March 11, 2021

Advanced Topics, EMH, Expected Returns, Historical Data

Episode 140: Where do Stock Returns Come From?

March 11, 2021

Advanced Topics, EMH, Expected Returns, Historical Data

Where do stock returns actually come from? The answers to this deceptively simple question might change your investing perspective. We dive into this foundational investing topic after sharing community updates and chatting about our books and TV series of the week. A key concept in understanding where returns come from, we unpack how stock returns are impacted when companies migrate across size and value portfolios. While exploring how migration differently affects value and growth stocks, we also break down why book equity and growth drive capital gains for growth portfolios but not for value stocks. Linked to this, we discuss stock convergence as they relate to growth and value stocks. Looking deeper into the stock returns, we assess research on why valuation changes in asset classes are critical in determining expected returns. We touch on how valuations lead to an unfair depiction of international stock performance before asking: how justified are valuation changes to value and growth stocks? From understanding stock returns, we jump into our mini-planning topic on Canadian work from home tax reductions, followed by our Talking Sense segment. We wrap our conversation by sharing some bad financial advice. Join us to hear what it is, and to learn more about the anatomy of stock returns.

Key Points From This Episode:

More updates from the community and co-host Benjamin’s battle bot building. [0:00:20]
Hear about The Defiant Ones, our TV series of the week. [0:02:50]
From The Coaching Habit to Elon Musk, we share our latest book reviews. [0:04:50]
Introducing our investing topic: the anatomy of stock returns. [0:10:00]
Exploring how changes to a stock type affect value premiums and returns. [0:13:40]
Why small stocks tend to have high returns compared with big stocks. [0:17:00]
Understanding the value premiums that underpin stock types. [0:18:45]
What happens when a stock improves in type. [0:21:32]
Factors that lead to price increases in growth and value stocks. [0:25:19]
The concept of stock convergence and how convergence impacts value and growth stocks. [0:28:45]
Behavioural explanations for the capital gains of value and growth stocks and the role played by stock drift and convergence. [0:32:25]
Whether historical returns tell us anything about expected returns. [0:34:15]
Why you should always include international stocks when assessing value stock performance. [0:39:18]
Using value spread to determine expected value premiums. [0:41:39]
We ask the question, “what if the trend in valuation changes to value and growth stocks are justified?” [0:44:17]
Diving into our planning topic: Canadian work from home tax deductions. [0:50:12]
How renters get a better deal than owners on work from home tax reductions. [0:52:25]
Hear our answers to the profound questions posed in our ‘Talking Sense’ section. [0:54:06]
Courtesy of Forbes, we share our bad financial advice of the week. [0:57:16]

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 were hosted by me, Benjamin Felix, and Cameron Passmore, portfolio managers at PWL Capital.

Ben Felix: So off the top you wanted to talk about, what you call possibly the coolest thing to have come out of this podcast so far? I say that in jest somewhat. But a podcast listener reached out and mentioned that they've gotten so much from the podcast that if there's anything that they can give back based on the skills that they have, they would love to do so. And they mentioned that they've heard me talking about the BattleBots that I make with the kids. So their suggestion was that if I wanted any bot parts machined, because that's what they do, that they'd be willing to do that. So we exchanged a few emails and came up with a design that'll drop into the existing bot design. But instead of having a plastic bot weapon, it's going to be made out of stainless steel and aluminum. So pretty excited for that.

Cameron Passmore: Wow. That is very cool.

Ben Felix: Yeah, I thought so.

Cameron Passmore: Next up we have the supply of the rash reminder, fancy socks would come in. So every order on the store gets a free pair of socks while supplies last, we got 100 in stock, so we should be good for a bit. Had a bunch of people, again, join me on Goodreads, which is, I must say it's really fun to see what other people are reading. And then as I consider a book to go back and see what people I'm connected to have said about the book, or give it as a rating, love it. Also, a couple more people hopped on their Rational Reminder team on Peloton and connected with me at CP313. Which, again, most often you go and do a ride, someone from the community has done it that you can try to keep pace with. So it is really fun to have that.

Cameron Passmore: Also worth noting, we're going to try something different going forward, where we are going to alternate between portfolio investment topic and financial planning topic. So it gives us, you, a chance to dig into a topic every other episode. Last episode, but stay on one of those tracks. And also wanted to highlight two books of authors that the interviews with the author are coming up. One is Jennifer Risher's, We Need to Talk. And also Ashley Whillans' book, Time Smart. So we have interviewed them, and their interviews are coming up in the next month or so. Great books worth reading ahead of time. Also had a few very kind reviews recently. I believe that's on iTunes, hey Ben? Where those reviews show up from Iguy99, Cliff Cody, and Theo GD. And also we're up to 484 ratings. And I believe, again, that's iTunes.

Ben Felix: That's pretty good.

Cameron Passmore: It's all iTunes. So very good and very appreciated. The last thing I had for our little intro part was a special we watched on Netflix this past weekend called The Defiant Ones. I know I texted you last night on it. What a show. It's a four episode series on the careers of Dr. Dre and Jimmy Iovine. And it's really neat how they did this story. These are the guys that in the end created Beats and sold it to Apple for over $3 billion US. I didn't know their stories. Yeah, of course I've heard of Dr. Dre. I've not heard of Jimmy Iovine. But just incredible careers before the whole Beats transaction. For example, Iovine, they show the story how he had a love for the art of producing music. And basically by accident got to produce a John Lennon album. He was called in on, I think it was Easter Sunday, to go in as a, I don't know, 20 year old or something to go in and produce this record. They didn't say who it was.

And his mother got all upset with him, but he went in and that was the breakthrough, got to produce that album. Then he went on to work with Springsteen and U2, and founded Interscope Records. And then Dr. Dre and the whole rapper story, and he discovered Eminem. But then they sat down one day at Iovine's beach house. No, it was Dr. Dre's beach house, sorry. And they had the idea come up to create branded, high quality headphones. Kind of like what Nike does for sport and shoes, they wanted to do for headphones. They started talking to Apple early on, even before the product came out, to learn more about, I'm presuming what they would find appealing in this. And they got up to 20% market share in the headphone market space and sold it to Apple for $3.2 billion. It's an amazing, amazing four episode series.

Ben Felix: Very cool.

Cameron Passmore: Anything else that you have?

Ben Felix: No, I don't think so. I think we're probably good to go on to the episode.

Cameron Passmore: All right, let's go on episode 140.

Ben Felix: Welcome, to episode 140 of The Rational Reminder Podcast.

