A weekly reality check on sensible investing and financial decision-making for Canadians. Hosted by Benjamin Felix and Cameron Passmore of PWL Capital.
The Rational Reminder Podcast Benjamin Felix & Cameron Passmore
Cullen Roche: Understanding the Modern Monetary System
With so many moving parts, it's difficult to develop a clear view of the US monetary system. Today we speak with Pragmatic Capitalism author and Founder of Orcam Financial Group Cullen Roche, leveraging his expertise to build a comprehensive understanding of the monetary system. We open our interview with Cullen by asking him the deceptively simple question, "what is money?" We then explore where money comes from, the role of the central bank in securing our money supply, and why poor capitalization restrains banks. After discussing where the value of money derives from, Cullen shares his insights on how decentralized digital currencies are challenged by their lack of flexibility and credit options. We talk more about the role of central banks before diving into quantitative easing; what it is, why it's used, and how interest rates impact its usage. Following this, Cullen unpacks whether quantitative easing leads to asset inflation along with the influence that stimulus policies have on inflation. Reflecting on the relationship between the Federal Reserve and US Treasury, Cullen shows why the US government is in no danger of becoming insolvent. We touch on the dollar's purchasing power, Cullen's view that time really is money, the role of gold in your portfolio, and why Cullen is such a big proponent of global investing. We wrap up our informative discussion by asking Cullen how he defines success in his life. Tune in to benefit from Cullen's clever and concise explanation of our modern economic system.
Introducing today's episode featuring Cullen Roche. [0:00:15] We open our interview with Cullen asking the question, "What is money?" [0:03:50] Exploring where money comes from and the role of banks in ensuring money supply. [0:06:14] The factors that constrain a bank's lending ability. [0:09:26] Cullen unpacks where the value of money comes from. [0:12:36] Economic constraints posed by decentralized digital currencies. [0:15:08] What central banks are and why they're such good ideas. [0:20:46] Cullen explains what bank reserves are. [0:25:00] How quantitative easing tries to stimulate the economy. [0:25:45] Why quantitative easing isn't the same as printing money. [0:30:01] Cullen evaluates the success of quantitative easing as a policy tool. [0:33:19] Whether quantitative easing leads to asset inflation. [0:33:57] The impact that stimulus policies have on inflation. [0:39:38] The relationship between the US Federal Reserve and Treasury. [0:43:04] Why the US government will most likely never go insolvent. [0:47:44] Why low inflation trumps high inflation and how increasing government debt might or might not harm future generations. [0:51:17] Why the dollar's purchasing power doesn't reflect the reality of our modern standards of living. [0:55:26] Hear about Cullen's view that time really is money. [0:59:14] How Cullen sees gold as a hedge against the dollar's decreasing purchasing power. [1:00:41] Cullen explains why he's such a big proponent of global investing. [1:05:04] There's more to life than money; Cullen defines success in his own life. [1:06:48]
David Booth: The First Index Fund, Competing Fiercely, and Keeping it Simple
At its core, managing wealth is about finding the best solutions for your clients. As he mentions in today's discussion with him, this sentiment has guided David Booth's storied career. As the Co-Founder and Executive Chairman of Dimensional Fund Advisors, David's career is so illustrious that he's been called the father of evidence-based investment products. We open our conversation by exploring David's career, beginning with his job as a shoe salesman in Kansas to developing the first index fund. We ask David if he had been able to foresee the power that "geeks" would have over the asset management business. His answers highlight how immature the industry was when he founded Dimensional Fund Advisors and how they had to first convince people before selling them on small cap funds. Reflecting on his early successes and challenges, David opens up about how his clients reacted when small caps underperformed. A key theme this episode, David emphasizes the importance of making decisions that are grounded in academic research. We then dive into several topics ranging from David's views on value portfolios to the stroke of luck that led Dimensional to open their products to financial advisors. After chatting about why Dimensional is now entering the ETF space, David shares his take on direct indexing and why he still favors simplicity over complexity. Near the end of the episode, we discuss how David built his company culture, how luck factored into his life, and how he defines success. An incredible conversation that touches on pivotal moments in the history of financial services, tune for more insights into the life and work of David Booth.
