Welcome back to your favourite Canadian podcast about sensible investing! Today we are focusing on evaluating equity strategies and wondering aloud whether you should be chasing these anomalies, thinking about the costs and turnover, and how these products are being implemented. These are just some of the important questions that can be asked on this subject, and we do our best to cover the most vital points in this episode. We start things off with our customary book review segment, taking a look at Katy Milkman's fascinating new title How to Change and the thesis it lays out on the continuum from now into the future. We then turn to a few interesting and pertinent news stories dealing with the CPP and clarifying the role of fund managers! After the preamble, we get into the main course of today's show and talk about some of the most prominent literature on the subject of equity strategies before laying out some criteria for useful data in this discussion. Our main point can be simplified as such: in the event of selecting systemic equity strategies with hopes of beating the market, there are many additional tradeoffs and costs that should be considered, many more than we even have time here to go through! To close out the show we take on a few questions for our Talking Sense segment and share some somewhat relieving news for our bad advice of the week!

Key Points From This Episode:

• A retraction and re-review of the last episode's book of the week, Effortless! [0:04:26.4]

• This week's book review of the exciting new title from Katy Milkman, How to Change. [0:06:35.6]

• A round-up of recent news stories from the WSJ, The Globe and Mail. [0:10:32.2] 

• The surprising results of the Canadian year-end SPIVA scorecard. [0:14:55.8]

• Investment topic of the week: evaluating equity strategies and the inspiration behind it. [0:17:24.5]

• The identification of systematic factors; Fama and French's original findings and newer research. [0:21:15.9]

• Conditions for useful data: persistent over time and pervasive across markets, strong economic rationale, and non-reliance on rising valuations. [0:23:44.3]

• The two forms of implementation costs that the data needs to survive: implicit and explicit. [0:32:40.1]

• The importance and impact of taking transaction costs into account for your portfolio. [0:35:53.0]

• The rough estimations that Ben put together in 2019 for a fund premium regression. [0:38:54.6]

• The 'what if I am wrong' check; the usefulness of maintaining a healthy level of skepticism. [0:42:22.5]

• Summarizing today's argument about additional costs and tradeoffs when selecting equity strategies. [0:46:01.7]

• Talking Sense segment; thoughts on money's purpose, and goals and sacrifices. [0:46:39.1]

• This week's bad advice! The amazing claims of TFSA maximizer schemes. [0:52:21.0]

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, portfolio manager at PWL capital.

Cameron Passmore: So I'm thinking about, we received three really nice reviews lately and there was some words in there that really speak or spoke to me about what we've been up to and what this podcast has become. It's so much more like we started this out to be mainly about financial but it's morphed into more than that, and it was highlighted in these three reviews. So BrianBoland87 talked about how it provided him the tools and mindset to look at financial wellbeing from all angles. "Keep up the great work guys," which we appreciate, that's exactly what we're trying to do. And then Dave from Calgary, get this, "Changed the way I think about money and I believe my life is better for it."

Ben Felix: Pretty good.

Cameron Passmore: That's pretty cool. And the last one, which I think is really neat and links to many of the books that I've talked about. So Kit like the car said that the podcast has become a Thursday morning ritual. So habit, right? And, "Even though it's a financial podcast, my favorite part has wound up being Cameron's book reviews," which kind of ended up almost accidentally because I had a goal to change my habits by reading more books and they just started coming into the podcast. So it's neat that it's all coming together like this.

Ben Felix: It's very cool. As regular listeners know, we made a very intentional pivot away from just talking about factor investing, for example. And yeah, these reviews show that that pivot ended up making sense.

Cameron Passmore: And you can see the pivot in the next three guests we have coming up. So next week is Johanna Peetz, and then two weeks after that is Don Ezra, and then after that is Rob Arnott. So it was a little bit of everything in the next three guests.

Ben Felix: Yeah, definitely.

Cameron Passmore: I had a couple of people mentioned to me last week that their listening at podcasts has gone down a lot. Our numbers, as listeners know, have gone up. But I wonder how many people aren't listening to as many episodes as they used to, not just hours but podcasts in general. I don't know if listenership is down or not. Maybe we should ask Angelica if she has data on this.

Ben Felix: Yeah. It's tough to say because our downloads have only been going up, but that's could be more of a factor of the podcast growing than of how engaged listeners are.

Cameron Passmore: So speaking of Angelica, she has worked with University of Chicago, and those Talking Cents cards co-branded with our logo. It will be coming to the store shortly. They've been ordered.

Ben Felix: That's exciting.

Cameron Passmore: So they are coming. So, lots of shirts available in the store and the famous super soft hoodie is available. First time, I think, recording, I'm wearing a t-shirt uniform here today.

Ben Felix: It looked good.

Cameron Passmore: And then every order still gets a free pair of Rational Reminder socks. And also, if you're interested, post pictures of your merch and tag our Instagram page.

Cameron Passmore: So you're moving soon.

Ben Felix: That is true. I'm moving probably in a little less than a month, maybe the next three weeks I'll be moved.

Cameron Passmore: Not that far but you'll be closer to nature.

Ben Felix: That's right. Closer to nature. Still close enough to the office but far enough that it's a commute as opposed to a walk.

Cameron Passmore: Right. Anything else to add?

Ben Felix: No, I think that's good. I think it's always worth mentioning the Rational Reminder community. I think, for any regular listeners who enjoy listening to us talk about all this stuff, there's a whole bunch of people talking about it in the community. We just got over 4,000 registered users in there in the past week or so, which is very exciting. And you've mentioned before Cameron, it's kind of like a fire hose. It's a little bit hard to stay on top of and engaged in all of the conversations that are going on over there. But as far as I can tell, there's still lots of really good productive discussion that I think is a nice addition to the podcast content for anybody that's very keen.

Cameron Passmore: I agree. Excellent. So let's go to the episode.

Okay. So before this week's regular book review, I want to change my last review of Greg McKeown's Effortless. I retract my panning that I gave it two weeks ago.

Ben Felix: Wow.

Cameron Passmore: Yep. I think maybe it was something you said when we talked about it that I decided to plow through and finish the book, and I loved it. I loved it. It was basically a book about treating life not as hard and complicated as we typically make it. And what I ended up liking about it, is that he ends up adding at the end of each chapter a summary, and that summary builds each chapter and the end is a phenomenal summary. So with all the books that I read, I typically have a little takeaway. I try to at least have a couple of takeaways per book. So I ended up just taking a PDF of the final summary, and I keep it in what I call my collected gold folder in Evernote.

Ben Felix: Wow.