Cameron Passmore: So a couple of very quick books reviews, and I appreciate hearing back from a bunch of listeners that they do appreciate these book reviews. It is fun for us. So number one, this book came up. I've had this book for a long time, it's called The Coaching Habit by Toronto based Michael Bungay Stanier. I hope I'm pronouncing that properly. I've long had that book in my Kindle, but I never read it. And then I was listening to Shane Paris' interview with Seth Goden last week. And he talked about how the best coach in the world is Michael. So I went back and finally read the book, and I really enjoyed it. It's an easy read. The main structure of the book is about seven questions that he says are the ideal question framework for coaching people. So I'll go through the questions quickly, and he makes a point about all the questions.

Or most the questions start with the word what, as opposed to why. He says, "When you ask a question with the word what, you get a better answer from the person you're talking to." So he suggested, kickoff the interview with a kickstart question. Which is; "What's on your mind?" And to follow-up with the awe question, the "And what else?" And then to drill in with question three with, "What is the real challenge here for you?" Which causes the person you're trying to coach to really think about the situation that they want help with. And then the foundation question, which is, "What do you want?" And he talks in the book about why you ask it that way, and not, why do you think it's that way? Why do you think you want this? No, get to specifics. What do you want? And then he says the lazy question comes next, which is, "How can I help?"

Which is the coaching part. And then comes the strategic question. "If you're saying yes to this, what are you saying no to?" It's all about the choices you're making in your development. And then at the end of the interview to ask the learning question, which is, "What was the most useful for you?" So those are the seven main questions that he says you should be using for an ideal coaching framework. And that's the thrust of the book. The other book I started reading... I haven't read a book, I don't know, for a couple months now about people in business, so I kind of missed it. I was looking for a good business person's story. And I've been poking around Goodreads to see what different people recommended. And one that came up a number of times was Elon Musk, by Ashlee Vance. I thought, well given all that's going on with Tesla, and I don't really know... I mean, I know a bit about Elon Musk's background, but I didn't know the whole story.

So I decided to take a look at this book, and it is phenomenal. And I must admit, I'd made a lot of judgments about Elon Musk based on recent podcast interviews and some of the crazier things that he's said and done on Twitter and elsewhere. But boy, he is very impressive. And I had no idea that he has Canadian roots. His mom was from Saskatchewan, who moved from Canada to South Africa. And anyways, he wanted to come back to Canada. So he had an uncle in Montreal, flew to Montreal, is 18 or 19 years old. Ended up the uncle was away, so ended up living in a hostel in Montreal. Traveled across the country, ended up in Swift Current, worked there for a while. Went to the coast, to BC, worked there for a while. Came back to Queens, did two years at Queens, went to Wharton, then eventually made his way to Silicon Valley.

It's just an amazing, amazing story. And then it talks about how he founded his first company, effectively rolled into PayPal, made some money there. Then rolled all of that into Space X, and this was before Tesla. And then Tesla, of course. Just absolute ruthless risk-taker. And had this clear vision of three main pieces of technology that he talked about even as early on as high school. Which are, space, solar power, and battery technologies being three drivers of the future. And he's been on this mission his entire life. It was really cool. I don't know if you watched 60 Minutes last night or not, but one of the stories was about NASA, and the most recent project called Artemis. And one of the points that the experts were debating was whether or not they should be building all of the space equipment and rocketry inside NASA, or they should be subbing it out to subcontractors.

And it becomes a political debate because I think products for NASA are built in 47 or 48 states. So it's a real hot potato, but some were making the argument that they should delegate or sub a lot of it out to Space X because they could do it cheaper and more efficiently. I never heard NASA talk about Space X in such a way. I do not profess to be space expert, obviously, but it's really interesting debate to watch that in 60 Minutes last night. Anyways, the book is a great read. So there's a couple books for you, Ben. And all your free time.

Ben Felix: Interesting. There are some pretty skeptical opinions of Elon Musk within the Rational Reminder community.

Cameron Passmore: But, you got to hand it to him for what he's created.

Ben Felix: Can't question the outcome.

Cameron Passmore: the guts to do it with serious money. Like the continual roll it forward, roll it forward. It's something.

Ben Felix: Absolutely impressive.

Cameron Passmore: So on to the investing topic?

Ben Felix: Yeah, let's go. Should we invest in Space X? Was that the conclusion just now?

Cameron Passmore: And I'm not making that conclusion, I'm just saying it's an amazing story. It's a page-turner book.

Ben Felix: I'm just joking. We don't invest in growth stocks anyway. What were you going to say about the investing topic?

Cameron Passmore: This topic is kind of cool because we had a number of people online reach out to you to say this would be something cool to talk about in next week's podcast. And you'd say, oh, we're already ahead of you. We have this subject queued up.

Ben Felix: We do. So it's the anatomy of stock returns is what I would call the discussion. Where do stock returns actually come from? I think we talk a lot about discount rates and the differences in discount rates, at least from the risk-based perspective. Differences in discount rates, driving differences in stock returns, which is theoretically true. But there's a whole other empirical question in there, which is, where do they actually come from?

Ben Felix: If you look at the market, look at gross stocks, look at value stocks, and see how much of the return comes from dividends, how much of the return comes from capital gains, and what are the sources of those capital gains? Why do value and growth stocks appreciate in value, and does it happen for different reasons? And when you think about stock returns, most of them come from capital gains. I mean, it's actually fairly evenly split, what I just said isn't that true. It's tilted toward capital gains, but there's a meaningful component from dividends. But the dividend piece has tended historically to be much more stable across value and growth. Whereas the capital gains piece has come from different sources. Another interesting piece of that is that aspect, the capital gains piece and how it breaks down for value and growth, has been very consistent over time.

Whereas dividends have been less so. I think for a period of time value stocks had a higher dividend payout than growth stocks. And then in more recent times that was less true. In even more recent times, like one of the papers we talked about ends in 2007. In even more recent times I would bet that... Well, I don't know actually. I don't know if they're looking at that. I was going to say, I would bet that growth has had lower payouts than value, but I didn't have any basis to say that. So I'm not going to say it. The main discussion here is driven by two papers from Fama and French. They had what appeared to be back-to-back papers, both in the Journal of Finance in 2007. And then there was also a paper that just came out, I'd already prepared a lot of these thoughts.