Introducing today's guest, Dimensional Fund Advisor Co-Founder David Booth. [0:00:14] David talks about how his background informed his professional career. [0:03:57] Hear about David's role in developing one of the first index funds. [0:06:13] Why David's work creating index funds for Wells Fargo came to a close. [0:07:28] Exploring the origins of Dimensional Fund Advisors. [0:10:24] How David saw the future of his industry when he started Dimensional and how they created the first small cap funds. [0:15:18] The reaction from David's early clients when small caps underperformed. [0:27:04] David recalls the "borderline character assassination" that he faced when pushing for small caps. [0:24:16] How and why Dimensional first added value portfolios. [0:26:03] Unpacking David's view that values struggle relative to growth. [0:28:37] The recent lessons that Dimensional has learned about value relative to growth stocks. [0:33:17] What it would take for Dimensional to reconsider their entire approach. [0:37:50] The importance of flexibility and believing in your solutions when dealing with uncertainty. [0:43:19] David emphasizes that your financial solutions should be based on robust data. [0:47:00] How Dimensional began giving financial advisors access to their products. [0:48:46] Why, after so many years, Dimensional is now entering the ETF space. [0:52:25] With widespread fee compression, hear how Dimensional is handling fee cuts. [0:55:53] Answering the question — what's the next big thing for Dimensional? [0:57:29] David shares his take on direct indexing and customizable portfolios. [1:00:59] How David built his company culture and the role that luck plays in his life and in business outcomes. [01:02:59] We ask David how he defines success in his life. [01:06:48]
For this episode of the Rational Reminder Podcast, we review our year by playing back and discussing a collection of the most impactful moments of the show from 2020. This has been a drastic year filled with many learnings for us all, and in today's show, we cover topics of happiness, decision making, dealing with uncertainty, and the connection that financial planning and investing have to all of this. We collect some amazing gems of wisdom from guests like Annie Duke, Ken French, Michael Kitces, Patricia Lovett-Reid, and a whole lot more, whittling down an original list of over one hundred of this year's finest moments to a collection of just 45. The show starts out exploring themes of the connection between wealth and happiness, keeping cool in stressful times, and the transformations that crises kickstart. From there, we talk about the importance of models and systems for informing investing and behaviour in general, and the idea that unexpected outcomes swamp expected ones in the short term. We also look at what market history has to say about staying in your seat rather than market timing when things look bleak. Next up, we cover themes of the value of a flexible approach to retirement spending, how families should think about financial planning, whether 60/40 portfolios are dead, and why stock market returns in the U.S. are higher under Democratic presidents. Moving onto the subject of decision making, we explore some of our guests' thoughts on evaluating decisions, outcomes bias and the role of luck, and more. We also consider the topic of human capital, how it relates to investing, and what we should really be spending our time on. The subject of the convergence of brokerage firms and financial advisors then leads to a great exploration of the role of financial advisors. We wrap up with some extra special perspectives on how optimal financial planning should be geared around the person that you want to be rather than maximizing wealth for the sake of it. Tune in today for an amazing overview of the year and to hear all the ways we have changed and grown thanks to our incredible guests.
Looking back on the year: Pandemic adjustments and how this podcast has grown. [0:00:15] Shoutouts and Cameron's method of putting past clips together for today's show. [0:06:20] Brian Portnoy and Andrew Hallam on wealth and happiness. [0:09:15] Dealing with stress and volatility with Dr. Moira Somers and Dave Goetsch. [0:13:48] Craig Alexander on market volatility and Jim Stanford on crisis and revolution. [0:18:27] Dave Goetsch and Greg Zuckerman on the benefit of models and systems. [0:23:11] The role of unexpected returns in outcomes and how to deal with this. [0:27:04] Small and value stocks relative to the market with Dr. William Bernstein. [0:33:09] Ken French and Cliff Asness on whether 'this time is different'. [0:35:29] Enduring tracking error with Cliff Asness and Andrew Hallam. [0:38:37] Cliff Asness on whether 60/40 is dead and Lubos Pastor on why stock market returns in the US are higher under Democratic presidents. [0:41:00] Changing your risk portfolio when the market is dropping with Ken French. [0:45:25] Market timing versus awareness of investing history with Mark Hebner and Dr. Bernstein. [0:48:20] Wade Pfau on how expected returns fit into financial planning and the 'safety first' approach. [0:52:15] Moshe Milevsky on retirement spending and Pattie Lovett Reid on addressing one's financial situation. [0:56:13] Annie Duke, Ken French, and Victor Ricciardi on making and evaluating decisions. [1:00:05] Greg Zuckerman on the role of luck in decisions leading to positive outcomes. [1:08:15] Forecasting as a way of knowing the range of outcomes with Craig Alexander. [1:11:15] Moshe Milevsky and Dr. Bernstein on human capital, financial planning, investing and asset
