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- [00:00]
A
This episode is sponsored by Raisin uk, the award winning online savings marketplace. Compare open and manage competitive savings accounts from over 40 FSCs, protected banks and building societies with a single login. Use the Raisin link in today's show notes for a 100 pound welcome bonus. New customers only terms apply. The World cup has reached the quarter finals, which means it's time to pick a side. Amid the frenzy, we next name our starting 11 of asset classes. From the goalkeeper who does nothing for 89 minutes, to the super sub you should never mistake for a starter.
- [00:41]
B
But is getting your formation right more important than any individual player? And in today's dumb question of the week, does the World cup affect stock prices? All right, let's get into it. So here we are, Robin, midway through the World cup and I think it's fair to say you're not a fan of football. Is that right?
- [01:06]
A
Yep, that's true. And not only that, I despise it. So for me, the whole concept of football just seems utterly pointless to me. But, you know, I had to play it as a kid, so I've got a rough idea of how it works.
- [01:21]
B
So you didn't stay up till four in the morning watching England triumph in the Azteca last night?
- [01:27]
A
Well, the neighbour's kids did, interestingly. So I discovered that if you put a pillow over your head, you actually drown out the sound of football. However, you have nightmares about suffocation.
- [01:37]
B
Good to know. So you're not a fan of football, but you are a fan of asset classes. But more importantly, I hope you are a fan of tortured analogies and opportunistic cash ins, because that's where we're going this week.
- [01:51]
A
Oh, that's our bread and butter. I love that.
- [01:53]
B
So we're going to pick our starting 11 of assets which you can put in your portfolio and map them shamelessly to positions on the football pitch. Let's start where every good football team starts, with the goalkeeper. Now, we've decided that this is cash, because you might go most of the match with the goalkeeper barely touching the ball, not asked to do anything, but then when you really come under the cosh, he's the only thing between you and a forced sale at the bottom. And you'll be thankful you have a good goalkeeper there.
- [02:23]
A
Yeah, I remember playing as a kid football, there was one position that you just couldn't do without, it was the goalkeeper, because then you just ended up giving away goals for no reason at all. And I think cash is misunderstood. I think that people forget that it's the one thing that you really can't do without. And it's actually much better than people think.
- [02:43]
B
Better how?
- [02:45]
A
Better in the sense that it usually beats inflation long term. People usually think that it's a terrible thing when it comes to inflation. It's actually cash under the mattress that's the awful inflation eroded asset, not the stuff that you put into the bank because the rates fluctuate according to what the central bank is doing and also what's happening with inflation. So I think you wouldn't rule it out as a really important ingredient, I
- [03:13]
B
guess in terms of asset allocation. People often talk about cash drag, don't they? The fact that cash is going to underperform bonds and stocks and other asset class classes over the long term. So the more cash you hold overall your portfolio will likely perform worse. But I guess it comes back to the goalkeeper thing again that the goalkeeper's not there to score, is he? That's not his job.
- [03:34]
A
No. And weirdly I think it's a kind of drag race in the sense that sometimes cash does better than risky assets. And when you really need it, when you have these huge crises, you'll be immensely glad you got some.
- [03:48]
B
Okay, so let's step through the team. The defense at centre back we've got government bonds and two types of government bonds. So we've got the short dated kind which is your no nonsense stopper. He's just there to head the ball away. Hoof it clear. You're Dan Byrne, right? If you're an England fan right now, what an amazing job he did last night in the last 20 minutes. But then next to him you want to a bit of long dated bonds, don't you? Someone who's a bit more classy on the ball can progress it through the lines but occasionally they're going to get caught out, aren't they?
- [04:22]
A
And just like the players, these people can range out further on the field, whereas a goalie's stuck in goal. These people can actually run up and down the pitch. And similarly you've got duration. So you can extend the duration, you can shorten the duration and that way you've got a whole spectrum of behavior running from cash like all the way up to things which are more volatile than equity.
- [04:44]
B
But at the back our central defenders are seen as defensive assets primarily, right?
- [04:50]
A
Yeah, that's right. I mean sometimes you have a defensive collapse as happened with Liz Truss budget but generally they're very reliable. It's very unlikely we're going to have a UK default. So I think they're very safe as a store of capital if you hold them to maturity. If you don't, well, it's anyone's guess what's going to happen to the return over their lifetime. But it's never going to be catastrophic. It's very unlikely to be catastrophic for the shorter duration bonds at least.