And then Cliff Asness came up with a new paper that ties into the discussion. I think it ties in really well. So we're going to cover all of the concepts in those three papers. But I think that the main takeaway, and obviously this is why we wanted to talk about it, the main takeaway from these three papers together in thinking about expected size in value premiums, it at least changed the way that I thought about it. When you see that anatomy, where do the returns actually come from in the historical data?

Cameron Passmore: It changed the way you think about them?

Ben Felix: I mean, didn't change the way that I'm going to do anything or anything like that, but I'd never really thought about this. I never really thought about, where do the returns come from? What are the sources of capital gains in stocks, and how does that differ between value and growth? And how does that differ from one time period to the next? Had you thought about that?

Cameron Passmore: Interesting. So you're talking about the real change of price, where the actual return is coming from. And events that are happening behind the scenes?

Ben Felix: Yeah. It's easy to talk about the discount rate and talk about the risk-based story. Where risk your company has a higher discount rate so you pay a lower price for it. Cool, great. But then where does the return actually come from? It's easy to say that you're paying a discount for the profits and when you get the profits you earn the expected return. You earn the discount rate. That's a very clean story, but-

Cameron Passmore: A very linear story.

Ben Felix: Right, very linear. When you rip it apart and look at where do the returns actually come from, it tells an interesting story. Had you thought about this? You asked me, oh, this changed the way you think? Have you thought about where the returns actually come from?

Cameron Passmore: I have. But I mean, I know your notes so I don't want to give away anything here, but I have thought about this. But you've done a beautiful job laying this out, so I'll let you go through it carefully.

Ben Felix: Okay. So there's one paper called Migration, that Fama and French had in 2007. And this one looks at how stocks change in type. So from a smaller stock going to a larger stock, or large to small, and then likewise from value to growth. And then the combinations of those things, small value to small growth, or small value to big growth, or whatever. So in Migration they find that the size premium in that sample in 1927 to 2006, is almost entirely due to small stocks that earn extreme positive returns, and as a result become big stocks. So that's interesting, not necessarily surprising that one.

And it actually speaks to the more recent paper from Hendrik Bessembinder, where he found that there's extreme skewness in small stock returns. But on average, mean average, they still outperform the market. Now the value of the premium in Migration is a little bit more involved. So they found that there are three sources, one is value stocks that improve in type. Either because they were acquired by another firm or because they earn higher returns and then migrate to a either neutral or growth portfolio. The second source is growth stocks that earn low returns, and as a result move to neutral or value portfolio. So you can see in one case there's value stocks that are becoming neutral or growth, and then there's growth stocks that are deteriorating. And then the third one, and I find this one really interesting, is slightly higher returns on value stocks that remain in the same portfolio compared to growth stocks that remain in the same portfolio.

So if you take all the value stocks that remained value stocks in the sample, and all the growth stocks that remain growth stocks in the sample, so there's no migration, value beats growth in that subset. So there's three things happening, value stocks are either becoming growth stocks basically, or neutral. Growth stocks are becoming value stocks, and both of these things are contributing to the value premium. But then also, without the migration you still have the value stocks that remain value stocks. And maybe this is the realization of the discount rate story. Value stocks that remain value stocks beat growth stocks, remain growth stocks.

Cameron Passmore: That is so interesting.

Ben Felix: Yeah, I thought so too.

Cameron Passmore: That is more that... Maybe it's not linear, but it's more along the lines of a linear story where values stayed value, but it grew more than the growth of state growth because their expected turns are higher, but the migrating ones have bigger changes. So the growth became value, negative return, I'm assuming. And then the value became growth would have a higher than expect to return.

Ben Felix: Yeah. So all three of those sources were all sources of the value premium. So in all the cases, they were contributing to value stocks, outperforming growth stocks in this sample. Now one consideration that Fama and French point out as being important is that the way that the migration groups impact the portfolio return, so if we're looking at a migration group and saying, "How does this affect the value premium or the size premium?" It depends on both the excess return of that group and also the weight of the group in the portfolio. And as we get into the size and value premium specifically, this becomes... I guess I'll explain it again when we get there.

But to give the example of a large group, maybe large growth, just as an example, is a big group in terms of market cap weight. If it has a return equal to the market, even though it's a large group, that does not impact excess returns. And then likewise, if a tiny group has a really big excess return, a tiny group as a percent of market capitalization, if it has a huge excess return, it, again, doesn't really impact any of the excess returns, because it's such a small portion. So for the size premium, like I already mentioned at the beginning here, that the higher average returns of small stocks are almost completely explained by the small stocks that become big stocks from one year to the next, as we move through time. Big stocks that become small, and this is speaking to what I was just talking about, big stocks that become small have huge negative excess returns, but they don't contribute very much to the size premium because of the capitalization of big stocks, the big stocks that become small are a tiny fraction of the overall big market cap.

So big stocks that become small have very, very negative excess returns, but they make up such a small portion of the portfolio that it doesn't actually materially affect the premiums. This is another interesting one on small caps. The small stocks and big stocks that improve in type, so value goes to neutral or growth or neutral goes to growth, they both have high excess returns, but the contributions from big and small stocks are similar. So that does not add to the size premium. So yeah, I thought that was really interesting too. And then here's the skewness from [inaudible 00:18:30], well, in Fama and French's paper though. In their sample of 1927-2006, the size premium is explained by the eight to 12% of small stocks that move to a big portfolio from one year to the next. So small portion.

Cameron Passmore: Fascinating.

Ben Felix: Yeah. So then the value premium, and this is still in the migration paper, they found that the stocks that stay in the same portfolio from one year to the next contribute 1% to the value premium for small stocks and 1.7% to big stocks. So that's that migration free value premium. And then the plus transitions, which is what Fama and French call them, but that's improving in type, contribute 3.5% more per year for the excess return of value than they do for growth matching. So small value, small growth, and so on.

Cameron Passmore: So that's 3.5% of how much of the return?

Ben Felix: Of the premium. If the premium is 5%, this is 3.5 of the five.

Cameron Passmore: Okay. Right.

Ben Felix: This is also interesting actually. The reason for plus transitions for improving in type, the reason for that resulting in a premium over matching growth portfolios is because the frequency of plus transitions for value is much higher than for other types. You think about it. It's easier for a value stock to go from... Or maybe not easier. More likely, I guess, in the data we know this is true, for a value company to improve in type than it is for a growth company, well, to improve. Less likely for that plus transition to happen for neutral or growth than it is for value. There's less room to go up, whereas for value, there's more room to go up.

