The Rational Reminder Podcast

No one credible ever said that investing was a simple endeavour. It might have some simple guidelines, that if followed are more likely to yield positive results, but the ins and outs of the markets, decisions and their impacts, movements and crashes are never straightforward one-dimensional cases. Our guest today, Cliff Asness, really brings this point to bear, showing the nuance and multiplicity of all the topics we discuss. As the experienced owner of AQR and a wealth of knowledge and insight, Cliff shares a host of ideas and thoughts on as many topics as we have time for. We start off the chat talking about market efficiency before moving into the murky waters of value. We hold value investing to be sound, as does Cliff, yet the last few years have stretched even our commitment to this philosophy a little. The perspective that Cliff is able to share, drawing from his formative years in the investing world in the '90s is invaluable and a lot of what we talk about gets contrasted to the tech bubble of that period. The conversation also covers the size of stocks and portfolio allocation. Although Cliff has strong opinions on most of these issues he does a great job of showing the lack of definitive answers to any one of them, allowing space for new knowledge and outlying evidence to make its mark. We also get into finding the right kind of investor for your own style and goals, the role of good communication in finance and the influential article that Cliff wrote about 'pulling the goalie'. In it, Cliff lays out what the data tells us about certain late-stage situations in which it is statistically wise to make more risky choices. For all of this and a fabulously entertaining conversation, listen in with us today!   Key Points From This Episode: Cliff's perspective on market efficiency and the impact on his portfolios. [0:03:48.5] Value investing in today's climate where value has taken such a knock. [0:08:30.8] Stories and behavioural effects on value; how we understand ups and downs. [0:13:36.2] Conversations Cliff has had with clients in the tougher times. [0:21:04.5] Comparing the companies driving growth now with those in the '90s. [0:23:46.2] The size effect and why Cliff does not subscribe to this philosophy. [0:25:17.1] 60/40 portfolios; are they still alive? Why Cliff thinks you can do better! [0:33:07.7] Cliff's experiences with institutions and advisors and contrasting the two. [0:36:31.5] Informed decisions on who to invest with; thoughts on finding the right advisor. [0:38:28.7] Pulling the goalie and why risky behaviour can work in certain circumstances. [0:40:42.5] The value of communication skills in the game of financial advising. [0:47:29.7] How Cliff defines success for his own life! [0:50:07.9]

In today’s episode, we take a less analytical position on the current situation to focus more on the behavioral side of things. Joining us are two returning guests, Dr. Moira Somers and Dave Goetsch, who share their unique perspectives in a very real and at times refreshingly comical conversation about how people could most beneficially respond to this moment in time. Dave speaks of his personal experience going from panicky investor to getting a feel for the broad concept of index investing, and the idea that learning not to worry about the market on a day to day basis can be applied to life more generally. Dr. Somers provides some psychological background to these different strategies for tolerating stress. She shares her insights about a typical response to crises called amygdala hijack and how two main personality types called ‘the monitor’ and ‘the blunter’ deal with stress. We speak about some more healthy strategies for coping, with banding together and communicating featuring as strong solutions that allow us to clear our heads and problem solve more creatively. The conversation also covers the idea that this moment can be taken as a time to reflect, and even to double down on skills that aren’t necessarily investment-related but which can help ensure financial stability in the future. Toward the end of the episode, we look at how financial advisors could be the most useful to their clients right now and hear a strong argument for a strategy that combines experience-based advice with a more important trait: a high EQ. Tune into today’s episode to find out how you can gain more of a bird's eye view of your version of the current situation.   Key Points From This Episode: Amygdala hijack: Moira’s thoughts on psychological responses to COVID-19. [0:03:33.8] Dave’s thoughts on mitigating valid worry using his understanding of markets. [0:05:54.4] Learning not to be emotionally connected to the minutiae of the crisis. [0:13:25.0] Non-investment related skills that can strengthen our financial lives. [0:14:56.1] Adjusting models and using them to gain insights rather than predict the future. [0:17:04.9] Tools Dave has acquired to deal with market fluctuation since 2008. [0:20:40.2] Beating myopic loss aversion by planning your response to situations ahead. [0:24:00.3] Ways of toggling between contrasting feelings about the present and future. [0:29:30.5] Being reflective about one’s current experience rather than reactive. [0:33:07.1] The best predictor of getting through stress: social support. [0:33:59.2] A four-step process to effective decision-making defined by the Heath brothers. [0:37:07.2] Banding together and speaking about our difficulties to find creative solutions. [0:41:04.2] Buffering emotions through shopping and how shoppers are coping now. [0:43:30.2] Changes in workplace customs and industry trajectories sped up by the crisis. [0:44:32.2] The contours of a healthy response to inner and outer turbulence. [0:48:24.2] What financial advisors can do to help their clients right now: listen to them. [0:53:45.2] High EQs and which Big Bang Theory character would be good to talk to now. [0:58:33.2] Where folks who have no financial advisor might turn for help. [1:02:45.2] How spouses in charge of finances could communicate with their partner. [1:04:10.2] Financial advisors as punching bags or mediators between couples. [1:07:09.2] How to deal with communicating realites to kids as a single parent. [1:08:40.2]

