February 11, 2021

Active Management, Advanced Topics, Expected Returns, Historical Data, Investor Behavior, Portfolio Management, Technological Revolutions

Episode 136: Chasing Top Fund Managers

Angelica Montagano

February 11, 2021

Active Management, Advanced Topics, Expected Returns, Historical Data, Investor Behavior, Portfolio Management, Technological Revolutions

When you see funds performing monumentally well, you may feel regretful for not investing in them earlier. There is, however, a long history of funds that skyrocketed only to have major falls from grace a brief period after. The bulk of today’s episode is spent exploring this idea in the portfolio topic section but before getting into that, we kick the show off with some updates. We begin by talking about the GameStop short and whether this casts any new light on the concept of market efficiency. From there, we take a look at some recent news, particularly one story about the meteoric growth of New York-based investment managers ARK Invest, who recently hit $50B in assets under management up from $3B this time last year. This story acts as a great segue into the portfolio topic where Ben traces a history of funds that performed colossally well for a brief period but then plummeted thereafter. These funds were under the direction of ‘star’ fund managers with a focus on investing in tech disruptors. The discussion acts as a cautionary tale about overpaying for growth leading to poor realized returns. For the planning topic, we continue to shine a light on the ‘Talking Cents’ card game, a financial literacy outreach strategy created by The University of Chicago Financial Education Initiative. We invite the director of the Financial Education Initiative, Rebecca Maxcy, onto the show to speak about some of the thinking around this project and then discuss a few of the questions posed by the cards ourselves. Tune in today!

Key Points From This Episode:

This week’s updates: Gerard O’Reilly on The Long View podcast and more. [0:00:25.3]
Exploring the theme of questioning our beliefs with this week’s book. [0:03:15.3]
News: What does the GameStop short mean for market efficiency? [0:06:10.3]
More news: The meteoric growth of the investment managers ARK Invest. [0:12:15.3]
Portfolio topic: Why funds with star managers have skyrocketed and subsequently plummeted. [0:15:13.3]
Why overpaying for growth leading to poor returns is relevant to indexes too. [0:31:31.3]
Do fund returns mean revert? Questions of luck and skill in fund management. [0:39:00.3]
Planning topic: Rebecca Maxcy speaks about the ‘Talking Cents’ initiative. [0:45:41.3]
Other financial education tools developed by the Financial Education Initiative. [0:52:51.3]
Discussing Talking Cents questions about outsourcing financial planning and more.[0:55:09.3]
Bad advice of the week: Michelle Schneider’s investing resources. [0:58:33.3]

Read The Transcript:

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

Cameron Passmore: So some of the feedback we got recently, Ben, was that our preambles, the beginning are too long. So for the first time ever, we're actually recording the preamble before we record the shows. We don't really have a whole lot to say about what we are going to say.

Ben Felix: Is that why we're doing this?

Cameron Passmore: Not really, but I just thought I'd throw that in at the last minute. So want to highlight one piece of great listening information for you. Dimensional Co-CEO, Gerard O'Reilly was on Morningstar's podcast, a long the last week. Excellent interview. Excellent, excellent interview. So I highly recommend that. Coming up in the merchandise store soon, and I show it to our YouTube viewers is the new rash reminder mug that's got, has all the interview guests by interview numbers. So if you have a particular favorite guest, you want to remember what podcast number they were. It's all on a mug now. So that will be available in our online store starting today.

Ben Felix: It's a cool looking mug.

Cameron Passmore: Yeah. And again, we don't take a profit margin on these things. We're just happy to get that stuff out. #RationalReminder is still on Peloton. If you want to join the group, super fun, as I said, a couple of times to hop on a ride and see who in our community has taken that ride before, so you get a little bit of extra motivation. And if you want to connect with me, if that's worth anything to you, I'm CP313 on Peloton.

Ben Felix: Are you getting lots of Rational Reminder rides coordinated?

Cameron Passmore: Yeah. There's hard to coordinate. I tried that, that didn't go too far, but most rides now, I think there's probably 30, 40 people with that hashtag. But when you go on a ride, you can see who in that group has taken the ride before and it keeps track of the pace. So that's fun. It's still a community. Also, it's really fun to connect with people on Goodreads, had a few people find me there and share books, suggestions, which are amazing. So a lot of the books that I'm reading lately are actually coming from other listeners recommendations.

Ben Felix: Do you put all the books that you talk about on there?

Cameron Passmore: I try to remember as I'm reading them, I put them in there. So you put books you want to read, are reading and have read. So I do my best to not all in there, but you go and see what other people are reading. It's like, "Oh, that book's really, really good. It's a great resource." So Goodreads. If you're on there, love to connect.

Anything new in the BattleBots destruction?

Ben Felix: Oh no. We're in the process of designing a drum spinner, which is a new design we haven't constructed yet. Had to get some special, very long M5 screws. So I'm waiting for those to come in before we put everything together. It should be pretty cool though.

Cameron Passmore: You couldn't make an M5 screw.

Ben Felix: Well, no, because I needed it to be alloy steel so that it would be able to take all the force of the weapon because that piece of metal is what's holding the drum that's going to be spinning really fast. So it needs to be strong.

Cameron Passmore: Gotcha. Anything else for the intro?

Ben Felix: No, I don't think so. But you got me thinking now, could I 3D print? Because when you 3D print in some of the filaments, that can be pretty strong anyway. Maybe I'll try it. I'll have the screws anyway.

Cameron Passmore: You can give us that update in two weeks time.

Ben Felix: Yep.

Cameron Passmore: So with that, let's go to the episode. Okay. So the book of the week, this week, and it is a great one recommended by our good friend, James, who actually sends people lots of great book ideas and we chat quite a bit. So the book is called Think Again: The Power of Knowing What You Don't Know by Adam Grant. So Adam Grant's an American psychologist and professor at Wharton, specializing in organizational psychology. And get this, he was tenured at age 28, making the youngest tenured professor at Wharton. The point of the book is that we all have blind spots in our knowledge and in our opinions. And the problem is that we often become blind to our blind spots.

So the point he makes in that book is that we are ever more and faster increasing the amount of knowledge that we're soaking up. People are now consuming five times, get this, five times more information today than they did 25 years ago. And some of this information is accurate, some is not accurate, but because there's so much information pouring over us and through all of our technology, we often stick to a belief because it's easier to stick to it than to rethink our belief. And this rate of acceleration of information coming at us means that people, he argues, need to question their beliefs more than ever, but it really is hard to do. He also talks about how people often favor feeling that they're right, rather than testing their certainty in being right.

And so one of the things he suggest people do is he says, you should try to think like a scientist, try having humility over pride in how you think, try having more doubt over certainty, try having more curiosity over closure.

Ben Felix: Are those our core values within our team at PWL?

Cameron Passmore: That actually are. Humility is, curiosity is. For sure curiosity is.

