June 18, 2020

Active Management, Expected Returns, Financial Planning, Investor Behavior

Episode 103: Picking an Active Manager, Raising the OAS Clawback Ceiling, and Trading Hertz

June 18, 2020

Active Management, Expected Returns, Financial Planning, Investor Behavior

Welcome to another episode of the Rational Reminder Podcast! Today’s main topic is how to pick an actively managed fund to invest in despite funds of this type producing lower returns than passive ones! Before getting into that, we hear a few updates on Ben’s research into dollar-cost averaging versus lump-sum investing, discuss the factors that influence choice making found in an amazing new book by Sheena Iyengar, and touch on an OSC report on QuadrigaCX being a big Ponzi scheme! We get into our main topic next, introduced by the point that while Peter Lynch managed the Magellan Fund so well, none of its investors made any money out of it. We talk about the decrease in popularity of actively managed funds and Ben attempts to find out if it would be possible to sketch out a framework for picking one despite this. He does this by firstly defining active and passive investing and then tracing the evolution of the definition of Alpha (excess risk-adjusted returns) found in different key papers, where at each new contribution to the definition, the window for actually achieving Alpha gets smaller. Finally, we end with a framework but you’ll find out how it falls short of being able to narrow the definition of a sensible actively managed fund to invest in down beyond a certain point. From there, we get into some amazing OAS clawback retirement hacks that could earn you a lot of extra income and wrap up with a glance at the bizarre upsurge in Robinhood investors in now-bankrupt Hertz since the pandemic!

Key Points From This Episode:

Updates about Ben’s work, fans of RRP, and brilliant upcoming guests! [0:00:40.1]
Discussing The Art of Choosing and its meditations on factors that impact choice. [0:05:11.3]
Findings of an OSC report about QuadrigaCX being a Ponzi scheme. [0:11:00.6]
An article on Peter Lynch and why Active Fund Management doesn’t work. [0:14:53.4]
A framework for picking an active fund; defining active/passive investing and Alpha. [0:20:40.9]
An evolving definition of Alpha showing active fund management doesn’t often produce it. [0:24:11.3]
Findings of a 2017 Vanguard paper that help identify Alpha in actively managed funds. [0:36:20.3]
When an active fund is less bad: it is low fee, low turnover, and invested in small-cap value stocks. [0:43:43.3]
Adding a criterion to active funds to invest in: those that aren’t that big. [0:44:46.3]
The last piece to consider when finding an active fund: active share concerning your belief in the manager. [0:46:29.3]

Read The Transcript

Benjamin Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision making for Canadians. We are hosted by me Benjamin Felix, and Cameron Passmore.

Cameron Passmore: We're getting used to recording from home. Even my dog Oscar at my feet here has been so good lately. He barked in a couple episodes, but man, he's gotten right into the groove here.

Benjamin Felix: It's good. I like my home studio setup.

Cameron Passmore: And you do it so quietly even with four kids running around.

Benjamin Felix: I had to mute my microphone a couple times while you were talking because I could hear a crying baby in the background.

Cameron Passmore: So, there's only three really running around. But what's the update on the dollar cost averaging versus lump sum investing paper?

Benjamin Felix: It's with our compliance team. The final draft is done. Just waiting for it to be posted. Hopefully by the time this podcast episode is released that paper can be up on the PWL website and linked in the show notes too, hopefully, no guarantees.

Cameron Passmore: Awesome. And model portfolio update? I know some people were asking about that.

Benjamin Felix: I need to finish up doing some portfolio analysis on the models that I've built. I've got models, and I've also got back tested data for some of the securities that don't have a ton of live history. So, I can, I guess, show back tested performance. Yeah, it's in process. The paper explaining the methodology is actually largely done too. I did a lot of that last week. I said it would be ready, the paper and the model portfolios will be ready for this episode's release. Might miss that, that self inflicted deadline, but it'll be close. A lot of the work is done. I just need to finish up a few things before it's ready to roll.

Cameron Passmore: I think we should give a shout out to our YouTube viewers. I'm always amazed how many people show up and even to comment. I'm holding it up now, but people commented on how I drink from my Rational Reminder water bottle.

Benjamin Felix: I think the comment was that they get a kick out of how it's a perfectly positioned label of the water bottle facing the camera.

Cameron Passmore: Actually, that wasn't the intention. It just happened to be. It is my favorite water bottle. I'm just going to highlight upcoming guests. We have amazing guests come up. And if you want to get a head start on reading some of their books. Fred Vettese is up next week retirement, brilliant retirement planning interview. He has great books that are available V-E-T-T-E-S-E, Fred Vettese. And then coming up in a few weeks is Dr. William Bernstein. So many of you will know of him and his books. Pick one, they're fabulous. Four Pillars of Investing is one of the first books I read that compelled me to look into this type of investing.

Benjamin Felix: I might recommend Rational Expectations, which is I think his most recent book. He said that book was highly technical. And it was really well received by financial professionals and scientists and engineers. And that group gravitated to like, oh, it's kind of like what we talked about in this episode. How do you make these decisions with a scientific framework? And he comes from a medical background, so he was able to provide that. But then he published I don't know how many more. Two or three more books after that, that were trying to cater to an increasingly basic audience because he got the feedback that from that specific group of science minded people, this book was amazing and life changing. But then there's this whole other group of people that it didn't speak to because it was too technical. So he tried to dumb it down. But then the most recent book, Rational Expectations, he basically said he's learned a lot since he wrote The Intelligent Asset Allocator. He's become a better writer, and rational expectations is his re-visitation of the technical aspects of investing. So, I've read that one. It's very good.

Cameron Passmore: Excellent.

Benjamin Felix: I did want to mention, too, other upcoming guests, Jim Stanford, who's an economist. He's phenomenal. I'm excited for that one. But he's also got a book called Economics for Everyone. It's like an introduction to the economics of capitalism. I was able to find his book in the local bookstore called Octopus Books here in Ottawa, the second edition. Probably worth a read for a lot of people too. I did want to give a shout out to someone named, I believe, based on their Reddit username, Luke, who started listening to this podcast in March, and he's lost... I'm assuming it's a he. He's lost a lot of weight while walking and listening to our podcast. He says he's lost both 50 pounds. So I just wanted to say, Luke, thanks for listening, and congratulations-

Cameron Passmore: What a great story. It's awesome.

Benjamin Felix: ... on your weight loss.

Cameron Passmore: That is awesome.

Benjamin Felix: That was a random Reddit post that someone sent me. I thought it was pretty cool.