Cameron Passmore: It's a really good list. It talks about effortless state, effortless action, and effortless results. And each one has bullet points underneath and it's really good stuff.

Ben Felix: So what changed? What made you go from not being a fan to liking it enough?

Cameron Passmore: I don't know. What did you say two weeks ago? You said something like, "Funny that you don't like it. It sounds like it's something you should like." And I was thinking maybe it's the way it was written, maybe it was the mood I was in. I don't know. I said, "You know what? I got to give it a fair crack because I loved his other book, Essentialism." And I just plowed through it. I ended up really liking it. So who knows what the cause was, but I have retracted and I highly recommend this book.

Ben Felix: Wait, wait. But did you say what your main takeaways are? You said you have these main takeaways from the books that you like to keep in these folders.

Cameron Passmore: Well, the main takeaway that I love is the summary it has at the end. So he takes all his ideas. There's so many of these books. It's also something the book I'm going to talk about, is I just find it so packed with information. What do you do with it? How do you remember? How do you put it into some sort of usable tool that you can get benefit from it after you've read the book? And the summary at the end, it has the effortless state, which he talks about like, "In virtually, look at the world. Enjoy. Make a choice to enjoy what you're doing. Release the things you don't enjoy. Take time to rest. Notice how you're feeling, then effortless action. Define what you're up to. Start your projects on time. Simplify where possible. Manage your progress and check your pace, and then effortless results, continuous learning."

What did he say? "Lift from others who've done it before you. Automate as much as possible. Trust the process and people around you." So he's got little bullets like this, and this is just off the top of my head because I read it a number of times, right? It's just a really good takeaway. So there, my vote has changed. And speaking of change, this week's book called How to Change: The Science of Getting from Where You Are to Where You Want to Be by Katy Milkman, who is a prof at Wharton and host of the podcast, Choiceology. This is a book I absolutely loved and it came 100% from Twitter. Everyone that... Not everyone but so many people that we're connected to on Twitter were reading this book and raving about it. So I solely bought it based on all these Twitter reviews. And as a heads up, Katy's agreed to come on the podcast in episode 161, which we're super excited about. I just reached out to her at her work email address and she responded, which is very cool.

Ben Felix: Yeah.

Cameron Passmore: The book is exactly as it's described in the title, and she brings you through so many studies that'll help you understand how to change. And the best way I can describe the book, it's basically a mixture of James Clear's Atomic Habits, great book which we talked about last year, Danny Kahneman's Thinking Fast and Slow, and a Richard Thaler's Nudge. It's kind of a combination of all three. She starts the book by talking about, even though we live in a world that's full of self-help books and apps and we all know what we should do, achieving real change is very hard. We're human. And when it comes to change, not only for individuals but also organizations, such as savings rates or retirement plans or getting flu shots, there's techniques and science behind getting higher engagement levels. That's what this book does, takes you through really cool studies. I think that's one of the reasons why I liked it so much, is that it's fascinating how people make decisions, but it's also fascinating what the data will show, given certain experiments what people will do.

I got some examples here for you. So, an example of commitment devices, get this, "Students who can choose self-imposed intermediate deadlines for penalties for being late on assignments, as opposed to just hand them all in at the end." Right? So it's not rational, but students who chose with the penalties handed in work with 50% fewer errors than those that waited until the end. So you've given up all kinds of flexibility and the penalties were such that if you were late, your mark went down for every day you were late. So self-imposed commitment devices. Another example, a bank in Europe had what's called a locked box bank account, so no additional interest, no other features, other than you can't touch your funds until you reach your savings goal. The people that did this, saved over 80% more money.

Ben Felix: Unreal.

Cameron Passmore: And these may not be large studies. I'm not making the argument. These are statistically significant but just really cool examples. And this last one, get this, the issue of overprescribing antibiotics by doctors. Some doctors were asked to sign a pledge to cut inappropriate prescriptions and display that pledge in their lobby. They ended up prescribing about a third less antibiotics. There was no penalty.

Ben Felix: Wow.

Cameron Passmore: It was just posted in their lobby. Just simply the psychological pressure of the soft commitment. Another thing she talked a lot about is what's called a fresh start effect. The implementing of changes around memorable dates, like your birth date, your 40th birthday, or something like that, or the beginning of the month to go on a diet or begin a new year. So people love to do changes around fresh starts. Anyways, I loved it, great book, easy read.

And as a followup to this, I just started to read Noise by Kahneman, Sibony, and Sunstein. Sunstein was coauthor of Nudge, and everybody knows Danny Kahneman, so that book is also turning out to be a very good read.

Ben Felix: Oh, yeah?

Cameron Passmore: Yeah.

Ben Felix: I'll be curious to hear your thoughts on that. I attended a talk where Kahneman spoke about the book. It did sound very interesting, so I'll be looking forward to your review.

Cameron Passmore: Well, I mean you know the point, right? I hadn't appreciated how noisy data is and how noise basically swamped so much of our decision making.

So onto the recent news-

Ben Felix: Yep.

Cameron Passmore: First one is a story that we've loved for years. It's the Nevada Public Employees' Retirement System. We've talked about them before, their $54-billion plan that manages the public employees retirement funds. And they were talking about a Wall Street Journal article back in 2016, where they interviewed the chief investment officer, Steve Edmundson, who would bring in a brown bag lunch to work every day and "to do as little as possible and usually nothing in the portfolio." So it's a low cost ETF type portfolio. So the state's Joint Budget Committee approved adding a new investment officer to work along Edmundson to help manage a $54-billion plant. Can you imagine? The objective is to reduce the risk associated with a single employee structure, and they wanted to develop a succession plan to "help assure that the underlying investment process and philosophies are maintained."

Ben Felix: It was pretty wild to had one guy.

Cameron Passmore: And at the other end of the spectrum, Andrew Coyne was added again with an article in the Globe and Mail last week about the Canada Pension Plan CPPIB, which could not have a more different story. We've talked about this, I believe a number of times on the podcast. But their fiscal year-end was March 31st and they had the report come out. The first line of Andrew Coyne's article sets the tone saying, "To read the latest annual report from Canada Pension Plan Investment Board, you'd think everything was going to swell. For the fiscal year ending March 31st, crowed at a press release accompanying the report, the CPP fund returned 20.4% net of all costs, the highest return since inception." However, if you dig into the report, as he points out, the reference portfolio was up more than 30%. So Andrew Coyne has been on this for quite a while. I remember him years ago talking about CPPIB.

Ben Felix: Me too.

