As we kick off the new year, we wanted to look back at our biggest areas of learning from last year. So this episode serves as a great companion piece to our year-end recap from a couple of weeks ago, but the focus here is on the personal impact that specific guests, ideas, and topics had on each of our lives. We cover ICAPM thinking, the nature of money, financial literacy, setting financial goals, the history of index funds, and more. For the second half of the show, we are joined by the amazing Shaun Tomson, former world surfing champion, author, and renowned speaker. Shaun is here to talk a bit about his latest book, co-authored with Noah benShea, entitled The Surfer and the Sage. We get to hear about Shaun's belief in the power of words, the specific conditions that can enforce this power, the lessons he has taken from a life in the ocean, and how the tragedy of losing his son influenced his life's trajectory. Join us to catch it all.
Key Points From This Episode:
Differentiating between the CAPM and ICAPM theories. (0:08:02)
Long-run risks in stocks and bonds; demystifying safety claims. (0:14:46)
Further illumination on the concept of money and how to think about it. (0:24:27)
Learnings around the empirical side of financial literacy. (0:31:00)
Improved setting of financial goals and common mistakes that many of us make. (0:32:24)
Filling in the gaps in an understanding of the history of index funds. (0:35:57)
A one-minute recap of our episode with Allison Schrager from last year. (0:37:47)
A quick review of Shaun Tomson's book, The Surfer and the Sage. (0:39:38)
Shaun explains the significance of the wave as a metaphor. (0:43:28)
The tragic passing of Shaun's son in 2006 and how this redirected his life's purpose. (0:45:10)
Shaun explains his CODE method for transformation. (0:49:35)
The significance of the structure of the book and the motivation behind it. (0:56:38)
Unpacking the importance of purpose when making financial decisions. (0:59:40)
Shaun's tactical recommendations; resilience, hope, optimism, and discipline. (1:05:44)
Upcoming book recommendations for our 23 in 23 Reading Challenge. (1:19:22)
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: That's too funny. Welcome to Episode 235. I'm laughing, because the first thing and said before recording was, “Jeez, it's been so long since we've done one of these. I wonder if I remember the intro,” and you nailed it first crack.
Ben Felix: Yeah, it's pretty effortless at this point. I don't have to think about it.
Cameron Passmore: It's funny. It's over three weeks since we've recorded.
Ben Felix: Yeah, it feels weird.
Cameron Passmore: Feels very weird. Welcome to the first us episode of 2023. Did a good break, I presume. I know you went skiing.
Ben Felix: Yeah. Yeah, I went skiing. It was great. I hadn't skied in about 20 years. First time back and it felt my boat like riding a bicycle. Although I haven't taken 20 years off that before, but it was pretty easy to get back on skis.
Cameron Passmore: Isn’t that amazing? We had so much snow leading up to Christmas. The conditions were great, up until we went to Florida on Boxing Day. Since then, has been a great melt that come back and I could almost, if it wasn't for freezing rain today, mow the lawn. The lawn’s green. Crazy how much snow we lost.
Ben Felix: Yeah. We had, I think three or four days of really good skiing, and then everything melted and it was raining and that was it.
Cameron Passmore: It's too bad. We landed in Florida and it was cold, like 4 or 5 degrees. Every day of that week, it went up about 4 or 5 degrees. By midweek, oh, it’s beautiful. Beautiful. Spend a day at the beach in Clearwater, right next to Tampa. What a beautiful area. I can see why so many people are moving to Tampa. Orlando, oh, my gosh, which is where we stayed at the Orlando area, the concentration of people. I get there's a bias, because people are going to Disney and Universal and going in for that. So you got people that are affording to spend money on that. But the demand for entertainment and food and everything in that area is just at Christmas, completely off the charts.
Get this, we went to Orlando airport to come back, big airport, of course. I think it was, I think, the busiest travel day of the year; a couple of days after New Year's, all the restaurants shut down for an hour, hour and a half in the morning to switch over between breakfast and lunch. Mid-morning, you can't get food in the airport. We're like, “How could that be? Why?” They said, there's no talent. We can't get people to work here.
Ben Felix: Oh, wow.
Cameron Passmore: They said, managers are working the lines, cooking food. They only have a certain number of people. This is a big airport and there's only a handful of people allowed in the restaurant mid-morning. Crazy to see. Traffic is jammed. The parks are jammed. Disney is sold out. It's just an unreal consumer experience to see.
Ben Felix: That is crazy.
Cameron Passmore: This year, you been thinking about what you want to talk about for investments this year.
Ben Felix: Not just for investments. For everything. I think we had that last episode that we did to finish 2022, where we just did investing basics as a broad topic and talked about the fundamentals of stocks and asset pricing and whatever. It was extremely well received. It wasn't super basic basics. I thought of it as advanced basics. Because it was so well received, I think there are a ton of topics that we can do probably a year worth of content, at least where we try and take that theme of what are the absolute fundamentals of financial decision-making and financial planning and investing and all the stuff that we talk about, what are the absolute basics? Can we talk about those at a more advanced level?
We're not trying to do an introductory podcast episode on a topic. We still want to speak to the same level that we tend to speak to. But I think we can do that with fundamental topics. Maybe that's more fundamentals, as opposed to advanced basics, is a better way to describe it. Anyway, so I've mapped out a whole bunch of topics, not including today's topic, because today we're going to talk about the main things that we learned last year, which I think it's a little different from, we have our year-end recap, where we have a bunch of our favourite clips. Today, we're going to talk about our personal main learnings from last year.
Anyway, but then for the rest of our episodes, I think we can take this idea of fundamentals, but giving them an evidence-based rigorous treatment to help people make better decisions. I think that'll give us a lot to talk about for the rest of the year.
Cameron Passmore: Great. As you mentioned in today's episode, we're going to talk about your top learnings from 2022. We're going to kick off the 23 and 23 reading challenge and we welcome former world surfing champ, Shaun Tomson. We’ll also talk about his book, The Surfer and the Sage. We're also going to do a 60-second review of a conversation about risk with Allison Schrager, which was a past episode that we did. Then we're going to have the after show, of course, where we'll cover off some reviews and letters we received. We’ll also get into the details of the 23 and 23 reading challenge.
Ben Felix: We're talking about our top learnings, so you've got some, too. Not just mine. You said, mine.
Cameron Passmore: Yeah. That's okay. I'll throw in a few ideas as well.
Ben Felix: You sure could, too.
Cameron Passmore: All right. Let's get to the episode.
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Ben Felix: Welcome to Episode 235 of the Rational Reminder Podcast.
Cameron Passmore: All right, let's jump right into the main topic. Top learnings from 2022.
Ben Felix: All right, so you asked me about this at the end of the year last year. I tried to think about it, but I needed a bit more time, so here we are. I tried to think back on throughout 2022, what were the things that I had major lightbulb moments on? I guess, because they were major light bulb moments, we ended up talking about them a whole bunch. Hopefully, this isn't too much repetition for people. It's from both our conversations with guests and our own research for various topics. That's what I was trying to think about. Where were the big light bulbs?
For me, the big ones were on ICAPM thinking, and I've got a bit of notes on each of these that I'll speak to. ICAPM thinking, which maybe people are tired of hearing us talk about it. I don't know if they are. We just had the business coming after our episode with Professor Robert Merton, where we also talked about that quite a bit. I don't know how you can get tired of it, though.
Cameron Passmore: It’s your teddy bear. That’s what I’ve said. Ben's happy place.
Ben Felix: ICAPM was a big one. The long-run risks in stocks and bonds, that was another big one, where there was just empirical research that I had not previously seen that I saw last year, and it was pretty eye opening. I'll talk a little bit about that. The nature of money. We did one episode on that last year. It was because of our crypto stuff that I – you too. It wasn't just me. We both read, I think, mostly the same books last year on that. Was just some eye-opening stuff on what money is conceptually. That's something that I'll touch on.
Then the other two big ones that were like, wow, this is just new information; financial literacy, just the empirical side of financial literacy, like how much of an impact that does have in the data on economic outcomes, and how to set financial goals. That's another one where just through our own coverage of that topic, there's so much stuff that's just like, wow. You never knew there was so much to setting a goal. Say what yours are real quick and then we can go through.
Cameron Passmore: Yes. The big one for me that filled in a lot of gaps is the history of financial economics. We kicked off last year, we had Mac McQuown and then Robin Wigglesworth. You go through a lot of the fun providers, like Eduardo from Avantis, and Gerard O’Reilly from Dimensional and Gus Sauter from Vanguard. I thought we filled in a lot of the gaps there.