Cameron Passmore: I love hearing from people. Anything else to add to today's episode?

Benjamin Felix: No. A reminder if people are going to comment, please go to rationalreminder.ca/podcast/103 to comment on the episode, unless it's a more general comment then go into the discussion page.

Cameron Passmore: And with that, thanks for listening very much. We appreciate it, and here's Episode 103.

Benjamin Felix: Welcome to episode 103 of the Rational Reminder Podcast.

Cameron Passmore: We were talking with our last guest, Brian Portnoy, after the interview, and he mentioned the book, The Art of Choosing by Sheena Iyengar. And it's actually a book that I have forgotten I downloaded onto my Kindle. Someone else had recommended it. So based on his recommendation, I dove into it, and wow, what a book, incredible book. I'm maybe halfway through, and as I said to you before we started this, there is no way that my review will do the book any justice whatsoever. It is fascinating. It is mind blowing. It is beautifully written. It is incredible how the power of choice is impacted by culture, by how you view the world, what you're seeking to accomplish in your life. It is an amazing, amazing book.

And the contrast, one of the things that jumped out at me is that she talked about depending on where you are in the world how your culture impacts the types of choices you make. For example, in North America is very much freedom of choice, and the choices you make will help you climb the corporate ladder. Whereas in other cultures, predominately Asian cultures, it's all about the greater good. So you don't want to have as much freedom in your job because you're viewing the world through the lens of what is best for your organization. So, it's a whole different narrative of choices.

Another example she gave, she talked about how choices have evolved since the Industrial Revolution when we started being able to make more stuff than people needed because it used to be you just acquired what you needed to get by in life, then it became a whole choice revolution. So went from becoming, you just acquire what was practical to acquiring stuff that became self expressive. You think about that, right? The choices that you make and what you buy end up sending signals, like cars, watches, and we can all think of all kinds of things that we choose to buy that become a self expressive things. And then with the change in media, she talks about how this becomes accelerated with influencers and whatnot.

It's just an incredibly thoughtful book around choice. She's the one that did the famous Jam Experiment. I think we talked about before, right? The more choice-

Benjamin Felix: This is the Paradox of Choice, right?

Cameron Passmore: Paradox of Choice, exactly, where the more choice people had as they walked into a grocery store for this jam display, the greater the choice, the harder the decision was to choose one, therefore, sales went down with a greater choice. It's one of the arguments why people love Costco so much because they narrow your choice down to do you like this one or that one. You don't get a whole lot of choice. So, fabulous book, I highly recommend it. Again, my little mini review did not do it justice, but it's a beautiful book.

Benjamin Felix: The signaling piece that you mentioned is interesting. And I think we can relate that to investing too. In a lot of cases people will, with increasing levels of wealth, people will become increasingly interested in investments that carry some sort of signaling with them, like an exclusive thing or a private real estate deal or something like that.

Cameron Passmore: For sure. Prestige, status, absolutely. Complexity, perhaps, especially if it is, for example, perhaps a local real estate where it's a prestige type property. Interesting. How people make choices is much more complicated. She has all kinds of studies going back to children how they make choices, and it's so fascinating what goes on in people's minds and how they do make choices. So you're going to love the book because it's just... I mean, she throws every study you can imagine at you as she goes to this story.

Benjamin Felix: Wonderful. I've heard the Paradox of Choice related to investing too. And it makes, you look at the... I don't have the number, but there are thousands of... We talked about this statistic a while ago. I think there are more indexes than there are stocks that exists in the world.

Cameron Passmore: Yes.

Benjamin Felix: And there are funds tracking some portion of those indexes. Yeah, it's interesting to think about. It's even hard to just say it makes sense to buy index funds. Index funds are a good investment. That's like saying stocks are a good investment at this point. Which index, and there are so many to choose from.

Cameron Passmore: But if people have different expressive needs, that might explain why they look for different types of investments, right? That simple plain index fund might not fit all their expressive needs.

Benjamin Felix: Right.

Cameron Passmore: I know that's not exactly how you view the world, but I think a lot of people do view it that way.

Benjamin Felix: Yeah, I mean, we talked about this with the sustainable investing stuff. Some people will make decisions for non financial reasons.

Cameron Passmore: For sure.

Benjamin Felix: I think the exact wording and one of the papers we referred to in that episode was that people will make choices about investments that are unrelated to risk and expected return. And if enough people invest in something based on those non-risk and expected return reasons, they can drive up the price of those assets, decreasing their expected returns. The sustainable investing is such an interesting example because it's almost a cultural movement where enough people could mobilize to actually affect asset prices. If there's one person with one preference, it's not going to make a difference. But if it's a massive group controlling a large amount of dollars. Anyway, this is turning into a mini investment topic here.

Cameron Passmore: Anyways, we'll add the Art of Choosing by Sheena Iyengar to the reading list on the Rational Reminder website. Actually, I had a couple of people reached out this week to talk to me about some of the books we put up there. It's nice to see that people... Yeah, one even, Bruce reached out to me to talk about How Not To Die. And James texts me quite often about different books. So yeah, it's kind of cool.

Benjamin Felix: That is cool.

Cameron Passmore: Anyways, you want to talk about an article to do with a Bitcoin investment.

Benjamin Felix: Yeah, one of our podcast listeners sent this to me. It's crazy. I mean, first of all, I was a little bit blown away by the quality. It was almost like it came from the CBC or something when they do their special reports with all the cool graphics and stuff. It was that quality of writing and reporting and presentation, but it's from the OSC, from the Ontario Securities Commission.

Cameron Passmore: And even the interactive descriptions in the text was pretty, so as you read it, it will highlight automatically for you, which is kind of cool.

Benjamin Felix: I was impressed. Not the kind of thing you'd expect from a regulatory body. Anyway, the report was about QuadrigaCX, which we talked about a while ago on the podcast. That was a Canadian crypto exchange. And there's a whole bunch of drama surrounding it last year, right?

Cameron Passmore: Mm-hmm (affirmative).

Benjamin Felix: Where the CEO died suddenly in India, and there was a whole bunch of speculation and controversy about about that, and whether he really died or not. The reason it was so suspicious was that when he died, the key, the code, I guess, needed to access all of the crypto assets died with him. And it wasn't stored anywhere, and there was no backup. So it was, I think, in the hundreds of millions of dollars that just boom, disappeared with the death of the CEO. So the OSC did, I guess, a forensic audit type thing.

