Welcome to another episode of the Rational Reminder Podcast! We start by reviewing The Fearless Organization, and learn some important concepts such as psychological safety in the workplace, allowing people to voice their concerns, and the value of continuously learning. We also discuss a paper on index investing followed by a quick discussion on gender equality in finance. We then take a deep dive into today’s main topic, ‘Stocks for the Long Run…?’, by unpacking research to see if stocks are still a valuable long-term investment. Finally, we end the show with a conversation about our 22 and 22 book challenge with Mark Sutcliffe, and find out about his reading habits and the books that have had the biggest impact on him.
Key Points From This Episode:
An update about the podcast and feedback received about the crypto series. [0:03:55]
A rundown of the guests we have planned for future episodes. [0:07:43]
Outline of the ‘mixed-bag’ reviews received about the show. [0:08:28]
News and updates regarding the Rational Reminder reading challenge. [0:13:07]
This week’s book review of The Fearless Organization by Amy C. Edmondson. [0:14:45]
We talk about an interesting paper ‘On Index Investing’ [0:24:42]
Follow-up on and discussion concerning gender equality in finance from previous episodes. [0:28:34]
We dig into today’s main topic, ‘Stocks for the Long Run.’ [0:33:38]
Issues surrounding using Stocks for the Long Run data to draw insights. [0:35:22]
What has been achieved to solve issues regarding a lack of data on stock returns. [0:41:45]
An important insight from research on the value of stocks and bonds in the long term. [0:47:17]
A breakdown of some interesting findings from the paper, ‘Global factor premiums’. [0:48:00]
Overview of the research discussed and whether stocks are still valuable long-term investments. [0:53:54]
The Rational Reminder 22 and 22 book challenge conversation with Mark Sutcliffe. [0:55:09]
What Mark has discovered about the world of social media while working remotely. [0:56:58]
Mark shares details about his reading habit and his favourite books growing up. [0:57:53]
Whether he has a favourite genre of book. [01:00:11]
How Mark sources books to read and how he captures interesting information. [01:00:44]
The books that Mark commonly recommends to family and friends. [01:03:05]
Find out if Mark thinks being an author changes how you read books. [01:05:12]
Advice that he has for people who want to read more. [01:06:33]
Read the Transcript:
Ben Felix: This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision making. From two Canadians. We are hosted by me, Benjamin Felix, and Cameron Passmore, portfolio managers at PWL Capital.
Cameron Passmore: The lesson for today, Ben, is that Ireland is an incredible country to visit. We had an unbelievable experience. We landed in Dublin, rented a car at the airport and sitting in the right side of the car, driving on the left side is just so strange and totally exhilarating to drive there. People drive really small cars. So I look like Mr. Bean in this little car, but it was a normal sized car which makes you realize that the cars we drive here are really big. And Lisa planned out our trip to basically do a clockwise tour from Dublin all around the coast of the country and going up to... We had a wedding in Derry up in the Northern Ireland and wow, we just experienced so much beautiful countryside. Pictures do not do it justice. Simply unreal. Absolutely unreal.
But to drive there, basically anything goes and you can't go the speed limit. You cannot keep up to the speed limit. You're going down roads where Apple or Google Maps, whatever, tells you to take this road and you're looking, really, we take that road where there's hedges on the side of the road that are hitting both mirrors and we're driving a tiny car. And they've got these little spaces where there's oncoming traffic. You pull off these little jut outs that are maybe every 500 meters or something. But you're going on these roads 80 kilometers an hour, and you're just full tilt. You can barely keep up. It's unbelievable. And you're on the wrong side of the road and your driving this little car. It was just a blast, unreal views. We stayed in a place.
Get this. She found this bed and breakfast on top of a pub up in Northwestern Ireland, near Donegal, where we're in this 350 year old pub. We're upstairs in this pub where you walk through the pub, you get to your room and you look down on a cliff. We're looking at beach that is every bit as nice as a beach you'd see in California. And there's nobody there. It's just crazy. And we are able to drive on the beach. So total blast, highly recommend Ireland for what it's worth to people as a destination. And it's not too hot.
Ben Felix: Cool.
Cameron Passmore: Yeah. How was your week off?
Ben Felix: Pretty good. It was only often quotation marks because I had to prepare for the conversation we're having with Ralph Koijen later this week. I wanted to send him the questions last week. So I spent some time doing that. His research was pretty intense, but I did take some full days off and half days off. We also found beaches that looked like they could be in California. And they were only about a 20 minute drive from...
Cameron Passmore: Really.
Ben Felix: From where I live. You don't necessarily have to go to Ireland to find those nice sandy beaches.
Cameron Passmore: Oh, well, that's the other takeaway too, right? Why when you're in Ireland, are you okay driving six hours? Whereas here we would never hop in the car and drive six hours. I'm sure there's beautiful coastlines all up past Quebec City and wherever else. So I agree with you.
Ben Felix: There are. We don't even have to go that far.
Cameron Passmore: I know.
Ben Felix: You can go 45 minutes from Downtown Ottawa and there are beautiful sandy beaches with nobody on them.
Cameron Passmore: But why don't we? It is amazing. We don't.
Ben Felix: Yeah. That's why I kept joking that to my wife that before we go on any international trips, we should drive five minutes down the road. We finally did it and it was great.
Cameron Passmore: And as I told you, our whole discussion around awe sometime earlier this year, it's true. When you step up on some of these spaces and look out, it is truly awesome. It takes your breath away how the different hues of greens in the countryside and the brick walls everywhere. How do they build all these brick? There's thousands of miles of hand built brick walls that are hundreds of years old everywhere. It is awesome.
Ben Felix: Yeah. It's cool. Very cool. I wanted to mention that it took us two years and four months after we launched the podcast to hit one million downloads. Remember that was a milestone.
Cameron Passmore: Yeah.
Ben Felix: I'm sure we talked about on the podcast back then, and this year it's been... Well, we just hit that in under eight months. Just under eight months this year, we have hit a million downloads for the year.
Cameron Passmore: Yeah. That's amazing. We used to kind of hover around 2000 downloads a day plus or minus. And now when you look at the charts, it's always around 5,000 a day on an average day. It's nice.
Ben Felix: Yep. Kind of cool. On the Crypto Podcast continues to get interesting commentary. Geez, I thought talking about dividends was controversial, but clearly, we've been talking about more controversial other things recently. The interesting thing about the Crypto Podcast is that the commentary that we get is extreme, extremely positive and extremely negative. On Nick Weaver's episode that we had a couple weeks ago, we literally had two comments that were complete opposites. One was saying that they were like a longtime Rational Reminder listener, and this was the single best episode ever, not just in the crypto series, but the single best episode ever. And then we had another person commenting the same thing, not replying to the first person, but just completely separate comments saying that they're a long time listener and this is the single worst episode that we've ever done. It's just funny to see. I don't know. I could see how Nick rubbed some people the wrong way with his level of conviction. But I still think it was a good conversation.
Cameron Passmore: For sure.
Ben Felix: We have continued getting a lot of comments about the lack of pro crypto representation on the crypto series. I would say that's more of a reflection on crypto than it is on our ability to find people who are pro crypto. But anyway, what we're going to do to try and alleviate some of those concerns. And we do have some people who are pro blockchain at least. I'm not sure whether they're pro cryptocurrencies or not, but that's something we'll have to figure out when we speak with them. But in the meantime, what we're going to do is re-release the half of the conversation that we had with Cam Harvey about crypto and DeFi. I re-listened to that episode and he's very passionate about it, very, very positive about it. Total overhaul. What did he say? It's not a renovation of the existing financial system. It's a complete overhaul or something to that tune.