Cameron Passmore: And he always talks about how they changed, up until 15 years ago, when they adopted its current active management strategy. Since then, he says this largely track the market averages, running, he quotes, about half a percent to point a year ahead of their benchmark. But he points out the change to active management has come with massive increases in personnel and costs. So in 2000, the first year it started investing in the markets, it spent $4 million. Last year, it spent $4.4 billion.

Ben Felix: Unreal.

Cameron Passmore: In 2000, it had five employees. Today, it has 2000 employees. In 2000, his first chief executive were in 600,000 salary and benefits. Today, the average comp for the top five executives is $3.5 million each. Another issue that Andrew raised in the article was the utility of the reference portfolio because the fund has more from being 65 stock, 35 bond to now being 85-15. However, the allocation to private equity and real assets, which are obviously much less liquid, make up nearly half of the fund's total investments from a third a decade ago. So he asked the question, "Could they achieve similar results with far less cost, less complexity and greater liquidity?" And we're very happy to share that Andrew Coyne's coming on the podcast in a couple of months.

Ben Felix: It's fascinating because the Canada model, like we talked about this on the podcast a while ago, but these different sort of massive sovereign wealth type pension funds and the Canada model is one of the sort of globally recognized leading models for how to do this, but it's still fairly young, all things considered sort of to make it the example that other people should model after is maybe premature. We'll see how it all goes. Hopefully, it goes well because we're all paying into it.

Cameron Passmore: Exactly.

Ben Felix: But the fees they're paying in percentage terms, I don't know if Andrew had that in this article, I think it's like close to 1% though.

Cameron Passmore: Yes.

Ben Felix: On a massive, massive fund.

Cameron Passmore: Yep.

Ben Felix: Which is absurd.

Cameron Passmore: I wonder what the Norway fund pays, which I think is the largest one on the planet.

Ben Felix: Yeah. We looked at this when we talked about -

Cameron Passmore: Yeah.

Ben Felix: It's very low, I think, in the single digit basis points.

Cameron Passmore: Yeah.

Ben Felix: If I remember correctly. But it is much lower than CPPIB, I can tell you, or CPP Investments. They've changed their name.

Cameron Passmore: Yup.

Ben Felix: On that topic of active management, I was excited to see that for the first time, as far as I know, SPIVA, the Standard & Poor's comparison of indexes to actively manage funds. The Canada version had a persistent scorecard for the first time, which is very exciting. Not that exciting, I guess, because the results were pretty much the same as the US persistent scorecard, but it was still so fun to look at. So they have for all the different equity categories, Canadian dividend and income, Canadian equity, Canadian focused equity, Canadian small and mid cap, global equity, international equity, and US equity. They tell us of the funds that were top quartile at the beginning of a five-year period, starting December, 2016. They tell us what percentage of those funds remained a top quartile five years later, and for every category, except for Canadian equity, 0% of the funds remained to top quartile. 5.8% of the Canadian equity funds managed to remain top quartile over the five-year period.

Cameron Passmore: And there's only 17 funds to start five years ago. So 5% of 17-

Ben Felix: Is that one fund?

Cameron Passmore: Is one fund. It is one fund.

Ben Felix: Yeah, I think so.

Cameron Passmore: That's it one fund, said to pick that one fund.

Ben Felix: Yeah, so of all the Canadian funds that were top quartile across every equity subclass one remain top quartile and even top half. This is pretty crazy too, even funds remaining in the top half of performers. In most cases, it's below 5% of the funds. And only one in Canadian, small and mid cap, 17% of funds remained in the top half of performance.

Cameron Passmore: So you need to be top half in that first year to get included in the pool.

Ben Felix: Yeah. So it's in the first year in the top. Yeah. You got it.

Cameron Passmore: I'm looking at the data now. It's incredible. It's going to be basically better than average.

Ben Felix: And this is quartile ranking. So the speed report gets criticized for comparing A-class funds that have commissions built in to indexes. I agree. It's not the best comparison to make, but this is just quartile ranking of the funds. So that criticism does not apply here. It's just 5 years. You can argue, maybe you need 20 years of performance to judge whether a manager is skilled or not, but in over 5 years, it doesn't look like there's a whole lot of information contained in performance.

Cameron Passmore: Right. Interesting. So under the investment topic this week, where did this come from?

Ben Felix: Oh, where did it come from? Well-

Cameron Passmore: What is it and where did it come from?

Ben Felix: Evaluating equity strategies? Where did it come from? I don't know.

Cameron Passmore: Because I think it's interesting. You've always got a bunch of ideas cooking and we never really know until recording day, which one's going to come out of the oven.

Ben Felix: While we talked on the Friday, this past Friday before the weekend. And I had three ideas for what I might write up. And this is not any of those three.

Cameron Passmore: I know that's why I'm asking the process. People might be interested where you get your ideas from.

Ben Felix: I don't know. I was reading papers by Rob Arnott. I think I read every paper that he's ever written preparing for our conversation with him coming up. And he had a paper where he looked at some version of this, how to evaluate equity strategies. And so I kind of took some of his ideas. A couple of them were new that I hadn't really seen before in terms of how to think about this and to combine that with some of my own thoughts and some stuff that I've heard from Larry Swedroe over the years, and tried to write it up into a cohesive set of ideas. I think it's all right. We'll talk through it.

Cameron Passmore: We'll see.

Ben Felix: So everyone kind of knows, or at least everyone that listens with any regularity kind of knows that we believe that low-cost total market cap, weighted index funds are really one of the best investment strategies for most people. And they're great because they're very low cost. They require very little trading which further reduces costs. They offer exposure to the broad equity market. They emphasize the largest stocks and that may not sound like a good thing, but from the perspective of implementation, the largest stocks also tend to be the most liquid. So your transaction costs, again, due to overweighting, the most liquid stocks are again decreased. And the capacity of this strategy is enormous. It's huge. So capacity constraints, which start to become very relevant when we're talking about things like deep value strategies or momentum strategies, or even maybe small cap value strategies, capacity starts to become a concern.

Capacity means if everybody starts doing this thing, then there's theoretically a point where the premium can no longer be exploited after costs. But with a total market index fund, that outcome is extremely unlikely. And we've talked about that sort of myth of the index fund bubble in past episodes. And there's a CSI video on that too if anybody's curious. Now, for all of those benefits of accepting cap weights, there are drawbacks. Cap weights offer only exposure to the market risk premium and the single factor CAPM model is not ex-post mean variance efficient. And that probably sounds super jargony, but we'll come back to that later. Basically it's just saying that because academic research has identified other risk premiums, just pursuing CAPM might not make the most sense pursuing small company premium and value premium and profitability and all that stuff might make more sense at least from a theoretical perspective.