I thought private equity, what we learned from Ludovic Phalippou was super interesting and very enlightening. I found that's been useful day-to-day as well, because that comes up a lot in our world. Then of course, Professor Betermier’s work on the value ladder, who owns value stocks, I thought it was super interesting.
Ben Felix: Yeah. That ties into the ICAPM stuff, too.
Cameron Passmore: And the data stuff, right? To finally have this data and economists that can dig into the data with the technology to come to these realizations. It all does tie together, right?
Ben Felix: Yeah. Okay, so on ICAPM, in 2022 we did that the one episode that we called (Modern) Modern Portfolio Theory, where we did our summary of all of that, about the difference between CAPM and ICAPM and how portfolio theory changes. Just doing that episode was a big learning opportunity. Then we also had, you're just talking about Sebastien Betermier. We also talked about ICAPM with Gerard O’Reilly from Dimensional. We also talked about it with Eduardo. It was a theme of our conversations, in a lot of cases, at least on the investment side.
Then, of course, we had the conversation that came out last week with Robert Merton, which we recorded in 2022. For us, that was a 2022 learning. To give my simple take, I think, on CAPM and ICAPM theory, it's that in the CAPM theory, investors only care about mean and variance, the mean of the variance of their portfolio. In ICAPM theory, they care about mean variance and covariance with other states of the world. That's the simplest summary that I think I can give. If you want a more complex summary, you can listen to Professor Merton talk about it.
Other states of the world can be bad things happening, like an economic downturn, where you don't want your portfolio to suffer at the same time, if your labor income is also connected to, or sensitive to economic risk. States the world can also be future investment opportunities. A multiperiod investor does not only care about how their portfolio performs in the current period, they also care about what that current period performance means for their expected returns in the next period. That means that an ICAPM optimal portfolio might be very different from a CAPM optimal portfolio. That alone is, I think, really important.
It also touches on other stuff, like measuring performance, optimizing for Sharpe ratios is CAPM thinking, but it ignores all of the other dimensions of risk, all the covariance aspects. Another big takeaway there is that a single period CAPM risk-free asset. We take a 30-day treasury bill, which is generally thought of as a risk-free asset, or a risk-free asset. That might actually be extremely risky for a multiperiod ICAPM investor. We talked about that with Professor Merton quite a bit. It also comes up in the long horizon return data that we'll talk about.
Cameron Passmore: Look at this for serendipity. I'm talking about Allison Schrager interview. Of course, she worked with Bob Merton, doing research with him. One of my notes for that summary is talking exactly about this is that risk-free asset, really a risk-free asset. That was not all planned.
Ben Felix: Well, what you're saying is all of this content is basically the same, eventually. Okay, so then the other side of that, I guess, is that long-term tips, which can be extremely volatile for a short-term investor, if your time horizon is 30 days, that's a very risky asset. If you're a long-term investor, that's about as close to the risk-free asset as you can possibly get. There are lots of interesting implications that come from this ICAPM view thinking. Investors with different hedging needs can help to explain the factor structure of expected stock returns. If investors are different, and therefore, wants to own different stocks, because they have different state variable sensitivities, that on the theoretical side can be part of why we see differences in expected returns between securities.
Which is, I mean, that's good and that's useful to have as a model. The thinking extends to other assets and consumption goods, too. This we got from Sebastien Betermier. I find it just fascinating. An individual home is a very risky asset, from the perspective of the variability in its price in the short-term. Again, if you're a 30-day investor, and all you care about is mean and variance, an individual home is extremely risky. But owning that home provides a perfect hedge against the consumption of that specific house. Just an interesting takeaway. It's another interesting perspective on housing. That was another light bulb that I had related to CAPM last year.
Now, I really like ICAPM as a model. I think it's very clean. Of course, there's the competing explanation for the multifactor structure of expected returns, which is that investors make behavioral errors that can be exploited. That's a fine model to have, too. I just like the ICAPM better, because it's so clean. I think the reality is both theoretical explanations probably contribute to the observed phenomenon. I think Sebastian Betermier talked about that in his episode too, that when you have a very strong result, there tend to be multiple explanations.
Anyway, just from the perspective of thinking about stuff, I like the ICAPM a lot. It depends entirely on the assumptions that we make about what risks different investors care about and which assets hedge those risks, practically speaking, The model is what it is. It's just this multi-period model, multi-Dimensional model for risk and asset pricing. To actually take that and assign characteristics or factors to it, that's what Fama and French did. That all starts to get pretty noisy and to an extent subjective. That's maybe one of the limitations of the model.
That makes it hard to use practically, at least for precise portfolio allocations. We talked with this with Gerard O’Reilly, too. It's like, what did he say? He referred to measuring with a micrometer and cutting with an axe. The models are useful, for sure, but I don't think it's the case. This was discussed exhaustively in the Rational Reminder Community. Should you be trying to optimize your factory tilts based on your human capital? I think that starts to get into the territory of measuring with a micrometer and cutting with an axe.
Even if we can't do that, I think knowing that there are differences in expected returns and then that there is this theoretical explanation for why they're there, I think, that gives us probably enough confidence to pursue higher expected returns, at least in some cases. Of course, we did a whole episode last year as well on who should tilt toward higher expected returns. Who should be a factor investor? We framed it as who should be a market cap weighted investor? The average investor, we don't know exactly who that is, which is problematic.
Anyway, ICAPM, big learning year on that for me. I knew what it was prior to last year, but I mean, we talked to John Cochrane in 2021 late in the year. But in 2022, we had Fama, Betermier, Gerard, Eduardo, Merton. We talked to Merton in 2022. Come on, that's a big year for learning about the ICAPM. Okay, so that's the first one.
The next big one for me was the long-run risks in stocks and bonds. This is, we had the paper from Edward McQuarrie. The stocks for the long run, sometimes yes, sometimes no. We did an episode based on that, and just talked about the data that he'd come up with. He went back way back in US market history. He was back to 1793, McQuarrie in his data. We did an episode on that. It was fascinating stuff. Lots of interesting perspectives in that paper.
Then a listener, who's actually a finance professor sent us an email saying, like they heard that episode on cool long-run perspective, whatever. Have you looked at Scott Cederburg stuff? Oh, no. Go check that out. Then of course, as listeners know, we had a great episode with Scott Cederburg. Then we continue to cover his research with a follow-up episode on safe withdrawal rates, which unfortunately, whatever you want to call it, that paper came out after. That paper came out the day that we recorded our episode with Scott, so we just missed being able to discuss it with him on the podcast.
Anyway, so all of that was new information, because these guys had gone and dug up, or assembled data that just was not previously available, to give new empirical insights on long-run asset returns. What do we learn from that? There's a common narrative. Robert Merton talked about this, too, actually. That was a great episode. Was it a two-hour long episode with Merton?
Cameron Passmore: It was two hours and one minute.
Ben Felix: Great conversation. There's a common narrative that stocks get safer in the long run. There's some truth to that. I think, the reality is a lot more complex. Then bonds are often viewed as safe assets. Like the ICAPM thing I was just talking about, it depends who you are and what your situation is, whether something's riskier or not. For long-term investors, nominal bonds have had some pretty terrible returns over some periods of time. On average from the Scott Cederburg data, they do appear to be riskier from the perspective of loss probabilities in real terms, than stocks.
One of the takeaways from McQuarrie was that he observes these regimes throughout history, where there's some periods of time where stocks beat bonds over long periods of time. There are also other periods of time where bonds beat stocks over long periods of time. He calls it regimes and takeaway is, it's hard to say whether one asset class is riskier than the other, without knowing which regime you happen to be in at the time. McQuarrie found in the full sample, 68% win rate for US stocks over bonds at the 30-year horizon. Again, there are periods where that goes in the opposite direction as well. Periods where it's more likely to lose in stocks than bonds; stocks relative to bonds.
The Cederburg data, instead of just looking at the full historical sample, they did this block bootstrap method, where they took data from a whole bunch of different countries and they assemble it all together, and they pull out blocks of returns, and then reassembled them into a series and do that a whole bunch of times to create all these simulated returns. I think the methodologies is good. They did a bunch of robustness checks in one of the early papers that used the method, and it all checks out.
One of the papers that we talked about with Scott, 2022 paper, they went back to 1890. They had bonds, bills and stocks for 38 countries. In that paper, they find at the 30-year horizon, that you had a 13% chance of losing in real terms by investing in domestic stocks. 13% chance at the 30-year horizon of losing in real terms by investing in domestic stocks. It's pretty crazy. High number. It’s definitely not zero.
Cameron Passmore: Definitely not zero.