I think it's also important to remember that's a rebroadcast that we'll do. In the crypto series., It'll be part of that playlist or whatever. I re-listened that episode like I just said, and there's lots of stuff that I... Hearing it for a second time after hearing the previous eight episodes or whatever we've done on crypto was a different experience. The first time we talked to Cam, we were very, very low knowledge on that topic. We read his book on DeFi, but we were really coming from a place of, right, we didn't know anything.
Cameron Passmore: We read the book.
Ben Felix: Right. We read Cam's book and tried to ask him questions about it. But after learning what we've learned in the crypto series to date, and then re-listening to the Cam Harvey episode or the crypto portion of that episode, it was a whole different experience. So even though it's a rebroadcast, I do recommend people take the time to listen to it if they're partaking in the crypto series. I also want to point out that we had Marco Di Maggio to talk about crypto as well. And he was right in there. You want to pro crypto person, he was right in there with Terra Luna, which by the way, imploded. Not necessarily a reflection on Marco, but well, you want pro crypto representation. We had it. Interesting outcome at least for one of those guests. Yeah. Anyway, so that'll be the next crypto episode. And then we've got a few more left in the series before it reaches its completion.
Cameron Passmore: Sometime this fall, it kind of will end, right?
Ben Felix: Yeah. Yeah.
Cameron Passmore: Cool.
Ben Felix: Yeah. The next probably couple months we'll be out of episodes and then we'll do a final kind of wrap up episode together.
Cameron Passmore: So as you mentioned next week, Ralph Koijen will be here finance professor from Chicago. And then in three weeks, Jay Van Bavel is here. He's professor of psychology and neuroscience at NYU and coauthor of the excellent book, The Power of Us. So if we have time, check that book out ahead of that conversation. Then in five weeks, you booked Colleen Ammerman, who is the director of Gender Initiatives at Harvard and co-author of the book, Glass Half-Broken: Shattering the Barriers That Still Hold Women Back at Work. And I just started that book this weekend, which is full of data and information about so far that I have read about women in the workforce. It's a really interesting, incredibly insightful book.
Ben Felix: I agree. I'm looking forward to the conversation with her.
Cameron Passmore: Excellent. So we had a bunch of reviews, quite a mixed bag of reviews lately I think it's fair to say.
Ben Felix: Well, this past week, this is the first time that we've had reviews that were not five star reviews to read out, right? It's the first time ever.
Cameron Passmore: Yeah. We don't skip any. We don't just cherry pick them.
Ben Felix: Since we've been reading the reviews at least. I don't know if we've always done that.
Cameron Passmore: That's right. We're going to keep them shorter. We did talk about that, but we're not going to avoid the ones that may be less than favorable. And this week, there were a couple less than favorable ones. So we got a one star review from Clue saying, "Overall good, but the crypto episodes are super annoying. Feels very spammy."
Ben Felix: A one star review is not very nice. Seriously. I don't like seeing that. To say that you love our content, but the crypto episodes are annoying, therefore, you get a one star review, it's just kind of mean. Come on.
Cameron Passmore: Then another one, two star review from VT Market Order saying, "Mixed bag. Many of the recent episodes feel like empty promotional opportunities for the guests. I hope this changes and it can. I know the hosts are capable of turning this around." So just so you know, all of our guests, we invite. We don't do people that are on the circuit promoting books necessarily. So if it happens to be a book or an author, we reached out. We read the book. We reached out to the author and invited them on or a few people were introduced to us by Katy Milkman, which we talked about on the show. So that's where people come from.
Ben Felix: Who are our recent guests even though? I don't know. Fama. Didn't talk about it. Antti Ilmanen.
Cameron Passmore: Antti. Yeah.
Ben Felix: We talked about Antti's book.
Cameron Passmore: Yeah. Anyways.
Ben Felix: John List is an author. We talked about his book. But you're talking to impressive people.
Cameron Passmore: I think so.
Ben Felix: Impressive people tend to have written books.
Cameron Passmore: Anyways, to counterbalance those two, we have a five star review from GM 27000, "The most important show I listened to. Thank you from Ottawa. I've been listening for about a year and a half now, and I've enjoyed your common sense investing on YouTube as well. As I tell my professional colleagues, once you hear Ben and Cameron, you cannot unhear them. You cannot go back to mutual funds, active stock, picking high fees for closet indexing, dividend investing, or paying any attention to daily market noise." So that's nice. Another five star review from A Sobering In the States, "Entertaining, insightful, and actionable." Take that. Do you want to read the last one?
Ben Felix: I was going to say you just read two in a row so that I would read this one. This is another one star review. They say that the podcast is deteriorating. "Used to be a decent podcast about money, but recently veered into gender ideology and social activism." Recently being the last two episodes, I guess.
Cameron Passmore: I guess.
Ben Felix: Or two of the last three episodes. "Which is destroying the credibility of the hosts and PWL. For folks who claim to be grounded in academic rigor and research, preaching ideological dogma is quite the contradiction and so people should pick their episodes carefully," according to this reviewer.
Cameron Passmore: We're just trying to learn. We're just trying to share what we learn and have interesting people on. I'm not sure we have ideological dogma to preach but-
Ben Felix: I don't think so either.
Cameron Passmore: We don't put that much thought into it. Recent context. Some really cool people have reached out lately. Had a really nice note on LinkedIn from Val Terry, who is a software engineer in Stockholm. He said I could mention this. He wanted to thank us for the research, which has helped him and others in this profession to, and I quote, "deal with things like options or other forms of equity, where we can end up with a windfall," and he feels very secure with his decision. So it's great to hear from, Val Terry. Also heard from Drew who owns a RIA, independent advisory business in Boise, Idaho. He says we've helped him shift how he communicates with clients. And he's been spending more time talking with clients about happiness. Kind of cool to hear. He's also launching a podcast soon and has asked me to be a guest on an upcoming episode, which is kind of cool.
Cameron Passmore: Also heard from Garn who's changed career paths and is now an assistant to an advisor. Super cool to hear from him. Also connected with Igor in Portugal and Mohammad in Ontario. Connect is always with us. We're on Instagram, Rational Reminder on Instagram. So much fun. Also, where did that snack video? I asked you about this. We got this snack video that showed up in our YouTube fee, which is actually pretty hilarious. Our expressions that the team pulled out about snacks.
Ben Felix: I had nothing to do with that.
Cameron Passmore: The video with popcorn... It's pretty funny. So anyways, if you follow us on YouTube, you'll see I guess perhaps more little videos like that. And apparently I make funny facial expressions when Ben says things that might be a little off the wall.
Ben Felix: I never say things that are off the wall.
Cameron Passmore: Wow. I guess that's debatable. I don't know. You were more cut and dried about snacks at movie theaters than I was. So for the reading challenge of 22 and 22 reading challenge that we have going this month, we have a friend of ours that is joining us to talk about his reading habit. His name is Mark Sutcliffe. He's an entrepreneur here in Ottawa, media personality, which is how Ben and I met Mark years ago. We used to have a... Was it every Saturday radio show we did with Mark? And we did advertising on the radio.
Ben Felix: Every Saturday.
Cameron Passmore: Yeah, we did it for a long time. We did the college show.
Ben Felix: Geez.