Minus transitions, so this is going the other way now, not improving in type, we're going in the other direction, are a drag on the excess returns of growth portfolios, particularly in small stocks. So small growth becoming small neutral or small value. So minus transitions contribute 5.1% per year, pretty big, to the 1927-2006 small stock value premium, versus 1.2% for big stocks. So small growth becoming small value is a boost to the small value premium, because it's value minus growth. And then it still contributes for big stocks as well, but much less, in terms of the percentage points. The small value and small growth both have high returns when they move to a big stock portfolio, which is pretty intuitive, but those moves happen more frequently for small growth, which is the one thing that they mention in the paper that actually works against the small value premium. So there still is a small value premium. When you stack everything up together, small value has more positive excess return. But the one thing that they found working against the small value premium is the higher frequency of small growth moving to a big stock portfolio.

And I think that's kind of that lottery ticket effect that we talk about with small growth. If you're going to get that lottery ticket, when it's probably not going to be small value, it's probably going to be small growth, exactly. So the next paper I looked at was the anatomy of value and growth stock returns. So I guess that's where I stole the general title for my discussion from. So whereas migration looks at how stocks migrate across style types like we just talked about, the anatomy of value and growth stock returns looks at the driving force behind that migration. What is actually happening when a stock improves in type? What's the driving force behind that? So they break down the average returns on value and growth portfolios and the market too, if you read the paper, into dividends, like I was mentioning at the beginning, and three distinct sources of capital gains.

So capital gains come from, and this is all empirical, growth in the book value of equity, primarily from earnings retention, convergence in price to book ratios from mean reversion in profitability and expected returns. That's an important one. And then upward drift in valuations in the sample. So if all stocks get more expensive, or all growth stocks get more expensive, that contributes. And then convergence is like, for the portfolio of stocks at the time that the value or growth portfolio is formed, how do their relative the prices change throughout the sample period? So for the year that we're looking at example, once the value portfolio is formed, what happens to valuations at the time that the next portfolio is being formed. So they find, in this paper, the capital gain appreciation of the value stocks is mostly due to convergence. So that kind of answers the question of where do they mostly come from? It's mostly from the high prices of growth stocks falling and the low prices of value stocks, relative prices, not absolute prices. So as relative prices rise, as value companies become more profitable and they're their stocks moved to lower expected return groups... They talk about expected returns a lot in here. Expected returns, cost of capital, same concept. And I think one of the things that is important to understand is that if a company is in the growth portfolio, it has high profitability expectations. It's probably in maybe a growing industry. But for various reasons, it is viewed economically as a less risky investment. If competition starts to pick up, that investment becomes riskier, which increases the discount rate. So that lower risk concept is one of the things driving the higher prices.

Growth in book equity, and this is an interesting one, is not meaningful for value portfolios. So these are businesses that are not growing, at least measured by their book equity. And that's, I think, really interesting. Because one of the things we've talked a lot about is that idea of shrinking industries being able to still produce a premium. And we talk about value. Like the dying industries, can they still produce a premium? So from this, we see that when you look at this sources of capital gain returns for value stocks, growth in book equity, growth on the actual fundamentals of the business is not meaningful. But then when you look at the growth portfolio, growth in book equity is the driving force, the biggest driving force behind-

Cameron Passmore: Really?

Ben Felix: Yeah. Behind the capital gains on that side. But then convergence is negative for growth stocks. So they've got this strong growth in book equity, businesses growing, but then they've got this massive headwind from convergence, which is basically mean reversion in profitability and discount rates. So for growth stocks, they're price to book falls because, well, growth companies don't always remain highly profitable with low expected returns, with low perceived risk, low discount rates. And then drift is the last one. So they found drift to be minor in both cases. And I think when we get to the Cliff Asness paper, the more recent one, I think that drift in that one is... I think that's kind of what he's getting at in his paper. In the more recent sample, drift has been very meaningful, keeping in mind that this Fama and French paper ends in 2006. And dividends, like I've already mentioned, they were similar contributions throughout the sample, but it did change a little bit. So from 1964 to 2006, the contribution of dividends to average returns was higher for value than it was for growth. And then from 1927 to 1963...

So it's kind of the more recent sample in their paper, not so reason now, and then the more historical sample. So from the older sample, 1927 to 1963, the contribution of dividends to average returns was not systematically different. Yeah, interesting. So from 1964 to 2006, the contribution of dividends is higher for value stocks. It seems intuitive, right?

Cameron Passmore: And that's what you'd expect. Yeah.

Ben Felix: Yeah. But then again, like I mentioned earlier, the sources of capital gains, throughout the full sample, there was not a material change. So the contributions of the different sources of capital gains for value and growth stock returns were very similar. In the year after... We're going to just describe a little bit more about what's going on under the hood here. In the year after stocks are allocated to the value portfolios, their growth and book equity is on average minor for large cap value stocks. So large cap value are still growing a bit, in terms of fundamentals. But growth in book equity is actually negative for small cap value stocks. So Fama and French's commentary on this is that value companies don't do much equity financed investment. But I think it's okay to think about it as they're not investing a whole lot in growth.

Cameron Passmore: So you're seeing that are raising capital by way of equity.

Ben Felix: Not raising equity capital, not retaining earnings. And I think they mentioned in the beginning of the paper that's the main source of growth in book equity is earnings retention. And then the large average capital gains of value stocks show up as increases in price to book. So this is that convergence piece where the main capital gain contribution for value stocks is coming from an increasing price relative to book. So they're starting out with a low price and that price, it tends to, on average, increase, which is where a lot of that value premium has come from historically in their sample. And then growth stocks are the opposite. Where they invest heavily once they've been allocated to the growth portfolios. And on average, again, the growth rate of book equity exceeds the growth rate of stock relative price. So the relative price of growth stocks declines once they've been allocated to the growth portfolio, whereas for value, the relative price increases.

It's just fascinating to think about. The growth company that's actually growing more and reinvesting in the business, growing the book value of equity, but it's got this headwind of a decreasing relative price, whereas value stock is the opposite. These businesses that aren't really growing that much, but they're having their prices on average, their relative prices, increase. So the price to book drops after stocks move to the growth category. And the positive average rates of capital gain of the growth portfolios traces back to the increases in book equity, which is more than offset by the declines in price to book.