The Smith Maneuver was developed by Fraser Smith as a smart way for Canadians to convert a traditional, non-deductible mortgage into a deductible mortgage by systematically re-borrowing to invest. Today we are joined by Fraser's son, Robinson, to talk about the maneuver, his father's legacy and explain how you can use it to your financial advantage. In his book, The Smith Maneuver, Fraser laid out a plan for working the mortgage and debt system to your advantage, by deducting the interest on a mortgage, while still being able to claim exemptions on the sale of a house. Robinson does a great job of explaining the procedure for implementing the strategy and all the possible ways to use it. He talks about risk, different kinds of debt and investor diligence, giving everything you need on the subject! Robinson believes in his father's vision of bringing the practices of the wealthy to the average Canadian and allowing wealth creation through leveraging possibilities instead of the inertia and fear that most people choose. For the last part of our conversation, Robinson gives us some examples from the Smithman Calculator, illustrating just how effective the system can be! Join us on the Rational Reminder Podcast today, to get it all!   Key Points From This Episode: An explanation of the Smith Maneuver and its usefulness to Canadians. [0:03:40.6] A step by step walk-through of the implementation of the Smith Maneuver. [0:07:15.1] The possibility of refinancing a credit line for lower mortgage rates. [0:10:18.0] How to think about maintaining more leverage with mortgage payments. [0:13:04.9] The risks of debt, minimizing withdrawal amounts and reversing the maneuver. [0:16:48.6] Robinson and his father's investor experiences around the 2008 market crash. [0:18:35.3] Why leveraging smart debt is so much better than gambling on a startup! [0:20:24.2] The regulatory risk that is present when performing a Smith Maneuver. [0:22:04.1] Risks that accompany not applying these strategies that Robinson is espousing. [0:24:47.6] The influence of your tax rate on the efficacy of the Smith Maneuver. [0:27:23.2] The diligence that is needed in the implementation of the Smith Maneuver. [0:29:15.0] How the Smith Maneuver can address poverty issues that plague Canada. [0:33:39.8] Running through the input process and rewards on the Smithman Calculator! [0:34:51.8] Net-worth improvements and cash-flow dams from re-borrowing. [0:38:41.7] How Robinson defines success in his mission to help Canadians. [0:41:26.3]

In our second special release episode during the 2020 COVID-19 bear market we discussed a broad history of US bear markets from 1900 to 2020, the recent volatility in the bond market, bond ETF NAV spreads, a nuance in the legislation on tax-loss harvesting, and some of the tax-related changes that Canada has rolled out in light of the current situation.

How we are handling the situation as a firm, investing through a crisis, historical comparisons, and more.  