Five Factor Investing with ETFs
After months of research, number-crunching, and receiving listener requests on the subject, today's episode is devoted to introducing our new model ETF portfolios — which promise to offer a smoother ride to getting reliable returns. We open our conversation with a financial news roundup and by touching on our book of the week. We then dive into the theory behind our model by first exploring how market assets are priced. We discuss historical views on asset pricing models before looking at what academia has done to overcome challenges to the idea of market efficiency. Host Benjamin Felix methodically shows how our model addresses the five systematic risk factors that are included in the Fama-French Five-Factor Model. From emerging markets to stock size, we share insights into what our model accounts for and how this should impact your portfolio distribution and premium expectations. After reflecting on how factor-loaded indexes get higher returns without extra risk, we talk about the ETFs that we use for factor exposure, as well as how you can apply our findings to your portfolio. We round-off today's show by chatting about the latest bad financial advice. Tune in to hear more about our findings in this, our last episode of 2020.
We share community and listener feedback and what you can expect from the show in 2021. [0:00:15] Hear about The Almanack of Naval Ravikant, our book of the week. [0:04:35] Relooking at the drive towards personalized portfolios. [0:07:28] Insights into S&P 500 stocks having a greater dividend yield than the US Treasury. [0:08:52] How ETFs are coming to dominate Wall Street. [0:09:56] Dying without a will; exploring the case of Zappos CEO Tony Hsieh. [0:11:05] Introducing today's portfolio topic — our new model portfolios, and why index funds make sense. [0:12:29] The risks that inform how the market prices assets and your expected returns. [0:18:00] How academics have addressed the joint hypothesis and the brilliance of the Fama-French Five-Factor Model. [0:22:18] The predictive power of the Fama-French Five-Factor Model. [0:30:25] Challenges to the Fama-French Model, what it accounts for, and how links to our new model portfolios. [0:31:20] How our model weighs the value of different markets and stock sizes. [0:36:52] Comparing the returns of a factor-loaded index with the US total market index. [0:40:44] Answering the question — what's special about dividend growth investing? [0:42:15] The role of persistence in being a factor-led investor. [0:45:50] How our model increases the reliability of your investing outcomes compared to historical data. [0:50:10] How to apply all the information presented in this episode. [0:54:38] Hear about the ETFs that we use for our factor exposure. [0:58:10] Details on when you can access our upcoming paper. [01:02:25] This week's bad financial advice; invest in the right region to drive performance. [01:04:05]
Morgan Housel: The Psychology of Money
As author and financial expert Morgan Housel explains this episode, "people don't make financial decisions on a spreadsheet. They make financial decisions at the dinner table." Today we chat to Morgan about his key insights into financial decision-making — many of which are captured in his book, The Psychology of Money. Our conversation opens with an exploration of how investing success has less to do with what you know and more to do with how you manage your behaviour. We then look into the dangers of emulating top investors and how luck can fuel success. Reflecting the theme that people invest according to their unique circumstances, Morgan shares why he prioritizes endurance as an investor by minimizing his debt and having high cash reserves. After hearing his take on debt and whether young people should use leverage, we dive into how financial expectations impact investing and the importance of deciding what 'enough' means to you. We discuss the virtues of saving like a pessimist and investing like an optimist before looking into the role that financial advisors play in guiding their clients. In the latter part of the end of the episode, Morgan touches on active versus passive investing, the purpose that bonds serve in your portfolio, his top lesson from 2020, and why he's empathetic toward people who sell their portfolios during a downturn. Throughout our discussion, Morgan shares his clear understanding of how our psychology affects our relationship to money. Tune in and benefit from his incredible perspective.