Cameron Passmore: So Mark's been a very good friend of ours for a long time. So he agreed to come back. He's a local business person and also, since we invited him to come on the podcast, he's thrown his hat into the race to become mayor of Ottawa. We had a brief chat with him about that experience. He also up until running for mayor, ran the podcast Digging Deep. I was a guest on that back in episode 82. Mark was a guest of our very early in our podcast back in episode 18, Ben, if you can believe it, almost four years ago. So that was a really fun conversation with Mark about reading. The last thing I'll throw out there in this intro is that don't forget there's those little beverage can cozies in the store, two for $15. I love cozies. If you have a pool, you know what I mean. You have to have cozies for your beverages. So get your cozies.
Ben Felix: Yeah. I just want to say on the reviews, if anyone wants to leave a review that's not a one star review, we'll even take two or three stars at this point. We always appreciate them.
Cameron Passmore: What does that mean? We're so desperate.
Ben Felix: I don't know. It's kind of a joke. Only kind of a joke though.
Cameron Passmore: They don't upset us. We just kind of scratch our heads more than anything.
Ben Felix: All right. Go to the episode. Welcome to episode 211 of the Rational Reminder podcast.
Cameron Passmore: I'll be quick with the book review this week, but it is a very good book and a very important book. And it dovetails with the discussion a couple weeks ago about Cal Newport's book Deep Work. So this week's book is called The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth. So as we talked about two weeks ago, Deep Work is about how important it is both for you as an individual, as well as for the organization that people be able to engage in deep work. So this means being able to structure your time at whatever cadence works for you. And we talked about different strategies to be able to get into deep, thoughtful work in a creative space in your work environment to solve important problems. So this was about the individual.
This week's book again by Amy Edmondson is about the organizational role to benefit from deep work and what has to happen such that what you come up with in your deep work can be brought back to the team and the team can accept it and use it and benefit from it. And this is a big deal that we're learning, I've been learning a lot more about, we have been in our company as well, because you're so reliant on everyone to engage and have ideas and have the ability to have this deep work. But how do you pull the ideas together? How do people feel comfortable bringing those ideas together? And different people have different experiences, different confidence levels that you need to have an organization. That's why it's called the Fearless Organization, where people are comfortable in sharing and engaging and bringing forth and challenging ideas. That is what this book is about. So the author, Amy Edmondson, is a professor of leadership and management at Harvard and she studies teaming, organizational learning and psychological safety.
So that's the backbone of the book is psychological safety and how to have an organization that embraces psychological safety and creates an environment where you can engage, bring your ideas and know that you're safe for doing so. So psychological safety, she defines it as a belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns, or mistakes, and that the team is safe for interpersonal risk taking. So right at the front of the book, the author says that nearly everything we value in the modern society is the result of decisions and actions that are interdependent and therefore benefit from effective teamwork. It's pretty powerful stuff. And what's really interesting about this is that if you don't speak up, it's never really known. So this is all about teasing out people what's in their heads, what they're thinking so the team can benefit from that.
And effective teamwork absolutely requires psychological safety. And as she says, it's a critical source of value creation in organizations operating in a complex changing environment. But brain science, she says, has demonstrated that fear inhibits learning and cooperation this fear. So it's all about taking the fear out of the organizations that you can benefit from what everyone is learning from their deep work. So the experience of having a question or idea, but not feeling able to share it can be deeply unsatisfying and it's a serious risk factor in any company facing what she calls VUCA, volatility, uncertainty, complexity, and ambiguity, which is so much of our workforce these days. So it's a really cool story right near the front of her book, where she talks about research she was doing, where she found that better teams were making more, not fewer, they're making more mistakes than less strong teams.
And the correlation she says was statistically significant. So she wondered how is that possible? And then she talks about this eureka moment where what if better teams had a climate of openness that made it easier to report and discuss errors? The good teams don't make more errors, they report more errors. So that's kind of the crux of what you're trying to get to. Okay. So as I normally do in these book reviews, I try to make it with some takeaways for you. So here are the common issues in workplaces today. They can lead to people not sharing or collaborating as much as they could or should. Number one, avoiding behaviors that might lead others to think less of us is pretty much second nature in most workplaces. The free exchange of ideas, concerns, or questions is routinely hindered by interpersonal fear far more often than most managers realize. The failure of an employee to speak up in a crucial moment cannot be seen.
It is hard to improve what cannot be seen. So you have to assume that stuff is not being said. And more and more of a task that people do requires judgment, coping with uncertainty, suggesting new ideas and coordinating and communicating with others. I think that is a reality for many of us in our day to day jobs. So through the book, I captured all kinds of comments that she made about psychological safety. So here's a list of some points around psychological safety. So it's present when colleagues trust and respect each other and feel able, even obligated to be candid. And this is a big deal where you really want to engage and have people feel like they owe you a dissenting viewpoint, because that makes a decision better. It's likely the different groups have different interpersonal experiences. In some groups, it may be easy to speak up or bring your full self to work.
In other groups, speaking might be experienced as a last resort. Psychological safety is shaped by local leaders in the individual groups, in the individual teams and that's not necessarily organizational wide. She has found that psychological safety levels differ substantially between different teams and groups in an organization. She says it's not about being nice. In fact, you could say it's the opposite. Psychological safety is about candor, about making it possible for productive disagreement. Get this. This is interesting. She says it is not an introvert or an extrovert thing. This is because psychological safety refers to the work climate, which affects people with different personality traits in roughly similar ways. In a psychologically safe climate, people will offer ideas and voice their concerns regardless of whether they tend towards introversion or extroversion. I thought that was really interesting. So it's not about your ability or desire to connect as an introvert or extrovert with others.
It's creating an environment where you just feel like you owe it to the group to speak your mind. Another interesting point. She talks about how it's not about lowering performance standards. So she says it's very common to have a very high performing group with low psychological safety. So she's saying don't bring down the standards. She says bring up the openness to make it psychologically safe to get people to speak. Psychological safety enables candor and openness, and as such, thrives in an environment of mutual respect. It means that people believe they can and must be forthcoming at work. And this is absolutely essential to unleashing talent and creating value. People have to be in workplace where they're able and willing to use their talent. People want this as part of satisfaction. So what can you do if you're leading an organization? What's the solution? What can be done?
So you want speaking up to become routine. Psychological safety and expectations about speaking up must become institutionalized and systematized. Leaders of organizations must recognize that psychological safety is mission critical when knowledge is a crucial source of value. This one I love. Conflict should be taken advantage of more as it promotes better decision making and fosters innovation because it ensures consideration of different viewpoints. So ask questions, like what did the dissenter say? And so often she says people said, "Ah, everyone's on board." Well then the pushback is, well, then you guys aren't listening very well because there has to be a different point of view that's worth debating. You have to tease out the dissenting opinions. They're always there. Always find the dissenting point of view. She also says that we can learn a lot from Ray Dalio's Bridgewater hedge fund, which is very popular with radical candor, and that whole way of behaving at work.
So she says be direct to the people who are there. This is what Bridgewater does. If someone's not there, don't talk about them. They don't get the benefit of getting that feedback about themselves. So wait until that person is there before you give direct feedback about them. So no back channel talk about people. Leaders must be comfortable in saying I don't know. This goes back to the book Ambitious we talked about and saying I don't know plays a powerful role in engaging the hearts and minds of employees. Leadership must become a force that promotes unnatural acts like speaking up. To many people, speaking up is completely unnatural. Taking a risk at work is unnatural. Embracing diverse views is unnatural. That has to change in organizations. So leaders in those VUCA, the volatile, uncertain, complex, and ambiguous businesses who understand that today's work requires continuous learning, have to figure out when and how to change course and must consciously reframe how they think to bring the best out of everyone and to be more productive.