I just pulled some notes from the executive summary that they had. The report is worth a read, so we'll put a link to it in the notes. But they said, clients entrusted their assets to Quadriga, which provided false assurances that those assets would be safeguarded. In reality, Cotten, who was the CEO, Gerald Cotten, traded and used those assets at will to operate-

Cameron Passmore: Isn't that awful. It's so awful these stories.

Benjamin Felix: Yeah.

Cameron Passmore: I just hate them.

Benjamin Felix: Operating without any proper system of oversight or internal controls, Cotten, was able to misuse client assets for years unchecked and undetected ultimately bringing down the entire platform. There was no registration with any authority, therefore, no oversight and no controls monitored by any regulatory body."

Cameron Passmore: Because they're outside of the regulatory environment there is nothing to... There is something to check but there was no group to check.

Benjamin Felix: Yeah, but it makes the whole story about him disappearing or passing away in India. It makes it that much more suspicious because in the report the OSC is basically saying even if he hadn't died with the key to all of these assets QuadrigaCX was already effectively a Ponzi scheme.

Cameron Passmore: Exactly. Ponzi scheme, it was just money coming in to pay the money going out and he was skimming something in between for his own lifestyle, I presume.

Benjamin Felix: Crazy.

Cameron Passmore: It was a couple hundred million dollars.

Benjamin Felix: They said that in the report, too. Anyway, I just thought this was a really interesting story and a really well done report by the OSC.

Cameron Passmore: I agree. And it's so easy to check if a firm is registered.

Benjamin Felix: But you know though, if you're going to go invest in crypto assets, I mean, I guess the -

Cameron Passmore: But you can check. Come on.

Benjamin Felix: But you know that they're not going to be registered if they're dealing in crypto assets. Maybe that's changing a little bit as that space is evolving. Like the GBTC, the grayscale that we had Michael Sonnenschein on the podcast a while ago. A lot of people didn't like that episode because it felt like an endorsement of crypto. We don't endorse investing in crypto assets, but anyway. So, that space is becoming a little bit regulated now, or at least accessible through regulated channels. But if you're investing through something like QuadrigaCX you're going in I'm assuming knowing that it's not regulated, maybe not. Maybe people thought it was, I don't know. Anyway, wild story.

Cameron Passmore: Absolutely, wild story. So, on to the investment topic this week.

Benjamin Felix: Yep.

Cameron Passmore: So let me set this one up. I suggested and you took it from there. So, this came from an article in a website called Retirement Research. And the article is called One of the Most Successful Active Managers of All Time Shows Why Active Management Doesn't Work. So, for those who are listening who might be my age or a bit older, you might remember Peter Lynch of the fidelity Magellan Fund back from '77 to 1990. So I know you know of him, Ben, but you weren't in the industry when he was around, but certainly, he was absolutely legendary. So, his career ended as I started in this business, but his name certainly lived on through the '90s. And he was always held up as an example of someone who could, and who did beat the market.

So, this article goes into great detail demonstrating that he did add value persistently over time, a huge, huge name in the industry. He was named at Fidelity and Boston. But the point of the article was, even he was unable to choose the next manager of the Magellan Fund. So the next manager did not outperform. And in my mind, that era led into the go-go years from mutual funds of the '90s where those big names like Peter Lynch, Bill Miller, that we talked about before, Sir John Templeton, Charles Brandes was another big name. Then in Canada, some of the names I try to remember today that were big back in the early '90s were people like Frank Mersch at Altamira was huge name. Jhon Zentner, Gary Coleman, Robert Krembil at Trimark, Alan Radlo, and Casey Lane at Fidelity were huge names of Fidelity back then.

It's funny. In fact, I'm looking at it right now. I have it on my desk. I'll hold it up for people on the YouTube channel, but I remember going to a seminar back in probably '92 for Fidelity Growth America Fund. They gave out these little pen knives. I've got this pen knife with me. It's always at my desk. It's been on my desk since that day in 1992. I don't use it. I just have this penknife with me with Fidelity Growth America, and I can't remember the manager of Fidelity Growth America Fund at the time. I've been trying to find it all day. But we used to go to these luncheons with the big name managers that were flying from all around the world like Mark Mobius of Templeton Emerging Markets, famous, another one I just thought of.

So that memory combined with some... I've heard questions lately about from potential new clients, or even clients about active managers. Given this time now, what about this manager? What do you think what's this person saying about the market? And it got me thinking, the contrast between the mid to late '90s when we chose to basically leave the active fund management game. How was our decision then different from I think you represent the next generation of thinkers around this. So I mean, we largely left because frankly, you couldn't count on these managers because people were leaving, or quitting, or fund committees were merging. There's all the ugly fees and trailers and loads. And it's just our faith was broken in the act of management industry. It was kind of like picking up Mercury, you can't do it.

Whereas, your viewpoint is much difference. So the question I was hoping to kind of pose to you, which I did, and then you since prepared for this is, how would Ben frame the decision to go active now? What could possibly convince you to go active? And how would you frame this decision, because ours was very much that the performance was not there, but we didn't have privacy ability, but the access to the database back in the early '90s like you have today. And back then the industry was largely active mutual funds. That's how the industry survived. Indexing was not a thing. It started to become a thing mid to late '90s, and we were actually trained, embarrassingly to defend ourselves against index funds. But by '98, '99, we were completely out of active mutual funds at that point.

Benjamin Felix: That's not a relic though. When I started in the financial services industry, which was not that long ago, eight years ago. And even after that, even when I was working at PWL, and people that I used to work with at the mutual fund dealership were still sending me slide decks from Fidelity or whatever arguing against index investing. So that's not gone. That's still happening. It's alive and well.

Cameron Passmore: It just boggles the mind. The evidence is mountains of it.

Benjamin Felix: I don't know if you mentioned the punch line in the article, did you? Where Peter Lynch was not able to pick a successor. Oh, you did say.

Cameron Passmore: At the time, the greatest manager of all time can't pick the successor. How could anybody? That's the punchline. It is exactly the punch line. He had unbelievable returns, and I remember reading his book. He said buy things you know. Go to the mall with your kids and see what they love buying. I don't remember the name of the companies, but it might be like the Gap or things like that where your kids loved it, so that's why you bought it. And he delivered great returns, a huge fund.

Benjamin Felix: Yeah, well, one of the things that I think gets talked about maybe less often when people are thinking about Peter Lynch, and we'll tie this into the once we get into how would you pick an active fund? I think this ties into the last comment I'll make about that. But I'll say it now too so people can think about it is that the average investor return for the life of Lynch's tenure at the Magellan Fund. The average investor return was negative. The average investor lost money in the Magellan Fund despite the fund itself producing 29% per year of returns or something like that.