Introducing today's guest, financial author Morgan Housel. [0:00:15] Morgan shares his view that succeeding in investing has little to do with how you behave. [0:02:31] Hear about the problems that can arise from trying to emulate top investors. [0:05:02] Exploring the impact of luck on your success. [0:07:37] The differences between being conservative and having a margin of safety. [0:08:35] Insights into Morgan's personal investing strategy. [0:09:48] Morgan's thoughts on leverage and how debt impacts behaviour and peace of mind. [0:10:31] Stepping off the hedonic treadmill and the importance of defining your financial expectations. [0:14:02] The link between money, independence, and having a high quality of life. [0:16:44] What it means to be wealthy and what motivates the drive to be rich. [0:19:18] Morgan's advice to save like a pessimist and invest like an optimist. [0:21:34] Why no one makes perfectly rational investing decisions. [0:23:54] The role of financial advisors in guiding clients towards their investing decisions. [0:26:22] Why Morgan has embraced the simplest investing strategy available to him. [0:29:02] How you should be thinking about fixed income in your portfolios. [0:31:20] Why financial advisors can be priceless when understanding your finances and goals. [0:33:44] Life is surprising; hear why this is Morgan's top takeaway from 2020. [0:36:29] Morgan's thoughts on the FIRE Movement and retiring early in life. [0:38:53] Hear Morgan's predictions on the next big financial innovation. [0:41:49] Why Morgan is empathetic towards people who sell their portfolios during a downturn. [0:43:50] The tendency for people to embrace more extremist views during times of financial crisis. [0:47:34] We ask Morgan how he defines success in his life. [0:50:25]
3 DE DIC. DE 2020
Fooled by Dividends, and the Future of Financial Planning Research
There is a sharp divide between those who invest in dividend-paying stocks and those who don't. Underpinning this is the question of whether dividends are relevant to the evaluation of shares. Today we answer this question by digging into the data and parsing the maths before exploring what the future of financial planning looks like. But first, we open our episode with news from the Rational Reminder community — including the fact that we just passed one million podcast downloads. We then touch on lessons from Seth Godin's new inspiring book, along with the latest from the financial world. Following this, we dive into a discussion on dividend stocks. We begin by unpacking the assumptions behind Miller and Modigliani's theory of dividend irrelevance. Host Benjamin Felix presents a case study and applies the Fama-French Model to explain differences in returns on dividend portfolios and if dividends truly affect share valuation. After sharing our practical takeaways from Benjamin's analysis, we move onto our financial planning topic for the week. From technology to retirement decumulation and demographics, we discuss the five key areas which will most impact the future of financial planning. We then wrap up another informative episode with the bad financial advice for the week. Tune in for more insights into the role of dividend stocks and the future of financial planning.
Community news, Benjamin's 3D printing project, and celebrating our 1 millionth download. [0:00:15] Drawing insights from a recent Ted Seides-Shane Parrish interview. [0:03:44] Reflecting on Seth Godin's latest book, Practice: Shipping Creative Work. [0:06:44] How our culture overvalues outcomes while neglecting the creative process. [0:07:46] Why having meals delivered to you helps to limit decision fatigue. [0:08:28] Hear about the new TFSA limits and Tesla's addition to the S&P 500. [0:09:25] Exploring whether size affects premium in the US versus elsewhere. [0:12:28] Why long-only investors may overweight small caps. [0:15:44] How US junk stocks impact value and their place in your portfolio. [0:16:18] Introducing today's portfolio topic; should you invest in dividend stocks? [0:17:53] Unpacking the assumptions behind Miller and Modigliani's theory of dividend irrelevance. [0:18:45] Host Benjamin Felix creates a case study to show Miller and Modigliani's theory in action. [0:22:38] Why Miller and Modigliani's math and idea of financing are based on poor assumptions. [0:26:24] The predictive power and limits of frameworks like the Fama-French 5-Factor Model. [0:27:25] Applying the Fama-French Model to portfolio dividend returns. [0:28:28] Key investing lessons from the notion that dividends are irrelevant to the valuation of shares. [0:31:30] Reasons why people might only want to invest in dividend-paying stocks. [0:33:20] The argument that firms seeking external financing may be subject to greater scrutiny. [0:35:33] Introducing our financial planning topic on the paper 'Financial planning: A research agenda for the next decade.' [0:37:02] Ties between psychology, communication, and financial decision-making. [0:39:02] Exploring the five key research areas informing the future of financial planning. [0:40:16] This week's bad financial advice; invest with active managers. [0:46:31]. What it actually means to say that a fund is actively or passively managed. [0:47:56]
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