Loading summary
Transcript143 lines
- [00:00]
A
Foreign.
- [00:04]
B
This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision making from two Canadians. We're hosted by me, Benjamin Felix, Chief Investment Officer at PWL Capital and Cameron Passmore, Chief Executive Officer at PWL Capital.
- [00:19]
A
Welcome to episode 357. This is my first AMA episode. A little bit rusty I must admit. I know we had an episode that came out together last week, but I'm still a little rusty. However, this is your second recording today, so you're anything but rusty. You're finely tuned.
- [00:37]
B
This is my second recording within the last 60 minutes. I did a guest episode with Dan right before this that was a great conversation. A guest whose academic expertise is in real estate and a large portion of his research is specifically on renting versus buying a home. Very interesting conversation.
- [00:54]
A
How are you enjoying the multi host format?
- [00:57]
B
It's great. It's kind of a different dynamic with everybody, but everyone brings something different to the table. I love it. The episodes that we had with Dan and Mark were some great conversations. The AMAs. This is your first AMA, so I don't know. We'll see how it goes.
- [01:10]
A
Cameron, we'll assess that later.
- [01:12]
B
I do want to mention before we start that Brayden is going to be releasing a video walkthrough of the new PWL retirement planning tool. I know a lot of the nerdiest folks in the Rational Reminder community have been nerding out on that tool, but I don't know if many other people have heard of it yet. Braden created and PWA released a full on retirement planning tool. So you put in your current income, assets and savings rates and all that stuff and it helps you figure out what your future looks like. Full life cycle planning tool. He's done some pretty innovative stuff to do something like Monte Carlo simulation without actually having Monte Carlo simulation basically modeling different ranges of outcomes. I'm pretty sure that's in the current version. If not, it'll be in there soon. It's a really neat tool. And so Braden's got a video coming out on Friday, May 16th to walk through the tool, how it works, how to use it. He's going to be available to answer questions and reply to comments live when the video is published. So instead of doing a webinar where he's there on video live doing this presentation, he's pre recording the walkthrough and then he's going to be there live when the video is published, watching it with the viewers and being available to answer questions. That's cool.
- [02:20]
A
You talk about the Nerdy consumers of this and we say nerds. With great affection, of course. Since joining OneDigital, so many people have reached out and so many Canadian advisors in this. Again with affection. This nerd community use those tools regularly and have them bookmarked and use them in their practices. So it's amazing to see. And Braden, with your support, of course, does such beautiful work and these tools are just incredible and so many people. First of all, thank you guys and us for doing this, but also for putting it out in the world for free.
- [02:54]
B
My mom was out in B.C. where I grew up and where we lived for many years. And a friend of hers is a CPA with a tax planning specialization and she uses a CPP tool and she said she scrolled down at one point and saw my name on there and she was blown away because I've known her for many years.
- [03:10]
A
Oh, wow.
- [03:10]
B
Yeah, it's funny. Didn't know my mom was texting me about that. All right, so Cameron, you disappeared for a while because you had a lot of stuff on the go. As listeners know, you've been absent. We are now about four months into this new world where we're part of OneDigital. What has changed at PWL over the last four months?
- [03:29]
A
Yeah, it's been an amazing four month period of time. In simplest terms, I think what has mainly changed is the size of our opportunity and the impact that we can have now. What has not changed, and this is absolute what has not changed is who we are, how we work, how we solve problems, how we work with clients, how we operate day to day. And Mike talked about this when he joined us back on episode 341, how they viewed this more as an investment as opposed to a takeover or some sort of other ambition. And that is exactly what we have been living. We still live in a mission driven, client obsessed world. We're just doing it now with more horsepower, more support, more people to lean on. We're hiring people, we're building better tools, meeting lots of new potential clients. We're actually ahead of where we were at this time last year in terms of new people reaching out to us for some help. Which is a really cool thing because that tells you that the market at some level appreciates what we're doing. So the momentum is building. The people we work with at OneDigital are absolutely nothing short of amazing. They are not taking us over from a day to day thou shalt do this at all. There's not even a hint of that. They view themselves as Investors in our business, they've asked great questions. They're leaning into our expertise, certainly on the communications side and podcasts and your YouTube channel and money Scope, et cetera. But they clearly are looking to us and relying on us to continue to lead this charge in Canada. And that's exactly what Mike talked about when he joined us. So nothing in terms of what we are doing and what our ambitions have changed, just our ability to do what we set out to do. And it's that oneness, going to market with one planning philosophy, one investment philosophy, one team solving problems together, working for clients together as a group. And this is unique in Canada. I talked earlier about how I've met so many advisors. I probably talked to 60 different advisors, people reaching out, people that we know that just want to find out what happened and why. And we're curious about that whole process. So I've talked to a lot of Canadian advisors. I talked to good friend in Dublin this week. He was curious as well. And as you talk to more people in Canada, I'm learning more about the actual structure of the Canadian marketplace, which is so interesting and it's validating so far that there are no other firms like us where it's go to market with this sense of oneness. There are many other firms and I've called them Franken firms, and these are other firms that are very good firms, great people in them, but each advisor does something off with a little different twist. And they have their own team and their own service deliverable. Nothing wrong with that model. I'm not judging it. Our model is different. We go to market as a sense of oneness. And this is exactly what I talked about on the Financial Advisor Success podcast with Michael Kisses a few weeks ago. And I know you and Dan talked about it last week's episode. That's what we talked about. So that's what we're trying to build and the stuff we do, and Braden's a perfect example of that. What we do and how nerdy we are matters in planning for Canadians. So that's what we believe in. That's what onedigital believe in. That's what Mike Sullivan believes in, and that's exactly what we're trying to do. So it's been truly an amazing four months. What's your take on it?
- [07:00]
B
I agree with all that. There's been no sense of you guys are going to start doing things this way now. It's been much more. What can we learn from you? They use that specific language. I've joined their Investment steering committee with a bunch of other people involved in the wealth and retirement businesses. Again, that's a group of people who they all want to learn from each other. There's no top down, onedigital does it this way. No sense of that at all. Been having regular calls with their cio, learning about how they do things, and he's got plenty of questions for me every time we talk. So, yeah, I totally agree with you, Cameron. Been a great experience so far.