- [05:18]
B
And is it right that we want a mix potentially of government bonds in our portfolio? We want the 6 foot 7 clogger next to the one that's a bit more erratic?
- [05:27]
A
Yeah, I think so. Some people have these barbell strategies. We have longer duration gilts combined with shorter duration ones because they behave very differently. So I think having that mixture is certainly sensible.
- [05:39]
B
And alongside them we've got a pair of fullbacks. Now these are nominally defenders, aren't they? They sit in the back line, but we want them to sort of nick a bit of yield going forward. We're going to stretch this analogy throughout the whole episode. I'm sorry about that. But the risk with fullbacks is the more they attack, they might get caught up field when a counter attack comes and you could get punished. Right, so these are defensive assets but are trying to bring a bit of juice to your portfolio. So here we might think about investment grade credit and high dividend yield equities.
- [06:16]
A
Yeah, I think they're misleading in the sense that they do have this double role and sometimes they're very safe, sometimes they're very risky. If you have one of these full blown credit crises and they come very infrequently, so usually people forget about the last crisis and they look at these things and they say, look, I'm getting extra return for almost no risk. Why not? I'll pile in. But in fact you can't rely on the fallbacks for this kind of boost in yield because eventually it's going to burn you. When there is a credit crisis and you'll never see it coming, these things can sell off quite sharply.
- [06:54]
B
How do you know when is the time to tell your fullback to bomb on and when to just sit back and be defensive? And how would you reflect that in a portfolio?
- [07:02]
A
I think the time to buy them is just after or just during a crisis, when the crisis has been rolling on for some time and that's when the credit spreads are widest, that's the time to consider that they will recover. They always do recover. And if we think about high dividend yield stocks at the moment, a lot of people are buying them because it's an alternative value tilt.
- [07:24]
B
So the time to buy them is when the stock market looks expensive.
- [07:29]
A
It can be simply because the value tilt tends to outperform when growth is on a tear, or at least after growth has been on a tear. You could have come badly unstuck doing that over the last decade because it has been a huge growth rally. All I can really say is that that's always worked in the past and I think it will work again eventually. And many people I speak to are doing this. They're tilting to value in different forms and one of them is to go for high dividend yield.
- [07:57]
B
But if we think about correlation here, which when we're putting together the overall portfolio is one of the things that really matters. How does investment grade credit work and how do high dividend stocks work? Is it the fact that they're correlated to equity but at a lower beta? Yeah.
- [08:14]
A
The two components for yields for a corporate bond, one of them is the risk free rate, the other one is the credit spread. And they pull in opposite directions. In a crisis, the spread widens, that increases the yield and generally the guil yields fall. So those pull in opposite directions. What usually wins is the risky bit, the credit spread. So overall the price of these things falls. So the safe haven ness of them is fairly limited. So far from being a defender, it's more like a kids football team where everyone just chases the ball and leaves the field wide open.
- [08:49]
B
That is how the professional game has shifted. Full backs are now seen as attackers in some sense. They're on the ball a lot and they're going forward a lot. You're going to learn something here, Roman. Trust me. Okay, so I think we've covered the defense. Let's move on to the midfield. Now we've got three midfielders in our lineup. We're going 4, 3, 3. The first of which is the holding midfielder, the most defensive of the midfield trio. The makelele role, does that mean anything to you, Romin?
- [09:17]
A
Absolutely no idea. Is that like a ukulele?
- [09:20]
B
No. Old school Chelsea midfielder, fantastic player. But he was so good they named a whole role on the football pitch after him. His job was basically just sit in front of the defence and run, run, run and win the ball back as soon as it was lost. And the analogy here is that in our holding midfield position, we want inflation hedges, the things which are often overlooked and unloved. But when the whole team is getting overrun, you're really grateful they're there. Maybe you only discover you need one when inflation's winning 3 nil. Now what we're mapping to the holding midfielder position. Is index linked gilts and broad commodities. Pick your poison.