I think I have some of that numbers at the end, but you can kind of see where it's like, "This business grew a ton in terms of book value of equity, but in terms of stock returns, all of that gets lost by falling valuations." Fama and French give the explanation. It's pretty intuitive, I think, once you think about it. But the explanation that they give is that companies that are allocated to value versus growth portfolios tend to be at the opposite ends of the profitability spectrum. Again, it's a pretty intuitive economic story. Growth companies tend to be highly profitable. They tend to be fast growing. Value companies tend to be less profitable and growing less rapidly, or even shrinking, as we've seen with a small value category in their sample. So for the growth stocks, high expected profitability and growth combined with low costs of equity capital to produce very high prices. And this is kind of the story that we're all familiar with.

And then for value, they've got low profitability, slow growth, higher cost of capital. So they've got lower prices. But what Fama and French are saying is that this is unlikely to remain true forever. And this kind of gets into that whole idea of winner take all and sustainable competitive advantage for these largest companies, which we will talk more about as we move through this. But Fama and French say competition from other companies, or just exhausting their most profitable growth avenues tends to erode the high profitability of growth companies. I think this is fascinating to think about. With Amazon being so big, a big contribution to that has come from AWS. And it's like... I don't know. To go from what Amazon started as, to have the success that they had as an online retailer, and then to have the success that they've had with AWS. They've had a lot of failed projects, too. AWS went and just took off and it has been extremely successful for Amazon. But how many more profitable growth options does Amazon have? I have to exercise? I don't know what the answer is. I don't know what the answer is.

And I know that they have lots of advantages though that we've talked about on the podcast, and the same as the other large technology companies. But it's still interesting question. How many more profitable growth options to remain at this current level of profitability growth do these companies have? And the answer is it's obvious that Amazon will find another AWS. And then for value stocks, relative prices tend to rise in the years after portfolio formation because some value companies restructure their business and improve their profitability. It makes sense. And when that happens, when they do that, when the handful of however many value companies restructure their business and improve profitability, the market rewards them with the combination of lower cost of equity, capital, and higher stock prices, in addition to the fact that they've improved their profitability. So Fama and French call this, and keeping in mind that this is the single biggest effect causing the value premium and the historical data, they call it convergence makes. Makes sense. Growth stocks converge toward value or neutral, and value stocks can converge toward neutral or growth, probably.

Cameron Passmore: So this is different than a straight line risk story.

Ben Felix: So Fama and French still call it a risk story. They're saying that predictable changes in profitability and growth and related changes in expected returns in discount rates that happen because growth stocks are not growth stocks forever and value stocks are not value stocks forever, that's what's driving this whole thing.

Cameron Passmore: The level of riskiness can change through time, therefore decreasing their cost of capital, therefore increasing returns as a company retools his business.

Ben Felix: Yeah, the economic story Fama and French are telling here is it's all about rational assessments of expected profitability and risk, and the discount rate. And that's what changes over time. Thinking about the future, that's one of the big questions is will that change? And again, this is why the Cliff Asness paper ties in so nicely, because he asks that exact question. Now, Fama and French also give credence to the behavioral explanation. They acknowledge that their rational approach is not the only way to think about it, and they'd go on to cite a bunch of papers that have told the behavioral story.

So in that story, which they summarize in their paper, irrational investors underestimate the deterioration and profitability and growth that follows growth portfolio formation. And then likewise, the improvement after stocks are allocated to value portfolios. And the result is unexpected low capital gains for growth stocks in the years after portfolio formation and high gains for value stocks, so they're the same side of a different coin, I guess. But either way, all of the empirical work that Fama and French do in this paper, it doesn't matter how you explain it. Could be a risk story, it could be a behavioral story, but the facts are the same.

And then for drift, they found the total increase in relative prices during their sample was large, all stocks did have an upward revaluation, but the contribution to average returns was modest relative to convergence. So even though there was an upper valuation, convergence was more important. It would be so interesting to see this data updated. We tried to look at it with the Fama French data that's available on Ken French's website, but they used specially formed portfolios to do this paper that would be pretty involved to recreate, would be cool to do it though.

So in their sample, the differences between average growth rates of price book for value and growth was almost all convergence. So, that's the anatomy of stock returns, and then we got to get into this paper from Cliff. And the premise of Cliff's work is basically that if we look at the historical return of an asset class, but don't account for valuation changes for that asset class over the time period in question, we're missing a big piece of the expected return. Historically, the paper is called The Long Run is Lying to You. It's basically saying the historical return tells us very little about expected returns, and we kind of already knew this, but the way he approaches it is really smart, Cliff's smart. We know that from [crosstalk 00:34:54].

Remember when he was on the podcast and I afterwards, my brain was just drained, just talking to him... Anyway.

Cameron Passmore: Yeah. That was the most stressful interview I've ever done, at least it was for me.

Ben Felix: Me, too. I think I had to go take a nap after that one. So The Long Run is Lying to You, if you're not accounting for valuation changes over the time period that you're examining, you're missing a big piece of what drove returns that's unrelated to forming expectations about the future. I'll explain what I mean and I think it'll make sense how this ties into the ones that we just talked about. Where do value and growth returns come from? And then we'll talk about where they've come from for the last 30 years, well, 50 years and 30 years, I think are the two samples that cliff talks about most in this paper.

So, he takes the S&P 500 and he runs a regression with annual access S&P 500 returns over cash on changes in the Shiller Cape ratio over the same period. So he's looking at how much of the S&P 500 returns were explained by changes in overall S&P 500 valuation from 1950 through 2020. The regression explained 93.2% of the variation in returns. It's pretty good, and the difference, Cliff gives a couple of possible explanations, but some of it could be just from turnover in the portfolio. And then we see a slightly lower R squared value, how much of the return is explained when we get into the value portfolio, because we probably have more turnover in that case.

Anyway, in both cases, the R square is high enough to be meaningful. In the case of the S&P 500, the regressions explaining almost all of the variation in returns. The intercept, so the part that was unexplained by valuation changes, was 5.2% with a t-stat of 8.5, so very much statistically significant. Now the actual excess return over cash for the S&P 500 over this period from 1950 to 2020 was 6.5%. So Cliff's suggesting, based on the regression, that the Cape having increased over this period from 10.9 in 1950 to 34.5 in 2020, that valuation increase was responsible for 130 basis points, the unexplained portion of the return. 6.5% total, 5.2% was unexplained, so 130 basis points approximately is explained by the valuation change.

Cameron Passmore: Wow.

Ben Felix: Right, and the point he's making is that to expect 6.5% excess returns going forward, you'd have to expect the same type of valuation increase again, which is unlikely. If we have the same level of valuation increase, I don't know, it'd be somewhere around Japan 1990 levels in the US, which means it could happen. But how likely is that? I don't know. That's the point that cliff is kind of making, if you look at historical returns, you're missing a huge portion of what explained that.