Ben Felix: Cool.

Cameron Passmore: And some of the most annoying things people say, which I know all of us who are listening to this hear this all the time, people say things like that will never work, that's not what my experience has shown, that's too complicated, that's the way we've always done it. And he gave a great example, and this one blows me away. That it's actually true, but apparently it is. In 2004, Steve Jobs was pitched the idea of turning the iPod into a phone. And apparently, Steve Jobs said, that's the dumbest idea I've ever heard.

Ben Felix: Heard that story.

Cameron Passmore: Because he was worried about hurting the iPod business. And now the iPhone is some massive proportion of Apple's revenue. Makes you think back to your interviews with Danny Kahneman and how much he loves being wrong. And he's talked about this many, many times. He says it's wonderful to be wrong. And his basic mission, Kahneman's basic mission is, he's on a mission to be less wrong all the time. And he said that discovering you were wrong means you learn something. Being wrong is the only way to be sure you learned something today. So again, highly recommend the book, it's super interesting to read and how we all have to question our basic beliefs and be aware that we probably do have blind spots.

Ben Felix: Almost certainly.

Cameron Passmore: So on to some news items. The first one, we're not quite sure what to do with it, we've had so many people ask for our take on the whole GameStop. I guess you could throw AMC in that phenomenon that happened over the past three weeks.

Ben Felix: A bunch of names we could throw in there if we wanted to, but the meme stock phenomenon, I guess, or the Wall Street bets, price pump phenomenon. I don't know what you'd call it exactly. Yeah. I don't know what you really say about it. People who have wanted our take from the perspective of market efficiency, like what does this mean for market efficiency? I mean, it doesn't mean anything. It doesn't change all of the evidence in favor of markets being efficient enough that you can't really do anything with the inefficiencies.

Cameron Passmore: But they sure efficiently rallied people that pile on the hedge fund managers.

Ben Felix: Yeah.

Cameron Passmore: They sure got that information out quickly.

Ben Felix: Yeah. There was article from Dave Maytag on this and he talked about why this time was a little bit different and it was basically centered around the way that we consume information. And it's the feedback loops that people get, like if you search for GME once, then that's all you're going to see for the next little while on all the different social media platforms. So he was arguing that this incident was at least in part related to that, just how people get information. I think that a lot of people have lost, I mean, they have to have lost a lot of money at this point.

Cameron Passmore: Yeah. You'd love to see the makeup of the trades and traders in the quantum of who lost and who didn't, who made out, because some large managers must have made out a ton.

Ben Felix: There was one headline I saw, I didn't verify it or anything, but there was a headline I saw, and I think in the Wall Street Journal, of a hedge fund that did make a huge whack of money from this whole thing. And it makes sense, but then some of the big fund companies like the fund companies while the big, big fund companies, just because they hold so much assets, regardless, like they hold so much of the market and then Dimensional in there too with the tilt towards small cap value. There's a list that I saw in one article showing how much money a bunch of these fund companies made from just the appreciation and the shares.

Cameron Passmore: But did they sell?

Ben Felix: Then the next question is what do they do? We, in the Rational Reminder community, we were talking about this, what are the index reconstitution rules say? Is there flexibility for extreme events? And it didn't look like there was. It only question S&P is not going to go reconstitute outside of their rules just because something extreme happened. So, yeah, that's going to be interesting. Whereas if like Dimensional or an event is that's implementing daily, when this thing explodes and all of a sudden becomes a small cap growth stock with weak profitability, you would expect, I don't have their trades, but you'd expect that as soon as that happened or soon after anyway, that it was booted out or at least reduced dramatically in weight. So that all be interesting, follow it to see from this whole incident, but I don't really know what other kind of commentary we can give.

There's a paper disagreements tastes and asset prices from Fama and French. And they basically say that for true CAPM asset pricing for the type of asset pricing models try to explain, the assumption is that everybody has the same information and that everybody agrees on rational expectations and all that kind of stuff. But they say in this paper, that's not a realistic assumption and they give some commentary on what effect disagreement. So if there's a group of misinformed investors, what effect does that have on asset pricing and tastes as well? And I think both of those can apply probably in this case with the disagreements piece, there's this group of misinformed investors and a group of informed investors.

And where it gets really interesting is that if this is true, the whole concept of the efficient frontier and the market portfolio being the efficient frontier, like the optimal risk return portfolio, if there's a group of misinformed investors, the market portfolio is no longer the tangency portfolio. It's no longer the optimal efficient portfolio, the portfolio that the informed investors hold is. So it starts to get interesting if you think about instances like this, where somebody must be misinformed, and whoever is underweight, whatever the misinformed investors are overweight is holding the tangency portfolio.

And eventually the people who are misinformed will probably stop being as misinformed. And then asset prices will normalize. And then with tastes too, it's like if people view stock or assets as a consumption good, they may hold it. I mean, we've talked about this extensively with ESG. They may hold it for reasons that are unrelated to risk and expected return, where again, you can get asset prices that don't make a whole lot of sense in a rational asset pricing model. But again, in that case, as we've talked about, you end up with lower expected returns on that stock. But I think in the GME case, you could make the argument that if it wasn't misinformed investors, people had a strong taste for holding this stock and it became this almost political movement where people are pushing back against regulators and against hedge funds and against all that stuff that happened.

Cameron Passmore: It could have also been the perfect storm, where people have the time. I read articles about a lot of people who needed to make money just to make ends meet. So they had three or 400 bucks open up a Robinhood account.

Ben Felix: That's the scary part of free trading.

Cameron Passmore: So you had that going on. It's also the first time this has really happened to a level like this. I guess theoretically, could just be a flash in the pan event.

Ben Felix: Yeah, but I already said this, but I don't think it means a whole lot for market efficiency. There are anomalies just like Renaissance Technologies doesn't prove that markets are inefficient in a way that we should start picking stocks. GMA is the same thing. What is market efficiency? It's not necessarily impossible to have anomalies like this in a market that's mostly efficient. If you try and give a strong form EMH definition, then maybe this is unacceptable.

Cameron Passmore: I think there's also people that just put money at this relatively small money, just for the entertainment factor, the fear of missing out. Throw a few $1000, if it goes to zero, so be it. But I don't want to miss out on that three possibly becoming 50.

Ben Felix: And there were using options. I mean, you see it on the /r/WallStreetBets subreddit, there were people that made hundreds of thousands, if not millions of dollars with relatively small starting amounts.

Cameron Passmore: Yeah. On to the next quick story, which I had actually been working on before I saw your notes on your key topics. So it actually fits in pretty well, but it's about the meteoric rise in the fund family called ARK, A-R-K. So this came from a tweet from Eric Balchunas as well as an article in the Wall Street Journal this past weekend from Jason Zweig. So ARK Investment Management of New York City is one of the hottest and I'm sure most listeners have heard of them, hottest investment managers ever. And they've been growing like crazy. They just hit $50 billion in assets under management up from 3 billion this time last year. Can't even imagine. Year-to-date flows in 2021 are approaching $10 billion and only Vanguard has had greater net sales year-to-date.