The challenge though, is that as soon as we say, "OKay, let's go away from market caps." There are a lot more trade offs that have to be considered. It requires much more careful analysis. With cap weights, you can literally pick any fund provider that's following a major index, and that gives you total market exposure, and you're kind of good to go. But as soon as we say, "Let's tilt toward value or momentum." You've really got to start digging into, okay, how is this? Should I be chasing this anomaly? How has the product being implemented? What are the costs? What's the turnover. So we're going to try and talk through how to think about answering those questions or evaluating the answers to those questions.

In '92, I'll give a little bit of a summary, in 1992 is when Fama and French published The Cross-Section of Expected Stock Returns. And that's when we got the size and book to market, company size and relative price as variables that help to explain the variation in stock returns. So another way to think about that is that small cap and value stocks deliver a risk premium that is independent of the market risk premium. And those explanatory variables have become known as factors. Now, one of the other challenges is if we say, "Okay, I want to be a factor investor." At this point, the asset pricing literature has, I think the most recent paper that I found from 2019, which is now pretty old, relatively speaking, when we're talking about how fast this literature is growing, 2019 there were over 400 systematic factors that had been identified in top journals. Not just in blog posts and top academic journals, there had been over 400 published.

In his 2017 Presidential Address, Campbell Harvey explains the dilemma that's sort of causing this to happen. He says that journals tend to publish papers with positive results and papers with positive results tend to be cited more than papers with negative results. So papers need positive results to increase the chances of being published. So authors have this incentive to data mine or to come up with positive results for whatever anomaly. And you see it, we'll put a chart in the YouTube video that shows the... And if you want to see Cameron it's in the bottom of our notes, but it's this exponential growth curve of published factors. Now the foreign investors, the issue other than being potentially confusing, the issue is that journal papers, these published papers that were saying there's this incentive to publish positive results. Those journal papers that get published, or then in many cases used to sell financial products or create and market financial products.

So as investors, it's changed, the landscapes changed where it's not active managers saying I'm the best except for maybe the Cathie Wood situation, at least up until this year. But it's been less about star managers and more about star research, star literature, which systematic anomaly can we exploit in a low cost fund. But the challenge is similar where everybody's saying " I've got the best. I've got the secret sauce." And investors are again left either saying, "I'm not going to try. I'm just going to stick with market cap weights, or you've got to do some analysis." So here are my criteria. I think that the data, before we even get into implementation or anything like that, the data have to be persistent through time and pervasive across markets. And that's the one that I get from Larry Swedroe's contributions, find something that's backtested in the US data over one time period. I want to see the backtest in other markets. And I want to see it over other time periods before I feel comfortable with it.

Now, that on its own, isn't quite enough. It's got to have strong economic rationale. And now here's one that I got from Rob Arnott, it shouldn't rely on rising valuations in the historical data. The data I found very interesting, because if there is an anomaly that you observe, and from the beginning of the period to the end, the valuations of the companies in that strategy increased. And the valuation increase explains a lot of the performance difference or the anomaly over the time period. That's not repeatable. You don't expect the valuation increase to happen again. So you kind of have some-

Cameron Passmore: Oh, it's really interesting.

Ben Felix: Yeah, I thought so too. So you kind of have to net that out before saying that you're comfortable with the historical data. It's got to deliver on, on the premium after fees and transaction costs, and we'll dig into that as we go through. And this is a big one, in my opinion, this is something that if you follow any of the discussions in the Rational Reminder community, is one of the most hotly debated topics. I think that a portfolio or a holding should still be a pretty good portfolio, even if the backtested data that you're relying on end up being wrong. I kind of call it the, What if I'm Wrong Test? And the implication is you could build a highly concentrated or a high turnover strategy based on the historical data. But that portfolio, if the premium that you're relying on, doesn't end up showing up or never existed in the first place, that concentrated or high turnover portfolio ends up being not really a good holding. At least not compared to a total market index, which is kind of always the benchmark in my mind.

So the backtesting piece I think is fairly obvious. I don't know if we need to dig into that too much. It's what I said, just making sure that the data are pervasive across different samples. Economic rationale is a really big one. I think Robert Novy-Marx, his 2014 paper in the Journal of Financial Economics has some pretty funny examples. But he shows that the weather in Manhattan, global warming, El Nino, sunspots and the conjunctions of the planets are significantly related to anomaly performance. Now he wrote that paper tongue in cheek, but he was showing that there are a statistically significant predictive relationships in financial data. But I mean, if someone's going to go and build a portfolio based on the weather in Manhattan, good luck, I guess. The point is just that if there is no good economic rationale, then it's very difficult to say with any reason that the premium is going to persist in the future.

And if we pull in like value investing, one of the original anomalies, even though it's struggled in recent history, although not the most recent history, it's done better, but the last 10 or 15 years that has not done so great. But the economic rationale is extremely strong. It's going to take one of two forms, and when we say economic rationale, this is what we mean. There's going to be a risk-based explanation. You should expect a higher return for owning this asset because it's riskier or there's going to be a behavior-based explanation. So from the behavioral finance literature, is there a reason that investors will make systematic errors that will result in this type of assets returns to be better? So I just thought I would touch on as an example, and I'm not saying value's the best anomaly or anything like that. It's just an easy example because I already had notes on it.

From the risk-based perspective, companies with lower prices tend to be under distress. They tend to have high financial leverage and they face substantial uncertainty in future earnings. And that's all documented in a paper titled the Risk and Return of Value Stocks in 1998 paper. Value stocks also tend to be riskier than growth stocks in bad economic times, but only slightly less risky in good economic times. And that's were in 2005 paper, The Value Premium by Lu Zhang. So those are real economic reasons. If you're owning low price stocks, they're genuinely a riskier assets and you should demand a higher premium for owning them.

Cameron Passmore: Their cost of capital goes up.

Ben Felix: Correct higher cost of capital. And then on the behavioral side, the 2012 paper by Piotrowski. And so they observe a systematic pricing errors causing value stocks to be under priced and growth stocks to be overpriced. They give the example that investors may be too optimistic about the future growth prospects of glamorous firms like Tesla or irrationally bidding up their prices and reducing their expected future returns. And then the same type of investors might be neglecting value stocks, which ends up increasing their expected returns. So there we have a risk-based story and a behavioral story, both totally feasible, both backed up by all of the relevant literature. So that makes us more confident in the value of premium. And we talked about that a bunch, when value is really struggling, you and I would always talk about like, "Prices of growth stocks can't go up forever and relative prices of value stocks can't go down forever." And that's part of the economic rationale.