Cameron Passmore: Buying high and selling low.

Benjamin Felix: The average investor lost money. Anyway, so that that's going to become important as we talk through how should someone pick an active fund? Should we jump into that?

Cameron Passmore: Jump in.

Benjamin Felix: Okay. So, I think the first thing we have to do is define what is active and what is passive. Index investing gets conflated with the idea of passive investing. But I don't think that they're the same thing. Because you can have an index that's pretty active.

Cameron Passmore: And passive is such a bad word. Nobody wants to be passive.

Benjamin Felix: Yeah, but it contrasts well with active. For the purpose of this discussion, I'll define passive investing as investing that does not involve individual stock selection or market timing. That's it. So if it's passive, you're not selecting stocks, and you're not timing the market. And so, active then would just be the opposite, which is investing that does involve security selection, or market timing, or a combination.

Cameron Passmore: With an objective of beating the market.

Benjamin Felix: Right. So, I think any discussion like this starts with the arithmetic of active management, which was William Sharpe's 1991 article in the Financial Analyst Journal. He explained that investing has to be a zero sum game. And a recent paper that somebody wrote tried to refute this, but it was a bit weak. I think, for the purposes of this discussion the arithmetic of active management stands as fairly airtight. Anyway, it says that before costs-

Cameron Passmore: It's maths. How can it not be airtight? It's math.

Benjamin Felix: Well, because there's there's some stuff like new share issuance, buybacks, IPOs that can affect this a little bit. Some things that an index might not actually capture. So like the definition of the passive market is not so straightforward. So to say that an index investor is truly going to get the market return may not be totally accurate. And there may actually be points in time where an active investor could theoretically find consistent alpha. It's basically like imperfections in the way that an index replicates a market might leave some space for an active manager to add value consistently. Theoretically, even though empirically that doesn't happen.

Cameron Passmore: Okay, back to the formula.

Benjamin Felix: So, before costs the return on the average actively managed dollar will equal the return on the average passively managed dollar. And after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar. So basically, everybody owns the market, whether you're active or passive, on average, everybody owns the market. Therefore, the returns before fees are the same. Active management has higher fees and costs.

Cameron Passmore: In simple term active managers plus passive managers equal the market. So, passive managers equal the market, therefore, the active managers must equal the market. Costs are higher, therefore, as a group they will underperform the market by fees.

Benjamin Felix: Right. What that does not tell us is that some active managers can't beat the market. This is not a proof of that. It's just a proof that on average, the average actively managed dollar after fees must underperform the average passively managed dollar. But of course, and we've talked about this before, no one's going to buy the average actively managed fund.

Cameron Passmore: Of course not.

Benjamin Felix: Or at least they're not going to think they're buying the average actively managed fund. So the question then becomes, how can we systematically identify some characteristics of actively managed funds that will increase the odds of picking a winner before the fact? Obviously, it's easy to pick the winner after the fact. So, that's active passive.

The next piece that requires a little bit of defining before we jump into the framework for how to pick an active fund i, what are you seeking? What are you looking for? And the answer is alpha. Alpha is excess risk adjusted returns. But that's not exactly an easy thing to define, either. If you think about what an alpha used to be. When alpha was first defined, which is by Michael Jensen in a 1968 paper, alpha was risk adjusted performance where risk is defined as market beta, market risk. So if a fund takes in terms of market volatility, or its relationship to market volatility, if a fund takes the same amount of risk, but produces excess returns, it's producing alpha.

Cameron Passmore: The manager was worth it.

Benjamin Felix: The manager was worth it, right, because if you're not getting alpha, then you could have just lived with beta which is market risk, which you can get really cheaply. Like we know an index fund costs maybe five basis points on average, whereas an active manager is a lot more. So if you're not getting alpha, there's no point in paying for active management. Now before Michael Jensen's paper, and that paper was called The Performance of Mutual Funds in the Period 1945-1964. Before that paper, there was no framework to say how an active manager was doing. Like Jensen looked at 115 funds, I think in that study.

Prior to the study, if a fund was doing as well as the market, or maybe a little better, pretty good. Hey, this guy's doing a good job, I think. But then Jensen introduced this measure of risk adjusted returns. Did you deliver something in excess of the risk that you were taking? And that became a really important measure, obviously, and still is today for analyzing active managers. At the time Jensen found... This is a quote from his paper, "The evidence on mutual fund performance indicates not only that these 115 mutual funds were on average not able to predict security prices well enough to outperform the buy and hold policy. But also that there is very little evidence that any individual fund was able to do significantly better than that, which we expected from mere random chance."

Cameron Passmore: There's the key.

Benjamin Felix: It's also kind of crazy to think about that this is in 1968.

Cameron Passmore: So long before the technological revolution. You'd be able to get just by pure hustle, get more information on companies and what's going on.

Benjamin Felix: But it's kind of crazy to see that in the academic literature the failure of active managers has been documented since 1968. And now meanwhile, this is just in my time in the financial services industry, the shift, the actual shift toward investors using low cost index funds is really just happening.

Cameron Passmore: And there's lots of active managers that completely dismiss all of this belief system, and evidence.

Benjamin Felix: Now, the timing of this also raises an important point, which is that when Jensen wrote this paper there were no index funds. So it's not like you could say, you should buy index funds instead of these actively managed funds because the index funds didn't exist at that time. So in another paper in 1969, Michael Jensen, the same guy, and it's kind of cool too, to go back and read Michael Jensen's paper because people talk about alpha all the time today. And there's a guy named Michael Jensen who wrote a paper. That's how alpha came to exist. It's actually no one... I remember when I learned about alpha when I was doing my MBA they taught it to us as Jensen's alpha that gets shortened to alpha.

Benjamin Felix: Okay, so in this 1969 paper, Jensen argued that by nature of reducing diversification, so we start with the market portfolio, and that's your beta, that's your market risk, and that has an expected return associated with it. Jensen explained that as soon as you take a subset of the total market, you're automatically introducing a second type of risk, which we would now refer to as active risk. And he goes through a derivation of how much additional return you have to be expecting in return for taking on that active risk. Now, obviously, expecting that second piece of return is much harder to do. It's more of a gamble than it is a positive expected return, like what you expect for investing in the total market.