- [10:03]
A
I think what's interesting about these, and to extend the analogy is that inflation linked bonds sound like gilts. They are gilts, but they behave very, very differently. And to understand them takes a whole different level of research. I'd say the reason why they're so complicated is they operate based on real yield. So people think that they can't sell off because they've got an inflation hedge. In 20, 22, 23, they expected them to hold up. Well, actually they got completely crushed. And that's because real yields rose at the same time as nominal yields.
- [10:37]
B
They did hedge inflation, but that effect was swamped by the fact yields were rising.
- [10:44]
A
Yeah. So poor old Makelele was in the wrong half and the opposition swarmed past him and he. Offside?
- [10:52]
B
Well, no, that's not offside.
- [10:55]
A
But anyway,
- [10:59]
B
they're thought of as an inflation hedge. They're called index links. And there are situations where they can bail you out, I guess if you're hedging future liabilities. They really do have a role to play.
- [11:11]
A
Yeah. And unexpected inflation. That's the real benefit of them. When that nasty little inflation spike happens that nobody saw coming, you'll be really glad of that inflation, inflation linkage, particularly if you're in retirement.
- [11:26]
B
And what about our other option for this position? Broad commodities? They're very different from inflation linked bonds, but are often seen as being in the team for a similar reason, which is that when inflation gets really, really bad, sometimes commodities can save you.
- [11:43]
A
Yeah, because often they're the driver of the inflation in the first place. It's some kind of supply chain issue or some kind of supply shock. And if you buy that directly by buying the exposure to the commodities themselves, then you kind of short circuit the inflation hedge. Instead of buying something which operates with a lag, which is complex, you just buy the oil, buy the industrial, metals and all the other things in the broad basket.
- [12:09]
B
But the downside is that they're very volatile and over the long term have not really delivered a positive return.
- [12:17]
A
Yep. Like a midfielder, they're running all over the pitch. There's a lot of motion here in the prices and they can often crash themselves. So just be aware of that volatility. So don't go crazy. With too much commodity exposure, it would occupy maybe 10% at most, I'd say of your portfolio, which is really handy
- [12:38]
B
because McAlele only has one role in the 11, so about 10% seems to be. Right. Let's move on to his midfield partner. We've got the box to box midfielder, the engine room of the team. He does work at both ends of the pitch every week and for a modest wage. He's not always in the highlights reel, but the entire team is built around him. This is Old Faithful, the global equity tracker.
- [13:05]
A
I have to say I liked them before they were popular, so I've been very keen on them for a long time.
- [13:11]
B
That's the most hipster way I've heard of describing global equity trackers. I liked them before they were big,
- [13:19]
A
but I don't understand with the midfielders. You mind me asking a football question here? If they're so good, why are they not more celebrated, more praised?
- [13:29]
B
Well, I think the box to box midfielders sometimes are. People like Brian Robson was England's talisman in the 1980s and now Jude Bellingham, you know, he's up and down the pitch, he makes the highlight reels. But I guess the point we're making is they have double duty. They're there to get the ball forward and into the box and score goals, but you don't want them being too crazy.
- [13:52]
A
And that's a good description of an index fund because it's so diversified, very diversified in terms of equity as much as it can be diversified. And it does that beautiful job of harvesting risk premium, which is the real engine of your portfolio. Longer term, you can throw away almost everything else. In fact, in my two fund portfolio, I've got something which is very cash, like a money market fund right now and a global index fund. So it's like I've got those two players, I've got the box to box midfielder and I've got the goalie.
- [14:25]
B
I guess if you were playing two a side football, those would be the two players you went for. A goalkeeper and an all action midfielder. But what's great about a global index tracker these days is you can pick them up very cheaply. You don't have to pay £100 million to sign Jude Bellingham.
- [14:41]
A
Isn't that weird? Because it's the most useful thing and I think you're right, I think it's because of competition. Maybe there are just lots of midfielders competing for the same role. I don't know if it's an easy role to fill, but certainly amongst asset managers there's huge competition now to get that flow for those index funds. And there are new ones cropping up all the time. In fact, over the last year we've had, I think three new ones in the UK which are super cheap.
- [15:10]
B
If you look at the fees on a fact sheet. At what point do you start thinking that's a bit too much for what I'm getting here?