- [07:34]
A
We also had a chance, seven of us. Unfortunately, you couldn't make it. But about seven of us had a chance to go to Atlanta for the annual summit event. That's where roughly 1,500 of our colleagues all came together at this amazing event. So I had a chance to speak to a lot of people and there's a certain cross section about them that is super interesting, very keen, very driven, very interested, very interesting profile of people. And it didn't have a feeling of some sort of corporate, you know, these ballroom conferences that I know I went to 25 plus years ago. Maybe you've never been to one. It wasn't that at all. So you could really see the culture stand out in that event. And all of us, when we came home, we all agreed that's what we experienced.
- [08:17]
B
I saw videos, looked pretty fun.
- [08:19]
A
It was fun. It was well done, it was professional, it was engaging. It was pretty cool.
- [08:24]
B
I was getting a CT scan. It's pretty fun, too. In the end, that was good. Worth it.
- [08:30]
A
It's an experience, right?
- [08:32]
B
All right, so we're here to do an AMA episode. That was a bit of an intro there, but I had to debrief with Cameron a little bit. So this is our sixth ama. Cameron's first. Like you mentioned, the format's been a hit. People enjoy it. So we're going to keep doing them. Then, of course, we hope you'll stick around for the after show. As usual, we have a crazy story about testicles. Not mine, other people's. So don't miss that at the end. All right, ready to jump into the AMA questions?
- [09:00]
A
You bet. Let's go.
- [09:06]
B
All right, so the first question from Jordan, I was careful to include the names this time, and I'm sorry to all the people who sent questions that we've already covered where I did not include your names. I'm sorry, but I was better this time. I copied and pasted an additional column to the right. It worked great. I regret not doing it before. So Jordan says, can you take us behind the scenes and explain to us the Full process for making a podcast episode. For example, how do you find the guests, how do you choose the subjects, how do you prepare the interviews? And is there a lot of editing? Oh, sorry, that was from Max. Paired these two together. Jordan asks how many people are involved and how much time does it take to create a typical episode? I'll try and answer this. Matt, who's here listening as our producer, probably knows more about this than I do, but I'm going to do my best. Hopefully Matt gives me the thumbs up. So the audio and video go through separate post production processes. In a typical episode, there's no substantial editing. We always tell guests when we're recording, we can edit whatever you want. But it's very, very rare for a guest to say, I want to edit that. And then likewise when we record, when it's just us, it's also very, very rare for us to decide we want to edit something. So usually what you hear is pretty much what transpired during the conversation. The audio edit is sped up, I believe, 10% relative to the video. Because apparently people just like to listen to audio at a faster pace. I know a lot of people listen to their podcast at 100, 125% or whatever anyway. Or some people at 2X or whatever.
- [10:26]
A
Some people at 3X.
- [10:28]
B
Yeah, just I don't believe it. We do Speed it up 10% or the producers do. There's also more editing in the audio. So if you ever look at the audio and video for an episode, the video is typically a decent amount longer. And that's because of two reasons. One is the speed up, the 10% speed up for the audio. And the other is that long pauses, just other gaps in the audio because you can't see the people. It's more weird if there's silence. So they edit more of that out. That happens outsourced. So there's a company called the podcast consultant that we've been working with ever since we started the podcast. They're actually a Canadian company, Canadian group of guys. They weren't originally, but they were acquired by some people in Canada. And it's all very interesting. I didn't actually realize that until relatively recently. I knew they'd been acquired. I didn't know that it was by Canadian people.
- [11:11]
A
I didn't know that either.
- [11:12]
B
Yeah, so they're all in Canada, which is kind of cool. And then Matt, who is on zoom with us right now, but not on video. He does all of the video editing. He does a great job, makes it look really, really good. But Again, less overall editing with that. But he will also do stuff like with Marco Salmon, he'd mentioned that he wished he had a slide up. So we made sure we put that slide up when he said that. So we'll do fun little things like that. There are a lot of people involved. So there's the hosts, obviously. Matt for the video, the podcast consultant team, which is multiple people. Stephanie gets the episodes posted in all the right places. Angelica oversees the whole process. And then Peterbo's compliance team, who we always thank in the year end episodes. And we'll do it again now they listen to every episode before it goes live. And then of course, the guests, I don't know if they're the people I'm missing there. But it's more than just the hosts, I can say that much for sure. And then for prep time and what goes into an episode. So we have these different episode types. We have what we call us episodes, where it's just us, like just PWL folks, some combination of hosts now that we've got multiple people involved. And those are usually just like an essay on a topic, like a spoken essay, like we'll pick a topic and we'll do a deep dive on it. Those episodes are a lot of work, probably the most work of the episode types, I would say, on average, we do often leverage writing that I've already done for my YouTube channel. I think most of our episodes are based on YouTube videos that I've written. And even if I don't make a YouTube video, I'll usually write it as if I'm going to, because I just like that flow and format.
- [12:39]
A
How much of your time each week is creating content?
- [12:42]
B
I find that question really hard to answer. I was on the Longview podcast. I don't know if it's out yet by the time we publish this, but they asked the same question. And I answered something like, it's really hard to separate what is research time and what is content creation time. We're getting a question now. Our advisors came to me this morning and said, we're getting a lot of clients wanting to underweight the U.S. right now because of what's happening in the U.S. can you make some content around that? And so if I go and research that topic and figure out what I want to say and what makes sense and how to help people make good decisions around that, was that research or was it creating content? Is it 50? 50? I don't know how to split it up. Okay.
- [13:20]
A
Another way of asking it is how much of your Time is non kind of administrative people, leadership, operational type stuff.
- [13:27]
B
I have two meetings on Monday morning with my team, with Ray and Braden. We have separate one on one meetings. Every Monday we have a leadership team meeting. On Wednesdays we have a meeting with some of the one digital folks every other week I get pulled into stuff like we're evaluating a new portfolio management software. I'll get ad hoc pulled in meetings like that to give my perspective. But other than that, 90% of my time is stuff that I, in my opinion, should be working on.
- [13:51]
A
Our calendar's a little bit different.
- [13:52]
B
Yeah, I refuse to spend my time like that. It's very valuable. And the fact that you do it is incredible. But it's not how I work.
- [14:00]
A
It's not how you roll.
- [14:01]
B
Not how I roll. To answer the question, how much time do I spend on content? I don't know. Most of my time is doing research that eventually turns into content. But how much of that is content creation versus research? I find that harder to answer this right now is content. We're recording, we're sitting down. That's clearly content creation.