And they're now currently in a tie for seventh spot in holdings for all ETF issuers. They manage ETFs focused on disruptive innovation and they have five active ETFs and two index ETFs, including, this one might be of interest to you, an active ETF on 3D printing and another one on Israel Innovation, the largest fund probably the best on fund is the ARK Innovation Fund that has mind-blowing, eye-popping returns. Last year was 152%. And their five-year compounding is at 45%. The fund has typically 35 to 50 holdings, I believe. And the largest one being Tesla. Other stocks in the top 10 are Roku, Teladoc, Square, CRISPR, Invitation, Zillow, Baidu, Spotify, and Proto. And in a number 11 is the catering company, Shopify, but these are large holdings, that Tesla, number one holding that fund is $2.4 billion. And the number 10 holding is just under $700 million US.

And here's another interesting stat that I pulled from Jason Zweig's article, 43% of ARK's total equity holdings are in stocks where the firm owns at least 10% of the shares outstanding, which presumably could become a problem if they ever had to sell, but boy, by holding it in this recent market, incredible numbers. So those are the facts. I don't know if you have any other commentary.

Ben Felix: Well, like you mentioned, my main investing topic is basically about not ARK, but funds that have looked like ARK historically.

Cameron Passmore: So we can probably just move on to that.

Ben Felix: On 3D printing, though, is within innovation, I guess, as with any innovation, but it will take a lot to make 3D printing mainstream of 3D printed stuff. And I can tell you right now that most of the people that I know would struggle to 3D print stuff, because it's hard.

Cameron Passmore: So your engineering degree is coming in handy?

Ben Felix: Yeah, I think so. I know a couple of people that 3D print and they'll tell you the same thing, it's not easy, t's a challenge to just calibrate the machine and set it up as a challenge, but then to actually create stuff, I don't know, but it'll take some innovation.

Cameron Passmore: All right. Let's jump into the portfolio topic, top fund managers.

Ben Felix: Okay. So like we're saying now with ARK that you just talked about, there have been historically these instances of brilliant or seemingly brilliant fund managers who appear to have this unique wisdom and vision and knowledge that's letting them blow away returns, to have massive investment returns. So this is not a new phenomenon, which I don't think will surprise anybody. And I think this is really hard for investors because if you're sitting there investing in the Rational Reminder model portfolio or small cap and value more generally speaking, well, somebody at the office or not in the office, I guess, on the work a Zoom call is in the ARK funds. And they have the kind of returns that you were just talking about a second ago, that can make it hard. It's the plate of a value investor, I guess, seeing returns like that can make it hard to stick with strategies that aren't doing as well, even if there's lots of data behind them and all that kind of stuff.

I mean, I'm basically making the behavioral argument, I guess, for the value premium. It's really hard to stick with when growth is doing so well and skill side, which we'll talk more about in a second, but skill aside, the ARK portfolio, the main one, is concentrated in large growth. It's like the Alpha Architect version of large cap growth, high momentum. I don't know-

Cameron Passmore: Inverts of Alpha Architect portfolio.

Ben Felix: Yeah. So I dug up a few examples of funds that have at their time were maybe similar to ARK. I wasn't there. So I can't say for sure, but based on the way that they're documented historically, it seems like they were something similar. So if we go back in time to 1958, companies like IBM, Texas Instruments were dominating the stock market and electronics companies, more generally speaking, were going public like crazy, big wave of IPOs. We've talked about IPO waves on the podcast. And not only were they going public, but they were going public and then having big IPO pops, their prices were exploding once they were listed on the market. Now at the time, keeping in mind there is less stock market history, then I don't even know if that's true. Well, of course, there was less history then, but would be interesting to know. If you talk to an investor back then, it'd be interesting to know, would they cite the, this is like the South Sea Bubble, would they say something like that? Obviously, that's way far back in history.

Cameron Passmore: But clearly the CRIS database wasn't built at that point.

Ben Felix: Yeah. It's interesting to think about. Today, we can look at so much data from long, long ago, but also more recently and say, well, this looks like that, but you have to wonder anyway. So the companies though, and we've talked about technological revolutions and asset prices on the podcast as well, but the companies were different. I mean, IBM, Texas Instruments were innovating in a way that had never really been seen before. And everybody was expecting these new technologies to completely change the world, which they did, to be fair. That was a correct expectation. So that's 1958. By 1968, the stock prices measured by the Shiller cyclically adjusted price earnings ratio reached levels that had not been seen since 1929, which, of course, preceded the big stock market crash that happened then. And they wouldn't be seen again, relative prices this high would not be seen again until 1995. So prices were high in 1968.

So now, in this setting, technology stocks are taking off, prices are going on a big run or have just been on a big run. And around this time, Fidelity Investments launched the Fidelity Capital Fund. This is their first publicly sold aggressive growth mutual fund. And the fund manager was a 29-year old guy named Gerald Tsai Jr. And he was portrayed in the media as really cool and a bit of a golden boy. And his funds returns, the Fidelity Capital Funds returns, were ridiculously high while he was managing it. So his reputation was for being able to know when to buy and sell stocks like Polaroid and Xerox and LTV, which I had to google. So he managed this fund for seven years, huge market beating returns, maybe not the level of 2020 ARK returns, but I couldn't actually find a percentage fund returns for his time in Fidelity, but I just know that they were far in excess of the market. He attracted a ton of capital as successful funds tend to do. And we'll talk more about that as we go through this.

Cameron Passmore: And this is before Peter Lynch, of course.

Ben Felix: Yep.

Cameron Passmore: Because Peter Lynch was in the mid-to-late '70s starting.

Ben Felix: You got it. So now Tsai built up this reputation with investors and in the media. I mean, he's a celebrity basically at this point. He decides to leave Fidelity and started his own fund. So he started the Manhattan fund in 1966. And raised $247 million in investor capital, which at that time was the largest raise for a fund in history. So a big deal in the investment landscape at the time. The Manhattan Fund started with 39% return in its first year. Fantastic. But it very quickly faltered. And it actually went on to be one of the worst performing funds in history. Outside being a smart businessman himself, he sold the fund in 1968. And then by 1973, he sold it, but continued to manage it. And then my 1973, he resigned as a fund manager. So he made out find an investor who stuck with a Manhattan Fund from the beginning would go on to lose 70% of their investment over eight years. So not great.

And in terms of his strategy, I mean, again, I wish I had the monthly returns data to run regression on it, but from the description, it was a large cap growth momentum strategy. There's also interesting to think about that in the context of today, because with all of the data that we have now, someone might look at his returns and say, "Oh, this is a whipsaw. This is expected with this type of strategy." And carry on. But instead, it was all placed, his abilities that everyone was-

Cameron Passmore: This is decades before Fama and French's paper and all that. It's a whole different time. You're right.

