As human beings, our brains are wired to solve problems. This can make long-term investment strategies, like passive investing, surprisingly challenging, especially if you’re not accustomed to the ups and downs of the market – it can feel pretty unintuitive to stay the course when your instinct is to take more active steps to solve the problem! So, how can investors remain firm in their strategy and not get spooked by market changes? Joining us today to unpack this question is financial journalist, Nicolas Bérubé, whose new book From Zero to Millionaire: A Simple and Stress-Free Way to Invest in the Stock Market serves as a guide to investors on how to grow their wealth and achieve good portfolio diversification at a low cost. We talk with him about the contents of his book, his observations on financial media and its effect on investors, how to stay committed when making long-term investments, and more. We also spend the top half of the show discussing a popular idea we’ve seen posted by influencers online, namely that investing in stocks will give you a return of 10% or more per year on average, and the flaws in their arguments. Tune in for a deep dive into investor psychology, financial media, and much more!

Key Points From This Episode:

(0:01:42) A breakdown of the flaws in the trending online theory being posted by influencers claiming that investing in stocks will give you a return of 10% or more per year on average.

(0:09:17) Taking a longer-term view of the US stock market (and other global markets), how it’s changed in the past 100 years, and what this means for investors today.

(0:16:12) Relevant findings from various papers on US and global stock market returns, US stock market valuations, performance, the impact of survivorship bias, and more.

(0:27:01) Why it can be so difficult to capture market return as an investor, and a breakdown of how best to approach historical data.

(0:33:33) Talking with Nicolas Bérubé about what he learned from his failed options trade before he started studying markets and the research that helped him become a market optimist.

(0:38:24) An overview of Indo-American investor, Mohnish Pabrai, and what Nicolas learned from meeting him.

(0:41:05) Unpacking the difference between investing in the stock market and playing in the stock market and the importance of having an infinite vision when investing.

(0:44:52) How Nicolas would explain the benefits of index funds and index investing to a novice and why behaviour is the number one obstacle to investor outcomes.

(0:48:29) The effect of financial media on investors from Nicolas’s perspective as a journalist.

(0:51:52) Advice on whether to delegate your investment actions to a financial professional or do it yourself ie. automatic transfers using a robo advisor.

(0:56:14) What people should be looking for if they do seek out financial advice and Nicolas’s opinion on what investors struggle with most.

(0:59:58) Aftershow section: future topics for the show, why we’re excited to see more of Mark McGrath, updates on our 24 in 24 reading challenge, upcoming meetups, and more.

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.

We are hosted by me, Benjamin Felix and Cameron Passmore and Mark McGrath. We didn't think about that far.

Mark McGrath: I guess we didn't.

Cameron Passmore: Welcome to episode 297. That was well done, actually, because it was the first cut, then you're right. We don't type out the intro, of course, but it is from three Canadians now. Mark, it’s great to have you along.

Ben Felix: I thought about the three Canadians, but I didn't think about saying all three of our names, though. I fumbled out of it. It's okay. We'll get better next time.

Mark McGrath: Just go with first names, maybe. People know us by now, right?

Ben Felix: We could do that.

Cameron Passmore: All right, Ben. Why don't you tee up the first topic and then I'll go from there.

Ben Felix: Oh, yeah. Sure. In the first part of the episode, we're going to dive into the question of whether stocks return 10% per year on average.

Cameron Passmore: You mean, they don't?

Ben Felix: Well. Don't give away the punch line.

Cameron Passmore: We’re going to find out. All right. Then we'll do an interview with an author, Nicolas Bérubé, who is a financial journalist with La Pesse joins us. He has a recently released book called From Zero to Millionaire: A Simple and Stress-Free Way to Invest in the Stock Market, originally published in French and has been released in English. That's a good interview. Then Mark, you're going to stick around for the after show.

Mark McGrath: Indeed.

Cameron Passmore: Got lots of questions for you. We'll see how it goes.