It’s not unreasonable to assume that a desirable retirement equates to having the financial freedom to meet one's lifestyle and personal goals. The more efficient a person is with their assets, the higher the likelihood of this, which is why sensible retirement income planning is so necessary. Today’s guest is Wade Pfau and he is arguably one of the main thinkers in the retirement income space at present – a more readable Moshe Milevsky if you will. This podcast is usually devoted to high-level discussions about portfolio investment so it was an honour to have Wade join us and have a similar kind of conversation but rather about retirement income planning. Retirees face some unique risks when it comes to strategies for asset management, insurance, and investments, which means they require tailored strategies, and today Wade weighs in on some of the different approaches we see out there. The topic of probability versus safety-first approaches, and the potential wisdom in amalgamating the two as a means of preparing for retirement, crops up a lot in this discussion. Wade talks about the four L’s of the safety-first strategy, how it recommends building up a base of savings that act as an income to reach higher legacy in the long term. He suggests that people need to account for longevity risk more and argues for the efficiency of assuming that you will live until the average oldest age. That way you don’t end up throttling your lifestyle by saving unnecessarily during retirement. In our discussion, Wade also shares valuable insight into low interest rates versus expected returns, the ineffectiveness of the 4% rule, annuities and deferred annuities concerning mortality credits, and different types of buffer assets. Tune in for all this and much more on the topic of retirement planning from one of the greats in the field today! Key Points From This Episode: Notes on Wade Pfau, a leader in retirement income planning research. [0:00:43.0] Unique risks faced by retirees: longevity risk, sequence of returns risk, etc. [0:04:03.0] Retirement now vs 20 years ago: low interest rates and retirement length growth. [0:05:16] Safety-first retirement: build a floor and then spend more over the years. [0:06:31] Contractual protections (annuities) and probability vs safety-first approaches. [0:08:25] The four Ls of the safety-first method: longevity, lifestyle, legacy goals, liquidity. [0:12:18.0] Why to go for stocks/equities rather than stocks/bonds. [0:12:18.0] What the low interest rate environment means for expected returns. [0:16:57.0] The ineffectiveness of the 4% rule when applied internationally. [0:18:47] How people don’t properly account for longevity risk in retirement planning. [0:23:27] A way of covering basic needs so that higher legacy can be gained later on. [0:25:05.0] Strategies for buying annuities and deferred annuities at retirement. [0:28:57] How mortality credits from an annuity allow you to spend more in early retirement. [0:30:43] Mortality credits in relation to immediate and deferred annuities. [0:33:25] Better net incomes at the end of retirement through reverse mortgages. [0:34:36] Buffer assets such as reverse mortgages and permanent life insurance. [0:37:12] Safe savings rates in relation to historical data, bull markets, and mean reversion. [0:44:39] Asset accumulation conceptualised separately from the retirement plan. [0:44:39] Wade’s idea of a successful retirement: meeting safety-first goals. [0:48:39] And much more!

Welcome back to the Rational Reminder Podcast everybody. Today we are using the opportunity to have a bit of a philosophical discussion about a bunch of things related to your retirement and the financial planning that goes into it. We touch on the all too obvious topics of the coronavirus and last week's market fluctuations before we scan the last ten years for any notable data points on fluctuations and the years with the biggest dips. We look at life expectancy and how this affects a retirement planning strategy. In British Columbia, drug use among younger generations has brought down life expectancy estimates, while improved health care has extended them in some regards. This leads to a few comments on biological age and how knowledge of yours should play a big role in your personal strategy for the end of your life. The last part of the episode is spent considering the current state of the discourse around the FIRE movement and what has grown out of it. We can see that it is not uncommon for large portions of the aging population to be happy to carry on working, and that the idea of getting out of the workforce as soon as possible may only be attractive to certain kinds of professions. For all this and a whole more from Cameron and Ben, be sure to tune in!   Key Points From This Episode: The amazing new documentary on Herbalife called Betting on Zero. [0:02:54.5] Market drops last week and the story that accompanied the volatility. [0:06:14.9] Biggest and average drawdowns in recent calendar years. [0:10:03.3] Coronavirus impacts and questions about buying stocks now when they are low. [0:14:20.2] Conversations about the market drop and aggressive response strategies. [0:20:06.8] Data findings for historic cases of market timing from the last century. [0:25:12.3] Historic relations between the market and health pandemics. [0:30:22.1] Life expectancy's huge role in long term financial plans and retirement. [0:32:31.8] Changes in average life expectancies in British Columbia due to drug use. [0:37:40.7] The importance of biological age when making sound financial decisions! [0:41:02.5] Working longer into old age as a means to make retirement easier. [0:44:31.5] The five-factor model for happiness and what it means for your retirement. [0:49:50.5] Bad advice of the week! The last time we will talk about deferred sales charges! [0:54:57.5]