- [15:18]
A
For these global index funds, it's now much lower than it was when I first started Pensioncraft, you were paying about 20 basis points, 0.2%. Now you're paying 0.1, 0.12. And I wouldn't consider a global equity fund for much more than that now. So what we've seen is actually the opposite of footballers salaries, which is they're coming down, interestingly over time, which has
- [15:43]
B
to be great news for us as investors.
- [15:45]
A
Yeah. If you ever play these fantasy football leagues, I believe you have to factor in the price of the players that you buy. Is that right?
- [15:52]
B
Yeah, I don't play fantasy football. I saw there is one on Pantrycraft forums, actually.
- [15:57]
A
Yeah, I saw that.
- [15:58]
B
But I think you're right. You have a budget and you have to allocate it to different positions and
- [16:02]
A
ideally, I guess you want the biggest bang for your buck. And similarly, I think you've got to decide when you buy a fund, am I paying high fees? If so, it's got to be something really special. And for a global index fund, it's very commoditized, so it's not really worth paying more for that.
- [16:18]
B
And I still think even today, people underestimate how important fees are. The difference between a 0.1% fee and a 0.5% or even a 0.9% fee is massive in the long term.
- [16:32]
A
And you can control it. Just as a manager can't control the actual players, he can only control the actual fees that he plays. He can choose players in the hope they'll be good. But with our portfolios, the thing we can control as much as we want is the fees we pay for the funds.
- [16:48]
B
I think the mental reframing to do when you're looking at fees is that you might think, oh, 1% is just 1%, that's not much. But maybe the better way to think of it is how much of your returns are you paying away to the asset manager? If you're thinking about getting, I don't know, maybe 5% per year in return, a 1% fee is giving away 20% of your returns every year, and it's
- [17:11]
A
guaranteed every year forever, which you can't really say about anything else. It's not going to give you guaranteed returns. But a guarantee, not fee paid doesn't sound quite as exciting. But it's incredibly valuable when it comes to your cash savings. Making sure your Hard earned money is working for you is important. Important, but chasing competitive interest rates can mean dealing with a mountain of paperwork. Meet Raisin uk, the award winning online savings marketplace. Instead of the hassle of opening multiple bank accounts across different apps and providers to get a better interest rate, Raisen UK lets you compare, open and manage competitive savings accounts from over 40 FSCs, protected banks and building societies all through a single login. What's more, new customers can claim a £100 welcome bonus. Simply register for an account using the code July 100 and open and fund a fixed rate bond of one year or longer with a minimum £25,000 single deposit by 31 July 2026. Don't let your savings sit idly in a low interest high street account. Visit the link in the description and use the code July 100 new customers only terms apply.
- [18:34]
B
Right, let's move on to the next position. So in the number 10 roll, we've got gold. Now, we had a bit of a debate about this, didn't we? Because we were thinking about where to put gold on the pitch and you might think instinctively, that's a defender, isn't it? It's a defensive asset. We don't think that's right. Gold is the mercurial playmaker. You never quite know what he's going to do. He's strolling around for weeks on end not contributing that much. He doesn't track back. But then out of nowhere, he wins you the final with some piece of genius. He's unpredictable, he doesn't tend to follow the team's instructions. He does something quite different all the time. And maybe there's a case to be made for having gold in there to grab something important when everyone else is letting you down.
- [19:21]
A
Yeah, that's an interesting characterization of it. I think it's a pretty accurate one. It's difficult to characterize gold. We do know certain things. It's a wasting asset. It doesn't generate income. We know that it doesn't act as a very good inflation hedge, even though people say it does. But like you say, sometimes it just amazes you with these incredible returns as we've seen recently. But then the flip side of that is that you also get the huge
- [19:45]
B
crashes as we've seen recently. So if we take a step back, over the last two or three years, gold's had an amazing run up, incredible returns. I think last year, 2025 was the best year since the early 1980s for gold. It was up more than 60%, wasn't it? But then this year, 2026, since January, when it had a blow off top and peaked, it's down like 25%.
- [20:14]
A
And that's just part and parcel of the way gold behaves. It is a mercurial asset in the sense that you don't know what it's going to do next. But in a sense, that's why people buy it. When there's a really big crisis, people often buy gold. Not always, but often. But it will introduce these crashes into your portfolio. So, again, I wouldn't put too much gold into your portfolio. 1/11, you know, that 10% is probably enough.