- [14:19]
A
But listeners know this. You don't just wing it.
- [14:21]
B
No, not really. Where do the ideas come from or where do the topics come from? That's part of this question too, I think. I don't know. I get asked that a lot. How do you choose topics to talk about? Because we're at what, 357 episodes in. How do you come up with stuff to talk about? I don't know. I don't have a good answer. Stuff happens. Advisors ask me questions. I don't know. Warren Buffett retires, the US stock market stops outperforming everything else for a few months.
- [14:45]
A
The interesting part is that a lot of people might think there's this master editorial plan at play here where it's all mapped out for the next rolling 12 months or something. And that is not the case is far more organic and fluid and chaotic than that.
- [14:58]
B
It all relates back to research. We did an episode on asset allocation. We did an episode on risk tolerance that came from needing to work on our internal risk assessment process. But then it's like, oh, we've got a bunch of interesting notes on this. May as well do an episode on it. Those are probably the most work. They represent the most time spent not recording. That's an interesting way to think about it. The AMA episodes, the ratio of how much time did you spend recording versus how much time do you spend preparing. The US episodes are the most heavy on on time, not Recording the AMA episodes are the opposite. To answer that question that I asked earlier of how do we keep coming up with content after 357 episodes? One of the things we've done is change formats or add new episode formats. So this one, now six episodes in, is the AMAs. That was a new idea. And we're like, hey, let's try this. That takes a lot of pressure off coming up with other ideas, but these ones, we go and collect the next 10 questions from our database of listener questions that people have sent us. The amount of time spent to prepare the answers is pretty minimal, relatively speaking. I would almost even say it's as much time spent preparing as recording for those ones. It's a one to one ratio, approximately.
- [16:04]
A
Really. I thought you would spend a lot more time on the questions. Interesting.
- [16:08]
B
Not a ton of time. I still prepare, I still put notes in, but it's not a big deal. And then the guest episodes are the last type. And again, how do we find guests? I mean, reading, doing research on stuff. The guest that I just recorded with Dan before we started here, Eli Brocha, he has written a bunch of papers on renting versus buying a home, which is a topic I'm super interested in. I've said this many times that once I've read enough of someone's papers, I'm like, oh, I better finally invite this person on the podcast. So that's a big part of it. Prep time varies for guests. Sometimes guests take a really, really long time to prepare. Like if John Cochran or Gene Fama, Robert Merton. It's like their papers are hard, period. And there's a lot of them to figure out what questions to ask them and ask good questions and be able to ask good follow up questions and actually understand what they're talking about. To be able to ask follow up questions, that's hard. That's a lot of preparation. Not all guests are like that. Some guests have much more straightforward research, much more practical research. Or if it's a book that we're asking them about, it's a relatively small, tight box of what we're reading to prepare. So it varies. On average, I'd say US episodes take the most times than guests than AMAs. The other interesting thing though is that I don't know if we learn more from guest episodes or from US episodes where we're doing research on a topic or if we learn more from interviewing guests about their research. Probably kind of even there.
- [17:24]
A
It's a circle, right? It's a reinforcing loop.
- [17:26]
B
100%.
- [17:27]
A
Keep getting ideas and the style of your research and your ability to synthesize the papers and ask the questions. I mean, that's been improving as well as you go along. Obviously, you're in your zone now, and as everyone knows, that's listening. You lead those deep dives with those guests and the US Episodes, for sure. I think you're one of the best communicators in this space. There is today in the business, and not just in Canada. I would argue worldwide. I think it's been a fabulous. What is it now? Almost seven years. This summer we started 2018. So seven years this summer. Seven years to watch this thing evolve. We tried different formats with book reviews and different types of guests. But clearly going forward, you're leading the editorial decisions of who comes on and the type of content. I think it's going to be in a tighter lane going forward. I believe that's what your plan is.
- [18:17]
B
Maybe not, I don't know, branching out into some of the other guests we've had in the past that I maybe wouldn't have picked. That you did pick. Maybe we'll miss that. The episode that comes out tomorrow when we're recording it is one that you didn't pick, but it came about through one of your connections. So we're still going with those. I think those are great topics, though.
- [18:34]
A
It's also super fun, and we've said this many times, super fun to find. A guest may not have high profile, but then they're becoming fantastic guests. Those are really cool, right? Those hidden gems.
- [18:45]
B
Totally.
- [18:46]
A
Those are really fun. Of course, having Gene Fama or Ken French or Cliff Asness is amazing. There's no doubt about that. They're phenomenal. But, you know, they're phenomenal coming in. Right. So there's star power that might help for listenership, but you get the people that may not have that profile, and those are so much fun. But so many incredible guests that didn't have the profile ahead of time.
- [19:04]
B
Total recency bias. But like Marco Salmon.
- [19:06]
A
Oh, phenomenal conversation you guys had.
- [19:10]
B
I agree.
- [19:11]
A
I loved that one.
- [19:12]
B
Yeah, he's got such good energy. Ray on my research team said that Marco does something that most guests don't do. He'll ask us questions back.
- [19:20]
A
He does.
- [19:21]
B
He knows which questions to ask that we'll actually be able to answer. I find Marco very engaging, and his research is great. Next question.
- [19:28]
A
Fire away.
- [19:29]
B
When it comes to investing in money, do you ever catch yourself breaking your own rules? Do you set aside any fun money for things like single Stocks or other high risk gesture fund investments. And on a scale of 1 to 10, how strong is your urge to gamble with your money? Zero. For me, the only public markets investments I've ever made are a CIBC active mutual fund. When I got my very first job, I went to the bank branch because that's where I banked and said I have more money than I can spend. Can you help me invest it? And I used an RRSP account, which in hindsight was probably not the right account because my income was pretty low. Should have saved those deductible contributions for higher income years, but I didn't know that then. I also didn't know I shouldn't have been investing in an active fund. And then I started working as a mutual fund salesperson. Moved my stuff over into some Fidelity actively managed mutual funds. Learned my lesson or learned what the data say. Switched to dimensional funds when I came to PWL and haven't looked back since. That's public markets. I've never picked stocks, never gambled, never done a yolo. Private markets, I've been a little more wild. Not because I wanted to gamble. I've done four private market investments. One of them went to zero. One of them I suspect will go to zero. Hasn't yet though. And then I bought shares in pwl which did not go to zero. They did whatever the opposite of that is. And now I hold shares In OneDigital, those four different private markets holdings that I've had. Overall, my track record in private markets is actually really good. Got this unis working for me. I guess the two that went to zero weren't like I really want to gamble. It was people that I knew who had successful past exits who were really excited about starting a new business and I decided to support them. I probably wouldn't do that again, but I don't really regret the ones that I did. I learned a lot of stuff and I was supporting people that I knew.