Now the rising valuations, this is the one that we agreed is quite interesting and new to me, anyway. If valuation describes or explains all of the premium over a period, it's the Cliff Asness, the long run is lying to you idea. I'll use his example of international versus US stocks, because this is one that comes up a lot. People say, "Well, why would I invest in international stocks when US stocks have done so much better?" Cliff gives data from 1980 to 2000, the US stock market beat US developed who uses EFE by 2.1% per year for 40 years. Ouch, advantage for US stocks, but almost all of that excess return came from the prices of US stocks increasing relative to the earnings over the period, more than international developed stocks. If US stock price multiples had not expanded over the period or relatively expanded I guess. The annual advantage of US stocks would have been statistically insignificant, 0.4% per year instead of 2.1% per year.

Cameron Passmore: Meaning investors perceived less risk in US stocks, I guess, driving it up lowering their expected returns.

Ben Felix: Yeah, it depends what story you want to tell. They perceived that they were less risky. They expected higher future earnings. They irrationally bid up prices, whatever story you want to tell. So if you didn't look at valuations, if you just said, "Wow, look how great the US stock market performs. I'm going to invest in that instead of international stocks," it might be a bad choice because if you believe that there's a relationship between price and expected returns, you could argue that the US stock market currently has lower expected returns.

Cameron Passmore: Exactly.

Ben Felix: Now, we've talked about how evaluations may not be that good of a predictor, but from an economic rationale perspective, I think there's still an argument there. Growth stocks, and maybe this is embedded in the US market story that we just told, but growth stocks are another example where there's a good chunk of data now at this point in time where you can take a growth index compared to a value index and say, "Wow, growth stocks are amazing and value stocks are garbage. Why would you invest in value? Look how much better..." And I see this in YouTube comments all the time. How can you say value's done better? Look at this 20 years of data showing that growth beats value.

But again, a huge portion of that difference, and Cliff talks about this in his paper too, a huge portion of that difference has come from the valuation gap increasing. And you can't expect that. You cannot rely on that valuation gap to increase in the future. If you take it out, if you take that portion out, then there was still a value premium over the period. And then going forward, if that valuation gap stays where it is now, you expect a positive value premium. If it narrows back to something more like what it's been historically, you expect an exceptionally positive value premium.

So it's this trick. It's a trick where if you look at just the history, it's the long run lying to you, like what Cliff says. So I think in evaluating any strategy, if you're sitting down and looking at all these potential funds or investment strategies and back tests, that's a really important one to look at. How much of this anomaly came from rising valuations over the period that I'm evaluating.

I guess the other thing is maybe some of that goes away if you look at enough data. Like we just talked about, from 1980 to 2020 what things looked like, maybe if you extend that time period, the changing valuations start to matter less theoretically. At the infinite horizon, they shouldn't matter at all, but over any finite period, I think they can be very, very important.

Now, so far we've kind of talked about data. The next big piece for investors who are investing real money is that even if we have good data and we have strong economic rationale and we've ruled out rising valuations as a reason for the data to look the way that they do, the idea that data still need to survive implementation costs. And those are going to come in two forms. You've got implicit costs and explicit costs. Implicit costs, and this is another one that... I knew what implicit costs were, but another Rob Arnott paper, there is a really interesting commentary on how to measure implicit costs. And their website actually has a tool, the Research Affiliates Interactive Smart Beta site. Free to use. They have representative strategies. So you can look at like a value strategy. And based on the methodology that I'll talk about in a second, they tell you what the expected implicit costs are for that strategy.

Now, where those implicit costs show up are the market impact costs of trading this strategy. Not trading costs like not commissions, but how much does the strategy move the price to implement itself? And that ends up being a cost. That was tricky because you don't see that anywhere.

Cameron Passmore: Nope.

Ben Felix: No one's reporting on it. Well, Research Affiliates is reporting on it, but you can't go look at the annual report of a fund and see, oh, okay, I see. Like you can with the management fees, you can't see what the market impact costs are. Now, if you take a non-market cap weighted strategy, it's going to naturally trade more than a market cap weighted index fund. Like we talked earlier, what are the benefits of market cap weights? Well, your portfolio moves with the index because they're both just the market. So you don't trade much. But as soon as you say, I want value or small value or momentum, especially momentum, you're going to start trading a lot more.

So there's a 2015 paper that gets this methodology from the Journal of Trading. They show that the implicit trading costs of a strategy increase with higher assets under management across all funds following the strategy. So that speaks to capacity. If everybody's chasing momentum, that's maybe not good. They increase with increasing turnover and an increasing deviation from the volume weighted index. So you've got a strategy that's very different from the index, has a lot of assets in it and it's very high turnover and you're going to have high implementation costs.

So on the Research Affiliates website that I mentioned, I was playing around with it and they estimate implicit costs using that same methodology that I mentioned for a large cap value strategy. So value drawing from the 1,000 largest US stocks. They estimate a trading cost of 0.09% for standard momentum and they offer some momentum alternatives, which was designed to be more trading efficient, but for standard momentum. In the same 1,000 stock universe, they find that estimated trading cost of 1.76%. It's pretty substantial. Now the momentum premium has been huge too. So it's not obvious to say that that's about a bad trade-off, but it's a cost that has to be considered.

The other thing that I think is fascinating, and we talked to Robert Novy-Marx about this near the end of our conversation with him, is that when you take transaction costs into account, it can actually make a difference in terms of what the ex-post optimal portfolio looks like. So this is his brand new paper, Model Selection with Transaction Costs. And he explains that if some combination of an asset pricing models factors are ex-post mean variance efficient, so I mentioned we are going to come back to this. If that's true, then no other asset can be used to improve performance and the model price is everything.

So if an asset pricing model, I think the Fama–French five-factor model, that's an asset pricing model. If it is ex-post mean variance efficient, then no other asset can be used to improve performance and the model price is everything. So factor models lately, in his paper he says in this sort of factor model horse race that's been going on in the academic community, factor models are being evaluated based on how close their factors come to spanning the ex-post efficient frontier. And this is being done using the squared Sharpe ratio criterion which was introduced by Barillas and Shanken in their 2017 or '16 paper.

So this gets important because if you ignore transaction costs, there's a q-factor model that people may have heard of and there's the Barillas and Shanken six-factor models. They have a couple of them. They've got higher maximum squared Sharpe ratios than the Fama-French five-factor model and they explain the majority of 120 anomalies that were tested. So they look really, really good.