- [20:42]
B
I think on the pitch, the worst team would be a side full of number 10s, a team of gazzers. Sounds fun, doesn't it? But maybe it's not going to do that well. And I think it's the case with gold. When you look at the backtests, a little bit of gold seems to help a lot of the key metrics like safe withdrawal rate and minimizing drawdowns, because it helps you in those situations where everything else fails. But one of the worst portfolios, when you look at safe withdrawal rate, it's 100% gold. You definitely don't want too much of it.
- [21:13]
A
Yeah. The surpriser was that 100% cash is actually one of the best if you have to have 100% of one asset.
- [21:20]
B
But thank goodness we don't. And we can mix them because every team needs a bit of flair and this is one way to get it.
- [21:26]
A
Yeah, just two goalies lobbing the ball at each other would be even more boring than the actual sport is itself.
- [21:32]
B
Ramin, you can't say that after last night's drama in the Azteca, one of the greatest games ever. Surely you're a proud Englishman. You can jump on this bandwagon, no?
- [21:42]
A
Yeah. What was the score?
- [21:43]
B
3 2. Down to 10. Men hanging on for the last 30 minutes. Heroes. But let's go on to the forwards. So we've got three positions left in our starting 11. Now, two of those are the wingers. They're electric on their day, but they're streaky. They might beat the man, they might get tackled and the ball goes out for a throw. They're high beta, let's say that. So here we've got emerging market stocks and small cap stocks.
- [22:13]
A
Now, both of those are interesting in different ways. Small caps, if you look at any kind of backtest of which factors performed best, small caps and small cap value have just completely trounced any other tilt. And the Weird thing is, nobody knows why. There isn't really a very good explanation of why this has been the case. And it does seem to have reduced somewhat over time. Some people say it's actually a liquidity thing. These things are less liquid. Maybe there's an opportunity set which big fund managers can't access because they've got too much money to invest in the first place. Nobody really knows. But it maybe has gone away. It hasn't shown itself for a long time, so you've got to kind of hope it's still there. And then for emerging markets, I think the difficulty is one of classification. You know, what is an emerging market? Is China an emerging market, given its dominance in really sophisticated technologies nowadays, to do with renewables, to do with EVs, and increasingly to do with AI?
- [23:15]
B
Well, the answer, according to the index providers, is yes, China is an emerging market. It might not be an emerging country anymore, but the market has quite a few quirks about it, which means it doesn't really belong in the developed market bucket yet.
- [23:29]
A
But I think the difficulty always with emerging markets is that it is a change in classification. Whereas with a small cap, there's a number you can point to the market cap of the company. And that's definitely, yes, it's a small cap, but both of them are the flighty, exciting parts of your portfolio that sometimes does incredibly well. Sometimes it runs to the front of the team, to the front of the pitch and delivers, but then sometimes it just does a terrible own goal.
- [23:58]
B
And in what environments do they tend to do well? Is it the same for emerging markets and small caps?
- [24:05]
A
Well, some people say that emerging markets are the place that equity capital goes. Once you've had a rally, that's kind of fizzling out. So you've had a really long, sustained developed market rally. And then people are looking beyond developed markets for where to invest next. And that used to be emerging markets, I'd say nowadays it's more to do with these IPOs, these tilts towards things like technology that's pretty much taken over the role of emerging markets as the exciting new thing.
- [24:35]
B
Are they also quite reliant on FX moves?
- [24:38]
A
They'd rather a weak dollar, yeah, FX and interest rates. Weirdly, if the Federal Reserve raises interest rates, that's bad for emerging markets. Low interest rates in the US tends to be good. It means a weaker dollar. It means lower borrowing costs. For emerging markets, which often issue their debt in the US and then turning to small caps there, it's more about timing in the business cycle. So if you believe that business does go in cycles, then you have these periods where we have a really bad recession. And the time when small caps do really well is when we're coming out of that recession. And that's because of their high beta nature. They tend to react more than a global index would say, or a market cap index would. The time when they get crushed is going into a recession. So there is an element of timing here.
- [25:31]
B
And do you think a passive approach works for these asset classes?
