors. [0:13:40.4] Unpacking the six decisions that Mathias outlines in his recent paper. [0:34:42.8] The process that Mathias went through testing his alternatives to the six decisions. [0:40:18.3] Differences between conditional and unconditional value premiums estimates. [0:43:39.5] The implications of Mathias' findings for investors pursuing value. [0:47:08.2] A round of Talking Sense cards with Mathias relating to saving and spending, job outcomes, and more. [0:49:20.1]

Today we are tackling the vitally important subject of financial literacy from the standpoint of parents wanting to educate their children. We have a true expert on the show today to help us with this discussion, and we cannot wait to share this highly actionable and impactful conversation with our audience. Robin Taub is a former CPA turned author, and her book, The Wisest Investment, approaches the need to educate children from an early age, and the best strategies that parents can use for this task. Robin previously worked at Citibank in derivatives marketing and brings the high-level expertise of accounting to her book and this episode of the podcast. We strongly support her perspective on financial education and believe the framework she discusses here and shares in her book is well worth any parent's time. In our conversation, we cover all the important bases; financial values, summer jobs, investment apps, human capital, and everything in between, so make sure to listen with us to hear it all. Key Points From This Episode: Unpacking Robin's beliefs about the importance of financial education in the family. [0:02:55.2] Financial education in the Canadian schooling system; Robin weighs in on its success. [0:04:08.6] The assessment that parents can make about being role models to their children. [0:06:53.1] The communication of values through the process of teaching and learning. [0:09:01.8] Ideas for the appropriate time to start teaching kids about money. [0:11:40.5] Using teachable moments to begin the conversation about money. [0:14:35.3] Thoughts about allowances and best practices for parents. [0:18:09.7] The evolution of money conversations as children grow older; increasing sophistication over the years. [0:23:46.9] Benefits and considerations when introducing the concept of working for money. [0:27:30.3] How social media can impact young people's spending, and how to mitigate these effects. [0:31:26.2] Robin weighs in on the question of cellphones and when children should get one. [0:38:42.6] Increasing financial responsibilities as children grow older, and beginning the conversation about investments. [0:40:37.3] The impact of investment apps and how to minimize the damage they can do. [0:45:21.1] Teaching children about philanthropy and the importance of sharing. [0:47:04.6] Weighing up the idea of getting a financial advisor involved in your child's life. [0:49:27.3] The concept of human capital and how to approach it in your family. [0:50:51.1] Robin's thoughts on conversations about entrepreneurship. [0:54:48.6] Breaking the cycle of financial problems in a household that is struggling. [0:57:54.3] Minimizing entitlement in a family of greater financial means. [0:59:42.8] Reasons for the shift that Robin made from her career as a CPA to becoming an author. [1:03:30.1] Robin's personal definition of success; finding satisfaction in the important areas of life. [1:05:20.5]

It sounds reasonable to say that investing in the most popular companies would produce the best returns, but this is just not how asset pricing works. Today on the show, we unpack the 'good company is a good investment' fallacy. Before diving into the main topic, we kick off our discussion on the subject of index funds with Robert Wigglesworth's Trillions. From there, we share some updates about custom indexing and home buying in Canada, along with the immense valuation of Tesla as well as Elon Musk's net worth. This acts as a great segue into the focus of today's show: a so-called good company has high historical returns, strong earnings growth, strong forecasted earnings growth, and high prices. But just because the good companies have done well historically, this does not mean they will continue to be a good investment. In fact, there is a premium that says that higher-priced stocks earn lower returns than lower-priced stocks and value stocks. We unpack several papers that explore the concept that it is the lesser-known companies that tend to have better returns. We also get into how growth extrapolation, the skewness effect, and the big market delusion plays into the good company is a good investment fallacy. Our discussion concludes with the idea that investors are better off paying attention to expected returns rather than falling victim to extrapolation errors. Tune in today! Key Points From This Episode: Introductory comments: modifications to the show, listener feedback, and more. [0:00:30.2] Book review of the week: Trillions by Robert Wigglesworth. [0:08:28.3] News updates: custom indexing, Tesla valuation, homebuyer gifts, and more. [0:12:23.2] Introducing today's topic: the 'good company is a good investment' fallacy. [0:19:30:9] Investing in good companies is irrational because of how asset pricing works. [0:20:44.7] The threat that crypto and decentralized applications pose to good companies. [0:21:50.5] Higher-priced stocks earn lower returns than lower-priced and value stocks. [0:24:40.3] Findings from papers exploring glamorous stocks and investor bias. [0:27:21.2] The problem of extrapolating growth too far into the future. [0:34:07.1] Behaviour patterns of lottery-like stocks with high expected skewness. [0:37:17.4] Declining prices and the big market delusion. [0:39:51.1] The high prices and low expected returns of the NIFTY 50 companies. [0:44:05.2] What the Fama French Five-Factor Model has to say about how assets are priced. [0:45:30.2] Talking Cents: Questions about the price we pay for riches. [0:46:50.2]