- [21:14]
A
But you have no desire to add to that or hunt for that kind of exposure.
- [21:19]
B
Zero.
- [21:19]
A
I have zero.
- [21:20]
B
Also, I did a couple tiny crypto buys when we started researching crypto. I didn't want to feel like a total alien to the practical side of that topic. So I bought some of that. But I didn't hold it for a very long time. Didn't hodl it, I should say, and don't own it anymore. But other than that, that's it. I'm pretty boring.
- [21:41]
A
I'm the same. I've owned two individual stocks in my life. Is back in 1994, just before we bought our first house, I bought CI shares because of course make money off the funds that we were selling back then. Not a lot, it was maybe a couple thousand dollars and also JDS stocks. So we owned those two stocks. They doubled or whatever back in the day and they gave us enough for a down payments. I think it grew to like five or six grand. And we bought a house for 135 grand. Nice. And then went back and I think five years later through the tech boom 99, 2000, 2001 did the math and had we held the JDS stock, it would have paid for the entire house. It's all hindsight bias. Of course. I have no desire. I was listening to a podcast this morning where Andrew Ross Sorkin was talking about the buffet meeting this past week in Berkshire Hathaway meeting and described him as kind of the oracle of behavior of capitalism and the impact of capitalism. And his take was very interesting. I kind of think the same. So all of any public market stuff that we have saved up is all in dimensional portfolios. You can't unhear the message after we've been immersed in this for so long. But it's a combination of hearing that message and believing in it. Believing in capitalism. Markets work and just buy it. Make sure you have the proper timeframe, set it and forget it. Don't touch it. Let them rebalance. I'm in on average 60, 40, something like that. And then any cash needs in the next couple years is all in a heisa type fund. There's no other private investments. I have no desire to hunt for that kind of stuff. Skewness doesn't excite me like you. We were able to roll some equity in one digital, so that's private equity. But we have a little bit more control and insight. You can call it bias, but I'm quite comfortable holding that but nothing else. And again, I have no regret about missing things like Apple or Bitcoin or whatever. Just doesn't enter my brain at all. Way more energy goes into. It's amazing. As you get older you think more about that, but it's more about experiences with the family and health. I'd rather put my brain power into that than trying to find an extra return. It doesn't do anything for me.
- [23:46]
B
I agree. And it's not risk aversion. My public markets portfolio is 100% equities. I have a huge portion of my net worth in a single private asset as I did before we sold and as I do now. I know you're not risk averse. A desire to gamble with basically negative expected return investments. I have absolutely no interest or desire.
- [24:05]
A
I just don't want it in my head. I don't want to think about it. I'm happy with what I've got. I feel good. I sleep great.
- [24:11]
B
The question was about breaking your own rules. I don't really have rules. I have actions. There are things that I do with my money, but there aren't, oh, I really want to do this, but my rule says I shouldn't. That's just not something that I deal with at all. You want to read the next one?
- [24:26]
A
Sure. This is from Anton. You often mentioned how investing has largely been solved, but what are the aspects of investing that haven't been answered yet? My perspective on this is that they've been largely solved enough for the vast majority of people. Vast majority of people, if they just change their behavior, they can add way more benefit to their balance sheet than in trying to seek out extra handful of basis points because of some new academic research shows that you can increase your expected return. We have this unbelievable era of access to broad based returns of capitalism for basically near free. And if I compare back to when I started, the total MERs and portfolios now are a fraction of what the marketing expense in mutual funds would have been back in the early 90s. It's just an unbelievable evolution. But what's not been solved is human behavior. People are messy, markets are messy, markets are noisy. And as I said to Michael Kisses on the podcast, we can look at a spreadsheet or go through a risk profile questionnaire and everyone knows that markets are volatile and how would you behave if the markets fill a certain percentage? And that's all fine, but it's the story that goes along with it. So even though the variability may not change, the story always change and the stories always seem to be scarier. And it's always this time can be different. And then you look at Buffett, one of his greatest accomplishments, and I think Andrew Sorkin mentioned this morning that Buff has talked about making a dozen great decisions in his 16 years of leading Berkshire Hathaway. That's that behavior that's such a huge impact. So that's my take on that.
- [26:01]
B
We do say that investing has been solved, but we say it kind of tongue in cheek. Like you said Cameron, index funds are a pretty good approximate solution to investing for most people. But investing isn't literally solved. It functionally is. Maybe, but the recent episode with Margo Salmon was a good illustration of yeah, index funds are great, but there are mechanical ways that they're suboptimal. So is investing really solved or there's always something that you could do a little bit better?
- [26:26]
A
Well, there's always lots to learn for sure. And this is a perfect example where he talked about going back to the Bill sharp paper from 91 I believe, early 90s. Amazing insights.
- [26:37]
B
The aspects that have not been answered yet. I mean there's so much that has not been answered. What actually drives asset prices? We don't really even know that and we can't because financial economics is still just a social science. So we can have a pretty good idea, but there are still competing theories. What's the saying for every PhD there's an equal and opposite PhD. For everyone that tells you factor investing makes sense. You've got an Andrew Chen who tells you that there are no more premiums after costs. And whoever tells you that premiums are risk based, there's someone that tell you that they're actually behavioral market inefficiencies. So yeah, I mean it's not actually solved. But from a practical perspective, the biggest thing that has not been solved, let's just say functionally investing has been solved because index funds are a pretty good approximate solution to the optimal portfolio for most people. Even if that is true, and you mentioned this too, Cameron, the human behavior element has not been solved and I don't think it will be solved. People are just not wired for investing. People think short term investing as a long term activity. People are affected deeply by narratives and stories. Financial markets are an information processing machine. They're just incompatible by their nature. Humans and long term investing. I don't know if there's a way to solve that other than not giving people access to their money. You can't do that either.