- [25:35]
A
Well, it certainly worked for me because I was talking to a client and we were looking at Ed Yardeni's fabulous graphs. Thank you, ed. S&P 600, which is a small caps in the US versus the S&P 500, which is the larger caps. And I was looking at the valuations for the two, and it was just ridiculously wide. Small caps were just trading at a huge discount. This was about three years ago. And I thought, that can't go on. That's just crazy. So betting on mean reversion, I piled into this S&P 600 index tracker, and that's done very well. It took a couple of years to get going, but it got there in the end.
- [26:14]
B
So we said these asset classes are quite streaky. Is there any way to make emerging markets and small caps more consistent?
- [26:24]
A
Yeah, there are certain ways to do it by applying extra filters. One of those filters is to look at value. So you can look at small cap value, you can look at emerging market value. And certainly people have been recommending emerging market value, small cap value recently because of this dislocation. Or you can apply a quality filter. So if you go for The S&P 600, for example, versus the Russell 2000, those are both US small cap indices. But the Russell 2000 doesn't have a profitability filter to get into the index, whereas the S&P 600 does. Once you're in, you can actually become unprofitable. But the entrance process requires that profitability, so it's more selective. And that's why I prefer it to a Russell 2000 tracker.
- [27:14]
B
I once heard someone say the oldest trick in the fund manager book is to be an equity fund that's benchmarked against the Russell 2000, but just buys the S&P 600 in a closet tracker way.
- [27:29]
A
Yeah, that is a beautiful way of doing things. And that's why I like passive funds. They're much more transparent. And you'd know if that was going on because you bought the index.
- [27:39]
B
Right. I think it's time to come to the Talisman, our star striker. Now here we're putting high growth technology companies, or the Magnificent Seven, if you want to use the modern lingo. These are players judged purely on goals. They contribute very little defensively and they come at a high price in terms of valuation.
- [28:03]
A
So brace yourself, Michael, I'm about to stun you with my knowledge. Would this be Harry Kane?
- [28:09]
B
He would be a talismanic striker, although unusually, Kane likes to drop deep. But we'll move on from that. This will be Haaland, Mbappe Kane, those kind of players.
- [28:19]
A
Haaland's the one from Norway, right?
- [28:21]
B
Yes. The one who looks like a Viking pulled out of the 6th century or something.
- [28:26]
A
It is true, isn't it? It's true.
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B
Amazing player. He's pulling Norway through the World cup on his own and is England's next opponent.
- [28:35]
A
Oh, dear.
- [28:35]
B
But with these kind of players, it might be feast or famine. When they're cold and on a losing streak, you might look at them and think, well, what are they actually doing? Well, they're just there to score goals.
- [28:46]
A
So here we're thinking about things like the Mag 7. So these are companies which did incredibly well for an incredibly long period of time. You could say that it's due to the macroeconomics of the time when we had super low interest rates, which allowed them to scale very rapidly. There was loads of venture capital floating around in Silicon Valley, a crop of super bright graduates who were very keen to try and fail and try again. Whatever the combo was, it worked and now we're living with the consequences, which is a lopsided US market with generally quite high valuations. We've got a new narrative, which is, I'd say the last hurrah for the Mag 7, which is AI. But then I think there will be a reckoning and there will be a readjustment based on other things coming to the fore.
- [29:37]
B
Has the reckoning started? I've looked at the graphs and the Max 7 are not doing well this year. They're underperforming the market significantly. Yeah.
- [29:45]
A
So one narrative here is fizzling out, which is they hyperscaled. They raised loads of debt in order to pay for it. Something like 700 billion, maybe even a trillion over the course of this year and next. And the question is, are they going to get a return on that investment? Many people are starting to question that. So it'll be interesting to see whether the returns come in time for the sell off not to happen. I'm fairly worried about that and I think there could be a bit of A reckoning. We've already seen it start, like you've said, going from things that were just powering ahead with huge free cash flow and just generating huge profits. Really high margins generally as well. We've gone from that to what seems like a capital intensive industrial process almost, which relies on energy generation and really creaky infrastructure for that. Energy generation in the US generated by coal and dirty fuels.
- [30:45]
B
And they're switching Three Mile island back on.