But in another Marx's paper, his whole idea was what if we account for transaction costs? Does it change the result? And he found, and it's particularly interesting because momentum makes an appearance, especially in the Barillas and Shanken models. He found that once you account for transaction costs, the Fama-French five-factor model has a significantly higher squared Sharpe ratio than the other alternatives. So that's important because again, if we're thinking about evaluating equity strategies and thinking about what factors do we want to include in our portfolio based on this Novy-Marx's paper, he's saying that momentum, I'm just picking on momentum as the example, it would not be included, which can be a big deal.

And maybe I'm saying that's a big deal because I'm biased by momentum being such a focus of the discussions in the Rational Reminder community, but it's kind of everywhere, right? It's one of those things where it's like the data are so obvious, the economic rationale are a little bit less obvious, but then the transaction costs are high. Now, the exquisite costs, that's an easier one. That's like fees and maybe the trading expense ratio, which tends to be pretty low these days. But you take the implicit cost, the explicit costs and this equity strategy, the hypothetical strategies that we're talking about, implementing it has to still be able to produce an excess expected return after costs.

I did in my 2019 paper, Factor Investing with ETFs, the first paper that we did on that topic, I did this really rough approach to estimating what the premium for a fund might be using regression. And this is really rough. And I'm sure anybody in academia or with proper statistic knowledge would say this is not good. But I'm saying it's rough and it's worth something-

Cameron Passmore: - with that caveat.

Ben Felix: Yeah. So what I did there is said, if we run regression on a product, we can see what its loadings are to a factor. And if we can then take the premium for each of those factors that we now have the loadings for, multiply them together, it tells you how much of the premium that fund would have captured over the historical... If the loadings remained the same, I guess, or in the historical period where the loadings were where that... Now, what I did in that paper and what I've done again in my example here is I cut the historical premiums in half because I don't want to bet on 100% of historical premiums repeating themselves.

I'm saying, I like this strategy if it gives me an excess return over a cap weighted index fund after costs and with a 50% haircut on the historical premium. So I looked at AVUV, the Avantis U.S. Small Cap Value ETF, which makes an appearance in our Rational Reminder model portfolio, and using portfolio visualizer, I found it had a market beta of one loading to the size factor of 0.91. Now, what that means is if the market goes up 10%, a market beta of one, the fund is going to capture all of that 100% of it. The size loading of 0.91, if the size premium were 10%, this fund would have captured 9.1%. And then for value, I found a loading of 0.52, for profitability is 0.34, and for investment, -0.21, all statistically significant at the 95% confidence level.

Then I took the premiums from 1963 to 2020, because all of this profitability data starts in '63 for the US, cut them in half and multiplied it out and I got just under a 2% excess return over the market. And for AVUV, before fees and costs, the fund has an expense ratio of 0.25%. So we're at 1.75%. Now this fund is a pretty modest turnover of 20%. It hasn't existed that long. It might have higher turnover years, but for the reporting that they have done so far, it's got 20% turnover. That means 20% of the holdings changed in the year, which is pretty good for a small cap value fund.

So after fees and transaction costs, based on the Research Affiliates website, they had for like a concentrated value strategy. I think it was maybe 30 basis points or 40 basis points, but either way, even if it's a percent, there's still a lot of room for excess premium with this holding.

Cameron Passmore: And that's only half the premium.

Ben Felix: That's 50% of historical. Correct. So I think that's a worthwhile exercise to go through, even though I'm saying it's totally rough and no one's going to publish a paper about it or anything, but it gives you a rough idea of after costs, is there any expected premium? Because if we just did that exercise and it said that there's zero, you probably wouldn't hold it. It wouldn't make any sense to hold it. It'd be a waste of money and you'd end up with this high turnover, relatively high cost thing that's going to give you maybe the market return. But for AVUV, we found a positive result, which we knew, which is why it's in the Rational Reminder model portfolio.

Now, the last check, and this one I think is really important, but it's also the most hotly debated like I mentioned earlier, is this what if I'm wrong question. We just talked about three competing factor models. Nobody really knows which one is the best one, but that's a... There are even more skeptical perspectives than that though. That maybe none of these models are right. And we just have Brad Cornell on the podcast. His 2020 paper in The Journal of Portfolio Management, Stock Characteristics and Stock Returns: A Skeptic's Look at the Cross Section of Expected Returns, he says that a lack of persistence in the characteristics and problems caused by model uncertainty, data snooping, and non-stationarity means that our knowledge of the relationship between even the most established factors and expected returns is sketchy at best.

So I'm not going to say that I'm as much of a skeptic as Professor Cornell, as much as I respect his opinion, but I think that there's merit in considering that all of those projections I just talked about about excess returns related to our regression coefficients, we probably shouldn't rely on them too much. So I think that some level of skepticism is worth having when we're talking about back-tested strategies, especially as the concentration and the turnover start to increase and the costs start to increase.

So the question I want to ask myself is what if none of this is real? What if the back tests are random noise? I'm not saying I think that obviously, but what if that is true? What if this portfolio, this hypothetical strategy that we're evaluating, what if it's just going to give me the market risk premium going forward? And you don't want to end up with the market risk premium less transaction costs, less relatively high fees, and less the skewness effect that I'll talk about briefly.

Bessembinder's 2018 paper, Do Stocks Outperform Treasury bills? showed that the skewness, especially over long periods of time in stock returns is pretty extreme and pretty damaging to portfolio returns. He used bootstrap simulations for 50 and I think it was for five, 25, 50 and 100 stock portfolios. And interestingly, actually his point in doing these bootstrap simulations was to show how much improvement there is just by adding a few extra stocks. Like with one stock, your chances of underperforming T-bills is pretty high, but with five stocks and 25 stock, it starts getting lower. But compared to the evaluated market, so just the total market index, with a 50 stock portfolio, these are randomly selected, randomly selected 50 stocks. They underperformed the market almost 60% of the time with a 90 year horizon. And with 100 randomly selected stocks, so we're more diversified now, you're still underperforming the market 57% of the time.

Cameron Passmore: Wow.

Ben Felix: Now, in my hypothetical scenario that I don't actually believe in, but in the scenario where you just expect the market return from this strategy that you're pursuing, you're going to get the market return less fees, less transaction costs and less some other amount for this skewness effect. You're going to have more than a 50% chance of underperforming the market if the other premiums don't pan out. So again, I can't emphasize enough that I don't think that. I don't think that factor strategies are going to deliver just the market return and there are no other premiums, but it's a possibility. And I think that that what if I'm wrong question, it's at least worth thinking about in designing portfolios.

