The Rational Reminder Podcast

We kick off today's episode of the Rational Reminder by discussing when Ben will be publishing his new model portfolios and a quick look at some of our upcoming guests and resources you might want to take a look at. We have been on a roll with our guests lately, and we are certainly not slowing down anytime soon. From there, we look at some of the headlines, such as CDIC developments and the myths around inflation. Next, we move onto to listener rapid-fire questions. Some of the topics include the difference between leveraged ETFs and traditional ones as well as a small-cap investment strategy for an investor with a 30-year plus investment timeline. We then turn our attention to the core topic of the show, dollar-cost averaging versus lump-sum investing. Ben presents an overview of dollar-cost averaging along with some of the perceived benefits. We dive into his analysis of dollar-cost averaging versus lump sum investing in equity portfolios over select 10-year periods across various countries. We discuss the results based on a range of factors and variables. The crux of the argument is that dollar-cost averaging is not as compelling as it's often sold to be. While there are psychological benefits, the empirical evidence shows that there are not real ones. We wrap the show up with a look at how the pandemic is likely to shape the annuities industry and retirement planning. Tune in today! Key Points From This Episode: Find out when the new model portfolios will be up. [03:10] Some books to look at ahead of upcoming guests. [05:04] Ben and Cameron's takeaways from Tobi Lutke's appearance on Invest Like the Best. [05:43] Current affairs, including CDIC changes, Michael Kitces recent publication, and inflation. [09:07] Rapid fire questions: Leveraged ETFs versus traditional ETFs and size as a risk factor. [13:47] How a small cap value investment strategy could work for an investor with a long horizon. [23:07] Why Ben and Cameron don't talk about implementing the profitability factor with a dedicated ETF. [25:05] A brief explanation of dollar-cost averaging and the rationale behind it. [29:54] Find out more about Ben's dollar-cost averaging versus lump sum investing analysis. [31:49] The results of Ben's analysis and some key takeaways. [36:44] The worst 10% of lump sum outcomes versus dollar-cost averaging – the results. [41:26] Two things people look at to try to predict positive outcomes and its influence on lump sum investing.[50:36] How high stock prices influence lump sum versus dollar-cost averaging outcomes. [53:36] Japan vs the US: How Ben determined if the Japanese market is expensive. [56:37] Three key outcomes of the pandemic on retirement planning. [1:00:03] How the annuity industry can encourage its products with decreasing life expectancy. [1:02:05] Bad advice of the week. [1:06:16]

Prof. Ken French, a leading finance scholar from Tuck School of Business, shares invaluable insights into asset pricing and passive investing. He discusses the pitfalls of active management, citing reasons why it often fails to outperform. Ken reflects on market volatility, urging investors to rethink their allocation strategies, particularly during crises. He emphasizes the importance of a good financial advisor and explains his own reliance on one. Sustainable investing raises fascinating dilemmas on pricing and returns, making this conversation a must-listen for financial enthusiasts.

Join Andrew Hallam, author of Millionaire Teacher and Millionaire Expat, as he shares his insights on achieving wealth and happiness. He defines true wealth as the ability to spend double the median income indefinitely. Andrew discusses the fleeting nature of material purchases, the impact of debt on misery, and the importance of aligning financial values in relationships. He emphasizes the benefits of index investing while cautioning against common advisor pitfalls. Plus, his thoughts on geographical arbitrage offer transformative ways to enhance financial independence.

We spend the bulk of today's episode considering whether Wealthsimple's use of long bonds and low volatility stocks is really protecting their clients' downside, and summing up recent arguments by Cliff Asness and AQR leveled against critiques on value investing. Before that, we kick things off with thoughts on why Elon Musk aims to have no possessions, before looking at the links between empathy and the theory of relativity as well as some productivity secrets in recent books by Charles Duhigg and Shane Parrish. Next up, we briefly address a bunch of listener questions on factor tilting, and ETFs concerning COVID-19, the Smith Maneuver, and more! A final listener question about Wealthsimple's claim mentioned above leads our hosts to wonder whether volatility and drawdown are good measures of risk. Ben made a few models to help answer this question which tested consumption models as another possible measure and brings up an interesting point about the significance of considering long bonds from an expected return or a risk parity perspective. From there, we move to the investment topic of the week – the historic state of value investing. This is a contentious topic with recent papers by Cliff Asness and AQR both weighing in and you'll hear Ben and Cameron distill the main points from both. We hear about medium-term odds being on the side of value, and some great arguments showing common critiques leveled at value investing to be premature. Finally, Cameron takes us through the psychometric profiling side of measuring risk tolerance before telling listeners why they shouldn't make investment decisions based on reckless critiques. Tune in to get it all! Key Points From This Episode: A reminder to comment on the new comments section on the RRP website. [0:00:44.2] Why Elon Musk ways he intends throw away his possessions. [0:04:36.1] New books about productivity and the links between science and empathy. [0:07:08.2] Factor tilting: being aggressive versus non-aggressive. [0:12:43.6] Is there a benefit in capturing size premium using a combination of ETFs? [0:16:54.2] How to adjust RESP asset allocation as kids get closer to school age. [0:18:46.2] What ETFs are best to use while implementing the Smith Maneuver. [0:22:36.2] Has the role of bonds ETFs changed in light of COVID-19? [0:24:12.2] Thoughts on Wealthsimple's claim to have protected their clients in this downturn. [0:28:34.2] Critiquing long term bonds: is volatility/drawdown a good measure of risk? [0:33:28.2] Ben's model testing consumption objectives as a measure of risk. [0:36:28.2] Portfolio topic of the week: the historic state of value investing. [0:42:22.2] Considering Cliff Asness's paper about whether value investing is dead. [0:46:05.2] Considering AQR's paper addressing critiques levelled at value investing. [0:54:04.2] Planning topic: the psychometric approach to measuring risk tolerance. [1:05:50.2] Bad advice of the week: don't make investment decisions based on predictions! [1:10:14.2]