- [27:52]
A
The industry capitalizes on humans desire to do something to avoid danger. As I find interesting. Going back to Buffett. So many people travel around the world to listen to him. One of the most patient investors of all time. Yet this industry puts out all kinds of articles and advice. Markets crash. You got to do this, you got to do that. 60, 40 is dead. All these things are all swirling around. What else do you expect people to do if they're low information investors but to react to this kind of stuff.
- [28:21]
B
Totally. I mentioned earlier that our advisors let me know this morning that we've gotten a lot of questions from clients about reducing their US equity exposure now that things have changed a little bit. The funny thing is that six months ago it was the Opposite conversation where people were asking why are we still investing in eafi? Why are we still investing in Canada? Let's just go all in on the US but it flips. The US is barely even in negative year to date territory. It's not crazy. Crazy negative behavior changes so quickly.
- [28:49]
A
That's my point. If you just look at absolute numbers, it's nothing. That's scary compared to what you may have seen in a risk quarter questionnaire. You attach the story though the story's different. Marcus, keep on working.
- [29:00]
B
That's funny. Just looking at the Apple app, I don't know. It's not the best way to look because I don't think it shows total returns. But S&P 500 year to date is down 3.77% in. That's U.S. yeah, in U.S. dollars.
- [29:14]
A
Look at portfolio returns here if I can get it quickly. But year to date, most of the global portfolios on a year to date basis to 5-6-5050 portfolio is down like 0.37%. US core equity down 5.2%. It's not even headline type numbers. That's year to date. That's a Canadian listed hedged as well.
- [29:34]
B
Oh that's hedged.
- [29:35]
A
Okay so that'd be close to the US and US dollars. But you take like a 7030 portfolio or minus 60 40. I mentioned down 62 basis points year.
- [29:43]
B
To date in Y charts year to date spy returns. So it's a live fund. Total return down 4.37%. I've got a video on this that I haven't published yet. I want to rework it and I actually posted it in the RationalMiner community and got a bunch of good feedback. The script I still need to spend some time on it, but one of the things I talked about is the market has already reduced your U.S. equity allocation for you. You just say how much should you reduce your US equity allocation by? Well, if you just take cap weights, you've already reduced it. Next question.
- [30:13]
A
What would a rational investor do with the equity in crypto market at an all time high? I acknowledge that timing in the market is generally not a good approach, but is the expected return still attractive to start investing in equity right now? Could investing in T bonds and waiting for a market correction be a good decision considering the current environment? From Andrea B. What say you Benjamin?
- [30:36]
B
So it depends how you define rational. It's easy to say, well market timing doesn't make sense, which I think is probably true. However, we had Victor Hagani and James White on in episode 270. And they talked to us about the Merton share and dynamic asset allocation allocation. Victor explained that the Merton share suggests that when expected returns are higher. Makes sense when you say it. We should allocate more to the risky asset. When risk is higher, all else equal, we should allocate less to the risky asset. So if we can estimate the expected return on risk of stocks and if those risk and return numbers are changing over time, there is an argument for dynamic asset allocation having more inequities when risk and return is more favorable, when the trade off is more favorable. In their model, the way they talk about it, you'd be moving out of equities into tips. It has to be a risk free asset that you're moving into. And tips are the closest thing we can get to that. Merton share is the idea from a 1969 Merton paper that you want to size your positions in risky assets in proportion to the expected returns and inversely to variance. So for any risky bet, if the expected return doubles, you want to double your bet size, but if the volatility doubles, you want to cut your bet size in four. I'm just pulling this from the episode that we had with Victor and James. Now, there are a lot of assumptions in there, including normally distributed returns, which we know returns are not normally distributed. Sufficient predictive power of the cyclically adjusted price earnings ratio, which is what they use to measure expected returns for stocks. I would say that is contentious. And then the other one is that risk is not moving around in a way that offsets changes in expected returns, which it could be. Is there a case to be made that a rational investor would change their asset allocation when valuations are high? Sure there is, I guess. I don't think I would do it though.
- [32:20]
A
That's kind of the cliff ass and sin a little.
- [32:22]
B
Well, yeah, I think Victor's sinning more than a little. A little bit different, but yeah, same kind of idea. It makes sense logically. And they have tested in historical data and it looks actually pretty good, but we're not going to start doing that. But the other thing here is that Andrea was asking about all time highs, not about valuations or expected returns. Victor and James would say when expected returns are low, you should reduce your allocation to stocks. Okay, that's fine. But the question is asking at all time highs, which is a different question. All time highs are relatively common. If you go and look in the data, if you just look at stock indexes historically, roughly on a monthly basis, 20 to 30% of months, you're at an all time high, depending on which index you're talking about.
- [33:06]
A
I think I heard there was 42 all time highs last year.
- [33:09]
B
I believe it. The market goes up, you're going to have all time highs. That's just how something works when it goes up. But the interesting thing is investing at all time highs has historically not led to worse returns than investing at all. Other times I've seen some research even suggesting that investing at all time highs gives you better returns. I don't know what horizon that's over. I modeled this out at a three year horizon and there was nothing interesting there. So I just scrapped the model. I found that if you invested rolling three year periods going back to 1926 in the US equity market, and this is just from my head because I deleted the spreadsheet because it was not interesting rolling three year returns, if you invested only at all time highs, your return was nearly identical to investing in any month. So I got investing at all time highs doesn't matter.
- [33:55]
A
Thing I would caution is if you do do it to make it very rules based if you can, because you have the risk of becoming overconfident, especially if you get the first one right. You might increase the size of your bets going forward. So I would encourage people to make it very rules based to avoid that.
- [34:14]
B
So use the Merton share if you must. Do what Victor and James talked about in their episode episode 270.
- [34:19]
A
That's it, that's it.