So to summarize all that, I think that if we're selecting systematic equity investment strategies with the hopes of beating the market, there are a whole bunch of additional costs and trade offs that we have to consider. We just detailed a handful of them. There may be others that I didn't think of. The strategy has got to be based on good data that's persistent through time and pervasive across markets. It's got to have good economic rationale. It should not rely on rising valuations over the period that's being evaluated and it's should deliver its premium after fees and transaction costs. And as we just talked about, it's got to survive the, what if I'm wrong test. That's my portfolio topic for this week.

Cameron Passmore: That was great. So we'll go on to talking sense.

Ben Felix: And we're going to take more time to talk about these, are we?

Cameron Passmore: Yeah. Well, the listener said that I don't know where it was feedback somewhere asking us to spend more time on the question. So maybe we'll spend a little bit more time, see how it goes. I don't know about you, but I always think of the better answers after.

Ben Felix: 100%. I don't know why we decided to not think about the answers before we answer them.

Cameron Passmore: I don't know, make it more real life, but we'll see. So I pulled two cards. I'll go first, give your voice a rest. What is the purpose of money? What is the purpose of money? The purpose. So not just a means of exchange. I assume it's asking something greater than that. It's a measuring stick to some level, but in one's life, I guess it depends on what your own personal purpose is.

Ben Felix: I think it lets you move economic value through time.

Cameron Passmore: That's a good answer. And Ben did not see this beforehand. That's a good answer. When you think about the human capital and the financial capital.

Ben Felix: That's the whole idea of you work to save to not have to work later or you spend to get time.

Cameron Passmore: Actually, I've had this conversation a lot with the kids lately, talking about, don't worry so much about your current income, worry about what you're doing for work and the compensation will come over time. Don't get to fuss over the hourly rate or whatever salary making now, focus on the human capital. The financial capital will come with time. So we've had lots of discussions around that.

Ben Felix: I can't remember where I saw, I think it was related to the University of Chicago. It might've been Fom actually, in that thing that he did with Cliff and David Booth, he said something along the lines of, they tried to make Chicago tough, but not mean or something like that. And his objective was to make it so that anybody leaves Chicago, even if they don't finish the program, their human capital is going to be worth that much more. And that was always his objective to do, something like that. I'm probably butchering the idea, but it was along those lines.

Cameron Passmore: Yeah. Not just grind students for the sake of grinding them down, but to challenge them in a tough way to make them better. You ready for number two?

Ben Felix: Yep.

Cameron Passmore: Think of a goal. What is something you'd be willing to give up to achieve that goal?

Ben Felix: All right. Well, I'm going to give an answer that is not what the question's looking for. I've never believed in goals and I don't set goals. Never have.

Cameron Passmore: But you're extremely driven.

Ben Felix: Yeah. I like doing stuff, but I've never sat down and, "These are my goals." I remember I had this conversation. My first job was selling mutual funds and insurance and I had to sit down and like, "Okay what are your-

Cameron Passmore: Is this a couch moment for us?

Ben Felix: No, I don't think so.

Cameron Passmore: Okay.

Ben Felix: Nope. I had to set goals like sales targets and income goals and all this stuff. And I was like, "I don't know how to tell you this, but I don't believe in setting goals. So this is going to be a little bit awkward." Yeah. Never have.

Cameron Passmore: Yeah. Culturally we're more, our company is more focused on the work, focus on the quality and be ready for what might happen. But I've always found setting certain dollar targets, I guess they might motivate some people. That's not kind of our culture at all, but when you focus on the quality, things have always worked out. You can focus on habits, like you have certain targets, for example, and finding different research ideas in your team. Things like that. That's different, but we don't set great big numerical goals like that. You just focus on the work and believe, because really you don't have that much control over those numbers anyways, all you can control is your daily activity. But one thing I think you and I would both give up to achieve something is we've invested time, we've invested creative effort.

Ben Felix: Say the question again.

Cameron Passmore: Think of a goal. So right away, you're out. Just imagine if you had a goal. But maybe we're thinking of the goal wrong. We have a goal to be a leading source of wealth management services in Canada, right?

Ben Felix: Yep.

Cameron Passmore: There's a goal.

Ben Felix: That's a goal. I agree.

Cameron Passmore: There's no numbers around it. We don't want X number of clients or X amount of assets. So what is something you would be willing to give up to achieve that goal?

Ben Felix: Yeah. Okay. So that's a more tangible way to frame it. Yeah, time obviously, because we do invest huge amounts of our time into all of the stuff that we do with clients and with the podcast and with the team. So yep. Your answer was excellent.

Cameron Passmore: Or think about running. I was saying to Lisa on the weekend, because we watch someone run by our house here and say, "Wow, that was me. If I ran the last decade, my forties." And I said, "Do quick math, that betcha left on 2000 runs from this house over the decade." At least that, probably more. Had a goal of doing a marathon end up doing two. So doing a marathon is not that remarkable. What is remarkable is what you did to get to do a marathon. It's that pounding for months on the road by yourself. That is what's remarkable about a marathon. So I gave up tons of family breakfast and stuff like that to do that.

Ben Felix: Interesting. And I guess for the podcast, I'm just thinking too, because that's something where we've invest so much in it to make it what it is. In a way, I guess it's a goal.

I kind of think of it more as a constraint almost. It's like, this is a thing that must happen every week. And therefore it happens, I guess that's a goal.

Cameron Passmore: Right. But we don't embrace traditional goals like we want X number of downloads a month.

Ben Felix: Correct. Yeah. It's more about habits having really good habits and taking what comes.

Cameron Passmore: That was good. Onto bad advice. Remember it as always, if you send us a bad advice of the week, we'll send you off a hoodie. But this week I think this is the one that you came up with.

Ben Felix: I think so. I love this one, honestly, because this is something that was pitched to us years ago. And we looked at it and Raymond in our research team looked at it, and that we had some tax people that we know look at it and everyone was like, "Really? This just doesn't seem right."

But for years it persisted. And just now finally May 13th, CRA came down and gave some guidance-

Cameron Passmore: Guidance? That's to say the least.

Ben Felix: Yeah, very clear guidance. So what is it? It's what are called TFSA maximizer schemes. But it's basically in Canada, we have tax deferred accounts, the RRSP. You put money in, you get a tax deferral. You take money out, you pay income tax on the withdrawal. And we have the TFSA, which is a tax free account where you pay your income taxes, you take your after tax dollars, put them into the account. When you take the money out you're not taxed because you've already paid tax at the front end. In both cases, the money inside the account grows tax free. So we have tax-deferred, tax-free and if you could take all the money in your RRSP, your tax deferred account, that you've got to pay income tax on the withdrawals.

If you could take all of that and switch it over into your TFSA, you would just evaporate all of the income taxes that you would have paid at the time that you made your RRSP contributions. So that would be cool. And this strategy, these TFSA, maximizer schemes, they claimed to be able to do exactly that.