Ben Felix: They also look at international stocks. They find a 4% probability of losing in real terms. For bonds, 27%. For bills and this speaks to my comment when we were talking about the ICAPM about bills being a risk-free asset, 37% chance of losing money in real terms in bills at the 30-year horizon in their broad sample. They've got another paper that's published in the Journal of Financial Economics, that one we just mentioned as a working paper. This one goes to 1841, 39 countries, but they only look at stocks. In that paper, they find a 12% chance of losing in real terms in domestic stocks.
They also did some interesting robustness checks in that one. We talked to Scott about this when he was on the podcast, but they cut the data off. That full sample is 1841. The loss probability in domestic stocks was 12%. They also did samples where they started in 1880, 1920, 1960 and 2000 and then do the bootstrap from those data, and they find pretty similar loss probabilities. It's just making the point that this isn't just because we're going back to 1841 that the loss probabilities are so high. If you look at those later starting dates, the loss probability was 9% post-1960, when you bootstrap in that data, but it was 18% post-2000, when you bootstrap from that data. It's not just because we're going so far back in history that the loss probability is 12%. Stocks are just risky at long horizons.
Oh, another interesting robustness check they had in there. Because remember, they did this block bootstrap, one of the reasons that they did it is that you have a lot of countries that don't have a full 30-year history. If we're wondering, like what has been the investment experience of a representative domestic equity investor in the data, there are a lot of countries that should contribute to our understanding of what that experience has been, but that don't have a full 30-year history of historical data.
One of the other robustness checks that they did is they ran the same analysis, but they excluded countries that did not have continuous returns for the full sample, and the loss probability drops to 5%. It' just speaks to when you cut off the bad outliers, how much better things look. The reality is most of the data that people look at in this field tend to be those, the survivors and the ones with the available data. They also looked at US and UK loss probabilities using the same method. Those were 1% for the US and 3% for the UK.
You can see that looking at the full sample is more pessimistic, which I think was the whole point of their study. The main takeaways on this for me were, stocks are still risky for long-term investors. Diversification matters a lot. We see the benefits that the loss probability in international stocks are a lot lower. We also in our follow up on safe withdrawal rates, we also saw a significant improvement with adding in international stocks.
Now, I always have Fama in my head. I mean, that's true in general, but on this specifically, he in his episode with us, which was also in – I did mention that earlier, 2022. What a crazy year of guests. Fama talked about expropriation and the risk – expropriation as a risk that doesn't necessarily show up in historical data. If you go and assemble the returns from a given country's local stock market, that won't necessarily be representative of the returns that a foreign investor would have received investing in that same market. Fama just points that as a caution, and he actually uses it as a justification for some amount of home country bias. We talked to him about that quite a bit.
We talked to Scott Cederburg about that. We raised that as Fama said this, what do you think? He acknowledged that, yeah, that could be a risk. While we do see these big improvements by adding international stocks, so like, hey, that loss probability goes way down, or that safe withdrawal rate goes way up by adding international stocks. I think there's probably some caution warranted just on that. Like, maybe this isn't perfectly representative of foreign investor returns in those local markets.
Now, what doesn't show up in any of those data are tilts toward size and value, like tilts toward other sources of expected return. In bonds, too, there's a 27% chance of loss in real terms, owning bonds in the Cederburg data, but we're looking at 10-year government bonds. We know that there's a credit premium there. We talked about that. We did an episode last year on some of the worst periods for bond returns in history. Now, we looked at long-term government bonds from that period starting in the 1940s. They're terrible. Then we looked at credit. They were still bad, but not as bad. Those premiums are there. They've been there even in those worst times.
Then these really long-term data, just because the data quality isn't there, we don't have any of that information. I think there's probably even domestically, we know there's an opportunity to get exposure to more sources of expected return than just the market. I wish we had that data. You'd love to know what's the loss probability in small cap value tilted equity portfolio. Is it 2%? Is it zero? I don't know. We don't know. We don't know the answer. That's one of the takeaways.
Diversification is important, whether that be across sources of expected return, or geographic regions, because all assets are risky in the long run, in real terms. Okay, so that's two. I got a couple more here. Sorry, I'm taking up all the time.
Cameron Passmore: It's funny. You thought you didn't have enough content for 20 minutes.
Ben Felix: Yeah, I didn't. Okay, so money was another big one. We read a lot of books on money. You were keeping at –
Cameron Passmore: A lot more than I did. I did my best, but you did more.
Ben Felix: Well, it seems like you read all the ones I read. I would tell you which ones I read, and it seemed like you're reading them. The ones that I thought were super impactful for my view of money, let's see. David Graeber’s book, Debt: The First 5000 Years. It's a book everybody should read. Eswar Prasad 's book, The Future of Money. I also thought that was awesome. Of course, we talked to him for one of our crypto episodes. Niall Ferguson’s book, The Ascent of Money, which has an updated edition. I read that book years ago, but read it again last year. It's another excellent one.
Nigel Dodd, who unfortunately passed away recently. His book, The Social Life of Money. It's another excellent one that I read. Then Geoffrey Ingham's book, The Nature of Money, which is a 2003 book, another phenomenal book. That's probably the one I would pick if I had to pick one of that list for people to read.
Now, these are all deep historical takes on money that really changed the common perception of what I think most people view as money’s history as a physical medium of exchange. The medium of exchange story being that money is the most saleable commodity that everyone's willing to exchange their goods for in a barter transaction. Money is a medium of exchange in a transaction that is fundamentally barter.
All exchange is barter and money is just a convenient medium to conduct that exchange. It's an intermediate step. Gold often gets thrown in here, because in many cases, gold was ended up being used as currency. From a lot of the books that I mentioned in that list, the alternative view, and I would probably say more academically sound view is that money is a social construct, not a physical commodity. It's a unit of account, and a means of payment, but not a medium of exchange. Maybe that's just semantics. I don't know. I don't think it is. It is a little bit. The difference between means of payment and medium of exchange, I mean.
The origin story of money, as the market determined most saleable commodity, it doesn't have very strong supporting evidence, if any. At least, if you believe the books that I mentioned. What is supported is that exchange happens based on credit relationships. Money is a unit of account to measure how much is owed and a means to make payments to settle the debt. It's not a medium of exchange, which is fundamentally barter. It's a unit of account and means of payment for exchange that is based on credit.
Money is more of a system of mutual trust than a system of efficient barter, to people who don't trust each other can have an economic relationship due to mutual trust and money, not due to the intrinsic value of the commodity they're using as a medium of exchange. Maybe those are nuanced differences. I don't know. But I found them to be eye-opening. The value of money is based on the credit worthiness of the issuer. I would be willing to accept credit money and payment for a debt that I'm owed if I know that the credit can be used to settle my debts.
Most people have tax debts, so the money accepted by the government for paying taxes tends to be the most desirable money. Now, this all changes a lot of thinking around money. If money is a commodity, it all ties back to it was a couple years ago, or a few years ago now. I remember, when we tried to understand quantitative easing, like what's going on there. Is printing money a bad thing? This all ties back to that, ultimately.
If money is a commodity, or behaves like a commodity, we might expect it to follow basic supply and demand principles in terms of the price of money. If money is a social construct that has value based on the credit worthiness of the issuer, supply matters only to the extent that it affects the credit worthiness of the issuer. That's interesting when we think about inflation. Money is a form of government debt. Its total government debt, not the supply of money that matters for inflation. This is one of the things that we got from John Cochrane the second time he was on the podcast, which was in 2022.
Changes in government debt levels are relevant to inflation only when they're not matched by changes in real primary surpluses. Hold on. In plain English, what matters is debt to inflation. What matters is debt relative to people's assessment of whether the government can and eventually, will repay that debt. If debt increases, but expected surpluses increase, we can have no inflation with increasing debt. If debt increases with no promise to repay in the future, or no addition to primary surpluses, then we would see inflation increase.
Governments with large debts, or deficits, but sound long run finances, that can run surpluses to pay off the debts don't need to see inflation. Anyway, so this is all important for that, just the whole concept of, is money printing a bad thing? Is quantitative easing a bad thing? Now, this is one view. This is John Cochrane’s fiscal theory of the price level. Lots of economists would maybe take issue with it, but anyway. I find Cochrane stuff, too, and I tried to bring this up with Cochrane, but he didn't think it was true. Maybe I just need to sell him on it more. But you go, you read all these historical accounts of money in the evolution of money and the genesis of money and all that stuff, it all seems to me to fit precisely with the way that Cochrane describes how the price of money works today.
Now inflation, aside the whole idea that innovation, like Bitcoin can remove trust from money. I think that's just fundamentally flawed. When you understand that money is this trust-based imaginary construct, it's not a thing, so you can't remove trust from money. We talked about that with multiple people in the crypto series that Bitcoin has just shifted trust. It hasn't replaced it.
Cameron Passmore: Exactly.