In this engaging discussion, seasoned journalist Greg Zuckerman delves into the world of investing with a focus on renowned figures like Jim Simons. He explores how covering elite fund managers has shaped his own investment philosophy. Greg sheds light on the success of the Medallion Fund and the unique algorithmic approach that drives it, emphasizing the significance of luck and limiting fund size. He also critiques the idea of relying solely on the advice of hedge funds, urging investors to adopt long-term strategies and question market efficiency.

The economic effects of the coronavirus pandemic have been unprecedented and the seismic shifts have caused numerous unforeseen challenges. While no-one could have predicted the enormity and speed of the current crash before it happened, several signs indicated that an economic contraction was on the horizon. Today's guest, Ben Rabidoux, President of North Cove Advisors, a boutique research firm, is here to share some macroeconomic trends and what they tell us about the state of the Canadian economy. His research expertise includes Canadian housing, macroeconomic trends, and household credit. We kick off the episode with some listener feedback as well as a listener question, where we discuss how to incorporate unvested stock options into your personal financial planning. There are several ways to go about this and numerous factors to consider, so it's important account for them all. Ben then dives straight in, giving us an overview of the economic landscape before the sudden upheaval. He sheds some light on population growth and its relationship to economic growth. As a great deal of the economic gains was coming from non-resident growth, the crisis is likely to change this. We also talk about personal debt and HELOC loans. Coming into the recession, the household debt service ratio was incredibly high, with interest rates at an all-time low. Ben walks us through how these vulnerabilities might pan out and what could happen with HELOC debt. Along with this, we also discuss the relationship between housing and economic growth, with some truly astonishing data from Canada, the changes that are likely to happen with rental supply, and Ben's take on some personal finance topics. This show was an incredible overview of some of the larger forces at play, and it went a long way to paint a clearer overall picture. Be sure to tune in today! Key Points From This Episode: Useful listener feedback and personal updates from Cameron and Benjamin. [0:01:50.0] Data points about the increase in value of the top five S&P 500 stocks. [0:03:46.0] A listener question about factoring company stock options into financial planning. [0:06:04.0] Learn more about Ben, the work he does, his research focus, and his clients. [0:10:22.0] Find out Ben's take on active management vs index investing. [0:11:20.0] The state of the Canadian economy prior to the COVID-19 pandemic. [0:12:05.0] Canada's recent explosive population growth and where that's headed. [0:14:09.0] Consumer and corporate debt-level, the source, and important takeaways. [0:16:13.0] Why it's difficult to draw parallels between the situation today and Japan in 1990. [0:03:43.2] How different Canadian regions' employment has responded to the crisis. [0:22:59.0] Housing trends and the state of housing in Canada before coronavirus. [0:24:20] The direct and indirect way that housing affects economic growth. [0:27:48.0] Housing supply, construction activity, and rental market changes in Canada. [0:31:06.0] What the data is saying about real estate prices across all market segments. [0:36:57.0] Some of the economic shocks are temporary and will snap back quickly. [0:39:34.0] The economic conditions in Canada's previous housing downturns. [0:41:16.0] Ben's take on the Bank of Canada's QE programme and how he thinks it'll work. [0:44:07.0] Renting vs buying: Why Ben thinks there's no generic answer. [0:47:53.0] Why landlords are often willing to charge rent that makes them a loss. [0:51:29.0] Ben's advice for building resilience to economic shocks. [0:52:47.0]