In our conversation this week, we take a deep dive into factor investing. We are joined by the formidable Antonio Picca, Head of Factor Strategies at Vanguard, to help us navigate this complicated topic. Antonio is one of the largest asset managers in the world, with over seven trillion dollars under management. Among his credentials is a Master's in Finance and Economics from the London School of Economics, as well as a Doctorate in Finance and Economics from Chicago, where he was also a teaching assistant with Gene Fama. During our discussion, we cover a broad series of questions on factor investing, while also venturing into deeply technical territory. We examine how one might make the transition to factor investing after gaining confidence in passive investing and unpack important questions around factor investing and risk. Another fascinating topic we cover is how factor investing resembles active investing, including some crucial distinctions. Next, we take a look at some of the negative connotations of active investing and investigate why those issues may not apply to factor investing. Antonio goes on to explain why factor investing is a natural extension of a broad equity market investing and illustrates how it aligns with Vanguard's philosophy, which is a belief in low-cost, long-term focus, and broad diversification. You won't want to miss this excellent opportunity to gain a deeper understanding of factor investing from one of the leading experts in the field. Tune in today to hear it all! Key Points From This Episode: Introducing today's guest Antonio Picca, Head of Factor Strategies at Vanguard. [00:00:17] How Antonio would explain factor investing to an existing Vanguard client who's already sold on the idea of low-cost, cap-weighted index investing. [00:03:16] Why clients need to be educated on factor investing, and why factor investing is a form of active investing. [00:04:31] The benefits of targeting other factors in addition to the market risk factor. [00:05:20] Some of the drawbacks to a strategy that targets other factors in addition to the market risk factor. [00:06:41] How Vanguard helps clients determine whether factor investing is the correct course of action for them. [00:08:19] The role that cap-weighted investing plays in the structure of factor products when capital forms the core of your investing, and factor portfolios are secondary. [00:09:35] How investors should think about sizing their factor position, relative to their market cap-weighted position. [00:11:12] How they decide which factors to target in Vanguard's product lineup. [00:12:37] Vanguard's approach to capacity when considering factors. [00:15:03] How Vanguard decided to target momentum as a standalone factor. [00:16:24] More on the liquidity factor and how Vanguard is targeting it. [00:17:40] A breakdown of what the value factor is. [00:20:12] Why factor investors should want to be active, rather than follow a factor index, despite the negative connotations that come with active investing. [00:22:25] Why negative connotations of active aren't applicable to active factor investing. [00:24:27] The frequency with which factor funds need to be rebalanced to effectively capture the factor premiums. [00:25:52] Instances where it is possible to quantify the benefit of more frequent rebalancing, or more flexible rebalancing. [00:27:01] Some of the days in early 2020 where there were market movements of multiple percentage points and how Vanguard made decisions accordingly. [00:28:05] Antonio's thoughts on the prospect of quantifying premiums for factors. [00:30:46] The paper that Vanguard is currently working on to determine whether it is possible to time factor premiums, or whether investors maintain consistent exposure to them. [00:32:32] How factor investing is different from traditional active management. [00:33:51] Some of the instances where a factor portfolio can replace an active manager. [00:35:40] Antonio's experience leading the factor group at Vanguard during a period when large-cap growth stocks have dominated so powerfully. [00:36:43] How Antonio addresses client concerns that factor premiums have changed or decreased. [00:39:30] Antonio's thoughts on winner-take-all companies and their proliferation. [00:41:47] What Antonio advises investors should be looking for when they're choosing a factor fund. [00:45:49] Some insights into how Antonio's clients are using factor products. [00:47:15] How Antonio approaches combining multiple factors. [00:48:33] Antonio shares his thoughts on do-it-yourself investors implementing factor portfolios and why he thinks advisors are essential. [00:50:21] How Antonio defines success in life and investing. [00:54:38]

Today we welcome Rob Carrick back to the show to talk about a range of interesting topics, focusing on the Canadian housing market and some of the recent developments from the banking and investment space. Rob has such a balanced and measured approach, qualities that are visible in his long-standing work at The Globe and Mail. We start today's episode with some fun recommendations of books and TV content, before diving into the meat of our conversation. Rob weighs in on the range of perspectives on whether to rent or buy, offering the assurance that renting is a completely acceptable way to manage your needs and means. He also comments on the utility of robo-advisors, the impacts of the recent banking regulations, and shares his surprise at which of his articles have proved most popular. We always feel like we should have Rob on the show more often, and this episode is such a good argument for that very idea. So, to hear all Rob has to say, be sure to join us today. Key Points From This Episode: This week's book and TV recommendations; Impeachment, Capital, Trillions, and more. [0:00:39.2] A call for applicants here at PWL Capital, and some recent reviews for the show. [0:07:17.7] Looking at an excerpt from Azeem Azhar's book, The Exponential Age. [0:11:45.4] A recent study comparing renting and buying in Canada. [0:18:18.6] Rob's observations on the new banking rules in Canada and what they mean for the advisor community. [0:29:27.2] Thoughts on trends in the banking space and the roles of financial professionals. [0:36:07.1] Canada's adoption of indexing: measuring the speed of changes in the country. [0:38:38.7] The role of robo-advisors and why Rob believes strongly in their value. [0:41:48.5] Rob weighs in on the debate of buying versus renting property. [0:44:39.6] Generational flows of money from boomer parents to millennial and Gen Y children. [0:50:52.3] Rob's message to Canadians feeling like they are stuck renting. [0:54:24.1] Some of Rob's most popular articles from over the years. [0:55:20.7] Lessons from Sweden's housing market and considering Canada's possible future. [0:59:03.6] A round of Talking Sense cards with Rob dealing with most prized possessions, lending, and happiness. [1:02:26.3] Assessing some of Robert Kyosaki's recent comments on a looming crash. [1:08:29.1] The present is exciting in finance; why Rob is enjoying the ride. [1:14:22.5]