Ben Felix: Yup. But I think the Jensen's Alpha paper came out around that time, but no one read it outside of academia. So around the same time, there was another fund, Fred Carr's Enterprise Fund, which was similarly famous, like a household name kind of thing. His big wins had come from emerging growth stocks like Kentucky Fried Chicken and Tonka before they took off in terms of their share price. Now it's interesting to think about his fund relative to ARK, not quite a comparison, but he did invest in a lot of smaller companies where the fund owned a huge portion of the company. And that ended up being quite problematic for them when things started to go poorly.

Cameron Passmore: Your comments have some historical precedent, Cameron.

Ben Felix: Now Fred Carr, and it's interesting to hear about the media adoration of these fund managers. Like Tsai, I mentioned, was seen as this kind of golden boy, Fred Carr had a TV in his bathroom. And just the fact that we know that as funny, clearly he was kind of celebrity status that people were paying attention to stuff like this, but he had it so that he could watch the stock market open while he shaved in the morning. He was on the West Coast. So TV in the bathroom in 1960s, though, which today, maybe it's not so crazy to have a TV in the bathroom, although still I'm willing, but in the 1960s, from 1961 through 1966, Fred Carr delivered a 17% annualized return, which was nearly double the US stock market return over the same time period. And then in 1967, the enterprise fund returned 117%.

And in 1968, they returned 44%. The fund manager is over a billion dollars in February, 1969. Now, this is one of the themes that's important, but again, I don't have the specific fund flows data, but this is from reporting at the time, a lot of the assets in the fund, so it's a billion dollars in February, 1969, a lot of those assets, I don't have the exact proportions, for some of the later funds we'll talk about, I do, but a lot of those assets arrived after some of this huge performance. I mean, think of the ARK story. It's the same-

Cameron Passmore: Shorter.

Ben Felix: Right. So the fund returns 117% in 1967 and then boom, assets poor. In 1969, the fund lost 25% and lost another 25% in 1970. Not actually that bad when we start getting into the internet boom, but still not great. Carr left the fund after performance suffered. And then it was taken over by a different manager. And I don't really know what happened after that. So that's two older examples of a previous technological paradigm.

And then in the 1990s, obviously, the next big technological innovation was this connectedness of the internet. And as tends to happen, some fund managers started to emerge as superstars in this regime. So Garrett Van Wagoner's Emerging Growth Fund had launched in 1996. And he was actually successful manager in small cap growth prior to that. So he had a bit of a reputation going into this. The Van Wagoner Emerging Growth Fund didn't do too much after a launch. It was up 27% in '96, down 20% in '97 and up 8% in '98, not bad, but not that exciting. So he's managing 189 million at that time in December of 1998. 1999, his fund returns 291%.

Cameron Passmore: Bringing the money, bringing the cash.

Ben Felix: He attracted 506 million of new investor dollars by the end of the year, mostly in November and December.

Cameron Passmore: Here we go.

Ben Felix: And like I mentioned, he's not just some guy that happens to have a great return. He's coming into this with a reputation as a good small cap manager. He was in San Francisco as opposed to maybe New York where a lot of fund managers might be. And that San Francisco and tech has a bit of a said something, he's a little different, but it really seemed like he was the guy to lead investing in this new regime. And there was even a PBS Frontline episode in 1997, where viewers were told that no one had the golden touch more than Van Wagoner. Now I don't want to draw too many comparisons with ARK because maybe they're different. And I don't want to say the same thing is going to happen to them, but I have heard people say that Cathie Wood has the golden touch and maybe she does, maybe she does, but I don't want to discount that as a possibility.

I actually found a quote from Van Wagoner in that PBS episode. He's actually pretty humble, but I'm going to read it. So he says, "It's hard to consider myself a superstar in anything, but I mean, that's the title that has been thrown out by various people. And I guess there's the old line of everybody gets 15 minutes. The thing that's disconcerting is, I don't know if I'm on my 14th minute with 59 seconds or I'm on my first minute." Sounds pretty humble.

Cameron Passmore: It's a great quote.

Ben Felix: Yeah. So right, we don't know what hindsight is yet because I haven't told you. So after the huge 291% return in 1999, Van Wagoner's fund lost 21% in 2000, 60% in 2001, but wait, another 64% in 2002. Yeah. Oh, so Van Wagoner stuck with the fund until early 2008, presumably to try and make a comeback. If you'd left a $100,000 investment in the fund, and the fund changed its name to, I can't remember, but if you're watching on YouTube, we're going to post charts. The charts have the fund name in there. So if you'd left $100,000 investment in the fund from inception until Van Wagoner's departure in 2008, you would have had as much as 625,000 from your $100,000 investment in August of 2000. And you would have been left with $35,000 by February of 2008 when he left.

Cameron Passmore: Wow. And a portfolio.

Ben Felix: Now that's annualized more than an 8% per year loss. Well, over the same period, the US stock market as a whole gained more than 8% per year.

Cameron Passmore: Or the total period.

Ben Felix: Now listen to this. If you'd gotten into the fund after the big year, as I mentioned, most of the new assets came in after that big year in 1999.

Cameron Passmore: So kind of a dollar weighted return.

Ben Felix: Or just time-weighted from the point of the peak or I guess dollar weighted might give us something similar. So if you've gotten in after 1999, when you had the massive 291% returning year, keeping in mind, that's when most investors did get in and held until Van Wagoner left, hoping that he was going to turn things around, you would have lost 24.87% per year, turning a $100,000 investment into $9,000.

Cameron Passmore: Crazy.

Ben Felix: Now this next one is really interesting and it's interesting because the fund is actually still operating today and it actually had a pretty good year in 2020. Ryan Jacob, who's still active, still managing the fund. Ryan, if you're listening, hello. I doubt he is. So he took over the Kinetics Internet Fund in December of 1997. And that fund is actually still around too. He started a second fund, which is still around, the Kinetics Internet Fund is also still around. So he posted a 196% return in 1998 and a 216% return in 1999.

Cameron Passmore: Crazy.

Cameron Passmore: Unfathomable. I mean, it makes the ARK returns look not so good. As with the other stories we're talking about here, the dollars just a flood in, the fund went from managing 22 million in 1998 to managing 1.2 billion in 1999. And some of that, obviously, came from appreciation, but more than 700 million of that came from new flows into the fund. So Ryan Jacob decides he's going to leave Kinetics Internet Fund, and he starts his own fund in 2000 called the Jacob Internet Fund. And again, it's still around. You can find it online. You can run regression on it on Portfolio Visualizer, which I obviously did, not going to talk about that here, though. So that fund lost 79% in 2000, 56% in 2001 and 13% in 2002. So a $100,000 invested in Jacob's fund in 2000, keeping in mind, this fund didn't have a track record. This is investors that said, "Ryan Jacob's done so well with Kinetics Internet Fund. I'm going to follow him and invest in this new fund." So if you did that, you turned a $100,000 in 2000 into $8,000 by the end of 2002.