He also defined this as diversifiable risk because that second piece, the active risk, that's a risk that you could choose to make go away. It's like you start with the market, but then you say, "I'm going to cut out this big chunk of the market because I don't think those stocks are going to do well." Or alternatively, "I'm only going to pick this other subset, because I think they are going to do well." So now you've got active risk, you better hope it works out. But that's also a risk that you could just decide I don't want that, and you can take everything back. And then once you have the market back, that second piece of risk, the active risk is gone. So that's where the concept of diversifiable, which is active risk and non diversifiable, which is market risk, you can't make market risk go away. That's where those terms came from, from Jensen's 1969 paper, which again, pretty cool to go back and read because that's stuff that we talked about all the time.

So at this point we have alpha based on market risk. And then it was in 1992 that Fama and French came out and said, there's more than just market risk that's being systematically priced into stocks. And they obviously introduced their three factor model, which we talk about a lot in our conversations here. But it's basically said instead of just market risk, we also have to account for the risk of small stocks and the risk of value stocks.

Cameron Passmore: It's crazy. There's 24 years between this first work and the Fama and French paper of '92.

Benjamin Felix: It is crazy.

Cameron Passmore: That's a long time.

Benjamin Felix: Yeah, it is a long time. Yeah, I mean, even from Jensen's paper to Rolf Banz paper was in 1980, I think, or 1981. And then, Rosenberg, Reid, and Lanstein was 1985, that was value. So, Banz in '81 was size premium. '85 was value premium. And then another seven years for Fama and French to wrap all that up into a falsifiable or a testable model that we now know as the three factor model. So anyway, at this point now we have alpha is now returns in excess of the risk taken from the perspective of market risk, the risk of small cap stocks, and the risk of value stocks. So, that room for alpha is getting smaller.

Benjamin Felix: I think back to when Jensen released his work originally, all a manager had to do to produce consistent alpha at that time when performance was being evaluated relative to market risk, all inactive manager had to do was overweight small cap and value stocks.

Cameron Passmore: Exactly.

Benjamin Felix: Consistent alpha.

Cameron Passmore: Even by accident, it would have been alpha.

Benjamin Felix: Even by accident. Now, once we know that it's like you would never pay a premium to access those priced risks. So now the active manager to earn the higher fees, they have to produce returns in excess of the expected returns from market size and value. So it's getting harder to generate alpha.

Cameron Passmore: But so many people don't even view the world through this kind of analytical research based lens at all. Decisions are being made to pick an active manager based on what someone feels. Like this time is different. I think I should be more nimble. We need to be able to safely maneuver through these unprecedented times. It's a whole different way of looking at the world. I know there's no real answer to this, it's just an observation. But you're going through this methodically, systematically, kind of systems to thinking as opposed to, "Oh, I need to be nimble. These times are crazy. Therefore, I do need an active manager to help me through this time." So you're making a decision based on scant evidence at best.

Benjamin Felix: Yeah, I mean, I remember back when I was starting in financial services, and I'd gone through the same type of mutual fund sales training, and anti index fund training that you've seen too. And I remember when it came time to recommend an investment for one of the first clients that I ever had. I remember asking the people around me how do you actually do this part?

Cameron Passmore: It kind of matters.

Benjamin Felix: And the answers were basically, pick a fun family that you like. It was like, pick a color. You like green? Use [inaudible 00:32:28] if you like green. Well, they didn't actually say that, but it was like that. There was no good answer.

Cameron Passmore: Our story back then was pick Fidelity, one of the American managers, so you had Americans view of Canada. And you pick a Canadian manager to get a Canadian manager's view of Canada. So, we've got two different types of views in the marketplace.

Benjamin Felix: I remember I was having these thoughts about, how do you actually pick an investment? It was around that same time that in one of my corporate finance classes we were talking about discount rates. And in the conversation about discount rates the professor brought up the Fama French three factor model as an alternative to the capital asset pricing model for determining discount rates and corporate finance decisions. I was like, "Oh, that's interesting."

Cameron Passmore: To say the least.

Benjamin Felix: That led me led me to Dimensional, which led me to PWL, a bit of a digression there. So, that was '92, Fama and French came up with a three factor models. Now alpha, that sliver of alpha is getting smaller, and then Mark Carhart in his 1997 paper, which is also famous, and these are all... Most of these are published in the Journal of Finance. I think all the papers we've referenced so far except for Jensen's 1969 paper. So, Mark Carhart's 1997 paper On Persistence in Mutual Fund Performance, which is now a famous and widely cited paper. He added momentum to the Fama French three factor model. So, I think it was '92 or '93 that the research on momentum first surfaced, and Carhart in '97 wrapped that into the Fama French three factor model to make it a four factor model. And then he used that model to analyze mutual funds in the United States, US mutual funds.

He wanted to see if after accounting for those four factors if mutual funds that had persistently good performance were actually adding alpha or if they were just offering exposure to these now known systematic risk factors. Or in the case of momentum, maybe not a risk factor, but systematic pricing anomalies, I guess, in that case. And his conclusion from that research was that there was no evidence of skilled or informed mutual fund portfolio managers. So another way of thinking about Carhart's findings was that funds that had previously appeared to be adding alpha, persistent alpha, were actually just giving you expensive exposure to these now known risk factors-

Cameron Passmore: Precisely.

Benjamin Felix: ... or pricing anomalies. And then you fast forward to today, and as the pricing models have evolved even further, you take the Fama French five factor model, and the room for alpha once you've accounted for the five factors in that model is now smaller than ever. I think the five factor model explains about 94% of differences in returns between diversified portfolios. Okay.

Cameron Passmore: It's a staggering statistic. It's a staggering mind blowing statistic.

Benjamin Felix: Right.

Cameron Passmore: But now, when you think about the amount of work that's going on, with the amount of researchers, with the amount of technology for this many years, this is kind of what you would expect.

Benjamin Felix: Yeah. But now if we step back to what are we having this conversation about? We're having this conversation about how do you pick an active fund manager? We've got to find someone that can add value once we've accounted for all the other non risk factors because if you don't have that then you can just use... I mean, it's now even more relevant, I think, to most investors because now there are companies like Avantis, which we've mentioned a few times. It's creating ETFs specifically based on the five factors in the Fama French five factor model. Dimensional has been doing this forever. Well, since 1981, or whatever, but now DIY investors who maybe couldn't access that before, there's an actual fund company that you can access these factors through.

So now it's truly like the active manager really has to be adding value because now it's not just a theoretical model. There are actually products that you can use to implement these ideas. Okay, so now we have to find some alpha here. There's a 2017 paper that I found from Vanguard, which was great in terms of putting together an analytical framework for this. The paper is called In Pursuit of Alpha: Evaluating Active and Passive Strategies, obviously relevant to this discussion, and they will. They set out to do exactly what we're talking about doing to test some characteristics that might help identify good, actively managed funds. And they used the Carhart four factor model for this purpose.