You can’t get anything good out of life without taking a risk, and this holds true in the world of investing too. Depending on the situation, people are willing to either pay more for high-risk or risk-free, and matters become more complex because the term 'risk-free' means a different thing to everybody. Today’s guest is economist Allison Schrager, Senior Fellow at the Manhattan Institute, author of An Economist Walks into a Brothel, and long time collaborator with Nobel laureate, Bob Merton. Allison is an expert on risk and she joins us in this episode to speak about this topic in relation to retirement and retirement finance. We talk about the idea that while risk has been given conventionally bad associations, it can be more accurately understood as a probability distribution between the future occurrence of both potentially good and potentially bad things. Allison shares her opinions about how both young and old people should approach risk, and stresses the importance of having clearly defined goals and a good financial advisor. She shares her thoughts on managing systemic vs idiosyncratic risk, why the retirement crisis is not all doom and gloom, and the laddered bond portfolio she developed with Bob Merton. Joining this episode, you’ll also hear Allison speak about how misinformation causes people to be hesitant about annuities, the connection between risk management in surfing and investing, and why investing in education is smarter than investing in a house. Allison covers a whole lot more risk-related topics in this episode too, so don’t miss out on it. Key Points From This Episode: Allison’s definition of risk: as a probability distribution. [0:02:54.0] The idea that the word risk pertains to both good and bad things. [0:03:57.2] Relativity of the term ‘risk-free’ and its fundamental connection to price. [0:04:20.0] Probability of, and skill in, taking risks depending on how they are presented. [0:05:11.0] The value of having a clear goal in mind as far as managing risk. [0:07:19.0] Strategies for managing systematic vs idiosyncratic risk. [0:09:20.0] Value adds advisors can give for managing systematic risk. [0:10:01.0] Retirement goals in the current crisis and Allison’s work with Bob Merton. [0:11:51.0] The retirement problem as a problem of income, not wealth. [0:12:17.0] A duration matching laddered bond portfolio as a risk-free retirement plan. [0:13:18.0] Why 401(k)s are wealth focused compared to defined benefit plans. [0:14:43.0] Statistics around retirement age casting the retirement crisis in less of a bad light. [0:15:19.0] Why people are scared of putting their retirements into annuities. [0:17:08.0] Misinformation that people are given that make them bad at retirement planning. [0:17:53.0] Similarities between risk and mitigation in surfing and market investing. [0:19:39.0] Idiosyncratic and systemic risks faced upon purchasing a house. [0:21:26.0] An argument for investing in education over homeownership. [0:22:24.0] Why time diversification is a fallacy in Allison’s opinion. [0:24:00.0] Pros and cons of investing in mostly bonds or mostly equities. [0:24:52.0] The ultimate riskiness of 60/40 portfolios and other products too. [0:27:04.0] Thoughts on the new trend of adding private equity to portfolios. [0:28:40.0] How the global shortage of safe assets could have an economic impact. [0:30:31.0] Advice for pre-retirees: have goals, have a good financial advisor, and plan. [0:32:12.0]