Last point she gives is to become much better at, she calls it inquiry. Just ask more questions, learn more about the issue, learn more about the situation, learn more about the people that are party to that discussion, understand what's motivating them, stop assuming you know everything and seek to learn more. That's what the book is about. Create a place where people can speak up, engage their ideas, show what they've learned from their deep work, be better for the company, better for them and better for everybody. Highly recommend. This is a read if you're leading an organization.
Ben Felix: Very cool.
Cameron Passmore: All right.
Ben Felix: Wanted to touch on an interesting paper. And I think we'll probably do a more expanded topic on this in the future kind of readdressing the index fund bubble which we covered. I don't know when that was a while ago, but between Ralph Koijen's work and this paper, I think there's a lot more to talk about on the concept of index fund bubble. This is not a Koijen paper. So this was in the general financial economics papers just called on index investing. But the premise of the paper is that if index investors are free writing off of the information production of active managers, then more index investors should lead to less information in prices. That's pretty common thing that I think people are used to hearing. It's a pretty in-depth paper. This is a very brief overview. I just thought it was interesting to mention.
The theoretical prediction that they make in the paper predicts that the rise of index investing will have no effect on price efficiency and they do test that prediction empirically. The intuition is that in equilibrium a decrease in the cost of index investing leads to more index investors and less active investors but because investors always choose to gather information when it is profitable, the mix of publicly informed, that's people who just invest based on publicly available information and privately informed investors, privately informed being the investors who are willing to pay a cost to uncover information that is not currently public and that's not inside information, that mix adjusts such that the returns to active investing remain unchanged even as index investing increases in magnitude.
And so as a result, price efficiency remains unchanged. To empirically test the prediction, they look at the effects of index investing on information production and price efficiency using variation in Russell Index membership as an exogenous shock to ownership by index funds. It was a pretty interesting instrument that they used to test it. And overall, their finding suggests that higher index investing leads to significant changes in investor composition and information production, but index investing does not affect price efficiency, which is what they predict theoretically. The treated stocks in their sample do not experience any difference in variance ratio tests, post earnings announcement, drift, or anomaly pricing. So they find that following an exogenous change in investor composition, they find evidence that the massive, active, informative investors adjust such that the price informativeness is unchanged.
Cameron Passmore: Okay. So give this. What's the bottom line?
Ben Felix: Index investing can grow a lot and people will pay the additional cost of uncovering more information so that the level of information in prices remains the same.
Cameron Passmore: And one of the arguments we've talked about many times is the strong remain.
Ben Felix: Yeah, I think that's what Fama and French have always said. Something like that. Something like that.
Cameron Passmore: And it's always worth investing in the strong that do remain. Is that kind of what this argument is?
Ben Felix: No, that's what Lubos Pastor talked to us about a while ago that if there could be a point where there's a reversal and an active management does add value for a period of time, whether you could time that I think is a difficult question. I think we talked to Lubos about that. This was an interesting paper with an interesting empirical approach that showed over this period, I think it was 2005 to 2016 is what they were looking at. So over a period where index investing grew pretty substantially, they did not find evidence of price informativeness decreasing over that period, which is pretty interesting. And then you combine that with Ralph Koijen, which people will hear soon enough when we release that episode. Again, it's kind of similar, what we've talked about in the past that big index funds don't have as much influence on prices as active managers.
Cameron Passmore: Cool. All right. You wanted to follow up on the gender discussion.
Ben Felix: Yeah. I did. I didn't set out this year to become a gender activist. That definitely wasn't the intention, but we had that episode with Rebecca Walker and based on the response, I kind of realized, wow, this is a topic that people clearly need to hear more about and people want to be heard on, I think is another piece of that. So we ended up, despite getting a lot of really negative toxic comments, which we were not expecting. To be clear, we didn't bring Rebecca Walker on as a guest because we wanted to poke some bear. We didn't know there was a bear. Rebecca was recommended to us by a past guest who we have a good relationship with. And they said, "You should really talk to Rebecca." And we thought, "Hey. It'll be a good change of pace and different type of content." Anyway.
Cameron Passmore: And it was appreciated by a lot of people like Lisa, as I told you, really enjoyed.
Ben Felix: Oh, right. Right. So that's what I want to say now is that despite the toxicity that stem from that episode, which was completely unexpected and unintended, we also heard from later women, people of color and people from disadvantaged backgrounds who were very grateful for that episode, which was in stark contrast to the toxicity that we received from, I can't necessarily say from men, because I didn't identify them but people who have username on the internet that resemble men. This is where most of the toxicity came from. But then people came forward to us generally in private, by email or direct messages or whatever, saying how much they appreciated the episode. When we did our follow up in episode 209 and we said, "Okay. Part of the problem people had with the episode with Rebecca is that there was no data." So we said, "Okay. Here are the data supporting many of the things that Rebecca said." After that, we got a lot of support, again, mostly in private and mostly from women saying how much they appreciated our efforts in pushing back against the toxicity that the episode 208 produced.
So a couple of the comments. "I loved how you followed up on the Rebecca Walker interview with data and talked it through balanced and informative and totally reinforces why you were a great financial advisor." Another one, this one was on Twitter. "I was already a huge fan, but I am now a forever fan. We need more people of influence standing up to that toxicity." Another one, can't remember where this one was from. "As a woman listener, I appreciate you both as men responding to the criticism and addressing it honestly, when you didn't have to raise the issue at all." It's true. We didn't. Again, it was a bear we didn't realize we were poking. "That alone will help women who are listeners feel like they're being heard, understood, and can become part of the financial community. Thank you for this episode. Ben and Cameron, as you said, the reaction to this episode highlighted how important the topic is. Kudos for standing up to something so important and for fighting ignorance through your content."
And the last one I'll read. "I'm not a woman myself, but I come from a disadvantaged background and some things Rebecca Walker talked about rang very true. Your environment and upbringing has a lot of effect on your personal relation to money and can take away even the possibility for you to think about finances." Now in the fallout, I'll call it, of those two episodes, we had a lot more women sign up to the community, particularly after episode 209. And again, I'm basing that on the usernames of people, I guess they could be trolls posing as women. Hopefully not. But I did notice that more women usernames signing up to the community after episode 209. We also had a few people leave the Rational Reminder community because they had overtly sexist views that were not being tolerated by the community or the moderators. I can't say that I'm upset about them leaving.
Overall, despite all of the, I don't know what you call it, drama I guess, that stemmed from those episodes, I think it was a good outcome for the community of listeners, because it seems to have made women feel more welcomed, which is a good thing. As you mentioned earlier, we do have an episode with Colleen Ammerman, who's an expert on this topic, booked. She's the director of the Gender Initiative at Harvard business school and her book that you mentioned earlier, Glass Half Broken. It details how despite lots of progress, women are still underrepresented in positions of power and status. The highest paying jobs are the most gender imbalanced, even in fields where the numbers of men and women are roughly equal or where women make up the majority. Leadership ranks are male dominated.
The book was published in 2021. So it's recent. And it details that at that time, and probably still, latest research in psychology, sociology, organizational behavior, and economics on what creates these imbalances and what we can do to reduce them. So it's got the data which we like, and it's also got actionable insights for both men and women, which we also like.