Now, like I mentioned, Ryan Jacob's still around. And I think it's actually pretty cool and impressive that after something like that, he's been able to stick with the fund and it actually returned 123% in 2020, which is obviously great, not quite at the ARK level, but not that far off. The problem is that despite that fantastic return, now, as I mentioned with Cathie Wood, this fund and Ryan Jacob more generally, it could still make you come back. I don't want to discount that. However, if you'd bought the fund in 2000 and held since then, even with the big return last year, the fund has returned time-weighted 3.09% while the market over that period has delivered 7.04% annualized. So cautionary tales, I suppose. All of these fund managers that we've talked about, and I obviously chose these ones specifically to speak to the general concept that I want to talk about, but they all had high conviction, betting on the companies that were driving forward the next technological paradigm.

And in all those cases that we just talked about, they were right for a period of time, but in the long run, what I would say, I mean, I guess there's no way to prove this necessarily, but I would say that they have not been, and I know Cathie Wood would disagree with this, in the long run, they have not been able to escape the realities of asset pricing. No matter how good a company is, I'm sure many of the companies that they were investing in were great, but no matter how good a company is paying too high of a price for that greatness will lead to poor stock returns. It has to.

At certain point, the market's going to figure out that expecting the unexpected is not sensible.

Cameron Passmore: Yeah. And I've found the price earnings ratios, although from different sources, they were different numbers. So I'm not going to report on the exact number, but the price earnings ratios for the Van Wagoner and Jacob's funds were enormous regardless of the source. This example of overpaying for growth leading to poor realized returns is related to the star fund managers that I brought up because they were investing in those types of stocks. But the same thing can be said about an index, although maybe to a lesser extent, because the index will probably tend to be a little bit more diversified.

So we look at the NASDAQ-100 as an example, it's beaten the US stock market since its inception in April, 1999. Now NASDAQ describes the NASDAQ-100 index as follows with category defining companies on the forefront of innovation, Apple, Microsoft, Alphabet, Intel, Facebook, Amgen, Starbucks, Tesla, the NASDAQ-100 index defines today's modern day industrials. So innovative companies and growing industries, as we know, tend to have high prices. I mean, if you look at the NASDAQ-100 index, high price earnings or price book or whatever you want to measure, ratio, from April, 1999 through December, 2020, the NASDAQ-100 returned an annualized 9.47%, easily beating the US market as a whole by an annualized 1.91% over the same time period. We've heard this before. People often cited as evidence that the value premium is dead, but wait, there's more.

Ben Felix: Do you really think the listeners don't know that? They're on there.

Cameron Passmore: Yeah, that's okay. So the NASDAQ-100 large cap, high price stocks that we hear about all the time, in contrast, I'll take the MSCI US Small Cap Value Index, which is full of, as the name would suggest, small and lower priced companies that you've probably never heard about. I looked at just for fun the largest holding in the MSCI Small Cap Value Index in December, 2020, it was a company called Darling Ingredients.

Ben Felix: That's the largest holding.

Cameron Passmore: Largest holding in the MSCI Small Cap Value Index. Now, Darling Ingredients is a company that collects and transforms animal byproducts into things like gelatin, edible fats and pet food ingredients. Now, I don't know about you, but that sounds a little bit less exciting than space travel and self-driving cars and things like that, although Darling Ingredients actually looks like they're doing some pretty cool stuff that's arguably as important for the world as a lot of the other innovations, but anyway, not very exciting, animal byproducts processing.

Ben Felix: Now, we've covered it all.

Ben Felix: So from April, 1999 through December, 2020, the MSCI US Small Cap Value Index beat the NASDAQ-100 by annualized 26 basis points.

Cameron Passmore: It's wild.

Ben Felix: It is wild, and that's not just me cherry-picking. From 1926 through December, 2020, US small cap values stocks beat US large cap growth stocks. This is a little bit more general now. I'm not using NASDAQ-100, because that index doesn't go back this far, but just taking large cap growth as an asset class. So the US small cap value over the full period beat large cap growth by more than 4% annualized, keeping in mind that small cap value probably wasn't investible in 1926, but regardless, a massive premium for rolling 10-year periods, which I think is probably a better way to look at the data, for rolling 10-year periods, going back to 1927 US small-cap value has beaten large cap growth 83% of the time. So 83% of historical 10-year period, small cap value beats large cap growth. So to reiterate, expected stock returns come from how much you pay for future profits, not from investing in the most hyped-up innovative, high-priced companies. Paying a low price for a pretty good company is probably better, at least in terms of expectations than paying a high price for the greatest company in the world.

Now, that asset pricing digression was a digression, but I just think it's important to touch on that evidence because so many of these cases of star fund managers have been related to those types of stocks. It's just like being in the, I don't want to say in the right place at the right time, because you've listened to this stuff Cathie Wood says, and I'm sure any of these other managers and they have various good reasons for what they're doing, but the reality is, I guess, whether it was intentional or not, right place at the right time and benefiting from rising prices in a specific type of company. And I guess having narrative to say, this is why it worked in their case. Now there's that asset pricing piece. And then if we just step back from asset pricing and say, is investing in funds that have done well, generally speaking, a good idea? And there's a whole bunch of interesting evidence here too.

So there's 2008 paper in the Journal of Finance titled the Selection and Termination of Investment Management Firms by Plan Sponsors. And they looked at, well, the selection and termination of investment management firms by 3,400 pension plan sponsors between 1994 and 2003. And what they found, interestingly, is that pension plan sponsors tend to hire investment managers after they've produced large, excess positive returns for the past three years. And then what tends to happen after that is that these newly hired managers fail at continuing to deliver positive excess returns once they've been hired, and then they get fired and they get replaced with a manager who has three-year excess returns again. And this cycle just continues. So that was, I guess, an empirical paper looking at whether or not institutional managers chase performance. And the answer was yes, they do.

And then there's a paper in the Journal of Portfolio Management titled Does Past Performance Matter in Investment Manager Selection? And they're basically building on that other papers' finding, saying, okay, people do this, people follow that behavior of performance chasing, how does it affect investment returns? So in this case, they built a winner strategy that invested in an equal weighted portfolio of funds with top decile performance against the prospect as benchmark for the trailing three years, a medium portfolio that invests in funds that fall between the 45th and 50th percentile of benchmark adjusted returns, and a loser portfolio that invested it in the bottom decile funds. So they built these portfolios. They rebalanced monthly for 36 months, and then they're reconstituted based on the methodology that I just described. And then they measure the performance of these different portfolios.