What can we use to find funds that generate alpha through a four factor lens? So not just CAPM alpha, not just alpha relative to market risk, but true for factor alpha, which should be pretty hard to find. So, they looked at all US mutual funds and ETFs in the Morningstar direct database during the 15 year period ending December 2015. And they found, I guess, not surprisingly, that the zero sum game theory that we talked about from Bill Sharpe earlier. They found that it holds pretty true. Annual alphas before fees were around zero on average, and after fees they are consistently negative, and statistically significantly negative. And the other thing they found was a wide dispersion of outcomes for active management. Now that dispersion of outcomes, that that is the embodiment or whatever you want to call it of the active risk that we mentioned earlier. As soon as you reduce diversification relative to the market, you're taking on the risk that you're going to over perform, or underperform. And that shows up as a wider dispersion of outcomes relative to an index fund.

Cameron Passmore: So less reliable outcomes, which we've talked about many times.

Benjamin Felix: Yeah, and there's a data point. I don't know if it's in my notes, so I'm going to say it now because I don't want to forget about it. There's a data point that they had in this paper that showed that the average gross alphas so before fees for both index funds and active funds, say there, but they both hover around zero. It was actually in their paper the index funds actually had a positive and statistically significant alpha, which they speculated was from securities lending revenue.

Anyway, after fees, net of fees both had slight negative alphas, although the negative alpha for active funds was a lot bigger. But the interesting point, if we just make the assumption that alpha before fees is zero in both cases the standard deviation of outcomes was twice as high for the active funds. So on average you're getting the similar expected outcome before fees for active versus index. But your dispersion of outcomes, your chances of getting way better or worse outcome were much higher for the active funds, which I guess is what you'd expect. But it's exactly what you said Cameron, you've got the same average expected outcome, but it's much less reliable. You're more likely to get something way above or below the average.

Cameron Passmore: When you get enough people playing the game long enough, someone's going to keep being the right hand tail.

Benjamin Felix: Right. Okay, so the authors of this Vanguard paper, they tested the expense ratio portfolio turnover. So the amount of trading happening in the portfolio, and assets under management as independent variables that might explain the variation in fund alpha throughout the sample. So now we have this distribution of funds, we have the amount of four factor alpha, and now we're going to see if expense ratios, portfolio turnover, or assets under management explained the differences in alpha across funds. So this might help us start thinking about a framework for what is there a characteristic that tends to mean a fund is going to do worse or better?

Cameron Passmore: To help you choose your active manager.

Benjamin Felix: Yeah, right. So they found not surprisingly at all that expense ratio seems to have a clear negative relationship with estimated annual alpha. So, higher fees, lower returns. Now this point's really interesting. So that was net alpha, alpha after fees. Gross alpha, there was no relationship between MER and gross alpha.

Cameron Passmore: So, that's the thing that shocked me when I read your notes ahead of time.

Benjamin Felix: So, before fees there's no relationship between fund management expense ratio and alpha, which means, I mean, we occasionally hear the argument that with a good active manager you get what you pay for. You pay a higher fee, gives you a better expected outcome. This completely decimates that idea. There is no relationship in the data, at least in this data sample. There's no relationship between fees and pre-fee alpha. So you're not getting what you pay for. You're getting a random outcome still before fees.

For a fund to turn over, Vanguard found a monotonic relationship with alpha. So higher turnover, lower alpha. And again, I think that probably relates back to costs. Higher turnover leads to higher trading costs, higher spreads, must decrease returns. So that was both before and after fees, which is consistent with what I just said. I think like you mentioned earlier, Cameron, people wanting a nimble fund that can be reactionary and get ahead of bad market outcomes. But I think that point about turnover being negatively related with performance, that destroys that idea. Because a nimble fund that's being able to get ahead of stuff, get ahead of trends, get out before a downturn, whatever, we'd expect them to have higher turnover, but the relationship is negative not positive. So at least on average we wouldn't expect a more nimble fund assuming turnover is a measure of nimbleness. We wouldn't expect it to have a better average outcome.

Assets under management, we'll come back to in a sec, there's just one other data point that I want to get to before that. So they did split the funds up, the active funds up into Morningstar categories. So that's small, mid, and large, and value, neutral, and growth.

Cameron Passmore: Exactly.

Benjamin Felix: So the Morningstar style box nine category grid, and they looked at the gross and net alphas by category. On average across all the funds and that alpha was negative, through and through. But small cap value funds before fees. So their gross alphas, small cap value funds did have a positive and statistically significant gross alpha before fees. Net still negative. But if we're thinking about the distribution of outcomes for active managers, that one's the... Out of all of the ones in the sample, that one is the best. And at least before fees there was persistent alpha in this case, in this sample. And that kind of fits with the narrative that I've heard a few times, which is that in less efficient markets, like I've heard about emerging markets. I've heard about small caps. I've heard about specifically Canadian small caps because it's a smaller market, and the smallest stocks are probably less covered. So this fits with that narrative.

It's actually interesting too to think about the SPIVA Canada report because every year that I've looked at it, small and mid cap funds are less terrible than large cap funds, or any other fund class. I looked at it for 2019 year end only, and funny to say only. Only 70% of Canadian small cap funds failed to beat their benchmark compared to 85 or 90% for other categories.

Cameron Passmore: To say it's less terrible, yeah.

Benjamin Felix: Less terrible. So, I think that's one of the criteria. So, I haven't even... I don't think I explicitly said the first two criteria. We just talked about the relationships. So low fees. We need a low fee fund. We need a low fee active fund. Turnover was also negatively related to performance. So we need a low fee low turnover active fund. And then the characteristic that we just arrived at was it has to be investing in small cap stocks or small cap value stocks in less liquid markets.

Cameron Passmore: I am making my list.

Benjamin Felix: Now, what I'm not saying is that active management works in small cap stocks because it doesn't on average. Most active funds still underperform in small cap markets. Just the distribution is not as unfavorable as it is in other segments of the stock market. So the chances of picking a good active fund are less bad in small caps.

Cameron Passmore: Some will still make the argument that they're picking the ones that do big.