Cameron Passmore: So 1.3% of the 6.5 was explained by the expansion in valuations?

Ben Felix: Correct, not by fundamentals, not by businesses getting better, just by relative prices increasing.

Cameron Passmore: Everything getting more expensive.

Ben Felix: Yeah, correct. And actually the 1.3% is pretty close to the drift term that Fama and French found in their sample from 1927 to 2006. It just didn't contribute much to the premiums, because the drift was uniform, I think, in the different subsets of stocks that they were looking at. Now, Cliff says "Let's look at this again," but ended in March, 2000, so ended at the peak of the tech bubble, and I try not to say that word, but Cliff said it in his paper, so there it is. So if we look at this same analysis from 1950 to 2000, the equity premium was 7.5%. Ending cape was 45, that's the highest in US history, even though we were starting to edge closer.

So using that same regression methodology, the intercepts 4.9% in that case, so a little bit lower, but very close. And the return for valuation changes is 2.6% over that period, so as you'd expect ending at a point where the US stock market was arguably in a bubble, at least the next post bubble, you get a much bigger contribution from that component. And again, it shows us that rear view mirror problem, where if you take historical returns and project them into the future without accounting for valuation change, you might be way overestimating returns.

Now, Cliff also, to kind of prepare us for looking at value of returns, he also looks at international developed stocks, and I really appreciated this because whenever that conversation happens about a premium, whatever premium, call it the value premium, because that's what we're talking about. When you start talking with the value premium being gone, because there's been a long drought, you can make a similar point for international developed stocks. But I think for a lot of people it's a lot easier to say, "Well, let's not invest in value anymore," than it is to say, "Let's not invest in international developed stocks anymore."

But the international equity risk premium has been pretty low, especially relative to the US for quite a while, so cliff addresses this and basically says what I just said, that it's ridiculous to forget about international stocks because of their recent returns, especially when you look at how valuations affected that. So he looks at from 1980 through 2020, over that time period the US beat the EFIE index by 2.1% per year, pretty substantial. But the EFIE Cape was very flat over that full period, so international stocks did not see their valuations increase, whereas us stocks, as we just talked about, saw a significant increase in valuations.

So Cliff does a regression on the difference in annual returns for US minus EFIE on the difference in Cape changes over the same time period. And he found that almost all of the return difference was due to rising valuations of US stocks, rather than an improvement in the underlying businesses or deterioration in the underlying businesses on the international developed side. So that's problematic, right, because if we're then saying...

Cameron Passmore: That's a pretty shocking statement.

Ben Felix: Yeah. The adjusted, or the intercept for this, I didn't write it down, but it was close to zero, which is...

Cameron Passmore: Wow.

Ben Felix: Yeah, it is pretty staggering, so to say, "Let's forget about international and just go US," that's really saying "Let's bet on valuations continuing to increase in the US and not increase in international developed markets." Okay, so we see this valuation thing being important, at least in considering where historical returns have come from and how we should form expectations about the future. And then cliff gets into the value premium. So he takes the same idea instead of using the Shiller Cape to measure evaluation, he's using the value spread, which as he proudly points out in the paper that AQR invented, or people at AQR invented.

So instead of using Cape, we're using value spread, and instead of using stock returns, we're using value premium. Cliff's using is HML Devil, which is a variation of the [inaudible 00:42:05] French HML, but similar enough for the purpose of the discussion. So in this regression the R square, as I mentioned before, was a bit lower, 78.8. So it explains 78.8% of the difference in the variation of returns, but to be expected with a higher turnover like value, it's like stocks. Well, we just talked about this with migration. Stocks move out of the value portfolio more often than stocks move out of S&P 500, so you'd expect a little bit less explanatory power in the regression.

The intercept, and this is the piece that we want to know, what is the value premium once you account for valuation changes, changes in the value spread in this case. The intercept is 3% over this period, statistically significant, whereas the realized value premium over the same period from 1950 to 2020 was a statistically insignificant 1.9%. So we go from statistically insignificant 1.9% to statistically significant 3% when you account for valuation changes.

Now, 1990 to 2020, which is the out of sample post-publication period where people say value's dead. Like once this was published, it died, and that's 1990 to 2020, the HML Devil premium was zero, but the regression intercept was 1.6% with a t-stat of 1.4. So not statistically significant at a high confidence level, but also not zero, 1.6%. And as of December 2020, and there's a chart that we'll put in the YouTube video for this from the paper, the value spread was the widest, I don't know what it looks like today in March, but as of December it was the widest it's ever been since 1950. It's pretty staggering.

And then some people rubbish HML, and rubbish the book value you generally as evaluation metrics, so Cliff takes a bit of a break in the paper and says, just for the skeptics out there, he does the same thing, the exact same analysis with sales to enterprise value and show that the results are pretty much identical. Now, the question that I had mentioned earlier that Cliff addressed that I think is really important for this discussion is what if the valuation changes are justified? What if this time is different, and what if the upward valuation of the large growth stocks is rational and the downward valuation, or flat changes for value stocks while what is also rational, both sides.

Value stocks are really getting worse in terms of the businesses and growth stocks are really getting better, so Cliff's commentary on that was that it would mean that today's wide value spread does not necessarily imply a boost to future value returns. We wouldn't expect a mean reversion in valuations, which keeping in mind that convergence piece has been very important to the value premium. So Cliff's saying that we wouldn't necessarily expect that to happen if the current valuations are truly justified, and if it really is winner take all, and these companies are never going to be knocked off of their pedestal.

But Cliff also says that it does not alter the main conclusion that the recent terrible returns to value don't mean the long-term expectation for value is much lower. Keeping in mind that regression intercept in Cliff's analysis for the HML premium was 3% once you counted for the upward valuation of growth. If you ignore valuation changes, just say that the value spread is going to stay the same. The projected premium based on Cliff's analysis would be that 3% intercept figure. Assume we're going to get a similar experience the one that we've had recently, we would be the forecasting the value spread widening perpetually. And we talked about this, Cameron, we've talked about it probably multiple times. I remember talking about it maybe a year ago.

For these types of returns to continue, that spread and valuation between value and growth has to just keep on getting wider and wider. And Cliff's saying that's probably not reasonable to expect, and if you don't expect that, well, then you'd expect that interceptor. You'd expect the average valuation adjusted or the unexplained by evaluating portion of the return, so Cliff says there are three things that can happen going forward. There's the value spread continuing to widen to infinity, and growth beats value forever. I don't know how likely that is, like I was just saying. Spreads stay where they are now, and then value premium going forward resembles the historical regression intercept on valuation changes, which is maybe two or 3%, 3% from 1950 to 2020.