Ben Felix: David Graeber, his book I mentioned, is a must read. He unfortunately passed away as well. It’s two people in the list who have unfortunately passed away. Graeber’s got one single tweet on Bitcoin from when he was still alive, in 2018. Someone asked him about Bitcoin and he replied, “I have avoided going into it. Other than to say, I think Bitcoin is based on a false popular understanding of what money is and how it originated. It's more a speculative commodity than a viable currency.” All right. I’m going to gloss over the next couple here, I think. What do you think?
Cameron Passmore: Fire away.
Ben Felix: Financial literacy, a big one. That was quite recent that we had Annamaria Lusardi on the podcast. People can refer back to that episode if they want to dig into that. The empirical side of financial literacy for me was a big learning last year. We knew it was important. We've been engaged in stuff, like bringing the Talking Sense cards to Canada, and of course, doing this podcast. When you start to dig into the empirical research on financial literacy and its impact on economic outcomes for households, it's like, wow. That's wild.
Now, if people listen to the full episode with Robert Merton, they would have heard him – I mean, he scoffed at financial literacy. He really did. Which, I mean, fair enough, that's his view. His view is that it should be solved through financial products design, rather than financial literacy. I mean, there are multiple perspectives on that out there. The truth is probably somewhere in between. It was really interesting, though, to have. Because we weren't even expecting him to talk about that. We were preparing. We had just recorded and we were preparing for Professor Lusardi. I can’t remember.
Cameron Passmore: Preparing for.
Ben Felix: Preparing for her episode. We recorded with Professor Merton. We were deep out our heads in, the importance of financial literacy and Professor Merton is like, “Yeah, we don't need to teach people that. We just need to make these products.” Wow, I wasn't expecting that. Even just that, the fact that there are these two polar opposite perspectives on that topic was a – that was a learning for me, too.
Okay. The last one, real quick. How to set financial goals? People heard a lot about this one last year, because we turned it into a whole project. That was very cool. Basically, goal setting is important in decision-making, but how do you set your purpose and how do you set your goals? Just identifying what your objectives are is something that people are not very good at. If you ask somebody what their objectives are in studies that we looked at, people might omit around half of the objectives that they would later identify as personally relevant. It's pretty big deal. There's a bunch of research from Bond, Carlson and Keeney, who one of whom we’re speaking to in an upcoming podcast episode, which is going to be very exciting. From their research, we got this idea that the generating a list of objectives without outside help is the first step in identifying what your objectives are.
Challenging yourself to double the list is a second step. Using categories to generate additional objectives. When we did our goals survey for our podcast audience and the general public that wanted to participate, we use the perma model for well-being as categories. Like, here's some categories that financial goals might fit into. You could use any relevant categories for financial objectives. Once you've generated additional objectives based on the categories, the final step is to consult a master list, which is what we created with our survey project, which is super cool. I mean, I didn't expect that to happen last year. Wasn't that crazy? I thought it was pretty crazy. I don't even know how that happened.
Cameron Passmore: Did a lot last year. Was a busy year.
Ben Felix: Yeah. It’s crazy. The whole crypto series last year, too. It seems like it was years ago.
Cameron Passmore: It was last summer, Ben. I guess, they kept on giving.
Ben Felix: Yeah. On goals, the last couple that to me were – You remember when we spoke to Ayelet Fishbach? We both had this mindset that we didn't set goals and she set us straight. I still remember, she's like, “What do you mean you don't set goals? You're doing a podcast that you're however many episodes into. You don't accomplish that by not having any goals.” That's a fair point.
She talks about defining a goal in terms of its desired state, like having more time for leisure activities, instead of its explicit costs, like spending money on a house cleaner. That increases the motivation to achieve the goal. Framing the desired future state as a goal, rather than a means has a powerful effect on motivation. Abstract goals. Put the focus on the meaning of your actions. Making the actions themselves seem less like a chore. Thinking about goals in the abstract makes people more likely to exercise self-control in their actions toward a goal. Challenging our optimistic targets with minor consequences for failure increased motivation and execution toward completing the desired actions.
The last one that I find really important is meeting targets should not feel like a chore. Intrinsic motivation to pursue the means toward a goal is one of the best predictors of adherence. I think that's really interesting. Then also, in long-term financial planning, the goal is often far in the future. The means is not always enjoyable. Instead of having that intrinsic motivation that it can increase adherence to a goal, you have to have extrinsic motivation. Activities can feel more intrinsically motivated when they achieve many goals. Maybe that can be one of the ways to help with long-term financial planning, despite its natural hindrances from that perspective. All right, so that's it. Those were my – the big things where I was like, last year, learned it and had my mind expanded.
Cameron Passmore: Awesome. I'll just do one of mine quickly, which is the history of index funds, which was the point of Robin Wigglesworth's book. Having been in the industry now for 30 years and seeing the advent of the ETF, which started in Canada in the mid-90s. I knew a lot about that part. But to fill in a lot of the gaps of like, where did indexing come from? How did it all happen, to appreciate the coming together data and technology and actual financial economics departments and universities, the whole Gene Fama story.
We filled in a lot of gaps there last year. Learned about where did CRSP come from, the fact that it was a project inspired and paid for by Merrill Lynch that got that going, which gave the data to all these researchers around the world to start digging into it. Then you have that congruent with the advent of technology and move on from punch cards into real database and technology to be able to analyze the data. I mean, you could think back, talking back, none of these existed. You could not compare your portfolio to what we take for granted now by having index data. It's just unbelievable. To lead into the whole five-factor model and other factors that have come along since then, it’s just – Then finally, to tie it all into actual products with Gerard and Eduardo. I thought it was a very good completion of that last year for us.
Ben Felix: Yeah. We really did go through the whole history of indexing and the data revolution in financial economics and all this stuff we had. I don't know if it was everybody. A lot of the people that were involved, or relevant, or have since documented that whole progression we had conversations with last year.
Cameron Passmore: We had David Booth. I listened to the data booth episode, and just this past weekend, he was on episode whatever it was, two years ago now, I think he was on. He was a big part of the first index fund as well with Mac and that all started with Gene. It’s a who's who in this space for sure. Okay, you’re good to roll on?
Ben Felix: Yeah.
Cameron Passmore: Okay. Let me do my one episode in 60 seconds. Back in episode 87, we welcomed economist and author, Allison Schrager. She was on for an episode, which we called Risk is Everywhere. Interestingly, as I mentioned earlier, she's collaborated with last week's guests, Nobel Laureate, Robert Merton. Her career has been all about studying risk. As she said to us, what is risk? Well, she defined it as probability distribution and that risk is not necessarily bad. What is the meaning of risk-free? She really harped to us which is you must remember that risk-free comes at a price. How we are presented with risk matters as well in terms of how much risk we take on. Of all the risk management techniques being clear on what your goals are and what you're taking the risk for is a single most effective risk strategy.
We also talked a lot about working with an advisor. As she said, you don't need an advisor to manage idiosyncratic risk and buy an index fund. Systematic risk is much harder to manage. Plus, there are so many other risks that working with an advisor can help with greatly, like goal setting, for example. To think you hire an advisor to beat the market, she calls a fool's errand. Most people not be able to reach their retirement goals without taking on some risk in their portfolios. The bottom line is, understand your risks, be clear in your goals, find an advisor and tune out the noise. She was awesome.
Ben Felix: That ties into the – you mentioned the when I was talking about ICAPM, that this ties into that, but it also ties into the goal stuff. It is all the same. We're just talking about the same stuff over and over again at this point.
Cameron Passmore: All right. Let's jump in and do a very quick book review before we get to our special guest today and talk about the 23 and 23 challenge. This week's book is The Surfer and the Sage: A Guide to Survive and Ride Life's Waves, written by Shaun Tomson and Noah benShea. As you'll hear it in our conversation with Shaun, I had a chance to see him speak late last year. I really enjoyed his presentation. I thought it was very impactful. That's why we invited him back to kickoff this year, both as a – talking about his inspiration that he shared with me in California, but also to inspire people to read more and be part of the 23 and 23 challenge.
He has a super interesting background. He is in fact, a former world surfing champion. He's built a couple of very successful surfing clothing brands and sold them. He's been in many films, and he's the author of a number of best-selling books. Very active keynote speaker and he mainly talks about lessons that he learned from surfing and applies them to leadership. Before we have our conversation with him, I just thought I'd do a very quick review on the book, The Surfer and the Sage.