Benjamin Felix: Of course, you're making that argument. If you're doing this, if you're picking an active fund then of course, you wouldn't do this otherwise. You wouldn't take on the act of risk, otherwise. Okay. Now, the small cap criteria gives us a problem though. The Vanguard paper looked at the relationship between AUM and performance and they didn't find a relationship. There's a lot of other papers that have studied this for different data samples and different longer time periods than the Vanguard study. So Vanguard found no relationship, but I don't think they dug into it quite as much as some of these other papers. So there's the 2014 paper titled Scale and Skill in Active Management by Pastor, Stambaugh, and Taylor who are pretty prominent researchers in this space. They found mixed evidence overall like the Vanguard paper did, but within small cap funds, and they cite a bunch of other research that has the same finding.

Within small cap funds, or funds with liquidity constraints. So, small cap funds would be a good example of that. They did find a negative relationship between assets under management and performance. So now we've narrowed it down to low fee, low turnover, active funds that invest in small cap stocks. But the fund can't be too big yet. And that introduces a whole other interesting dynamic where a fund manager is compensated by the assets they manage. They want the fund to get bigger. And if they're performing well, I mean, some funds do cap their assets. Like we talked about Renaissance Technologies, they've very famously kept their assets at I think 10 billion. But it does create this conflict of interest where fund investors based on the data that we're talking about fund investors, specifically in illiquid small cap funds have a preference to not let the funds get too big. Whereas, the manager has a preference, or at least an incentive to let the fund get. Okay. So, I mean, that's all of our criteria.

The last piece, which is less of a criteria, and more of a decision point is active share. So active share is how different is the fund from the index? So once we have a low fee, low turnover, small fund investing in small cap stocks the other decision we have to make is how different do we want that fund to be from the index? Now, you can think about this a couple different ways. If you're paying a high fee for active management you could argue that you want the fund to be very, very different from the benchmark because you're paying a high fee for them to make the right active bets.

Cameron Passmore: And that's very common in the marketing of mutual funds -

Benjamin Felix: Oh, yeah, that's dynamic.

Cameron Passmore: We're not in the market. Our active share is very high, and it has certainly appeal. It sounds great. Of course, you want high active share. Who doesn't want high active share?

Benjamin Felix: Yeah, there was a paper, I don't know if it was a published paper or not. But there was a paper by a few authors about active share a while ago claiming that active share actually leads to excess returns on average. And that paper was swiftly obliterated by a bunch of people.

Cameron Passmore: We talked about that.

Benjamin Felix: Including Cliff Asness wrote a paper just destroying their methodology. Anyway, so active share does not increase your expected returns. And that's important, it increases the expected dispersion in outcomes. So, if you have a lot of conviction about an active manager, if you're really sure that they're going to make the right active bets and that their active risk is going to pay off you would want high active share. But it goes both ways where if you make the wrong bet on the wrong manager your downside is also greater. Your potential for outperformance also increases. And there's another Vanguard paper that I found titled, The Urban Legends of Active Share that digs into this quite a bit of detail. And they actually show it for large cap, mid cap, and small cap funds. And the increasing dispersion with increasing active share was actually most extreme for small cap funds.

Cameron Passmore: Good grief.

Benjamin Felix: Which is interesting. So now if we think about our criteria for picking an active manager, if you go with high active share because you really believe in your manager, well, you're getting a really big dispersion in potential outcomes. So that I think leads to the last thing to think about, which is why are you doing this? Why are you taking the active bet? And you have to have a lot of conviction in what you're doing. And I said that this would tie in, my last point would tie in to the Peter Lynch story, and it does because you look at him, arguably, one of the greatest active managers or active mutual fund managers anyway ever in terms of his fund returns. But none of the investors in that fund despite how great he was or how great we now know he was, none of the investors in his fund, or the average investor in his fund didn't capture the positive returns because they didn't have enough conviction in what he was doing.

So I think you really have to know once we've met all these quantitative criteria that we've talked about you could build a fund to screen to find the funds that meet the criteria that we've talked about. But then the last piece is, why am I doing this? Why do I believe this is going to work?

Cameron Passmore: And why do you believe is going to continue to work?

Benjamin Felix: Yeah.

Cameron Passmore: Because what if you picked Peter Lynch in '88, and he retired in 1990. Now what do you do?

Benjamin Felix: Yeah, so that's where my ability to apply any type of rigor to this decision stops. It's like we know we want low fee, low turnover, active funds. If we really have a lot of conviction in what they're doing we want high active share. Okay, good. But now say there's a list of 20 funds that meet those criteria. How do we pick which one? That I don't have an answer for.

Cameron Passmore: Yeah, I mean, this is more anecdotal. I think I've mentioned this on the podcast before, but I did an exercise for a radio show. It's got to be 10 years ago now, looking back I think it was 15 years. And the funds that had performed, or top performers for the prior 15 years. What are the chances that we would have chosen them back in whatever year that was? Say 1995 or something. We went through them one by one. I said, "No, that was a restricted fund. That one had high minimums." There's usually a reason why we never would have chosen. I think there was one fund that there was a chance we would have chosen it of the top performing funds. All anecdotal, but it's a real life story where we actually painstakingly went through the list to see. They had to survive 15 years and out performed. To your point, you actually have to met all these criteria, and have conviction to choose that manager for the next 15, 30 years. It's tough to do. Anything else to add to this?

Benjamin Felix: I mean, one of the things that I thought about as I was working through this was the Alpha Architect funds, which we had Wes Gray, their CEO on and we've talked about the concentration decision in the past. That's related to this, but it strikes me as different because they're doing a purely quantitative implementation to increase maximum concentration in stocks that have a reasonably good reason to believe that they've got higher expected returns. So that concentration decision strikes me as being different from selecting an active manager who's going to be on a fundamental level picking stocks.

Cameron Passmore: I would say. So, it's systematic. It's rules based. It's not based on a person.

Benjamin Felix: Now, you're still introducing big alphas with a concentrated systematic portfolio. But I think that's distinct from what we just talked about.

Cameron Passmore: And that's what he said. That's exactly what he said, for sure.

Benjamin Felix: Anyway, so that's it. That's how I pick an active fund. I'm not going to do it, though, and I can't take it the last mile. I don't know how I'd actually pick one.

Cameron Passmore: It's going to be a super interesting article for planning topic this week, the old age security deferral enhancement. This was and is a super cool planning idea for people approaching retirement, especially high net worth. This comes from an article called OAS Secrets for the High Net Worth from Aaron Hector on the website Institute of Advanced Financial Planners. So, a bit of a background for the current quarter. So when you're retired, and 65 years old in Canada, the maximum old age security payment that you can receive is just over $613 per month. That's based on Q2 2020. So, that's $7,362 a year is what your normal OAS benefit is.