And then the third possible outcome, and you think about the Fama French papers on convergence, spreads narrow as they've tended to do historically. And the value premium going forward is more positive than the regression intercept. And I know that's when this paper was posted the rational minded community, everyone is obviously rooting for that outcome.

But I think that the most interesting part of this is that with number two, with spreads stay where they are, you still expect a value premium. And we saw that in migration where value stocks that don't migrate beat growth stocks that don't migrate. You don't need that migration, you don't need that improvement in type or that convergence to have a value premium, that's where it gets a big boost, but you don't need that for there to be a premium, at least in the historical data.

So to cap this off with just revisiting that Fama and French paper, from 1927 to 2006 small value had a total return of 14.44% versus 9.18% for big growth, 3.21% came from dividends for small value, 3.39% for big growth. So you can see they're pretty similar. Small value had a capital gain return of 11.23%, big growth was 5.8%, but then big growth, where that capital gain comes from is super interesting. So big growth had a big boost to capital gains from growth in book equity. 10.3% growth in book equity. So really growing or reinvesting in the business, but they lost big on the convergence. So they had the big, big growth in book equity, but they lost 5.3% per year to convergence.

So just from there, despite the business growing, despite retaining massive amounts of earnings, their relative prices fell to the tune of 5.38% per year, in terms of their stock returns.

Now small value, they lost book equity over the same time period, but they gained an annual 13.45% from convergence. So these companies are not retaining earnings. They're not growing the book value of their equity, but 13.45% capital gain return from convergence. And you can see, actually, that small value, they had a capital gain return of 11.23%. Convergence gave them 13.45. The difference they were losing to negative growth in book value of equity.

So who knows what's going to happen in the future? I thought this was an interesting take that I hadn't really thought down this path before. Some of it, as you read through it, is intuitive, but I thought seeing how the data actually looked historically was pretty interesting. And like we said before, I'm rooting for outcome number three, where spreads narrow, and we don't just get that migration free or convergence free value premium. We also get some of the convergence premium, but remains to be seen.

Cameron Passmore: Well, one thing that I can predict about the future based on feedback from listeners lately is many listeners will be listening to this segment more than once and taking notes. It was great.

On to a very quick planning topic, so it's a mini topic, just for our Canadian listeners to make sure that they're aware of the tax deduction available for work from home expenses. So employees who are working from home more than 50% of the time, over a period of least four consecutive weeks in 2020 due to COVID-19 are eligible to claim home office expense deduction for 2020. So highlight this because there's now a new simplified or simple method that's available to people, where they don't need to get a T2200 or T2200S completed by their employer, which is the typical way that most employees who have to work from home do it. So that is still an option, depending on your situation. But if you were forced to work from home by your employer, there is a very, very easy way to get a quick deduction. So the new temporary flat rate method will allow [inaudible 00:51:09] employees to claim a deduction of two dollars for each day they worked from home in that period. So if you worked from home last year 180 days, you get $360 deduction. No T2200, no proof of expenses, nothing like that. It's just a simple, very simple deduction at your marginal rate. For some people, like we all worked from home for most of the last year, from March 13th on, it can be complicated, depending if you rent or you own, depending how much floor space you're using, depending on the expense structure of your home. So it's not obvious which way to go necessarily. So we suggest that you reach out to your tax advisor, but I would say in many situations, going with a two dollars per day is easy and may come out ahead, depending on your own situation.

Ben Felix: As a renter, and my rent is not inexpensive, although it would be a lot more expensive, I think, if I were looking for a place to rent now, so I'm grateful for that. But I think I still have to do the exact calculation. I have to go dig up the little blueprint thing for the host to figure out how much exact square footage I'm in, but the house is not that big. The office is reasonably big. I'm pretty sure because the rent is one of the deductions, that it's going to make more sense for me to do the non-simplified version. But I find it fascinating that as a renter, I get a much better deal on this than I would as an owner. I find that to be very, very interesting.

And especially if the rent is high, and especially if you're renting a luxury condo and you're using half of it as an office, that starts to become a pretty serious deduction. If you're paying 4,500, 5,000 a month in rent, which was not crazy for a very nice condo in Ottawa, and you're using half of it, or even a quarter of it for workspace, that's no joke. Whereas if you own the same condo, you don't get that.

Cameron Passmore: The more you rent and the larger your office is, the better it is. But in my case, I might be, say, 8% of the house. You can only deduct your normal operating expenses. Yeah, you can paint it and stuff, but that's nickel and dime stuff. So it takes a lot to get up to an amount that's greater than $400. Plus you have to dig up all those receipts.

Ben Felix: As an owner, yeah. That's crazy to me. If someone has a high-income, expensive rent, and-

Cameron Passmore: And a big office.

Ben Felix: And a big office or a small house relative to the office, there's a big incentive to work from home or to rent. If you have to work from home, to rent a place instead of buying one. A big financial incentive. That messes up the whole calculation on which one makes more sense.

Cameron Passmore: Then if you get into a rental where you're working out of the kitchen, it's a pro-rata part of the kitchen use, but the kitchen is assumed to be a kitchen 24 hours, there are some pretty wacky rules you have to get into, to do the calculation. All we're pointing out to our Canadian friends is you now have a simple option. Make sure you're aware of that.

Are you ready for talking sense?

Ben Felix: I'm ready.

Cameron Passmore: All right, guys, shuffle the deck here.

Ben Felix: Are you removing the cards that we've done? Is that the system?

Cameron Passmore: Yeah. Removed them, but then I shuffle. So we've not seen these. You and I have not talked about this ahead of time.

Ben Felix: No, it stresses me out a little bit.

Cameron Passmore: Okay. Should you always have a specific reason to save?

Ben Felix: Oh, man. I would say that it's probably not a bad idea to know what you're saving for, but that's not to say that somebody who doesn't feel like they have a reason to save shouldn't be saving. They just may not know what they should be saving for, which means they maybe haven't thought about it enough. But saving for no reason, saving if you don't need to save any more, if you've met all of your financial obligations and you're on track for all of your goals, I think there is a risk to saving for the sake of saving, at the expense of lifestyle.

Cameron Passmore: Or other things such as charitable endeavors.