Let's say you make a choice that had you chosen differently, things would ostensibly have turned out more favourably. Later on, a similar situation comes up and you make the choice you think you should have made previously in the hope that the result you wanted before will come true this time around. This is called counterfactual thinking and it forms the main topic of our discussion in today’s episode. First publicized in a fascinating paper called The Psychology of Preferences, Daniel Kahneman and Amos Tversky explore the abundance of instances where humans employ irrational ‘what if’ thinking in their processing of recently made decisions that resulted in an undesirable outcome. People tend to think back and wish that they had made a different choice, irrationally thinking that if they had, things would have worked out better. This idea, of course, has applications to investing in stocks with particular implications due to the utter randomness of the market. This is a mind-blowing discussion about human irrationality with links to many leading papers that research this principle in relation to different situations. Outside of our main discussion, we also touch on why you should think twice before buying a condo, the utter absurdity of the Robo-Advisor business model, monthly posted DVD accounts and the surprising birth of Netflix, and finally, the ambiguity of Vanguard’s partnering with HarbourVest. Key Points From This Episode: The story of Netflix’s origin starting by renting DVDs out by post. [0:02:30.0] Life expectancy, annuities, and Wade Pfau’s ideas on Safety-First retirement planning. [0:04:56] Investor/insurer reluctance and why you shouldn’t buy a condo. [0:07:23] The Robo-Advisor financing crisis and eventual merge of software and humans. [0:11:28] Counterfactual thinking and how it affects investment patterns. [0:17:40] The central role closeness of a related incident plays in ‘what if’ thinking. [0:21:21] Contrast effects: winning $50 feels good unless you could have won $100. [0:24:42] Causal inference effects: rectifying a past problem by acting its solution in the future. [0:27:37] Investor preferences reflecting counterfactual thinking and attachment to stocks. [0:31:27] The effect the end of WW1 had on people to blind them to the coming depression. [0:36:00] How there is no proof that if we acted differently a desired set of realities would result. [0:40:22] The randomness of the stock market and how mastering it is thus impossible. [0:41:34] Tools for beating counterfactual thinking: document your original rationale, etc. [0:43:19] Jason Zweig’s tips: lightning rarely strikes twice, and only gamble 10% of your money. [0:44:17] Bad or good advice? Vanguard’s partnering with HarbourVest. [0:47:32] How private equity valuations used to be low, resulting in high expected returns. [0:50:09] And much more!

The financial advice industry has always been a place of change, and yet certain old practices hang around for decades. Our guest today, Dennis Moseley-Williams, is all about moving things forward for the good of the client and the advisor. The basis of his understanding is the characterization of the economy as one fundamentally built around experiences. Applying this lens to the financial sector means that advisors need to think about how to provide more than just a service to their clients, they need to stage an experience and a process of curated growth and learning. In our conversation, Dennis unpacks the evolution up to this point, showing how each step requires adjustments and progress from providers and the space that opens up due to technological advances must be filled with something of value. We discuss communication, fulfillment and happiness and Dennis makes a strong argument for the role of the financial advisor reaching beyond the bank; he believes it should include all important areas of life. The last part of the episode is spent thinking about ways that willing advisors can offer the most to their clients and how to pitch and scale these businesses in the smartest ways. For this fascinating chat with a truly innovative thinker and gifted speaker, be sure to join us! Key Points From This Episode: Dennis' explanation of the experience economy and trends in the financial services industry. [0:04:04.4] How Dennis found himself in the world of finance and investments. [0:07:07.7] The evolution of the skillset needed for good financial advice. [0:09:38.2] The five stages of experience and the lasting impact of a meaningful experience. [0:14:40.7] What the experience economy means in terms of finding good financial advice. [0:18:52.9] The space created by new tech advances and what will fill it. [0:23:35.6] Better communication in today's economy; physical and virtual experiences. [0:31:41.5] Differences between big and small business; pitching your offer for those who care. [0:33:29.3] Red flags and green lights for investors in the search for the right advisor. [0:38:12.2] The place of technical financial know-how and its decreasing value. [0:42:31.7] How an advisor can fill the space left by the church. [0:48:31.3] Happiness and fulfillment; putting funded contentment at the top of the list. [0:54:47.8] Dennis' hopes and predictions for the future of financial advice. [0:59:00.2] A highly differentiated and relevant offer — the recipe for success. [1:01:35.5] Connecting clients and allowing relationships to grow out of advice. [1:04:02.6] The question of scale; the care and caution that goes into growth. [1:08:39.9] Dennis' own definition of success in his life! [1:10:54.6]