In this book, Shaun is a surfer, obviously. The sage is his co-author, Noah benShea. Noah is a poet, philosopher, a Pulitzer nominated writer and a best-selling author of 28 books. Shaun met Noah, they hit it off. They decided to write this really cool book together. First of all, it's physically very appealing. The size is nice. The feel of it is nice. The way it's done, so there's 18 chapters. It's a mix of pictures, stories. Then Shaun takes his lessons from the waves and applies those lessons in 18 different chapters, and then Noah adds in some poetry and some commentary around that. It's a very interesting, structured book. It’s a very fun read, quite frankly.
The premise of the book is that most people on the planet want to avoid big waves. Surfers, however, seek out big waves, because this is where the impact zone is when you're surfing. There's lessons than that waves can teach us. As Shaun says, that will transform attitudes, reawaken purpose, activate higher levels of engagement and improve well-being. Many people feel powerless in the waves of their life, and they struggle to find their purpose. The goal of this book is to help people with this challenge and find their purpose. In the 18 chapters, it's really interesting and we talked to Shaun about this. There's 18 chapters with opposing feelings. For example, anxious and calm, despair and hope, confusion and clarity, exhausted and inspired, pessimism and optimism. I thought this contrast is very interesting to read about what Shaun has learned from surfing and waves and how they apply these different topics. Then Noah adds in his commentary and poems as well.
Anyways, I really enjoyed it. Shaun has been serving for over 50 years and has developed what he calls a simple system to help individuals activate the power of purpose and make personal change. This is exactly what we talked about with Shaun. I thought the conversation was really cool. Let's go now to our conversation with Shaun Tomson.
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Cameron Passmore: Shaun Tomson, welcome to the Rational Mind Podcast.
Shaun Tomson: Thanks, Cameron. It's great to be with you. I'm sure you're speaking from Canada. Must be freezing up there. I'm down here in Santa Barbara, in California. We made a record run over the last couple of days, so we were still holding on tight in bad weather.
Cameron Passmore: Wow. Oddly enough, we just suffered a freezing rainstorm, and I tried to go to the mailbox and I was unable to get down the driveway. Yes, it's a little bit different weather. Ben and I just talked about your book, The Surfer and the Sage. I think you're the perfect guest to kick off our year with a bit of inspiration, some general inspiration, but also some inspiration leading up to our 23 in 23 Reading Challenge. Let's kick it off with this question for you. How did the waves that you've been riding for so many years come to be such a powerful metaphor for you?
Shaun Tomson: Well, I’ve been surfing. It seems like, I've been surfing all my life. My earliest memories of being on the beach with my mom and dad. We lived right across the beach. My dad had been surfer in his youth. He was a champion swimmer as well. He was nearly killed by a shark, but never lost this fundamental love for the ocean and taught me to swim and surf about a 100 meters away from where he had this terrible attack. He was a really good swimmer. I mean, perhaps, he could have won a gold at the Olympics that were coming up.
He never lost his great love for the ocean. I think he imparted that to me and my brother and sisters. This love for the sea and the love for the ocean has certainly been a constant with me. Then I ended up building my life around this great love and passion I had for surfing. I became a professional surfer. I helped develop professional surfing myself and a group of friends. We helped develop the surfing industry and created a couple of successful surfing brands, related brands. Then wrote some books, using surfing as a metaphor.
Now I speak to large corporations, schools, universities, some of the biggest in the world, about surfing is a powerful metaphor for life. It all, I think, has come from this deep and abiding passion that my father, I think, imparted to me when I was two-years-old.
Cameron Passmore: How did that event along with a presentation I saw you speak at last fall, you talked about the tragedy of your son. Can you share how these two events changed your direction in life?
Shaun Tomson: Very much. When I say very much so, I lost my beautiful son. My wife and I lost our son in 2006. We played a game that we think he heard about at school. It’s called the choking game. He went to my old private school, just for one semester in South Africa. All the kids wore a traditional post-colonial uniforms and school ties, and the kids were playing this game with their school ties. It's called the choking game. Dreadful, dreadful game. When I lost my son, when I lost our son, I just went through a period of reevaluation, I think. Obviously, despair, grief. It was a terrible time.
Along with that, I think for people that have a terrible tragedy in their lives and they suffer, there is a dreadful knowledge that gets imparted to you on how to deal with life and what's really important in life, and what is your fundamental purpose. I just changed my direction and I started speaking to groups, large corporations, universities, religious groups, rehab clinics, PTSD survivors, many, many different groups about, ultimately, about how you can use this method, that surfing game, we call the CODE method. How you can use this method to activate purpose, to create interpersonal engagement and to create engagement with what's important to you and your life, and ultimately, live a better life.
That's what I do now is I just speak to groups and I write books. They're all really about how to find true meaning and how to find true purpose. Use and tell some interesting stories and anecdotes about my perspective on life. I don't give any prescriptions, but I do give a method. This method that surfing gave me, called the CODE method is unbelievably powerful. It's incredibly transformational. It's built around 12 lines. Every line beginning with I will, it's built around everyone spending 15 minutes and creating a personal mantra.
I'll tell you what I found, Cameron. I've spoken to hundreds and hundreds of thousands of people, maybe millions of people, hundreds of thousands of people have written their code, their 12 lines. I found that the words of other people, I even went back to grad school to study leadership, to study the art and science of influence and inspiration. Because I became so fascinated with how can you make an impact, not only on your own life, but how can you make an impact on others? What I've discovered through observation of hundreds of thousands of people, is that the words of others can be incredibly inspirational. Whether it's Martin Luther King, Mahatma Gandhi, JFK, Obama, whoever you might follow, those words are incredibly inspirational, and can inspire us to perhaps, take a different path and go down a different route.
If you want to create transformations, your own words are the words that are precursors to action. They can really take a lot of different paths. That's what I found out. Our own words. That's why I encourage people, use my code method. It's free. It's simple. It's open-source code. Just spend 15 minutes, write 12 lines. Every line beginning with I will. Now's a brilliant time to do it, because it's like a new year.
What this does, this is a terrific way to activate, identify your purpose. When you are tasked, and it's a great way to do this with a group of colleagues at work, or it's a great way to do this with your family, with your spouse, your son, or your daughter, or with extended family, just write 12 lines. Then everyone stands up and they read those lines, which creates accountability, engagement, commitment. I think it creates a deep understanding of who you are. Others look inside yourself. It has all sorts of cascading effects. You can hear how I’m passionate about it. I am and I've just seen it create wonderful impact in people's lives.
Ben Felix: Okay, you mentioned that the code. Can you maybe just talk a little bit more explicitly about what exactly that is?
Shaun Tomson: Yes. Many years ago, the famous beach in Santa Barbara where I live had an environmental problem. A friend of mine said, “Shaun, it's a big problem. I need your help.” I've been involved in environmentalism and I was the fifth member of Surfrider Foundation, the world's biggest surfing environmental group. This guy had invited me many, many years ago. Then he said, “Now Shaun.” He called me, I think, 20 years ago, and said, “This beach is having a problem. It's a massive problem, a $30 million problem.” He said, “I want you to help solve it and I'll give you a $100 budget,” which is you know what I mean? To solve a 30-million-dollar problem.
I said, “How can I even help?” He said, “Well, what I'm going to do is I'm going to bring a group of children down to the beach. Then I'm going to bring the media and the local government officials and we're going to highlight this problem. I want you to give these kids something inspiring.” I read these words, 12 lines. Every line beginning with I will. I called it surfer’s code. I read the words in about 15 or 20 minutes, and I printed them up on a little card, and I printed up a 100 cards for the students that were coming down. The words became very popular.
I wrote down 12 lines of metaphor. I will always pedal back out. I mean, I think of a terrific wipeout. I pedal back out. I think about perseverance and resilience. I will never turn my back on the ocean. I think about my father, the dreadful shark attack that he had, but he never lost this wonderful life. I mean, all these other lines that are – I will realize that all surfers are joined by one ocean. I will realize that there will always be another way of hope, optimism. I wrote down stream of consciousness, the principle lessons at surfing have taught me about that.
I found that these waves became very, very inspirational. People love these words. Ultimately led to a couple of books. Then I lost my beautiful son. I use this code as a way to help me through the darkness of loss. I would add, a little school I was speaking to in Santa Barbara, I just had an idea when I was talking to the kids about the surfer’s code and how it was developed. I said, “I wrote it. It was my code. What about all of you?” It was a small group, small school, 80 students? “What about all of you writing your own codes? What about all of you spending 15 minutes, just like I did. Write your code, 12 lines. Every line beginning with I will.”
The very first line of code I got back from a young girl. She was 13 at the time, was, “I will always be myself.” If you're a parent, that's a profound statement of power and commitment. You're not going to be a victim of peer pressure, you're not going to be bullied, you're not going to be pushed around. You're going to be yourself. Then these other students read these other amazing, amazing words. When I saw this, I got so inspired, man. I immediately find that my co-author, Patrick Moses said, “Listen, we got to write another book. We're going to call it The Code.” Actually, it’s the second book. It's called The Code: The Power of “I Will”. This book was designed to be a framework for positive decision-making amongst young people. Because I lost my son, who made a bad choice.