They found that the average benchmark adjusted return for the loser strategy exceeds that of the winner strategy by 2.28% per year. And the median strategy beats the winner strategy by 1.32% per year. The loser and median strategies outperformed the winner strategies across performance metrics. So not just the benchmark adjusted returns like I was talking about, but also Sharpe ratio, CAPM for Carhart four-factor alpha. So this finding implies that trailing three-year top funds tend to underperform in the future for reasons that go beyond their exposure to known risk factors, pretty big finding. So what that's leading us to believe is that there is mean reversion in fund performance, which is a whole other really big question, do fund returns mean revert? The evidence here is like, I'm going to about a paper in a second that was one of the, some papers just blow your mind like the [inaudible] political, the elections one, mind-blowing. This one for me was similarly mind-blowing, but-

Cameron Passmore: You've not read this paper before this.

Ben Felix: I knew that this paper, and this is not the next paper I'm talking about, it's near the end, but it's a paper that I knew existed. It's a paper that I talked to Wes Gray about fairly extensively. I'd never gone and read the paper myself. It's known as the Berk and Green paper. That's the authors, but it's a very famous paper. And I knew what the paper was about and what its implications were, but I'd never gone through and read the paper. And when I did, it was, like I said, a little mind-blowing.

So if fund returns do mean revert, it starts to lead to some pretty important questions about lock-in scale and fund management, which is something that we've talked about from different perspectives pretty extensively. If a manager beats the benchmark because they're skilled, you'd probably expect them to continue delivering strong performance, at least in the long run, but a lucky manager, you'd expect to revert to the mean.

So we know from these papers that we have talked about before, Mark Carhart's 1997, on Persistence in Mutual Fund Performance, and Fama and French's 2009, Luck Versus Skill in the Cross-Section of Mutual Fund Returns. In both cases, they found that the vast majority of mutual fund managers do not have enough skill to deliver excess returns in excess of what would be expected based on the risks they're taking. So that suggests that fund managers that do well are more likely to be lucky than skilled. And then the Standard and Poor's Persistence Scorecard lens another piece of evidence of the 556 US domestic equity funds that ranked in the top quartile in June, 2016, only nine of them, 1.6% of the original 556 managed to remain top quartile through the end of June, 2020.

So when we're talking about funds that have done really well, reverting to the mean, maybe they were just lucky. That's one explanation, maybe fund managers get lucky, attract assets, and then their luck runs out. The other possible explanation, keeping in mind that we're dealing with an empirical factor, the funds that have done well historically do poorly in the future. That's the fact. We're just trying to explain that in different ways now, it's either luck or this other leg of the research is that there are decreasing returns to scale that active funds experience. So there's 2016 paper titled Does Scale Impact Skill. And in that paper, the authors demonstrate that as the size of a fund increases, it becomes increasingly difficult for the fund to beat its benchmark. And they specifically find that for an average fund in the cross-section that doubles its size in one year, it's alpha drops by around 20 basis points per year. And the impact of skill, this is from that same paper, the impact of skill is significant both

Okay. So now, here's a theoretical paper from Berk and Green that I just found so fascinating. So it's titled Mutual Fund Flows and Performance in Rational Markets. So they propose a rational, it's a rational equilibrium model, just like the [Lou Bosch] stuff. So they propose a rational equilibrium model where there's dispersion and active manager skill, so some managers are skilled, some are not, investors compete to allocate their capital to the most skilled managers. And active managers have decreasing returns to scale. So that's the model. That's my simplified version of their model. So investors will supply more capital to managers who have delivered good performance. That's how investors learn about the skill of managers, driving down the manager's ability to generate excess expected returns due to the funds increasing size. So the model, they tested empirically, the model predicts many of the empirical observations on fund returns and fund flows.

And in the model, investors and active funds do not earn positive excess returns, even when managers are skilled, even when they're highly skilled, the most skilled manager ever, fund managers, though. So investors don't benefit from scale, fund managers benefit tremendously. And they benefit tremendously because skill is scarce. What the manager gets with increasing skill is an increasing capacity to absorb fund flows while still having a chance at delivering alpha at the margin. An unskilled manager, a low-skilled manager would have a lower capacity to take assets before their ability to use their skill runs out due to decreasing returns to scale. A more skilled manager has more capacity to absorb assets before their skill evaporates due to decreasing returns to scale.

Cameron Passmore: Skilled manager is longer runway just the way the industry attracts assets.

Ben Felix: Yes, a longer runway before people start pulling assets away from them because the fund has gotten too big. So the funds exist in this equilibrium.

Cameron Passmore: Skill gives you scale, but only to a certain point.

Ben Felix: Skill lets you absorb more assets. Now, if you think about it, like all funds charge on a percentage of assets. So managing a larger fund means that the manager, in dollar terms, is earning way more in fees. So they're the ones capturing the economic gains from their skill, which, obviously, no way benefits investors. Berk and Green give the analogy of individual stocks, which this is part of the thing that makes it so intuitive. So it also speaks to some of the stuff we were talking about earlier with investing in large cap growth, a profitable innovative business will have a high share price, reflecting its favorable prospects. We all know that. And therefore, investing in it doesn't mean you're gonna earn higher expected returns. So the result in that case is that the investors are not earning excess returns by owning an excellent business. They're only earning returns commensurate with the amount of risk they're taking. That's the equilibrium asset pricing.

In this model for fund flows and fund scale, the same effect is at work exactly with skilled fund managers, but instead of an increasing share price being the equilibrating mechanism like we see in stocks, it's increasing flows into the fund. So the stock where everyone looks at the stock and says, "This is going to be a great company. This is a great company." The price is going to go up to the point where you no longer expect to earn excess returns. With a fund, everybody looks at the fund and says, "This is going to be a great fund." So dollars pour in, the fund gets so big that it's no longer going to deliver excess returns after the manager is taking. So it's the same kind of concept that exists with individual stocks.

Cameron Passmore: Amazing.

Ben Felix: So funds with a skilled manager or with what appears to be a skilled manager are going to receive capital inflows. This is in the model still, I guess, but it speaks to reality. They're going to receive capital inflows to the point that investors can no longer expect to benefit from the scale due to the funds decreasing returns to scale. So star fund managers come and gone throughout history. We've talked about a few extreme cases of them. Investors in the funds, most of them arriving after big performance numbers have been posted, typically, ended up losing pretty big. And this could be due to extreme short term fund returns coming from companies that explode in price and eventually come down or it could be due to, well, lucky managers becoming unlucky or skilled managers getting drowned in assets, completely eliminating the benefits of their skill for their fund investors. And like you mentioned, the flows into ARK, that seems to speak to this. So hopefully, that helps people deal with not being invested in ARK.