Cameron Passmore: Absolutely. Well done. Okay. Stocks for the long run.
Ben Felix: There's your dose of social activism for the day.
Cameron Passmore: Our ideology coming out.
Ben Felix: Oh, I think that's so funny. I don't have very many opinions because it takes time to form them, but I guess I'm forming an opinion on that one.
Cameron Passmore: All right. Stocks for the long run. Big topic for today.
Ben Felix: Stocks for the long run...? We've kind of talked around this in past episodes, but there's a really good paper that I wanted to go through, couple papers actually. And we mentioned it in the last episode too. So the data that everyone talks about for the most part is US market data from 1926 to present time. And that's the Ibbotson SBBI data that's been available for a long time and the University of Chicago crisp data, both of those you're getting 1926 start point. Roberts Schiller's data goes back to 1871. And in Jeremy Siegel's Stocks for the Long Run books, he goes back to 1802 for US stocks. And those data mostly are where we get insights like stocks return 10% per year, nominal or about 7% real on average in the long run. That's where we get the insight that stocks always beat bonds given a long enough time horizon. That's the stocks for the long run argument.
Nd that debt is also largely where we get the idea that the correlation between stocks and bonds is generally pretty low. I think that the formal view that stocks are superior to bonds for long-term investors or even less risky for long-term investors was formalized and popularized in Jeremy Siegel's 1994 book, the first edition of his book. It's currently on the fifth edition, I think. I've got that one, the 2014 edition. Stocks for the Long Run is the title of the book. I think it forms the mental model that a lot of investors use to think about the relative expected returns of stocks and bonds, but also the absolute expected returns of stocks. That's 7% real number. But the problem with drawing those insights from those data is that there are some pretty serious problems with that historical record, at least in terms of how well it generalizes to expected returns. As empirical data have continued to evolve and improve, the arguments in favor of stocks for the long run have deteriorated.
We've talked about this in the context of the Dimson, Marsh, Staunton data, which go back to 1900 for a bunch of countries. We've also touched on some theory on how stocks may be riskier in the long run, but there's this paper by Edward McQuarrie. It's a working paper. It's unpublished as of now. It's titled Stocks for the Long Run? Sometimes Yes. Sometimes No. And so what McQuarrie does in this paper is corrects the data, Siegel's data. So he goes to Siegel's data sources and parses through them and corrects some errors like survivorship bias. He talks about things like failed railways and canals being excluded from the data. There's one large bank that made up an enormous portion of the stock index at one point in time that was excluded completely. It was a bank that failed or had its price decline substantially. That was not included in the index.
On the bond data, they were using bond returns inferred from yields, I believe, as opposed to actual observed bond returns. So he goes and collects all of the actual data. The paper's kind of a triumph of the digitization of historical records. It's one of the things what McQuarrie mentions is that these data just weren't available previously. And he is also very careful to say that none of this is a knock on Jeremy Siegel who had pioneering work on these topics. It's a knock really on the availability of the current quality of data when he published his work originally.
Cameron Passmore: How did you find this paper?
Ben Felix: This paper was shared by somebody in the Rational Reminder community when we were discussing stocks versus bonds for long term investors. And I skimmed it, then skimmed it a few more times, but I've been wanting to do an episode on it for a while because I think it's got some really interesting insights.
The other thing McQuarrie does is extend the history back a bit. Siegel went back to 1802, but the data was of relatively poor quality according to McQuarrie. So he improves the data quality, but also pushes the time series back to 1793. Okay. So investors are used to seeing charts with stocks increasingly outperforming bonds over long periods of time. And if we go back to 1900s, which is like the Dimson, Marsh, Staunton data and all the other data that we mentioned at the top of the segment. It's really the 1940s, that's where the big boom in stocks happened. So you go back to the 1940s. Stocks have outperformed. Well, if you do go back to the 1900s, stocks outperform bonds substantially, and it appears if you look at the chart that they've increasingly outperformed them over the full time series.
But one of the things McQuarrie talks about in this paper is that when you look at that growth of wealth chart over time, it's hard to see what's actually going on in the data when you look at the growth of wealth chart over a long period of time. For example, it's hard to see that all of that outperformance happened basically from the 1940s to the 1980s, but before then, and since then, stocks and long term bonds have performed at about parody. That 1940s, 1980s period, that was the historical anomaly. The rest of history looks a lot more like the last four decades. We tend to think the last four decades were the anomaly because interest rates went from being really high in the 1980s to really low now. But if you look at the full time series before that, before the 1940s, it looked a lot more like the last 40 or so years.
One of the other things McQuarrie does to avoid the confusion of looking at that growth of wealth chart is that he looks at rolling periods. So you can get a feel for sort of the approximate odds of one asset class outperforming the other at various time horizons. This is also something that Jeremy Siegel does in Stocks for the Long Run, where he shows that over longer holding periods, the probability that stocks beat bonds increases. So in the 2014 edition of his book, which I have, he shows that stocks beat bonds 91.2% of the time for rolling to 30 year periods from 1802 to 2012. So that's where you get the idea like, "Okay. Well, stocks are clearly not risky for long term investors. You've got a higher probability of losing in bonds and stocks." But using the updated and corrected data, McQuarrie finds only a 68% win rate for US stocks over bonds at a 30 year horizon and is a big knock against the Stocks for the Long Run concept where the longer you hold, the higher probability of success gets.
At the 50 year horizon, he finds the same 68% win rate. But one of the important observations that McQuarrie makes in the paper is that there's some long periods of time, and McQuarrie calls them regimes, where the trend goes in the opposite direction. So with stocks tending to underperform bonds more frequently at longer holding periods. So I think it was the 1794 to 1862 period, I think, where that happened. So the trend goes in the opposite direction. Now in the most recent data, so 1943 to now, it looks like what Siegel found. It's not obvious that relatively short and anomalous period of a recent history generalizes to the future in terms of thinking about expected returns when it's very different from the past. So again, McQuarrie mentions this idea of regimes where there are time varying regimes in returns. Sometimes stocks do tend to beat bonds at long horizons and increasingly so at longer horizons, but sometimes it's the other way around.
And the problem is at any point in time, when you're sitting there trying to think about what your expected returns are, we don't know which regime we're in. One of the other interesting observations that he makes in the paper is that there are no regime toggle switches. So there's no specific trigger or event that we can look back on and say, "Oh, that's when the regime changed from stocks to bonds." This is a quote from him in the paper. He says, "Sometimes stocks win. Sometimes they lose. Sometimes stocks prevail only briefly, sometimes for runs of a decade or more. Sometimes stocks fall behind bonds only briefly at the depths of a bear market, while at other times, the disadvantage is sustained well past the bottom. And importantly, across the centuries, there does not seem to be a positive mean value to which the stock advantage over bonds consistently reverts."
Okay. So far all what we've done is looked at an improved and extended US data series on both the stock and bond sides. If we extend this analysis to international data, I think it further strengthens the argument against the stocks for the long run concept as a universal truth, coming back to Dimson, Marsh, Staunton data from 1970 to 2021, the World ex US. So just taking US stocks, which as we know, have been exceptional out and US bonds, World ex US stocks and world bonds have both returned about 5% real. Stocks are a little above. Bonds are a little below. Multiple individual countries have had extended periods where bonds trailed stocks. Japan's the example everybody knows about, but stocks have trail bonds since the 1960s in Austria, France and Italy. Pretty interesting. McQuarrie draws on another source. The other cool thing about this historical analysis is that McQuarrie had some sort of proprietary data that he pieced together, but there's also the Dimson, Marsh, Staunton data, which we know about.