I thought my theory was, wow, I can inspire. I can transform these kids, these students, through their own writing and words, can inspire others, but they can transform themselves based on that first statement. I'll always be myself. Now, after that, I thought, “Wow, what about if I use this at corporate events? What about if I use it –” Like, Cameron, you're at that financial conference with Dimensional. I do it with Cisco, Google, GM. I mean, massive companies. Everyone write a code. 12 lines. Every line begins with I will.
It has all sorts of cascading effects. Yes, it can create self-transformation, that it's about commitment, because you're committing to these powerful statements of purpose. It helps you identify your purpose. It's about optimism, because I will is about the future sense about optimism and hope. It's also about discipline and determination. Those are words of power. Then it's about engagement, engagement with purpose, engagement with others, too, because when others see these statements, they have a much more intimate understanding of who you are and what your ultimate mission is.
It's very, very effective. It's very emotionally connected. It has been operating on so many different levels. For anyone that wants to do it, the only cost is time. That’s it. That’s the cost. The cost is time. Turn off the phone. Turn off the computer. Bust out a sheet of paper. Summon your family and tell them who you are.
Ben Felix: Is your code still the same surfer’s code that you wrote?
Shaun Tomson: Yeah. I wrote 12 lines 105 ways. That’s in my wallet and I carry it around with me.
Ben Felix: That's awesome.
Shaun Tomson: I'll tell you what it is when you write it. This is your North Star, okay. I've been in business, was in business, created some successful companies, failed. I was in the trenches of entrepreneurship. Ultimately, I sold one of my companies to a multi-billion-dollar company. I know my way around business. I know my way around resilience, losing my beautiful son. I know my way around relationships. My wife and I've been married 35 years.
This code is built from passion, is built from knowledge, it's built from experience, is built from learning and teaching. It's not built by a university, PhD that's observed 200 students and has come up with some incredible new theory about mindset. This has been created from love, death, success, failure. The code is my gift, my gift to humanity. Surfing gave it to me. I'm giving it straight back. It is so damn powerful.
I mean, the university had an academic study about mixing. Study and the quotes. I lost 50 pounds as a result of the CODE method. My relationship with my eight-year-old son is better. We've got his code up on our refrigerator. It's helped me pull myself out of the mat. It's my North Star. Like I said, words of others are incredibly inspirational. I love to listen to people talk and go to conferences, and I get inspired, because you want to create transformation. Only your words will create transformation. Only your words will be the precursor to action and commitment in a new path.
Cameron Passmore: Further to that, your wonderful book, The Surfer and the Sage, there's 18 chapters in this book. Each one of the chapters has opposing feelings, like anxious and calm, despair and hope, confusion and clarity. I find that a really interesting way to structure your book. How did you come up with that format? Do you find that there's been power in presenting these contrasts?
Shaun Tomson: Yeah, you're right. That was obviously intentional. My co-author, Noah benShea is a poet, philosopher, Pulitzer Prize nominated. Sold millions and millions of books. It's just a wonderful, wonderful learned guy. We just met over lunch one day. Within five minutes of meeting and chatting, he said, “Hey, Shaun. Let's do a book together.” I went, “Wow, that's cool.” We'll call it The Surfer and the Sage. He went, “Okay.” The Guide to Surviving and Ride Life’s Waves. That was it. The book concept was done. Then we are tossing around like, how can we have two different voices, and how's it all going to work?
This was during COVID. I was doing a tremendous amount of virtual presentations to large corporations. Very, very large corporations, to thousands of people. In order to be interactive and to get some input from companies, I would rather be in my presentation, I use this cool tech. It’s called Poll Everywhere. Then if your listeners have used that, that it's wonderful tech. You can embed it in PowerPoint. I’d asked people, send me one word that describes how you’re feeling. Send me one word. I get the period. I mean, I think through COVID, I spoke to a couple hundred thousand people. I've seen hundreds of thousands of words come in.
The four principal words were stress, anxiety, depression and disconnection. I could see that there was this malaise, the people. These were from companies, where team members were fully employed. It wasn't like they were going to lose their jobs. I mean, the one company, they had the only treatment in the world for COVID at the time. Multibillion dollar biotech company. These team members weren’t going to lose their jobs. They didn't have financial insecurity. Still, they felt this stress, anxiety.
I said to Noah, “Hey, Noah. We need to write into this. We need to write the negative and the positive. We need to create a little bridge.” We want our book to be a guide to go from anxious to calm, from despair to hope. That was exactly what we wrote into. We wanted to reveal the duality. This book is, it's not rainbows and unicorns. It's darkness and light, but the choice is yours. The chapters are about, essentially about choice and hope.
Ben Felix: How do you think having a clear purpose, so you talked about the relationship between having the code and having a purpose. How do you think that helps with financial decision-making at the individual level?
Shaun Tomson: That's a really, really interesting question, Benjamin. I'll give you two answers for that. I've never been on question before. I think it's a really, really thought-provoking question. One is that I have learned by asking questions of hundreds of thousands of people and reading their codes, when people really want out of life and that two things. One is, I will be better. We all want to be better. We want to be more learned. We want to be better dads, husbands, wives, we want to be better today than we were yesterday. We want to be better tomorrow than we were today.
Then the other aspect of observing people's codes is that people want to help others be better. We both want to be better, and we want to help each other be better. There's been a number of studies on how can purpose impact your life. If our fundamental purpose in life is to be better and help others be better, and when I say better, I want to say, I want to be more financially successful, I want to be more successful in business. Essentially, wanting to be more successful from a financial perspective is a subset of half of that aspect of purpose, which is being good at.
Studies have revealed that people with a sense of purpose will be more productive. They'll stay in their position of work. They'll be more motivated. They'll live twice as long. Unbelievable study from the University of Michigan of over 70,000 people. There was another study from Ernst and Young, and they showed – it was a self-report, 460 CEOs. They found that purpose-led organizations performed 42% better than companies that are simply in business. Purpose has this relationship that you'll live longer, you'll be more productive, you're going to be more motivated, you'll be healthier.
I don't know if this have a direct relationship. You write your code in the context of wanting to be better. I think, I'll just give you clarity in your important financial decisions, whether you want to be invested that's focused on sustainability. Whatever the specific is, underneath a specific has to be the moral imperative and has to be the north star. Now, I know this is a long answer, but for two years, when I moved to the United States in 1995, I worked for a company called Patagonia. Now, I think everyone on the planet has read that a couple of months ago, Yvon Chouinard gave away his 3-billion-dollar company. 3-billion-dollar company to an environmental non-profit. 3 billion dollars.
His statement in the New York Times was, “You could say, we're not a for-profit company. We're a for purpose company.” Purpose underlies that biggest private, environmental donation in the history of the world. Purpose. Purpose and economics and finance, I think, are inextricably interlinked, but in a ethereal way. Then here’s another comment. One of my favourite management theorists, I mean, today, they call it leadership. When I grew up, was a guy called Peter Drucker. He's the god of management theory. I think he's – They've all knocked him off. He's been knocked off by every single management leadership.
Peter Drucker, I think he's 30, or 40 bucks. There's an institute at Claremont Graduate University devoted to his writing. He wrote, perhaps his most simple book. Very small book. You can read it in an hour and a half. I recommend it to anyone that's listening. It's called The Five Questions. He mentions that every year, anyone in business, or non-profit needs to answer five questions. The very first question is, what's your mission? What's your purpose? Why are you here? What's your mission in the context of your business? He said, “How about this?” He said, “It has to be short enough to fit on a t-shirt.”
Then he goes through the other five questions. Who's your customer? What is your customer value? Then what are results? No, no. What are the financial results? What are results? Which is an amazing connectivity between purpose and finance. What are results? Well, my results that I want to achieve is X, and it doesn't have to be... But to you, what are the results to you, not to the outside world? Then the last one, which is just amazing is, so what's the plan? So how simple is that?
I have found that in simplicity, there's great power. Like my little code process, super simple. A line, every line begins with I will. Peter Drucker's process, super simple. You want to read another great book that's super simple. Also, take it two hours to read. I would encourage every single one of your listeners to read it by Viktor Frankl. It's called Man's Search for Meaning.
Ben Felix: Incredible book.
Shaun Tomson: One of the greatest books.
Ben Felix: Incredible book.