Cameron Passmore: And not only that, but the video starts out by saying, "I bet you've not had any progressive tax savings advice and that your RRSP is going to trigger lots of talks later in life."

Ben Felix: Progressive to say the least. Should we try and talk about how they work based on what CRA wrote?

Cameron Passmore: Sure. If you want, you can watch ... I don't know if we'll link the video or not, but yeah.

Ben Felix: I don't know if we'll link the video either. I don't know if I want to take -

Cameron Passmore: Take a crack at it. It's in that CRA memo.

Ben Felix: Okay. So I'm going to just kind of skim through as bullet points in terms of how the strategy works. So this is CRA's language, me paraphrasing.

Cameron Passmore: I'm telling the listener, hang on. This is something.

Ben Felix: Buckle up. So they say that this type of scheme is marketed to sophisticated investors who have large balances in an RRSP or a RRIF and in a TFSA and significant equity in a personal residence. So then they've walked through the key elements of the scheme. The promoter operates a special purpose mortgage investment company. Okay, here we go. That invests in quotation marks only in, mortgage loans to scheme participants. The mortgage investment company issues, two classes of shares, one paying dividends at a low rate and the other paying dividends at a much higher rate.

Cameron Passmore: Really? Really?

Ben Felix: The participant buys low dividends shares of the MIC, of the Morgan investment company, in the RRSP or a RRIF and high dividend shares in the TFSA.

The mortgage investment company lends the share proceeds back to the participant in the form of a first and second mortgage loan, secured by the personal residence and the TFSA balance and bearing interest at rates corresponding to the dividend rates on the two classes of mortgage investment company shares. The participant invests the loan proceeds with the promoter and earns taxable investment income. The participant makes annual RRSP or RRIF withdrawals and claims a fully offsetting interest deduction. So you're taking money out of the registered account. You've got the tax liability, but you've also got this big old interested deduction that's offsetting the income. After several years of participating in the scheme, the participant is supposedly able to shift their entire RRSP balance to the TFSA in a way that the promoter claims is tax-free and is not subject to the annual TFSA contribution limit.

Cameron Passmore: And this is exactly what's in the video, exactly. And it's like, "You just do this. That's how wonderful it is."

Ben Felix: Yeah, no problem. No big deal. How have you not heard of this? You fool. That's exactly how it's marketed. So here's CRA's commentary. Promoters of the TFSA maximizer schemes claim that the high interest rate paid on the second mortgage investment company loan is normal for second residential mortgages. And this is important, and explains the corresponding high dividend rate on the second class of MIc shares. In reality, however, the entire arrangement is commercially unreasonable. The lenders actual credit risk is low because the borrowers are all wealthy participants in the scheme who are unlikely to default on the mortgages. Moreover, second high interest mortgage is secured both by the participants residents and by the growing TFSA balance. So they're basically saying that the higher rate of interest on the second mortgage, which facilitates the whole strategy is not justified because the person's just borrowing from themself.

Cameron Passmore: So someone called them out under their YouTube, in the comments, and then they replied right away. Saying, "Oh, thanks for watching our content. We're aware of CRA's recent article and are thoroughly reviewing their descriptions and claims around the advantage rules. Although many articles have no merit, we've obviously taken their stance very seriously. We'll always ensure there's a hundred percent validity to any of the strategies that we recommend. Stay tuned."

Ben Felix: I'm glad you found that because I'd looked a couple of days ago for comments and I didn't find any.

Cameron Passmore: Thanks again for sharing and reaching out to us.

Ben Felix: That's very nice. I don't know how you get around this though. If they find a way-

Cameron Passmore: I don't know why you'd want to. I mean, come on. It just smells awful.

Ben Felix: Yeah. CRA says, in addition to the advantage tax ... Oh yeah, maybe that's worth mentioning.

So as a result, the increase in the value of the TFSA would be considered an advantage subject to 100% advantage tax. 100% advantage tax. In addition, the interest paid on the mortgage investment company loan may not be fully deductible.

Cameron Passmore: And in addition to that, individuals who are involved with the promotion or preparation of inaccurate or false tax returns may be subject to third party penalties, fines, and possible jail time.

Ben Felix: It's no joke. It never smelled right. I wasn't smart enough to pick the holes in it that CRA's finally done, but it never smelled right. And we'll see what happens, I guess. We'll see what happens. I'm glad we never a bit on that, because we were pitched. People can do us and said, "Here's a strategy. Here's how it works. Here's how it can benefit your clients." And we said, "No, thanks."

Cameron Passmore: No thanks. So that was pretty good, bad advice of the week. All right. Well, good luck with your move.

Ben Felix: I'll still be moving next time we talk, I think.

Cameron Passmore: It's a process.

Ben Felix: It's a process. No, as always, we appreciate all the reviews that people leave and they help other people find the podcast. I think that's true. I don't know. Other podcasts I listen to say that, so I assume it's true. Because people that make podcasts say that, so it must be true.

Cameron Passmore: Or is it just the podcast creators that read the reviews? I don't know.

Ben Felix: And we do read all the reviews, but the point here is that if you're enjoying the podcast, leaving reviews is a nice way to say thank you to us. And we think it probably helps other people find the podcast as well, which is another benefit.

Cameron Passmore: And Kit, if you're on your walk right now, hope you're having a good walk. All right.

Ben Felix: All right.

Cameron Passmore: Thanks for listening.

Books From Today’s Episode:

Effortless — https://amzn.to/3wTiYfK

Essentialism — https://amzn.to/3fsJILA

How to Change — https://amzn.to/3wY1MFX

Atomic Habits — https://amzn.to/2Ra5NnF

Thinking Fast and Slow — https://amzn.to/3dq37e8

Nudge — https://amzn.to/34IHGDe

Noise — https://amzn.to/3yYf32T

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/ 

Shop Merch — https://shop.rationalreminder.ca/

Join the Community — https://community.rationalreminder.ca/

Follow us on Twitter — https://twitter.com/RationalRemind

Follow us on Instagram — @rationalreminder

Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

'What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing' — https://www.wsj.com/articles/what-does-nevadas-35-billion-fund-manager-do-all-day-nothing-1476887420

'The runaway costs, ill-defined risks and mediocre returns of the CPP’s investment strategy' — https://www.theglobeandmail.com/opinion/article-the-runaway-costs-ill-defined-risks-and-mediocre-returns-of-the-cpps/

'The Value Premium' — https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2005.00725.x

'Model Selection with Transaction Costs' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805379

'Do Stocks Outperform Treasury Bills?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447