The recent film, Playing with FIRE details the particulars of the FIRE Movement in a way that is accessible, informative, and impactful. Both Cameron and Ben were hugely impressed with the film and the argument it makes for the framework of FIRE. Today we are joined by the producer and star of the film, Scott Rieckens, to discuss the movie and his own journey to reach financial independence. In much the same way that the film does, Scott makes a compelling and inspiring argument for the central philosophy of the movement, emphasizing what many of us will agree are the most important part of our lives and the way we can think about these to maximize our health and happiness. We discuss values and decision making, and how the FIRE perspective accounts for psychological and emotional changes to what is meaningful in your life. Scott explains the reframing that occurs with the system and the important aspects of it, especially those that matter in an introductory setting. We talk about communication and upkeep, the 4% rule, and the individual nature of your own financial strategy. Ultimately the ideas of FIRE are just ways to think about what is really important to you and your family and they provide a way to focus and enhance these. For this truly inspiring and potentially life-changing discussion, be sure to listen in with on the Rational Reminder! Key Points From This Episode: Scott's own understanding of FIRE and what it comes to mean in his life. [0:04:25.4] The initial connection that Scott had with the FIRE movement before making the film. [0:05:23.2] Shared values and finding common financial ground in a life-partnership. [0:08:50.8] Mental changes that Scott and his wife, Taylor, made in response to the ideas of FIRE. [0:11:57.5] Reframing your decisions and the necessary information to do this. [0:18:01.9] Social changes and the impacts of the philosophical alterations Scott made. [0:22:48.1] How Scott has communicated these ideas to his daughter as she has grown older. [0:29:51.4] Scott's complete gratefulness for his new relationship with money. [0:33:23.8] First steps to take in the process toward financial independence. [0:37:27.4] Getting a grip on the '4% Rule and how it can guide your decisions. [0:41:39.6] Increasing income versus decreasing spending and adjusting accordingly. [0:46:41.2] Applying these ideas to something beyond our selfish needs. [0:51:05.4] The multitude of things we can all do with more time in retirement! [0:56:05.4] Comparing the changing definition of success for Scott. [0:58:11.4] The information that is now available for a framework for happiness. [1:01:55.4]

When it comes to the question of whether the economy affects the stock market, it's not about whether the former is in a good or bad state, but how that relates to what the market was expecting. In today's episode we get into predictions about labour economics during COVID-19, the relationship between the market and the economy, and how to make decisions that suit your risk tolerance. We kick things off by reviewing insights Edward Lazear and Gerard O'Reilly gave in a recent webinar. They spoke about how the current crisis relates to past events from the perspective of labour economics, and what empirical data is saying about stock returns and the economy. A talking point here is the idea that recessions are defined by committees, and always long after they have either begun or ended. This leads to the topic of whether there is a relationship between economic data and stock market performance. We find many examples of cases in the short and long term where no correlation can be found between the two, and cases where the market starts to recover before the economy. We discuss how this speaks of a fundamental difference in the analytical methods of economists versus investors, not a rigged market. The first group assesses past information while the second invests based on where they think things will go. We talk about what happens when GDP is good but not as high as expectations were, and how per-share earnings growth can only keep up with GDP if no new shares were issued. We then switch to the concept of risk aversion and discuss the differences between system one and system two thinking, before moving into a comparison between two methods of analyzing risk. Tune in for your weekly reality check! Key Points From This Episode: Having a baby and getting a drone license; updates from Ben and Cameron. [0:00:18.2] Great new Netflix shows and books Cameron has been getting into. [0:03:44.6] Predictions about labour economics during COVID in Lazear's webinar. [0:06:28.3] Implications around recessions being defined by committees after the fact. [0:10:35.2] Predicting future growth based on great performance in financial markets recently. [0:13:45.8] Pent up demand post-crisis; why the government should keep businesses afloat. [0:16:25.0] Gerard O'Reilly's observations about financial markets in recessions. [0:21:51.2] Lazear's stabilization predictions, and why inflation isn't a threat in slack markets. [0:26:09.1] State Street's ETF rebalance and failed hedge fund rebalancing bets. [0:28:40.6] Is the market rigged? Forward-thinking markets vs backward thinking economies. [0:33:30.7] Market expectations and the effect economic news has on future stock prices. [0:38:21.8] Lead vs lag in when recessions get defined compared to when they begin. [0:38:46.2] How component-based vs automatically rebalanced portfolios are faring. [0:43:44.1] Why yield curve inversions forecast economic activity but not equity premiums. [0:44:25.7] Research that compares GDP growth and stock returns long term. [0:48:01.9] Slippage: per-share earnings growth can only keep up with GDP if no new shares get re-issued [0:54:00.0] How efficient the market is in pricing new information, not the other way round. [1:01:50.3] Determining risk tolerance; unintended consequences to risk avoidance. [1:02:41.2] Why using a GMO point is more effective than psychometric risk profiling. [1:06:18.5] The dollar terms and percentage terms shown on the Riskalyze risk slider. [1:09:15.7] Five methods of appraising one's risk tolerance. [1:13:02.2] Bad advice of the week! Rebalancing your portfolios. [1:15:36.2]

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]

Join Dr. Moira Somers, a clinical neuropsychologist and author, alongside Dave Goetsch, co-executive producer of The Big Bang Theory. They dive into how people can cope with financial stress and the crisis mentality. Dave shares his journey from anxious investor to embracing index investing, while Dr. Somers explains the concept of 'amygdala hijack' and different personality styles in stress management. Their conversation highlights the power of community, reflection, and emotional intelligence in building resilience during uncertain times.