Cameron Passmore: It's going to be fascinating to see this play out for sure. So for the planning topic this week, we thought we would expand a bit on the new segment that we started two weeks ago called Talking Sense. And this is where last time Ben and I pulled cards from the new talking sense card deck, which is from the Financial Education Initiative of the University of Chicago. And we have frankly, such positive feedback that we not only decided to keep the segment going, but we also wanted to learn more about the initiative. So we reached out to Rebecca Maxey, who is the director and principal investigator of the financial Education Initiative at the University of Chicago. And Rebecca, it is so great to have you join us on the podcast.

Rebecca Maxey: Thanks for having me.

Cameron Passmore: So off the top, can you tell us what is the Financial Education Initiative?

Rebecca Maxey: Sure. A lot of names, right? So we are a group. We exist within the center at the University of Chicago STEM Education Center. And our group fits within that framework. So we were started about five years, six years ago, we received some funding from Magnetar Capital Foundation, which is just outside of Chicago. And they had a financial education program that they had developed and had really taken it as far as they could in-house. And so they brought that to us and we continued that work and getting that into schools.

But in the meantime, we spent about three years really researching, talking to other experts and figuring out what is it that kids should learn and how should they learn that information around financial education, wrote a lot of white papers, took all of those white papers and we basically translate that research into the practice. So we develop lessons, we developed about 65 hours of a single semester high school course. So we go out, we feel test across the country, and about 3000 kids, both print and digital, and we get all that feedback and come back and really look at what do we need to revise. Sometimes we send it out again and end up with a finished product and we work with a publisher to try and distribute it across the country.

Yeah. So that's one piece of the initiative. So it's really developing the tools. We also were doing a lot around advocating for financial education in schools. So right now, in the United States, whether or not you receive financial education is all determined by where you live. So even within states, it can be really at the local level, it can be at the county level. So it really depends on where you live whether or not you'll receive that education. It doesn't really seem fair. So we do a lot of work around that. And now we're doing work with parents. So something that came out of work with the high school program.

Cameron Passmore: So you mentioned the research and the writing that went into developing the initiative, who else was part of that research process?

Rebecca Maxey: So we had a bigger team. Then we spoke up at that point. And so we had some other people who are in educational psychologist, some people who are experts in financial education. And so we have a whole team then that really, we pulled together all these resources. And then really this is how we operate the center with mathematics and science as well as really just look at what the research has and figure out how to distill this so that we can give this information to teachers who can then have this instruction that they can then use with students.

Cameron Passmore: It's amazing. I mean the cards come across is not simplistic, but it's a simple tool, but it sounds like there's a lot of research has gone into developing them, which is awesome.

Rebecca Maxey: In the high school program, we have homework assignments for the students. And about a quarter of the assignments, we have the students talk to an adult or a parent or a guardian. And honestly, we knew that should be in there, but we were really nervous about putting that in there because parents get really nervous talking about money, and talking about money with your child is totally different. So we knew that it was the right thing to do, but we were nervous. And so when we did that during the field test, it got amazing feedback. We had parents coming up to teachers saying, "This is the first time I've had a real in-depth conversation with my child in months." We're having these amazing discussions. And so we knew ultimately, it would be great if this all came from parents, but it's not happening.

And so we started to look at that evidence and figure out what can we do to really help parents. And it's really going back to just more about the process of how do you get parents to feel comfortable talking about money with kids? I think a lot of parents really think it has to be about numbers, they have to share their salary or their hourly wage or how, if you have debt, what that number is. And it's really not a numbers conversation. So I don't even think there's actually, I know there's not a question about numbers in the card. It's a different, it's a little more simplistic than that. And so, yeah, that was the approach.

Cameron Passmore: Interesting series as much trying to change the behavior and the capabilities of the parents as much as the children through these tools. And you're right. I'm going through the cards here now. And I don't see any numbers in here at all, but they're phenomenal questions. But here's one, if you suddenly received a million dollars, would you save it, spend it or do something else with it? So there, I found a number.

Rebecca Maxey: True. That's true. Yeah. No, but I mean, even the cards I listened to, you all use them and I learned a lot about the two of you and just in listening to you to have that conversation, that it is simple, but you learn a lot about people, you get a lot of insight into what they're thinking and how they approach different situations.

Cameron Passmore: Well, that's possibly why people have received it so well, I mean, we went out on a bit of a limb doing this as a segment in the podcast. It's a little bit off topic relative to the kind of things that we usually talk about. And our audience is not children. It's generally other adults, but the reception was far better than we expected.

Rebecca Maxey: Yeah. I think you all setting that model to the hearing the two of you model that discussion is so helpful for other people to hear how might that conversation play out, even though you two are adults, but just hearing how that might potentially play out is interesting, what types of things could they be thinking about that are happening. And so those cards are really about things that we focus on in the program too. We talk a lot about values. We talk a lot about people's economic environment, who influences their decisions, their attitudes around money. So those all play out in the cards. It's not the parents sitting there, I'm going to teach you about this piece of information. It's truly a discussion.

Cameron Passmore: Well, it sounds like this foundation is more important than the actual numbers and dollars and cents. So you need to get this in place before you actually talk about the formal dollars.

Rebecca Maxey: Yeah. And I think the one thing that we've been asked about a lot that we're actually going to start to do a bit more of is the cards are a tool to have this conversation, but what are some other tools? What are some other ways? Because truly just starting that conversation, if you have kids or particularly teenagers, it can be hard to just start that conversation. And so learning different strategies and having tools like this to just get that going, it makes it so much easier. So we were really starting to talk about that more about the process and it's not what you say, it's that you're saying something then that you're actually having that conversation.

Cameron Passmore: You mentioned a full high school curriculum. We're obviously talking about these cards. What other tools have been developed by the Financial Education Initiative?

Rebecca Maxey: So we do extensive teacher professional development. One thing that we see around financial education is that we expect that teachers are experts in this topic. And unfortunately, many of them are not. So they're often past this curriculum and told they're going to teach it. And it's not something they're really comfortable with. They don't have the background.

And so we ask that every teacher take a, we have an online course that we develop so that they are knowledgeable. And honestly, they get their own house in order. It's really helpful for them to reflect and think about their own finances, and what do they need to do? Because it's really hard to get up in front of a room full of students and to talk about finances when you're feeling pretty unsure about where you're at. So we also do a lot of professional development, so where the teachers either, now they're not coming in, but we're doing things over Zoom where we can really educate them about the content and also using the materials. So teachers are the key. So we really want to educate that group as well. So you end up really helping a lot of people in just teaching the course.

Cameron Passmore: That's amazing. So we're hoping to have cards available in our online store, but in the meantime, perhaps you can share with the listeners how they can order copies of the cards.

Rebecca Maxey: Sure. So they can visit our site. It's a little bit long, but it's financialeducation.uchicago.edu. And on there, we have our solutions. And they can visit that page. And I can send that URL as well.

Cameron Passmore: Yeah. We'll post it in the show notes and the blog post for the episode as well. Anything else you'd like to share, Rebecca, that you think people should know?