Now in Canada, any income over $79,054 cause a 15% reduction or clawback in your OAS. So anyone who's retired is well aware of these clawback limits. So, 128,137 of income, all of your OAS at that 15% rate is clawed back. So that's if you're receiving your normal benefit at age 65. But you can defer your OAS by up to five years to age 70. So if you did that, your benefit will increase by 0.6% per month. So, a maximum 36% increase if you defer all the way to age 70. So, 60 months times 0.6% a month, but there is no benefit to defer beyond age 70. Your benefit does not increase beyond that. And to defer your OAS you can do this all in your My Service Canada website. And if you turn 64, a month after you turn 64, you get a letter in the mail from OAS about your benefit.

Benjamin Felix: So the episode after this we had a guest who's an expert in Canadian retirement stuff, an actuary, and he talked about this. Now, he wasn't thinking about this. This is a totally different frame of thinking. But his advice was to not defer OAS because the deferral benefit is not as good for OAS as it is for CPP. For CPP you get 0.7% per month as opposed to 0.6 for OAS. So he's saying take OAS at age 65, and defer CPP because that's where you get the bigger bang for your deferral and the pensionization at age 65 has some benefits when you model it. So staggering OAS and CPP was what he was saying. But now we're flipping the framing and saying, "What if you know all of your OAS is going to get clawed back at the normal level, at 65?"

Cameron Passmore: So, this is something I did not know. You can choose a start date for your OAS up to 12 months prior to the date that you apply. Obviously, you still have to be after age 65. So, you can be aged 66 and say, "I want it to start effective a year ago." And they'll do a retroactive calculation for that payment and pay it to you now and start your regular payments. You effectively get two years in one. I was mentioning tax planning there depending if you know what your tax bracket might be in that year. Depending what your circumstances are you may have sold a cottage of high capital gains, who knows what's going on in your life? It's very specific to that one year.

Benjamin Felix: Or if you're retired in that year.

Cameron Passmore: Yeah, for all kinds of different reasons. But you can wait and then go back retroactively a year, which is super interesting. But get this if you defer to age 70, your OAS pension will increase dramatically. So, the 613 a month goes up to 834 a month. So it's just over $10,000 per year, per OAS, but it also increases the OAS clawback level.

Benjamin Felix: Well, it has to because you're losing 15 cents per dollar that your income is above the threshold. So, if you increase the amount of OAS benefit then you automatically are increasing the level of income at which you would reach full clawback.

Cameron Passmore: Correct. So depending on what your total income, other income is, if you're in that, let's say you close $128,000 range now, but that's your income. Let's say your pension is that amount. Well, you could defer your OAS and end up keeping some of it because now you've pushed your full clawback up higher.

Benjamin Felix: Yep.

Cameron Passmore: Very interesting. I think there's a chart. I guess we put a chart on our -

Benjamin Felix: The last point is the most interesting because imagine if your income is at that level, and you're retired, and you know it's going to stay at that level. So, say, it's 145,000. So that's even after the deferral you're still at full clawback. Your income is 145, 145,804 based on the current OAS numbers. Even in that case there's still a way based on one of the things we just talked about to juice something out of OAS.

Cameron Passmore: The super ceiling.

Benjamin Felix: And that's what Aaron Hector, the author of this post referred to as the super ceiling. If you wait until age 71, and take the retroactive CPP benefits starting at age 70 you can end up with two years of the high benefit which pushes your full clawback income level all the way up to $213,000.

Cameron Passmore: Isn't that wild?

Benjamin Felix: It's pretty crazy. Now, we're talking about juicing this thing for one year and getting in the thousands of dollars of benefit. So a lot of people would say maybe it's not worth it. Some people might say they're actually not even comfortable doing something like this because it feels like it's pushing the limits of what is fair. I know we have a lot of clients that would say that, but it is still very interesting planning to think about.

Cameron Passmore: Yep. It's called the super ceiling.

Benjamin Felix: And we'll post Aaron Hector's article.

Cameron Passmore: So, on to the set of being bad advice of the Week. This week I've called it the irrational behavior of the week. Have you been following the story in Robinhood and Hertz shares?

Benjamin Felix: I mean, it's hard to not read about it on Reddit. But yeah.

Cameron Passmore: And I'm sure a ton of listeners have followed this, and it's actually been a developing story right up until the time you and I started recording this. So, Robinhood is a free trading platform for individuals. And what's cool about the platform, which by the way, it's a slogan, it's time to do money. But what's cool with the platform is that you get a window into how many people are holding different shares at a certain time so you can actually get an insight into what people are holding.

Cameron Passmore: So, Hertz, as many people know based on what has happened this year has filed for bankruptcy and that happened in late May. So the share price hit a low of 40 cents in late May. It was $100 stock US back in 2014. So, hit 40 cents in late May but recently like last week I think it got up to 625 a share. And as of just before we started recording is back down to 221 a share. So, I read an article that said that Business Insider has reported that Hertz insiders sold a pile of shares during the 1450% rally that happened recently. But get this, since Hertz filed for bankruptcy Robinhood accounts that own shares of the company went from 45,000 accounts to 160,000 accounts. That's in the past few weeks. When the pandemic hit in February just over 1,000 Robinhood accounts owned Hertz. Isn't that unreal? Carl Icahn, I read, sold all of his shares for $1.6 billion loss recently at 72 cents a share.

Total trading volume of Hertz soared to 197 million shares per day this June more than 60 times the 2019 average volume. But get this, Hertz just got clearance to sell up to $500 million in stock arguably to tap into the traders that just can't get enough of this stock. So the stock which is fighting being delisted might be able to sell new stock and be completely wiped out. I mean, it's unbelievable. Headline this morning, Leon Cooperman was on CNBC and said, "Speculation by Robinhood traders will end in tears." And then an hour ago this headline I just read, "Hertz warn prospective new stock investors they're almost certain to be wiped out as the car renter proceeds with an improbable share sale in the midst of its bankruptcy." Isn't that wild? And the people piling on driving the stock up like crazy, and then it goes and issues shares.

Benjamin Felix: Crazy. There's a sub Reddit called Wall Street Bets, which nobody should ever visit. It's awful. But there have been a lot of memes about basically how foolish people like Carl Icahn and Warren Buffett are because they missed out on these trades.

Cameron Passmore: They missed out on Hertz.

Benjamin Felix: Yeah.

Cameron Passmore: Anyways, it's incredible. Incredible, the whole the whole story.

Benjamin Felix: Yeah.

Cameron Passmore: Anything else?

Benjamin Felix: No, I think that's good.

Cameron Passmore: Right. Thanks for listening.