- [34:21]
B
Next one. Oh, this is a fun one. Short, but fun fun for you. Most of my investments are in my holding company. Most of it is stock. Now the capital gains will be taxed on a bigger portion. 67%. That's the inclusion rate going up. Is it a good idea to take some money out as dividends and invest personally in the stock market to be taxed on a lower portion? 50% inclusion rate personally up to a certain limit is what the rules were at the time. They also receive a salary from another operating company and they've got a max RRSP and tfsa and they tell us the marginal tax rate. That's from Sylvain, small business owner in Montreal. Now the reason this one's fun and the reason that it's interesting is that it's kind of this time capsule of a time before when the capital gains inclusion rate was going to increase and when there was a difference between how corporations were going to be affected and how people, individuals were going to be affected. There was some really potentially interesting planning around that. We did a Money Scope episode On this specific thing. We even walked through an example like this where we showed that in some cases maybe it could make sense to do what Sylvain's asking. But those changes didn't end up happening and they're not going to. At least it seems extremely unlikely that they will. So I think the real lesson here is that tax uncertainty can be as difficult to navigate as market uncertainty. Maybe it doesn't happen as frequently, and maybe we have a little more control over how it affects us. Although that's not always true. But I mean, people that made really aggressive changes or prepaid capital gains by realizing gains leading up to those changes, they ended up getting burned. It's just a really interesting example of this was a really interesting question when it was asked and there was some interesting planning that could have been done around it. If you had done that planning, it would have ended up being not so great in the end.
- [36:02]
A
I'll read the next one and I'll let you answer it. The next one's your happy place. Also, if private banks can easily create money through lending and their primary disincentive to issuing bad debt is the need to maintain profitability, what mechanisms or constraints prevent them from excessively creating bad debt? Given that there appears to be little direct cost of doing so, there is no financial consequences as this is opportunity costs rather than a monetary loss. Thanks for your time, Shmuel.
- [36:29]
B
I'm not an expert on banking. I spent a lot of time reading about it to make that video and I spent a lot of time talking to people who do have expertise in banking before making that video. So I'm going to talk about what I know, but to be clear, I'm not an expert in this. So when a bank makes a loan, it creates a deposit which is a liability to the bank and it creates an asset which is the loan. Loans are assets to a bank. If the loan becomes worthless, the bank is left with no asset and a liability and that affects the bank's equity. And it can also affect the bank's profits because they're not going to get income on the asset anymore. In an ideal case, the bank makes the loan earns the interest on the asset over the life of the loan and if the loan defaults, the bank loses that income and also loses the asset. Banks don't want that to happen. It's not good for them. They also have regulatory constraints. They're required to maintain certain capital ratios relative to their risk weighted assets and bad loans are going to eat into those ratios in addition to regulations they have to remain profitable. If they're making wild loans that can't be repaid, they risk insolvency. And the bank's credit rating and reputation also matters if it wants to raise external capital. If it's known as the bank making a lot of bad loans, no one's going to invest in it. So I think there are lots of different, both economic and regulatory constraints that stop banks from going crazy. It has happened. It happened in the US There were a lot of wild lending that happened leading up to financial crisis. It happened in Iceland and they had a big financial crisis. So it's not. They can't happen. But there are constraints. Eventually those constraints do become real.
- [38:01]
A
Exactly. Okay, you take number eight.
- [38:04]
B
What do you believe is the most costly mistake that people can make in their personal finances? Nolan from Calgary not investing is a big one. There's lots of interesting academic research on this that a lot of people don't invest or they underinvest. And then along a similar line of thinking and a similar line of research, a lot of people don't take enough risk. So they do save, but they don't take enough risk with their savings. I think those are huge. Taking the wrong kinds of risks is also big. So investing in only penny stocks or only crypto or only options or whatever, those are probably also big mistakes. And then another big one is getting divorced. You can't really call it a mistake, but it's one of the costliest personal finance outcomes that can happen to people.
- [38:48]
A
Won'T dispute you on that. Divorce can be quite a financial hurdle for anyone that's gone through that. Stepping back big picture, we see so many people obsessing over squeezing a bit more return and they don't have a plan in place. And better behavior, especially when you're starting out, will have a much greater impact on your balance sheet than squeezing out some speculative bet you're trying to make. I see a lot of that, especially with young people just starting out. A lot of people just don't have a plan in place. They don't know what kind of return they need. And that helps inform you on your ability, willingness and need to take on risk. The need part to help you decide what's a sensible portfolio. Which leads back to your comment about knowing and being able to take on the risk that can lead to a better outcome down the road. That's the big ones for me. Define your why. What are you saving for? What's the plan? That's also interesting too. I think back to that. Great work you did on goal identification. Ask you once, ask you twice, and keep digging again is such a fascinating exercise because often someone might think of their goals and it's like, okay, get a house or educate my kids or retire at a certain age. But there's so much more to it than that, than just the easy, quick answers. And we're all so busy, we often don't take the time to think about these things. But that's so vital. So few people, I think, have a financial plan. So few people have a will.
- [40:07]
B
It's true. Takes time and effort to do that stuff. Easy to forego, easy to defer.
- [40:13]
A
So the next question is an interesting one, something you and I have debated a lot.
- [40:17]
B
I'm interested in your take. I'll read the question. I was hoping to get Dan's perspective on this, too.
- [40:22]
A
We'll get Dan to ask it in an upcoming episode. It's worth it. He's experienced on both sides of it.
- [40:27]
B
Yeah, he's done it. Yeah. So the question is from Rob from Boomer and Echo, who's been a guest on this podcast twice.
- [40:33]
A
Friend of the firm, friend of ours.
- [40:35]
B
Yeah, Rob's a great guy. Rob asks, why don't you offer advice only planning for the DIY investor crowd? Which is a question that we get a lot Now. I was hoping that Dan would be able to answer this. He was supposed to be on this recording, but because we ended up getting doubled up, he wasn't able to make this one. But like you said, Cameron will kick this forward and ask Dan to give us his thoughts in a future episode. But Dan and Justin, for a period of time, did have a fee only offering for DIY investors, where the DIY investor would come in, they would get set up with a portfolio, like handheld dude, setting up portfolio. They would get a financial planning projection. I don't know what else exactly, but it was a fixed rate. It wasn't cheap, but it wasn't insanely expensive. So people would come in, pay that fee, and then they'd be sent on their way to be DIY investors. I think there was something involving charity. They were donating the proceeds or a portion.
- [41:25]
A
Some of the proceeds, I think, went.
- [41:27]
B
To camh, I believe something like that. It was a really neat offering and it was massively oversubscribed. They couldn't service it.
- [41:34]
A
They even did videos, how to trade, how to buy ETFs on all the different platforms, how to do the Norbert's gambit. And at the time, many people here and in the industry and they Heard this too, thought they were nuts, like what are you doing all this for free? And it turned out, from what I recall, and I look forward to getting Dan's insights, but it was like once people realized what went into doing the kind of work they were doing, they're like, can you just do it all for me?