There's also the Global Financial Data database, which we did a demo with a while ago. It's a very interesting data. So McQuarrie draws on that too. They've got data going back to 1700 for Great Britain and broadly, those data confirmed the US findings that McQuarrie talked about, that we mentioned earlier, that there are long running regimes where bonds beat stocks, the returns following World War II are an anomaly not seen before or since. And it's important to understand that there are multiple outcomes that can result in stocks trailing bonds. So for example, over a given period of time, bonds can be relatively strong and beat stocks for that reason, even if stocks did well or stock returns can be relatively weak compared to bonds. It's like stocks over a period can be strong relative to their own history, but still underperform bonds if bonds are even stronger.
But that experience of unusually strong stock returns combined with unusually weak bond returns that occurred following the end of the second world war, which informs that common perception of how stocks behave relative to bonds in normal times that had not previously occurred in 300 years of data.
Cameron Passmore: Isn't that interesting?
Ben Felix: Not to that extent, right? Another important observation on international stock returns is that contrary to the US experience, most countries have experienced a negative 20 year real return, more than half have experienced a negative 30 year real return, and a third have experienced a negative 50 year real return. So stated simply, the US experience of stocks being safe at horizons beyond 20 years does not generalize to other countries. Now for the most part, the worst returns are recorded when a country is defeated in war, which the US hasn't been.
And that's arguably, one of the reasons that their stock market has been so successful for as long as it has, is they've been victorious in war. The next lowest returns are for countries whose territory is invaded or occupied, which again, obviously hasn't happened to the US. In other analysis, Dimson, Marsh, Staunton exclude the losers of World War I and World War II. And excluding those countries, they find seven countries with negative returns spanning between 20 and 40 years and five additional countries with negative returns spanning between 40 and 60 years. The regime switching that appears in the data where stocks beat bonds for extended periods sometimes, but the reverse is true other times makes it difficult to rely on historical data without predicting which regime we're living through, which again, I don't think we can reasonably do.
A good example from the McQuarrie paper is US bond returns from 1793 to 1942, an analyst looking at many, many decades of historical US bond returns would not have predicted the collapse in real bond returns that followed 1942. And on a similar line of thinking, the relatively extreme outperformance of stocks compared to bonds in the US from 1926 through 1982 would not have predicted their parody performance since for ex US stocks. But if you just looked at US stocks from 1926, through 1982, you would not predict that globally, stocks and bonds would have similar returns.
Cameron Passmore: It's so interesting to step back and take such a long, much longer term view of things and realize that maybe a hundred years of data, whatever it is that we're using, largely isn't the entire story.
Ben Felix: I know. And I don't really know what to do with this either because we still have to make assumptions about expected returns.
Cameron Passmore: Yeah.
Ben Felix: Now, one thing to note is that these data McQuarrie is using long-term corporate bonds. Dimson, Marsh, and Staunton are using long term government bonds. So in portfolios, we're not using long term bonds. So I think just on that basis, we can still assume there's a difference in expected returns. Anyway, the other thing that's interesting in this paper is they talk about the historical correlation of stocks and bonds, which is varied widely over... They looked at 20 year rolling periods. It's been between zero and 0.9, which is I think an even higher number than when we've talked about this in the Dimson, Marsh, Staunton data. The modern era since the early 1900s has had lower correlations about 0.3, which again is where we get the idea that there's a low correlation between stocks and bonds.
The prior 130 years had a stock bond correlation of 0.6 on average, but much higher sometimes. One of the big takeaways here is that the outperformance, the extreme out performance of US stocks relative to bonds since the early 1900s does not generalize either to earlier US history or to international data. That's a big takeaway. McQuarrie argues that there's no law concerning the relationship of stock and bond returns, but each asset is exposed to different risks that are rewarded under different conditions, which can last for decades or longer. It's a pretty interesting perspective. When I hear that, it seems to highlight the importance of looking past the basic definitions of stocks and bonds and pursuing multiple independent risk premiums, which is obviously something that we talk a lot about. I think given the data that we've covered so far, it's really important to consider multiple sources of expected return.
Sticking with the theme of very long term data, there's another paper, global factor premiums in the Journal of Financial Economics. It looks at 217 years of global factor premium data across four asset classes. Right?
Cameron Passmore: Of course, it does.
Ben Felix: Yeah. So they looked at 1800 through 2016. They looked at trend following momentum, value, carry, seasonality, and betting against beta. Those are the kind of AQR factors. And these were some AQR people I believe that wrote the paper. They find that most premiums are economically and statistically significant over the full period and that there is limited out of sample decay. And they also find that none of the global factor premiums are strongly correlated to global asset class risks. Now, of course there are many competing factor models. We don't talk a whole lot about carry seasonality or betting against beta for example, but the general theme that there are systematic common factors that can be systematically exploited in low cost strategies to deliver premiums independent of the market.
I think that's common among any factor models that of course value is common between this paper and the factors that we tend to talk about. And then of course in that paper, they are supporting that this approach has worked at least in the data. And it's a whole other question of whether anybody collected those premiums. I guess somebody had to, but whether they were investible, I guess is the question. But anyway, they were there in the data. And I think that's important given the regime switching effect observed in stock and bond returns where stocks can do poorly for very long periods of time, but so can bonds. You don't know what you're going to get. So of course adding more independent risk premiums in a portfolio makes a portfolio more resilient to whatever macroeconomic effects end up driving returns over a given period of time.
In the recent data, this is kind of fun analysis to do. In the more recent data that I mentioned earlier with Japan, Austria, France, and Italy of stock markets that have trailed their respective bond markets for decades, in some cases, as far back to the 1960s. I don't have data going back to 1960, unfortunately for those countries. But for Austria, I do have data from 1987 through 2021. Over that period, Austrian equities trailed Austrian bonds by an annualized 37 basis points. Austrian value stocks, just using the high book to market sort from Ken French's website, Austrian value stocks beat the Austrian stock market by more than 5% per year over that period. So very significant value premium. That's not a long short portfolio. That's the high book to market sort. From 1975 through 2021, French equities beat French bonds by a relatively modest 1.2, 1%, but French value stocks beat the French market by nearly 2% per year over the same period.
Japan, we've talked about this example many times. From 1975 through 2021, Japanese stocks trail bonds by annualized 34 basis points. Japanese value stocks beat the Japanese market by nearly 4% annualized over the same period. Now the exception to this example, which I think speaks to not only independent risk premium diversification, but also geographic diversification is Italy. So Italian stocks trailed Italian bonds by annualized 1.5% from 1975 to 2021. And value stocks actually trailed the Italian market by about 1.4% annualized over the same period. It's worth briefly mentioning the Lubos Pastor and Stambaugh 2012 paper. Our stocks really less volatile in the long run. We've definitely talked about this paper in the past, so excuse the repetition. But they explain that stocks are not necessarily less risky in the long run, largely related to the reasons that we've talked about in the first part of this episode, this segment.
So they explained that even with two centuries of data and they are using the Siegel data in their paper, even with two centuries of data investors do not know the values of the parameters of the return generating process, especially the parameters related to the conditional expected return. Now, this is relevant for investors because when parameter uncertainty is considered the theoretically optimal allocation to equities, it decreases. And I just thought of a really simple example that's kind of funny. If I proposed to you an investment, you would probably invest a lot in an asset that guaranteed the return distribution. You could still get a bad outcome. You're going to buy the return distribution of the.