- [30:49]
A
Maybe that was the red flag, but
- [30:52]
B
what I would say is that over the last decade, up until now, the thing that makes the Mag 7 a good match for the striker role is that they have been the best player, the most talented, the game changer. They were amazing businesses and potentially could be even better businesses if this AI bet does deliver.
- [31:12]
A
I think my main worry is what's going on in China and I've made a video about this. And really I think the difficulty is that if you plot the frontier models with a 4, 7 month delay, those become Chinese models. You can essentially buy these things off the shelf. You can run it on your own PC or get it hosted. It's open, wait, which means it's essentially something you can run yourself. So if you are willing to wait, what is a frontier model today becomes one of these commoditized models later on. So VAT's always going to be able to set a price cap on what these companies can charge. Unless you need that bleeding edge model.
- [31:53]
B
I think that era will come to an end quite shortly though. This is just my view. You can't run Claude Fable on localized hardware. The chips you have at home are nowhere near powerful enough to run a model with that many parameters. Even if you could distill it and make it open weight, you just couldn't run it. And even if you wanted to build yourself a big data center, good luck at the prices those components are going for right now.
- [32:19]
A
But a model like Hugging Face is that you can also host it yourself. And I think increasingly what we're seeing is that chip designers like Nvidia, they're talking about running things on your own PC. They've already got the RTX Spark, which uses 80 watts, but it can run a petaflop that's 10 to the power 15 floating point operations a second. Incredible, you know, unthinkable. Just two decades ago that would have been a supercomputer. So I think that's the direction of motion. They might be building the AI that we don't want. We want something which runs on our own machine, which Runs on our phone, our laptops. We don't trust a data center to know really intimate things about us. All we want is to work out the recipe for our sourdough bread. We don't necessarily need something which is going to code up the next super app.
- [33:15]
B
Yeah, for those kind of trivial uses for AI, sure. But the cutting edge, I think. I don't know, maybe we disagree here, but I think it's going to be on those massive data centers for a long time to come.
- [33:25]
A
I think some of it will. I think you're right, that's not going to go away. But I think for the most tasks, you don't need that. You just want something that's going to run locally, give you a quick answer so that you don't have to schlep around and find lots of stuff. So that's my worry. And I think that's how these strikers of the investment world could end up coming unstuck.
- [33:46]
B
Do you think they're coming towards the end of their career? The last hurrah, which is kind of what we're seeing at this World Cup. Messi's scoring loads of goals, Ronaldo's got a couple. Neymar even got one.
- [33:58]
A
But that's the beauty of an index fund. There's always a strong back bench and there's always a new narrative that carries the baton forward through time. And we'll just see the narrative change. We'll just see new players who become just as great as the old ones, if not better.
- [34:13]
B
So we've got through the 11, but football's not all about the starting lineup. Romin, just to finish, we need some super subs here. Pure gambles. Everything's going wrong. You think, screw it, you've got to bring someone on who's going to win you the match. I guess here we can have crypto and all the speculative puns. They're your super subs. Yeah.
- [34:33]
A
So this is like a fun portfolio where you bring stuff in just for a bit of excitement, for a bit of action. They might pay out, they may not. But it's interesting just to play with them and to have that option to bring them on at the last minute and see what they do.
- [34:49]
B
That's the key, isn't it? You bring them on at the last minute. They're not anchoring midfield for the whole game.
- [34:55]
A
Yeah. So they're slightly flaky, unreliable, but potentially there could be a lot of upside. There's a kind of gambly type payoff.
- [35:05]
B
So we're saying crypto is Potentially the super serve. Or is it a pitch invader, shouldn't be in the team, has no position and should probably have been escorted off by the stewards a long time ago.
- [35:21]
A
Now, Michael mentioned that our community's got its own fantasy football league. Weirdly, I wasn't invited to that. People knew I didn't like it. But if you wanted to join our community and discuss investment as well as football, it's easy. Just go to pensioncraft.com membership to learn more.
- [35:41]
B
Okay, today's dumb question of the week. Does the World cup affect stock prices?
- [35:48]
A
I was surprised by the answer. It's yes.
- [35:52]
B
Well, it's yes with a caveat, isn't it, Robin? It's yes, but only if you lose.