Shaun Tomson: On purpose. It’s about meaning. It's about power. It's about attitude. It’s about commitment. This is the path that I'm on. I love to read these wonderful authors who have not just they write their writings from theory and conjecture, but they've been in the trenches. They have been in the trenches. They have been in the death camps. They've had serious, serious experience, along with the academic gravitas as well.
Cameron Passmore: I want to ask you a tactical question, Shaun. Your books, The Surfer and the Sage, as well as The Code are perfect examples of books that have takeaways that can be applied to real people's lives. You've led large organizations. You study, you're an author. What recommendations would you have for people on how – like practical, how do you apply this material in their lives? Because often, you read a book and you might just forget it and seeps in. Are there are other tactics you might recommend?
Shaun Tomson: In my experience, words have a great power, like I said, and I always have the most powerful. I keep my words close in my wallet, and I keep them in my consciousness. When things go sideways and laugh, and maybe I'm depressed and down, I think I'll always paddle back out. It's like a mantra to me. I will always pedal back up. Or I will know, there will always be another wave.
I really focus on resilience. I focus on hope and I focus on optimism. Those two words, I will, those are words of discipline. Those are words of commitment. Those aren’t airy-fairy words. I'll try. Those are words of unequivocal commitment. I think when you write them, keep them close. Keep them in your drawer. Stick them up on your computer. My advice is, and this both is from a introspection and a visualization point of view, how do you actualize it? How do you commit to it? Keep your 12 lines close, because this is who you are. This is who you will be.
There is a line in Surfer’s Code and it's about riding the most dangerous wave in the world, a wave that's killed 18 people. More people have died at this place than anywhere else, called the Banzai Pipeline Masters. I was the youngest guy to win the event. I mean, I think my records have been, or might have been broken up. I was 20-years-old when I won it. I was an outsider. No one had heard of me. I write about the Banzai Pipeline. I would take the drop with commitment. Because this is a very, very steep wave. It comes up on very deep on and hits a shallow coral reef stands straight up.
The takeoff requires incredible commitment. Business is like that. Life is like that. It requires commitment. It requires competence. It requires, yes, the risk is there. My ass was on the line. If I made a mistake there and I've seen guys make a mistake, you can die. I’ll wait for it. I’ll wait for it. Focus as committed. I will take the drop with commitment. I encourage people, read my code, wherever you are, you can see it 12 lines, it'll take you two minutes to read. Yes, my words are inspirational. But when you write your code, those words are transformational. You write your code.
I'll tell you a business story about the code and the power of these 12 lines. I spoke at a company this year. They just hit unicorn status, okay. They just hit a billion dollars in valuation. It was a data company, data security company. I spoke to about 500 team members. The CEO the founder introduced me. You know, your name in there, I'll give personal bio. This guy, with a chapter by out the window, he’s an Australian guy. Obviously, he’s a classic. They just shoot me in format, check the biofilm. He says, “I want to tell all of you. Seven years ago, I met Shaun. It was at a YPO Young Presidents Organization Conference in Santa Barbara. He spoke, just like he's going to speak today.”
“I did this exercise that he showed us, just like all of you are going to do today. I wrote 12 lines. Every line beginning with I well. I wrote my code.” He said, “I started this company the next day. That's why you're all sitting here. How about that?” I'm saying that it’s not my words. He subscribed and committed himself to his own words. Our own words are the words are the greatest power of all. I didn't mean to harp on, but I have to tell people how important and how powerful this is.
I lost my beautiful son. I lost my beautiful, 15-and-a-half-year-old boy to a poor choice. When I read those words from that young girl, I will always be myself. My son had heard about the game and this thing they were playing at school. Even though it was this peer pressure, or whatever. Anyway, my son made a bad decision. I believe, the code is a way to activate purpose and it's a tool for positive decision-making. I know you’re having Professor Ralph Keeney from UConn in a number of weeks. Professor Keeney will tell you about the single most important social problem in the world today that no one knows about. That is preventable deaths.
1 million Americans die every year, poor choices, preventable deaths out of the 2.4 million. It's the single biggest killer. 1 million deaths is more than the sum total of every single American that's been killed in every single war since 1776. There's a fundamental malaise of poor choice. I like to think my little code, my little open-source code can help some people, activate purpose, find your purpose, find your power, find your path. Really, really, really simple. It's a big, big problem, poor choice.
Ben Felix: Wow.
Cameron Passmore: Incredible. Shaun, it’s been such a pleasure to have you on. Thanks for your books. Thanks for your words. Thanks for the inspiration. This has been a great kickoff to our reading challenge again this year.
Shaun Tomson: Cameron, thanks so much for having me on. Also, thanks, Ben.
***
Cameron Passmore: All right. Welcome to the after show, casual part where we talk to our remaining three listeners. You want to kick off the first review, Ben?
Ben Felix: Sure. Jim Hunziker says, that this is a must listen for critical thinkers. He's listened to more than a 100 episodes, and he's only now leaving a review after taking over his kid’s old iPhone to do so, because he's normally on Android. Every episode has a worthwhile insights on personal finance, portfolio construction, how to lead a happy life and countless other topics. He loves that we, Cameron and Ben, comfortably explore the work of diverse guests in the pursuit of living well and always improving their understanding of the world.
Cameron Passmore: Diverse guests is true. You from Bob Merton to Shaun Tomson, world surfing champion, that's two very diverse and great guests. Next review from Eddie J. Sotto. “The podcast drops great knowledge in every episode. Eduardo Repetto prefer a small value for less risk is a golden rule everyone should abide by.”
Ben Felix: I don’t think Eduardo said that though.
Cameron Passmore: I just read what they say.
Ben Felix: I’m pretty sure Eduardo said that it would take a very special person, like us stuck in a desert island to. Anyway, we had a whole discussion with Eduardo about that. I'm pretty sure his takeaway was not that small value is less riskier, or less risky. Okay, Daphne Name Taken says, “The podcast is bringing me so much value and joy. The podcast content is very high-quality, as mentioned by so many other reviews, but I also appreciate the fact that Ben and Cameron are such eloquent speakers with great voices.” That's nice to hear.
Cameron Passmore: Great mics.
Ben Felix: Yea, it's good mics. That’s right. “The hosts are not only humble, they also talk in such a concise and scientific manner, which is somewhat rare these days. I truly enjoy their virtual company.” Well, we enjoy yours, too.
Cameron Passmore: I got to jump in there. You and I talked about this fairly often in listening to many other podcasts. I think, I've even said this here before. So many interviewers ask such long questions.
Ben Felix: I mean, I don't want to sit here and speak ill of other podcast hosts, but there are many podcasts that I just can't listen to, because of that.
Cameron Passmore: Yeah. Next review from Magelicent from Canada, “Unbelievable guests and portfolio topics. I'm a fan of Ben and Cameron's interview style are always well prepared and don't interrupt guests.” There you go. “The guests are top notch and appreciate the inclusion of topics such as happiness. If I had one piece of constructive criticism, I would like to see more non-factor topics on the podcast.”
Ben Felix: I saw this comment come in, and thank you, appreciate the feedback. I tried to look at how – I mean, I guess it comes up anytime we talk about stuff related to investing, because it's like, that's just how the world is viewed in financial economics. I tried to go through just recent episodes. We haven't had that many on factor investing. Year-end review, financial literacy with Professor Lusardi, investing basics. I don't think there was much factor stuff in there. Success and luck with Robert Frank. 2% rule. Eduardo Repetto. That was factor heavy. Who should invest in cap weighted index funds? Chris Hadfield. Index fund tipping point. I don’t know. Not a whole lot of – anyway. All right. We'll talk about factors less.
Cameron Passmore: Okay, so we got a nice email today actually from Michael. He said, “I wanted to start by thanking us for the podcast. It is by far my favourite. I've been a listener from the beginning. I’ve been recommending it to everyone. I've always been a lurker on forums, like Reddit, but I want to become more engaged with this particular communities since I love the content so much. Recently signed up for the RR community. Ben and Cameron often discuss the why we invest for financial freedom. As a father, I'm also thinking about taking care of loved ones after I die. I've already achieved financial freedom and would be safe to retire based on my current spend at 2%. Yikes. (Thanks, Ben.) But I could continue to work to try to make sure my wife and kids will be okay if I die. On that note, I would love to hear an episode based on that morbid subject of death. What happens after death? Do people who inherit more, or have more happiness? Is there any data on this subject? Is it worth working actually a couple of years to try to take care of the kids financially, or is working less a better way to make them happier in the long run? This episode could also go in other directions, such as tax implications around death and inheritance, statistics around chances of dying and life insurance.” All I know, there was already a recent episode on insurance.
Ben Felix: It was great.
Cameron Passmore: Imagine the opposite could be a good mix of financial education, regarding grieving happiness and how to best use the time that we have here on Earth. I think it is a great idea.