- [42:01]
B
So it would be cool to hear Dan's take on oh, so they stopped offering it. That's the interesting piece is that they offered this thing for a period of time for reasons that we'd have to ask Dan about, they stopped offering it. What are your thoughts, Cameron? Because like you said, you and I have debated this topic for years.
- [42:15]
A
Yeah, we get a lot of people reaching out for sure. And there's great fee only advisors like Rob. And if you can do the trades on your own and do the implementation and all the follow up things, you.
- [42:26]
B
Being the DIY investor, you being the.
- [42:28]
A
DIY investor, it's a phenomenal platform. Like we've said many times, if you don't need us, why would you pay us? That doesn't make any sense. The biggest beef I with the industry is that it's all usually bundled in one mer. And you're not really clear on who's getting paid what. Now I know there's better disclosure coming, but I still think a lot of people don't look into that. So they think the planning is free. Our reality is that we have lots of people reaching out to us who are looking for help with the plan and the implementation. There's so much demand for that that we're staying in our lane to do that. Now if we had excess capacity on the team, you can make an argument, I think, to maybe offer that on the side, but we don't currently have excess capacity.
- [43:07]
B
It's not just that though. We don't have excess capacity. And because there is so much demand, if we went and hired somebody for us to fill them up with something other than our core business, it wouldn't make sense for us to do it makes sense for somebody else to do if that's their business. But that's not our core competency. It's not what we've built all of our processes and systems around.
- [43:27]
A
And there's so much back and forth work in planning and implementation. And it's not just make the trades, do the buys and set and forget. There's so much follow up and tax installments and I'm buying a house, I need a wire made, I got to do a TFSA contribution on my RSP or my RIF payments. There's so much money in motion that goes along with the planning process that we're staying in that lane for now for sure.
- [43:50]
B
But we do talk about it. There's a lot of demand for that too from us, but there's a lot of demand for our core AUM based business as well. And I don't know what would cause us to move into the fee only lane, but it's something we do discuss.
- [44:03]
A
Let me ask the next one, then you can answer it. How's that? Since I got nothing. As financial analysts, you spend a lot of time in Excel. Hit us with your favorite or weirdest Excel trick. I promise nothing is too nerdy.
- [44:15]
B
Def Potek I really don't know how weird or unique this is. I do spend a lot of time in Excel, but I'm not like a student of Excel. I would get smoked in an Excel competition. I do know how to use Visual Basic for coding in Excel. I'll say one of my favorite things and if maybe people say, oh, that's boring, Ben. Everyone knows that. I have no idea. You can use a couple of functions, norm.inv, and then bracket, and then you can use the RAND function to generate a random number. And then you input the mean of your distribution and the standard deviation of your distribution. That little function or that pair of functions will output a random number from the distribution defined by the mean and standard deviation that you put in there. Now why is that cool? You can use that to create a simulated time series of returns, randomized returns that are normally distributed around your defined distribution. So if you have your mean standard deviation for whatever 100% stock portfolio or a 60, 40 stock portfolio, and you want to simulate different outcomes for that portfolio in Excel without doing any crazy coding or anything, you can do that. So that's pretty cool on its own. But then you can write really simple Visual Basic code. I've been using the same Visual Basic function that I wrote six years ago, seven years ago, and I just reuse it whenever I want to do this. But you can use that to print the outputs. So the thing I just described, you create this time series of simulated returns. You Press, I think, F9 to refresh Excel, and it'll give you a new output for your simulation. But if you want to record those outputs, you need to use some Visual Basic. Once that's set up, you can run this thing for however many you specify. So if you want to do like 100 simulations or a thousand simulations, you can do that. And it's pretty easy. It's cool because you can do any time series model of retirement spending or paying off a mortgage, like anything. And you can simulate different outcomes and then record them to find the distribution of outcomes for the thing you're trying to model. It's pretty simple. It's the one function in this cell to generate the time series and then it's a very basic function in Visual Basic and you can run this simple Monte Carlo. Now, I've used that less and less since Brin's been around because he does stuff in Python that's way faster and way cooler and just better all around. But it is nice to be able to run a quick little simulation or a quick little Monte Carlo just to test something out. Test out an idea. I hope people will tell me, is that interesting? Is it boring? Is it nerdy? Is it not? Is it embarrassing? I don't know. What's yours?
- [46:48]
A
I got nothing. I'm just proud of myself for spending considerable amount of time in ChatGPT and another AI tool that we've been using here. I know it's not Excel, but I'm really starting to build that habit.
- [47:00]
B
ChatGPT is horrifying. I use it every day also. I don't know, man. The amount of times I catch it being wrong about stuff is absolutely terrifying because I'll catch being wrong about stuff that I know really, really well and it'll be wrong in some little detail and I'll be like, oh, I think it's actually this and oh, I'm so sorry, you're right, it is that. It's like, man. But I think all the stuff that I ask it about that I don't know really, really well, I just have a lot of trouble trusting it. What I find it's most useful for is pointing me in the direction of what I should be reading more about. I'm very hesitant to trust its outputs.
- [47:32]
A
I'm using less technical stuff. It's more for getting my head in the right space for upcoming meeting, things like that, or synthesizing notes on culture books. For example, this morning I took my favorite 12 books on leadership, culture, storytelling. Got it. To summarize each book. Then I said take all of this and make it into kind of a super easy to read guide. It did a great job. And then I put it into the other agent we have from admired leadership to make it into a user friendly based on their models of leadership. And it was phenomenal. But technical stuff. I'll take your word for it. I'm not doing technical type work like that.
- [48:10]
B
I still use it a lot though. It's a new technology. I guess it was hard to think about where it fits into being useful. It is useful, but it's also very strange.
- [48:24]
A
Okay, after showtime.
- [48:25]
B
Yeah, let's go. I'll read the review and then you've got some comments. So this review is from Ashton from California. Enjoyable to listen to and the growth value is a huge bonus. I found this podcast recently and I'm happy that I did. In an age of highly biased and negative content being the standard, your podcast gives me an opportunity to enjoy content that makes me feel positive and entertained and also helps me grow and maintain knowledge in interesting and valuable broad finance topics. Keep up the great work and thanks.
- [48:54]
A
That's very nice. I've heard from many people since the Michael Kitces podcast a couple weeks ago. Interesting that so many people had this common feedback which was how come you never sound that fired up on the rr? We didn't know you come across that way. So I appreciate that feedback very much.