- [35:58]
A
But it's interesting that there's any effect at all. I'm surprised that's the case given that only about half people in the uk, for example, are interested in football. Why should it have such a huge impact? Obviously it's the same people that do the investment. Or there's some overlap.
- [36:14]
B
Yeah. When I saw that there was research on this, my first instinct was, yeah, that's probably data mining. I bet. It's not a real thing, but the paper is respected and well cited. And this is Sports Sentiment and Stock Returns, which was published in the Journal of Finance in 2007.
- [36:32]
A
And they did do the obvious statistical stuff, which is to correct for things like time of the year, things like global market movements, whether it's just risk appetite generally or specifically about losing the game. Also day of the week effects, seasonal patterns, all of that was corrected for and yet we still had this residual, which wasn't explained, which was the effect of sentiment.
- [36:54]
B
And it seems to be the case that following a country's elimination from the World cup, its domestic stock market falls by an average of 0.5% the next trading day. That's quite a finding, isn't it?
- [37:10]
A
Yeah, but not so significant when you think about the typical daily volume for an equity market would be what, 15, 16%?
- [37:18]
B
But this is presumably layered on top of that, right?
- [37:20]
A
Yeah. And the daily volume would be around two. So, yeah, it is a small effect, I think, to be fair. And asymmetric, which is also interesting. If you win, you don't rush out and buy stocks in your local stock market, which is interesting.
- [37:35]
B
No, you're too busy celebrating and you're drunk.
- [37:37]
A
You aren't logging onto your app, are you?
- [37:40]
B
But what was interesting I found here was that the effect is stronger for knockout games as opposed to qualifiers and amongst smaller stocks, which the paper speculates, are more sensitive to sentiment and more likely to be owned by domestic investors.
- [37:58]
A
Now explain that knockout nuance, Michael. Is a knockout game more psychologically disturbing if you lose?
- [38:05]
B
Oh, yeah, it's more high stakes, isn't it? And the further you go in the knockout rounds, the closer you are to the final. So the hope is building. It's coming home, Romin. Feels like this year it is coming home, isn't it? Come on.
- [38:20]
A
Yeah, let's hope so. But one of the authors of the paper actually said it wasn't really about football. My goal was not to study just specifically how football affects the stock market, but more generally how mood affects the stock market. And football was just my measure of mood.
- [38:37]
B
I guess it is a good barometer of national sentiment, given how popular the World cup is. So that was a quote by one of the authors of the paper, Alex Edmonds, who is professor of finance at the London Business School. But surprisingly, that is not the only paper that has looked at the effect of the World cup on stock markets. There's another one, Investor Attention, Trading activity and FIFA World cup matches from 2017, which looked at stock trading in 15 countries during the 2010 and 2014 World Cups. And their basic finding was that traders get distracted while their team is playing. Literally like while they're on the pitch. And trading volumes decline by as much as 48%. And that domestic stock markets can temporarily decouple from global financial markets during the match.
- [39:28]
A
I guess this wouldn't work if you do this more recently because more of the trading is done by automated systems now. So even talking about a trading pit pretty much dates this paper.
- [39:39]
B
Robots like the football too, Romy.
- [39:42]
A
Yeah, if it's artificially intelligent, it wouldn't.
- [39:46]
B
Oh, you're trying to make enemies here. We just had one of our great victories as a country.
- [39:54]
A
Laura told me, be really careful what you say because lots of the listeners will probably like football. So I can't say anything too negative.
- [40:01]
B
This is more controversial than you coming on and slagging off political parties or religions. Don't ever go at the English football team, at least not until they've been knocked out.
- [40:09]
A
Oh, it's not the English football team. It's just football in general.
- [40:14]
B
Thank you for joining us for many Happy Returns. Keep sending us your questions no matter how dumb@mhrnsioncraft.com and do remember to check
- [40:22]
A
out pensioncraft.com for all the information about our membership courses and investment coaching options.
- [40:29]
B
Many Happy returns is a pensioncraft production, co hosted and executive produced by Romin Nikisa and Michael Pugh. This podcast is for information and entertainment purposes and is not financial advice. We do not provide recommendations or endorse any decision to buy, sell or hold any security. We cannot be held responsible for any actions listeners may take and investors are encouraged to seek independent financial advice.