S&P 500 from 1926 through 2021. If I sold you that distribution, you're guaranteed to get this distribution of returns. You'd probably invest a lot in it, but you probably invest less in an asset that guaranteed the distribution of global returns from 1700 through 2021. As we've seen, those have been a lot rockier and you probably invest even less of an asset that could maybe give you something like the distribution from 17, 1800 through 2021, but maybe much better or much worse depending on what you happen to live through.
I don't know. I just thought it was kind of an intuitive way to think about, but theoretically, that is also true that when you introduce parameter uncertainty, the optimal allocation to equities decreases. So stocks and bonds are both risky assets. They'll typically behave differently from each other, although less so sometimes because those correlations can get pretty high. Conventional wisdom holds that stocks will always beat bonds in the long run, but in historical data, that's not necessarily true, sometimes for very long periods of time. Bonds have beaten stocks for extended periods of time sometimes. And outside of the US, stocks have delivered very low returns for, in some cases, decades at a time, without the ability to predict the future. Diversifying into other independent risk premiums generally offer protection from the extended periods where either stocks or bonds do very poorly.
Cameron Passmore: Great long term perspective.
Ben Felix: I hope so. The answer didn't change. Get some factor exposure.
Cameron Passmore: Well, it's just that independent sources of risk and return are important, but also over long periods of time, you're not guaranteed a positive outcome.
Ben Felix: Yeah. You're not guaranteed a positive outcome at all. It is fascinating to see that those risk premiums are documented over the same time period where we're seeing there have been long periods of stocks underperforming. Well, hey, there have actually been independent risk premiums that existed over those same periods of time where we can make those observations. I don't know. I guess it's just a different way of reinforcing the idea that this way of thinking about portfolio management still makes sense in the long term historical data, even more so in recent history.
Cameron Passmore: Because we're saying more so.
Ben Felix: Yeah. Those examples, we just talked through, I think are pretty important. There are countries that have underperformed that have stock markets that have underperformed their respective bond markets for decades. And in many of those countries, Italy being the exception, value stocks, which is just one of many possible factors that you could tilt towards have alleviated that pain. Of course, that can go in the other direction too like if you invest in US value stocks for the last decade.
Cameron Passmore: Yep. Yep.
Ben Felix: But that's part of it. It's diversification. Sometime diversification hurts. Always. Diversification always hurts somewhere.
Cameron Passmore: Always hurts. That's right. All right. So let's go to our 22 and 22 book challenge conversation with our very good friend, Mark Sutcliffe. Mark, it's great to welcome you back to the Rational Reminder podcast.
Mark Sutcliffe: It's great to be back. Cameron, Ben, thank you for inviting me. Great to see you guys.
Cameron Passmore: Yeah. It's great to see you too. We have a long history of working together and it's been a lot of fun and it's good to have you back behind the mic. Before we get going though, Mark, as I mentioned off the top of the show that you are now running for mayor of Ottawa. What has that process been for someone like you who doesn't have a history in politics, right?
Mark Sutcliffe: Now, this is the first time I've run for anything. I've been around politics for a long time. As a member of the media, I've followed politics closely, but it's my first time as a candidate and it's been really fascinating and interesting and fun, and the response has been terrific and very supportive. And I'm really excited about where we go from here. So before you make a big decision like this, it was a decision we made as a family. You think about all the ways that it could go wrong. And politics is obviously a tricky environment. It's a competitive environment and it's more polarized and toxic than ever before. So I was apprehensive and anxious about some of that but so far, the response has been just really encouraging and positive and a lot of people have said that the message of this campaign really resonates with them. So I'm very happy with how it's gone so far.
Cameron Passmore: Good for you and congratulations for stepping up.
Mark Sutcliffe: Thank you.
Cameron Passmore: I'm sure it's not easy. And I'm sure you're learning a ton every single day as you're out there and Ben and I are quite active following you on Twitter and staying in touch and I can speak for myself, I wholeheartedly support you in what you're doing so...
Mark Sutcliffe: Well, thank you. And one of the things I've discovered actually is how different the physical world is from the social media world especially during the last two years doing a podcast and working with business clients and still doing some media work and doing it all mostly from home. You can perhaps become confused into thinking that the social media world is the same as the world. And then you get out to a bunch of events in the community and you realize there are tons of people who are not on Twitter. What they're saying, and what they're talking about is very different from what people are saying on Twitter, or on other social media platforms, which is kind of a skewed subset of the entire community of people who are highly engaged and paying close attention to it, the minute by minute changes in politics. That's actually been one of the biggest lessons I've learned so far.
Cameron Passmore: Fascinating. Well, we are here to talk about reading and I know you're a very avid reader. So can you talk to us about your reading habit?
Mark Sutcliffe: Sure. I've been a reader my whole life. I remember reading Hardy Boys books when I was a kid. I think I read all of them. They're still on a bookshelf in my mom's basement, stacked up in order. They were all numbered. I read a lot of books about baseball when I was a kid as well, because I became a very big baseball fan and that was a great way before the internet to learn about the history of the game. Throughout my adult life, I've tried to read as much as possible. It's challenging. As you guys know, when you're busy with work and you're building a business and you've got a family, unfortunately, reading is one of the things that can get put aside. It feels a little bit like it's a discretionary activity. And so sometimes there have been periods where I haven't read as much as I've liked to, but for the most part, I've been trying to read two or three or four books a month for my adult life, roughly one book a week or every second week. And it's been a big part of my life. Yeah.
Cameron Passmore: That's a lot of reading. Do you read hard copy or audio books? Do you have preference?
Mark Sutcliffe: So for the most part now, I used to read entirely hard copy and now I would say it's 98% on my iPad.
Cameron Passmore: Okay.
Mark Sutcliffe: And so I just find, there's a few benefits to that for me. I know some people still love the idea of holding the physical book in their hand and turning the pages. But for me, I love the fact that you can have multiple books on the go and you can take them all with you wherever you go and it's portable. Strangely enough, I read on the treadmill quite a bit.
Cameron Passmore: Really?
Mark Sutcliffe: So I set my iPad up on the treadmill, have the font size large enough that I can actually read while I'm running. So I've read a ton of books that way, especially when I run more indoors in the winter. And the other thing I like is an ebook is searchable, right? So unlike a physical book, when you're reading and if it's fiction and you're like, "Who's that character? This name, when did they come up again?" And you can go back and look, or if you're reading a business book or something like that, you can go back and find something that's really relevant. And I also like using the highlighter function and being able to search through that and download things later. So there's a lot of reasons why I've become almost exclusively an ebook reader.
Cameron Passmore: So you mentioned fiction, you mentioned different types of books you like to read. Do you have a certain genre that's your favorite?
Mark Sutcliffe: I wouldn't say so. I guess most of my reading would fit into three categories. One would be fiction. I do like a number of different authors that I read a lot of. I like just really good fiction, well written fiction. I like business books. So I've read a lot of those. And I like memoirs. I love hearing people's life stories. So I've read many of those. Yeah. Most of my reading would fit into those three categories.
Cameron Passmore: How do you decide to read or get book ideas?
Mark Sutcliffe: A bunch of different sources. I listen to a lot of podcasts like yours and get a lot of ideas from that. Lots of ideas from friends. I have some favorite authors that I track and then I also will go on various newspaper websites, the Goldman Mail to New York Times and look for suggestions there as well.