Ben Felix: Be a good episode. Could even be a few episodes on just the economics of death. Financial planning for death. That's actually a – that's a whole section of the Quebec financial planning courses that I was doing in the IQPF. Part of the financial planning framework is planning for the situation of death, and it considers a lot of the stuff that was just covered there.
Cameron Passmore: We got another long note from Mark in the Toronto area, who's a teacher. Do you want to quickly go through this one, Ben?
Ben Felix: That's a lot of text. I don't know if – are we reading entire emails here?
Cameron Passmore: I don't think we have to. Maybe he heard about us offering out Talking Sense cards at teachers and wanted to ask for some. We gladly sent that along. He gave some commentary around how he feels that financial education is not great in schools and actually, talked about the fact that they're still running the stock picking initiatives in school.
Ben Felix: Yeah, that always makes me cringe.
Cameron Passmore: It makes me cringe. Yeah, you might understand how the stock market works, but just to do it in that format, I would agree with Mark that that's not great. Not an optimal way of doing it. Very grateful for your videos and the podcast. Became interested in investing back in the 90s during the first desert storm, which is actually when it started in the business. I remember that so well, the first desert storm. Anyway, so all the best to us and thanks for all the content. It's great to hear from Mark. We sent off a deck of cards to him to use in his class.
Ben Felix: That was a very nice email. I don't want to diminish it by not reading the whole thing.
Cameron Passmore: LinkedInner from Jameson, Netherlands. “Big fan of the pod, community. Great resources. All the best for the future.” Jacob Wales reached out. “Longtime listener,” and wants us to go see him in Cardiff next time we’re in the UK and to enjoy the Welsh hospitality. We have another invite, Ben, for a meet up in Wales. Heard from Lino in Melbourne, Australia. Super nice note from Lino to thank us for amazing journey. Started listening to podcasts during their internship at a financial advice firm in Melbourne, Australia. Listening to the RRs made me want to pursue my career. I'm now running our model Taylor portfolios, and also one of the youngest advisors in Australia at 21-years-old. It's cool to hear from.
We also got this note this morning. I don’t think we've got a note like this before. When you order merchandise, it's a Shopify store, you can leave a note. Jackie passes note on to us earlier. This is from Vincent in Mississauga. Not a special instruction, which is what it is on the store, but rather a comment. “I love, love, love the Rational Reminder Podcast. Helped me understand the world of finance in such an entertaining and highly informative way.” Thanks for that, Vincent.
Speaking of meetups, and I know this makes you very excited. We're planning some dates in Ottawa, Montreal and Toronto, to have a meetup. If you're interested, reach out to us at info@rationalreminder.ca. We're looking at Tuesday, March 21st, after work in Ottawa. Tuesday the 28th after work in Montreal, and Toronto will be in September. Super casual meetups. Come and go as you wish. Basically, we copy the format that we did in London, which was exactly that. Super fun, super casual. Just meet and greet type thing.
Also, want to highlight some books that you might want to check out for some upcoming guests that we have, if you want to jump into the Reading Challenge and also be prepared for our guests. Daniel Pink is coming up. I don’t’ think we've mentioned that, so you might want to read the book, The Power of Regret. We also discussed that in episode 189. Eric Johnson's book, The Elements of Choice we talked about in 229. He's coming up. Ralph Keeney’s book, Give Yourself a Nudge. He's in a few weeks.
We also wanted to let that as we mentioned with Shaun, that the 23 in 23 challenge has been launched. We're doing another year of this reading challenge. What you need to do, so go to the Rational Reminder website, there's a tab on there, 23 in 23 challenge. It's very easy to join. You have to get the Beanstack app in your phone. Join there. You can then use the codes that are on the instructions on our website to connect to Ben and I in there, so we can see what each of us is reading and be part of the challenge.
Some of the benefits of joining is that as you read books, you get rewards, awards. Some of them are actually discounts in the stores. We have a lot of people buy stuff like at 50% off in the store this year. It was very, very popular. It's also fun. You can go in and see what others are reading. You can see where other people are in the challenge. You can check out reviews that people are leaving. There you go.
Last year, we had 74 people complete the 22 in 22. 85% of readers said, they're reading more books. Thanks for the challenge. I think I have now over 300 friends in there. I think, we had – I forget the number, over 500 people in the challenge in 2022. As I mentioned earlier, if you are a teacher and you want a complementary deck of the Talking Sense cards, drop us a note. We'll get them out to you. Lots of merch still available in the store. I was in, as I mentioned in Florida, I was looking at Yeti mugs branded for – I just noticed them in different stores. It's really cool that Yeti mugs, but they're really expensive. I don't know if that's too high-end, but people have feedback on that. Drop us a note.
You and I are on Twitter, of course. I love hearing from people on LinkedIn. Reach out there and connect. Rational Reminder is on Instagram and YouTube. I think a lot of people don't know that we're also on YouTube. Check us out there if you actually want to watch us.
Ben Felix: I want to add, that’s an interesting point. Because I know a lot of people that are in the Rational Reminder community who see the both things get posted, I know a lot of people did switch over from audio to watching the YouTube channel. I never really thought about that there could be lots of people out there that don't know. We're on YouTube.
Cameron Passmore: Anything else this week? As your video card gets shorter of space.
Ben Felix: We're okay for time. Yeah, no. Nothing else. I mean, feels like we've done a few of these look back episodes, where we've rehashed stuff that's already been covered. It's hard to know at what point that becomes repetitive versus useful. I guess, reflecting on it for myself, when I'm reading stuff and thinking, “Oh, yeah. That was interesting.” Or, “Oh, yeah. That was cool.” I'm the guy that wrote it. Maybe there's a good chance other people find it useful to hear a second time, too.
Cameron Passmore: Yeah. As I said, I've been doing this a long time and I have that aha every single day, where just things start to connect. You just think back and more and more makes sense.
Ben Felix: Oh, yeah. The new connections are always fun. The other thing that I find enjoyable, it used to be painful, but I've learned to just like it is looking back at my prior self and thinking like, “Man, you idiot. How did you not know that thing that you know now?” It used to make me feel bad that I didn't know that thing before. But now, it makes me feel good that I learned something new. I try and think of my previous self as an idiot as often as possible by learning new things.
Cameron Passmore: As Shaun said, people want to learn. People want to be better.
Ben Felix: Yeah, that came out in our goal survey, too. I don't remember what number it was in terms of that frequency of reporting, but it was up there. Yup.
Cameron Passmore: Cool. All right. As always, thanks for listening and all the best for 2023.
Is there an error in the transcript? Let us know! Email us at info@rationalreminder.ca.
Be sure to add the episode number for reference.
Participate in our 23 in 23 Reading Challenge:
23 in 23 Reading Challenge — https://rationalreminder.ca/23in23
23 in 23 Reading Challenge on Beanstalk — https://pwlcapital.beanstack.org/
Participate in our Community Discussion about this Episode:
Books From Today’s Episode:
The Surfer and the Sage: A Guide to Survive and Ride Life's Waves — https://amzn.to/3GytVJV
The Code: The of Power of "I Will" — https://amzn.to/3ZEMUvg
Surfer's Code: 12 Simple Lessons for Riding Through Life — https://amzn.to/3VZIcFb
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
Shaun Tomson on Twitter — https://twitter.com/shauntomson
Shaun Tomson on Instagram — https://www.instagram.com/shauntomson/
Shaun Tomson on Linkedin — https://www.linkedin.com/in/shaun-tomson-42a57213/
Shaun Tomson — https://shauntomson.com/
Shaun Tomson's I Will Form — https://buzzy.buzz/kiosk/3676e3c13ae389a80dd5774d
'The Code Method for Families' — https://shauntomson.com/wp-content/uploads/2020/04/CODE-METHOD-FOR-FAMILIES.pdf
‘The Surfer and the Sage: Trailer' — https://www.dropbox.com/s/wn0q3r0gf006tl6/TrailerUSETHISONE.mp4?dl=0
'Generating Objectives: Can Decision Makers Articulate What They Want?' — https://pubsonline.informs.org/doi/abs/10.1287/mnsc.1070.0754?journalCode=mnsc
'Eyes on the Prize: The Preference to Invest Resources in Goals Over Means' — https://www.anderson.ucla.edu/documents/areas/fac/marketing/Shaddy/investing_goals.pdf
'Counteracting obstacles with optimistic predictions' — https://pubmed.ncbi.nlm.nih.gov/20121310/
'Immediate Rewards Predict Adherence to Long-Term Goals' — https://journals.sagepub.com/doi/full/10.1177/0146167216676480
'Stocks for the Long Run? Sometimes Yes. Sometimes No.' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805927