- [49:13]
B
What's the answer?
- [49:14]
A
I don't know, just the topic. And Michael's podcast is kind of the leading podcast in our community, the advisor community, certainly around the world, and it's listened to I think after seven days, around 7,000, 8,000 people. But it's the definitive advisor podcast in my opinion. And Michael's in his company is the de facto leader in research in the business of being an advisor.
- [49:36]
B
Totally.
- [49:37]
A
I wanted to do as good a job as I possibly could, so I put a fair amount of time into preparing. We know Michael and we've talked a fair amount. I stay in pretty good contact with him, so we have a certain amount of rapport that made it easier. I did put effort into it, as you know. It's really my happy place. Building a business around mission driven team is what I love doing, so it was an easy topic to get fired up about. The other thing I wanted to mention too, and you and I talked about this before I put the post on LinkedIn, but I put a post out about our desire as a company to bring personal insurance services like life insurance and disability insurance in house. We do it now. We work closely with a phenomenal external provider, but we want to bring it back in house. So I made this post I had to put on LinkedIn and you said, oh boy, here we go.
- [50:25]
B
Wait to see what you're going to get.
- [50:27]
A
You're a little more colorful than that. And then there was some of that. But boy, there were so many great kind people that our followers connections listened to us that reached out with nothing to sell, nothing in it for them. They were so kind. I talked to at least a dozen people so I'm very grateful for that and learned a ton about the insurance business and got a lot of great advice, was very, very helpful, very cool. Speaking of LinkedIn, since the US election I have been completely off and out, signed out, killed the accounts on Twitter, Facebook and Instagram. I have left the building on those three. I refuse to give my eyeballs to those organizations. I miss the updates. You just kind of stay more current on what people are up to. But man oh man, this is time savings and first sign of an addiction is probably denying that you were addicted. So with that preface it just is a massive reduction of guilt. I'm never doom scrolling. There's no more doom scrolling. And even though I mainly follow people like on Twitter who are in the business, you just find yourself getting more and more stuff. And I know I could probably filtered out the right wing stuff and all this garbage. I'm like, you know what, I'm tapping out. So since the election last November, I've been out, haven't gone back, haven't cheated. I get the odd post from you that will be look at this and I'll go in, see it and get out. But my account's gone. Facebook gone. Instagram gone.
- [51:54]
B
Good for you. My Facebook's been gone for a long time. I don't think I ever had Instagram Twitter be a tough one to give up. Even though I don't post there much, I've built up a not huge but respectable following and I feel bad, but I never go on there. Maybe we'll delete it, I don't know.
- [52:08]
A
So you're basically gone as well.
- [52:11]
B
I can't stand being on there. I still doom scroll on Reddit though.
- [52:15]
A
I don't know, I go there once in a while. I'm trying to avoid the doom scrolling and do other stuff.
- [52:20]
B
Very wise.
- [52:22]
A
So the next topic here, the notes, is quite something. I did not have this on my bingo card for today's show.
- [52:27]
B
Are you going to read the topic title? If you want me to.
- [52:29]
A
No, you go ahead.
- [52:30]
B
So we're going to talk about other people's testicles today. Talked about my testicle which is doing fine. I guess I should have titled this other people's testicle actually. So I'm going to read this message that I got from someone. Hi Ben, just wanted a message to say thanks for sharing your story about testicular cancer On Rational Reminder. I'm a longtime Rash Reminder listener and Canadian couch potato reader before that and got my own testicular cancer diagnosis at the beginning of April last month. April. The first time I read this, I was like, oh, April a long time ago. Then I was like, oh wait, oh April. A few weeks ago, after experiencing some mild pain but no other symptoms, I had just listened to the episodes where you talked about your story in the preceding weeks. Having that in the back of my mind motivated me to quickly get things checked out. I had the same very positive outcome that you did. Orchiectomy is when they take your testicle out Stage one seminoma, which is the early stage and less likely to metastasize type of cancer. No evidence has spread with surveillance as opposed to chemotherapy as the recommended path forward. Anyway, I truly think your story caused me to see my doctor weeks or months earlier than I otherwise would have. So thanks for sharing. Wishing you all the best and a relapse free surveillance period. Wow. I got a message. I was like, damn, that's crazy. It felt important to me to share what was happening there for that reason, because I know our audience demographic was a large concentration of people who were in the prime demographic for testicular cancer. I never felt weird about sharing it. It just felt like I should talk about this because it might affect other people. But yeah, getting that message, I was like, wow, it helped this guy. It's crazy.
- [54:09]
A
I've had conversations with two other listeners that also have had the same diagnosis.
- [54:15]
B
And treatment since then or previously.
- [54:18]
A
Previously had it in the past. I didn't know.
- [54:21]
B
I've talked to a ton of people who have reached out to say, yeah, I went through this and whatever. Even if it's a low percentage of people because there's so many people, it affects a lot of people.
- [54:30]
A
So many people. As you know, I'm very good friends with someone in that specialty. And there's always people coming. Every day more people are coming. Just never stops.
- [54:41]
B
The friend of yours in that specialty was very helpful as a resource, as was Mark Soth, my moneyscope co host. But having people in the medical field to talk to, if I think about it a different way, if I had not had those people to talk to, it would have been a much more difficult experience. You don't have a ton of access, or at least I didn't. Everything that was necessary was completed in a timely manner and was professional and well done.
- [55:06]
A
You were well served by the system 100%.
- [55:09]
B
Everything was quick. There was no long waits. All the stuff you hear about how terrible Canada's healthcare system is. I experienced none of that, which was great and I'm grateful for that. But you don't have access to your urologist or your surgeon or. Same person in my case. So having Mark and having your friend Cameron available by text to be like, hey, the result. Said this. Is that good or bad? And they'd be like, oh, no, that's great news. Or like, oh, they said this. That seems really concerning. Is that a big deal? And they could be like, no, no, that's totally normal. It's like, man. Without having that level of support from people with medical knowledge, it would have been a lot more challenging. I don't know what the point of me saying that is, but that was very helpful.
- [55:53]
A
Cool. Is that a good place to end today's episode?
- [55:56]
B
We'll end the episode on other people's testicles.
- [55:59]
A
All right, as always, everybody, thanks so much for listening.