Rebecca Maxey: I think it's an issue that everyone needs to focus on. And it's interesting to see how many people, for us outside of the United States, see this as an issue where they live as well. So it'd be great to get some eyes on this from all that. It becomes something that every child has access to everywhere.

Cameron Passmore: Well, that's how we learned about it was from an advisor in the UK, Alex in the UK, I saw on Twitter. So that's how we found out about it and we're doing our little part to spread the word. So this is a great initiative and we liked it very much. And Rebecca has been great to have you join us. Thank you.

Rebecca Maxey: Thank you for having me.

Cameron Passmore: All right. So let's go to Talking Sense and pull a couple of cards out.

Ben Felix: You're going to pull them again?

Cameron Passmore: I'm going to pull, is that okay?

Ben Felix: You pull. I was thinking we should have just kept them all in order because they're numbered and we're going to potentially have duplicates.

Cameron Passmore: Oh, I got a system here. Don't worry.

Ben Felix: Okay.

Cameron Passmore: All right. Would you rather manage your own money or pay someone else to do it for you?

Ben Felix: Oh wow.

Cameron Passmore: I thought about this.

Ben Felix: Okay. You answer first.

Cameron Passmore: If I ever hit it big, I have not read this card before, but if I ever hit it big in a heartbeat, I would hand it over in a heartbeat. There's so many things that we've talked about this many times. And we said even earlier on this podcast about blind spots, but for sure to put it to, and this is not a plug for us, but how I know our team thinks about people and then the trade-offs the choices that we all make and the research that goes into making financial decisions, I would want to have a team working for me that thinks about all kinds of different angles and points, be it the rational way to manage your money, how to think about happiness, wellbeing, fulfillment, insurance, risk management, estate planning. The list goes on and on and on, that If I have assets like that, I would prefer to spend my time doing other things and let you guys worry about this stuff and help me make better decisions.

Ben Felix: I'll push it even further. I have not made a big and I already rely fairly heavily on the infrastructure of our team. I hope I don't have to start paying fees after disclosing this, to do a lot of that stuff. If I'm making a major decision, there's a financial planner within our team that I'll often chat to about it. And for executing stuff, for moving money around and making the right contributions at the right times and all that kind of stuff, again, it's a team's message, not me going into the accounts and doing it. So, although I guess I'm not paying fees. So would I pay fees for it? Yes. In a heartbeat. That doesn't mean you should start charging me though. I would not hesitate. You think about the time that I get to spend build bots all weekend and playing with the kids, even the Rational Reminder forum, I barely discuss topics in there over the weekend. I try to contribute as much as I can, but do you ever look at it on the weekend?

Cameron Passmore: No. Lately, I've had other things going on, but I poke in once in a while.

Ben Felix: I have the app and every time I open it, it's like 10 new notifications, man.

Cameron Passmore: Another question quickly. Some businesses consider ways to address social issues as well as making a profit. Imagine you are starting a new business, how important would it be to you that your company addresses social issues?

Ben Felix: I think the easy answer is that it would be very important in the hypothetical. I think as a business, not a hypothetical anymore, I think that is something that's important to us. Do you agree?

Cameron Passmore: I think that's one of the main reasons why I didn't start a butcher shop because I was a butcher when I was growing up. And there's things about the butcher shop that are exactly like this business. I just feel that we're making a bigger difference in the world, in this business as opposed to a butcher shop.

Ben Felix: And the other ugly reality of the asset management business is that firms of our size are targets for aggregators. And if we were more concerned with money, profit, personal gain, being absorbed by one of those aggregators even years ago could have been exceptionally profitable, but we've made a pretty committed decision to continue to operate as a private firm. And I mean on a similar line of thinking, we could probably jack up our fees, but again, something that we've been very aggressive and competitive on is that, but I don't know if that's necessarily a social good, but-

Cameron Passmore: But answer, quickly to bad advice of the week, which comes from very good friend of ours, Christian Hamilton. I think I told you about this story. So Chris went to his local library in Hamilton and it uses a service where you submit a topic that you're interested in and they're supposed to help source a book for you. So he was looking to learn about lean manufacturing, but instead he was referred to the book called Plant Your Money Tree by Michelle Schneider. And the book is a quote guide to growing wealth. And it will help you navigate the rough waters of trading and put you on the right track. And that it is a powerful book that provides a clear and concise roadmap for ordinary investors who want to take charge of their financial futures. So unlike us wanting to delegate. If you wanted to take charge, this was the book you would take.

Anyways, Michelle Schneider runs an online platform that sells modules that give you access to their proprietary expertise, expertise in the areas of trading, including technical analysis. Anyway, so I went, he told me about the book, but then he sent me screenshots of pages. So I went online to their platform. And did you know that you could buy the Slingshot Setups package for 997 US, it will help you identify trading setups that deliver profits to your portfolio as quickly as the same day you place the trade. It's incredible. And if you buy now, you'll receive the Fast Track To Profitable Swing Trading, which is a 397 value and also a one-year subscription to these Slingshot alerts, which is $1,164 value.

But I learned that if you prefer to access the picks and pans of the market hotspots, wait a minute here, there's a waiting list for the picks and pans, but you can join the waiting list. And as a waiting list bonus, you'll receive the new ebook Five Little Known Charts That Predict the Stock Market. So I clicked on that, and dead link. So I go back anyways, there's another link, but the book comes with a warning. These are not your normal stock charts.

Anyways, Chris took the book, he read it and ping me about it. And one gem that he highlighted that he asked me about was that quote in the book that said, there's no reason why Walmart employees should not consider buying or shorting the stock of the company they work for. It is not a matter of how little salary employee makes. It's a matter of getting in with the lowest amount of risk and watching the slopes of the moving averages. I'm guessing this qualifies for bad advice of the week.

Ben Felix: Did they mention the human capital argument there? Is that the slope of human capital relative to financial capital?

Cameron Passmore: I didn't see that.

Ben Felix: I'm joking. It was definitely not that.

Cameron Passmore: And it was incredible the poker on the website full of flashes and all kinds of stuff going on there like a bad infomercial, but that was the book from the library.

Ben Felix: I'd love to know the backstory of the person that gave that book to Chris.

Cameron Passmore: Guess it was some sort of online system in the library or would it be a library and wouldn't pick that out for him? I don't.

Ben Felix: I don't know. Why would a book like that even be in the library?

Cameron Passmore: Looked like a normal book, but when you poke into it, it brings you to the website. Anyways, Chris got the hoodie for the kind idea for bad advice of this week. And he said it fit perfectly.

Ben Felix: We talked about financial literacy and we had Rebecca talking about the things we can be doing to improve financial literacy. And then meanwhile, there are people selling books and books and libraries like this that exists, that are just working directly against financial literacy. It's like giving someone all of the arguments and misinformation to justify why smoking is actually good for you.

Cameron Passmore: So I guess there is social cause to what we're doing.