Ben Felix: Yeah. What do you think?

Cameron Passmore: I think about people who... We do with a lot of retirees now, who have just part of their being is to be thrifty, be savers. And they didn't necessarily have a reason. And all of a sudden, they get to a point in their life where they have enough money saved up, that they have the freedom that they wanted. So they may not have done the math for years. They just ended up in that spot. So they had a habit forever.

Ben Felix: But they were, in that case, they were saving for a goal. Maybe it wasn't that well articulated. The risk, if you're saving for a goal that hasn't been well articulated, the risk is that you're over saving. But over saving is subjective too, because someone may be more comfortable over saving. Maybe they want to see their Monte-Carlo result at 100% with $10 million leftover or something like that.

Cameron Passmore: Question number two, why might you or someone else quit a job or stop working? The obvious answer is if you've reached your number, you don't have to work or you buy the things you want to do.

Ben Felix: I always think about that. I can't even remember where I got this from, but the autonomy, mastery, and purpose.

Cameron Passmore: Purpose. Daniel Pink.

Ben Felix: Daniel Pink. I think about that a lot. If I didn't have those things, I would have a lot of trouble doing a job, but I feel like I have all of them, as much as I... I don't know how I could get more autonomy. And then, the podcast alone is a pretty good example of gaining knowledge and getting better at the thing that we do. And then for purpose, just to use the podcast as my example here, just the feedback that we get from listeners about how much we're changing lives. I don't know how much more purposeful it can get.

Cameron Passmore: Purpose. Okay, your answer is better than mine on that one. I'll give you that one. On to bad advice of the week, which this week came from Brianne, who I thought she had a cool idea to come up with a topic. So she Googled searched evidence-based investing in Canada. And so when she did the search, she came across your 2016 article, Canadian Investors are Slow to Adopt Evidence-based Investing. And apparently you ranked fifth when she did her search.

Ben Felix: Not bad.

Cameron Passmore: But in the top five was an article that I think is safe to say qualifies as bad advice, which came from forbes.com, November 3rd, 2020, entitled, Always Looking Back: Evidence-based Investing Tells You What's Behind, Not What's Ahead. So this article starts out describing the annual family trip in the station wagon with the rear facing third row seats. I don't know if you remember those vehicles or not.

Ben Felix: Oh, no, they had them when I was a kid.

Cameron Passmore: You had them?

Ben Felix: I didn't, but one of my friends did.

Cameron Passmore: Completely crazy to think about that now, but that's separate issue. And then the author compares this to being an evidence-based investor, "Tagging anything as evidence-based is a trendy way to make a standout at somehow smarter than it really is." So the author goes on to talk about how index investing is predicated on the idea that someone will own a basket of securities. And he says, "assembled by a committee using capricious and arbitrary guidelines, simply because it's cheap, low expenses, and someone else will buy the basket when the investor needs to sell." So it goes on to talk about how the error in this framework is that you assume things will be the same in the future as they were in the past. We couldn't have a better article to dovetail as bad advice to your investment topic this week, in my mind.

So he then goes on to completely slam index funds as being undiversified, overvalued, top heavy, and how the two trillion dollars in new index investments have come at the expense of actively managed funds, which, when you take out the better performing... the weaker performing managers, you're left with a stronger group of competitors that makes it even harder to beat the group. But he didn't talk about that. Then he goes on to say, "I believe evidence-based investing is like an accident waiting to happen. It's what happens when you drive from the third row, looking backward. Conversely, the job of an active manager is to take the wheel, anticipate the bends in the roads, and make rational decisions based on the relative risk and reward that the manager views at the security level. Does it always work? No. However, it at least seems more prudent than looking in the wrong direction."

The part that I don't get is you completely turf the evidence-based history. Okay, fine. How are you going to have a model that's better than that framework? And how would we have a model to pick... The people have a model that are going to beat the market, looking forward, to pick up on those bends in the road? I just don't understand that leap.

Ben Felix: So let me tell you where I agree this guy and where I disagree. And I also want to make note that I'm on this post right now, and it looks like a paid post. Membership bracket, fee-based, Forbes finance council, but apparently you have to pay to get on there. If I understand this correctly. Anyway, not that should take away from it, although it maybe should a little bit.

So I don't disagree that... And this I got from Rick Ferri. I used to say evidence-based investing all the time, but Rick Ferri slams it pretty hard. His argument is basically you can find evidence for anything. And if you go and take evidence for... Sunspots is the classic academic example, and find the relationship between sunspots and stock returns, you're probably setting yourself up for a bad outcome.

I've been listening to a podcast called Daniel and Jorge Explain the Universe, which is a particle physicist that's answering questions about the universe. It's really cool. He's clearly very, very smart and educated in physics, but he's talking through stuff in a very basic way with the other guy, who's a, I think, a cartoonist, but has a science background as well. Anyway, getting way off topic there, but they were talking about theories on the podcast last time I was listening to it, and they were talking about how you could have a theory for everything. You can have a theory for passive investor. You can have a theory for active investing. But where theories become useful is when you start gathering evidence about them, rejecting some theories, finding support for other ones.

And as you get good at that, and as the community, as a whole starts getting good at that and looking at different commonalities across different things, you start to get theories that are pretty good at explaining most of the things that we observe. In the case of investing, like the efficient market hypothesis, which is totally not perfect, but definitely explains a lot of the phenomenon that happen in markets.

That's the kind of thing that's really hard to argue against. So to say that it seems like active management would be better. It's like, okay, cool, that's your theory, but you're going up against this other theory that's been published in however many thousands of papers and tested and rejected in some ways, accepted in others. But to just throw it out and say active investing seems better is completely ridiculous. And I think it shows a total lack of understanding of how a scientist would think in the first place. So that's where I disagree. Anyway, I went on a little rant there.

Cameron Passmore: That was good. And learned about a new podcast. So Brianne, thanks for submitting that. And-

Ben Felix: I don't know if it'll flow your boat, that podcast. It's about physics and the universe. It's fascinating, though.

Cameron Passmore: Yeah. I think it might, but I have no time left. I'm getting behind at podcasts, and since we don't commute anymore, it's hard. It's hard. Not enough time. And I don't have the kids like you have, demanding time.

Ben Felix: I was going for walks for a while, but I don't know. I haven't been last little while, but I still go on my Schwinn Airdyne fan bike. So I listen to the podcast when I'm on there.

Cameron Passmore: Awesome. Anything else to add this week?

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

Cameron Passmore: All right. Thanks, everybody.