Cameron Passmore: So I'm sure you have a good answer for this. How do you organize, and do you have a system for capturing key ideas from books, especially at the nonfiction type business books that you may own apply to your day to day business?
Mark Sutcliffe: Yeah. I would say the main thing is I have a file in my computer. It's a Microsoft Word document and it's called Key Lessons From Books and Podcasts.
Cameron Passmore: Catchy.
Mark Sutcliffe: Yeah. Yeah. I like to be practical about that kind of stuff. And basically, every time I read a book, I highlight the parts that are of interest to me as I'm reading it. And when I finish the book, I go back and read all the highlighted parts again. And then I copy them into this file where I keep all of... So this file's now probably over a hundred pages long of a page or two with bullet points of the key lessons from every book that I've read or every book that's had lessons to share. And then I occasionally go back and reread them and I share them with others. I sometimes will pull some...
I used to do before I became a candidate for mayor, I was sending out a weekly newsletter and I would share lessons from stuff that I'd read or listened to in podcasts. I would share that weekly. Sometimes I share it with friends and clients and that sort of thing, which I find is reinforcing the lessons you're learning if you're talking to other people about them. That's a really powerful way to deepen your connection to those lessons.
Ben Felix: Oh yeah. That's a very impressive aspect of your reading, Mark, that you do all of that to internalize the information.
Mark Sutcliffe: Yeah. That's huge. Don't you find, if you read some, I don't know what the statistic is, but you can read a book and you can be like, "This is amazing and I'm going to follow all of this," but a month later, you've only retained so much of that. Right? You just lose a lot of it unless you're capturing it. And really, the best way to really absorb the knowledge is to talk about it with someone else, which is why book clubs and group discussions, and even just trying to teach some of the lessons to somebody else or why that's all so powerful.
Ben Felix: Do you have any books that you frequently recommend to other people?
Mark Sutcliffe: There are a few. I would say a few books that have had a big impact on me. Man's Search for Meaning by Viktor Frankl.
Ben Felix: Oh yeah.
Mark Sutcliffe: It's a frequently cited book, but it had a very, very powerful impact on me when I read it probably for the first time 25 years ago. There's a book I know you guys both like, which is Thinking, Fast and Slow by Daniel Kahneman. In that document that I have of key lessons from books and podcasts, there's probably more citations of that book than any other book that I've read. I probably transcribed half the book into that document.
Ben Felix: Wow.
Mark Sutcliffe: Just because I'm fascinated by, and I know you guys are too, and the three of us have had many, many conversations about this stuff in the past, but I'm fascinated by how people make decisions and the flaws in our thinking, and the biases, and the heuristics, and all the little things that change. We think we're all making rational decisions about things, but we're not. I find that all incredibly fascinating. So that's another one that I recommend.
And then there's a book by Dan Sullivan who has a business called Strategic Coach in Toronto and his co-writer, Benjamin Hardy, called Who Not How, which is a great business book that I've read recently, that is not just a business book, but also kind of an approach to life, which is whenever you think of something new that you want to do, a new goal, you have to think of a person who's going to help you to achieve it, rather than just thinking you're going to do it on your own by force of willpower. And the best thing about that book that I'll share is right off the bat, they share at the beginning of the book that Benjamin Hardy wrote the entire book. So Dan Sullivan came up with the idea for this book and his who was Benjamin Hardy. So rather than try to write the book himself, which he would've never gotten around to because he was too busy, he got Benjamin Hardy to write the book for him and with him and made him the co-author. So that's a great example of Who Not How right there.
Cameron Passmore: I've written that one down. Thanks. So you've written a number of books, including Why I Run and the Long Road to Boston. Does being an author change you as a reader?
Mark Sutcliffe: I don't think it has. I was reflecting on that before we started chatting and in a way, I'm glad it hasn't, because I think there are experiences in life that can be affected by, or even spoiled by your knowledge of how the process works. Right? So if you've worked in a kitchen in a restaurant, it may affect your ability to go to a restaurant and enjoy a good meal. Or if you've worked behind the scenes in theater, maybe it affects your ability to go see a play without thinking about how are they putting this all together and just be lost in the moment and enjoy the art. And thankfully, I don't think the experience of having written a couple of books has affected me. I certainly have even greater respect for great writing and just how incredibly hard that is.
I consider myself a good writer and a good communicator, but the ability, the fluency that some people have with words is just astonishing to me. And I don't even know if that's something you can really learn or whether it's a gift that people have combined with their knowledge and the talent that they've honed. I have even more appreciation for how amazing some writers are.
Ben Felix: What advice do you have for someone who might want to read more?
Mark Sutcliffe: So a couple of things I would say, first of all, you've got to make it a priority. And that's what I tried to do. Now, I say that. I'll share with you guys. By the way, every time I read a book, I write it down. I keep a log of all the books that I've read. As Cameron knows, I love tracking things. Everything in my life has a Microsoft Excel spreadsheet attached to it. And so far, as of June 9th, 2022, I had read 32 books so far this year, which I was pretty happy about. That's actually more than I would normally read in the first five and a half months of the year. But since June 9th, I haven't read any books and that's because I'm running for mayor. So I'm super busy.
So again, you got to make it a priority. You got to block off the time. One thing that I did that helped was going to bed earlier. So if you wrap up your day and if you're used to going to sleep at 10 o'clock and you go to bed at nine o'clock, gives you an hour to read, combining it with something else, like what I did reading on the treadmill, that had a huge impact on the amount of reading I was able to get done.
And other people listen to audio books in the car or when they're running or that sort of thing. So I would encourage you to do that. And the last thing I would say, which is a lesson I actually gained from running and from fitness is run whenever you can, read whenever you can. If you've got 10 minutes, read for 10 minutes. Don't think you need an hour. You can have a bunch of 10 and I know it's harder because you want to get more deeply into it, but you might have four or five 10 or 15 minute windows in the course of a day where you can read. That adds up to an hour or so of reading that you otherwise would not have if you just thought, "Oh, I'll wait until I have a bigger chunk of time." And that could be four or five hours a week that you're now reading in small chunks that you wouldn't otherwise be reading.
Cameron Passmore: And that will add up to roughly a book a week, more or less.
Mark Sutcliffe: Yeah.
Cameron Passmore: Something like that.
Mark Sutcliffe: Yeah.
Cameron Passmore: Well, Mark, this has been great. A couple takeaways, buy a treadmill and don't run for mayor if you want to read more.
Mark Sutcliffe: Exactly. Yeah. That is a great point. Yeah. That should have been my first piece of advice.
Cameron Passmore: Solid advice right there. So thanks for joining us. Good luck. Good luck in the race.
Mark Sutcliffe: Thank you both. This has been great.
Cameron Passmore: It's been great. So thanks again, Mark. And thanks everybody for listening this week.
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Books From Today’s Episode:
The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth — https://amzn.to/3zd8kmH
Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies — https://amzn.to/3cNB5ij
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Mark Sutcliffe — https://www.marksutcliffe.ca
'On Index Investing' — https://www.sciencedirect.com/science/article/abs/pii/S0304405X22001143
'Stocks for the Long Run? Sometimes Yes. Sometimes No.' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927
'Global Factor Premiums' — https://www.sciencedirect.com/science/article/pii/
'Are Stocks Really Less Volatile in the Long Run?' — https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2012.01722.x