Mark McGrath: Oh, good. You didn't warn me about that. I didn't prep anything.

Cameron Passmore: Well, we don't prep much for it anyways, so welcome to the rodeo.

Mark McGrath: Good.

Cameron Passmore: Okay. With that, you guys, good to go to the episode?

Ben Felix: Oh, let's go.

Mark McGrath: Let's do it.

***

Cameron Passmore: All right, welcome to episode 297. Why don't you guys tee up this first topic?

Ben Felix: All right. I've seen, and I'm sure you guys have too, lots of content creators, or finfluencers, or whatever we want to call them, online that seem to think that stocks return 10% or more per year on average. I've seen this on Instagram, TikTok, Twitter. It's everywhere. You guys seen that, too?

Mark McGrath: Everywhere.

Ben Felix: Everywhere.

Cameron Passmore: Your reaction to that is?

Ben Felix: Well, so there is some light factual basis for a 10% return. I mean, they're not light. It's factual or not, I guess. But there's a much larger weight of evidence that suggests 10% is not the return people should be expecting. I think the problem with the 10% figure is that it hinges on the exceptional performance of the US stock market. Fine, but also, on the more recent history of the US stock market. It's like, not only it is assuming a 10%, or whatever 12%, or somewhere in between return require only looking at the US market. It requires looking at the vast historical period for the US market, which I think is crazy.

Cameron Passmore: This is also the period when so many of today's investors have only had experience with so many investors arrived in the past 30 to 40 years.

Ben Felix: Yeah. I think that's a big part of the problem. Those data are easily accessible and they're – the last 20 years, US markets average a little bit below 10% a year. That's when a lot of people who are investing today would know that data point, because they've lived through it, or through a good chunk of it. I think that number, the expected return number, as listeners always is super important, because anyone's making long-term financial decisions, they need to have some assumption. Decisions are going to be super sensitive to the assumption that people use. Stuff like, how much do you need to save? How should you allocate your assets between stocks and bonds and whatever else? Should you invest in a long-term portfolio? Should you pay off your debt? Those are all going to be influenced by the expected return assumption.

Like I mentioned before, small differences, like a 1% or 2% difference in your expected return can totally sway decisions. I think it's really important to pin down a reasonable number. I think it's crazy that there are so many finfluencers, or whatever we want to call them, online. I don't want to be mean to anybody, but in a lot of cases, it's people who have very limited formal education in finance and investing. Those are the people that are telling everybody. They're often large audiences that stocks are going to return 10% or more per year on average. Not great.

Mark McGrath: A lot of them aren't talking about just entire markets. That's their assumption for individual stocks. I think the comment that you pulled this topic from specifically, I won't name names, but that individual is a stock picker, as far as I know. The assumption here isn't even looking at a diversified market. It's the assumption that individual stocks should perform at this level over periods of time, which is even more wild, right? I mean, we've looked at the data on that and you posted about it recently, I think, was it the JP Morgan paper that looked at, was it the Russell 3000, if I'm not mistaken?

Ben Felix: Yeah, yeah.

Mark McGrath: It was something like, I'm going to butcher the stats, but it was something like, 70% of stocks have seen a drawdown of 60% or more and never reasonably recovered from that, right? We're talking about a diversified market here, but individual stocks, you absolutely shouldn't expect that.

Cameron Passmore: But think about how dangerous that is from a planning perspective. If you do overshoot the return expectations, has huge implications, especially over long-term compounding.

Ben Felix: For sure. Yeah. I would rather undershoot by a bit than overshoot by a bit, because it's like, the idea of compounding, you can make adjustments now, but you can't make adjustments later. If you plan for 10% and don't get it 30 years from now or whatever, that's it. Now, I guess, you can spend less than you hoped to. Whereas, if you're deciding now how much to save, you have a lot more leeway, more leavers to pull to affect the long-term outcome.

Okay. I do want to start by understanding where the 10% to 12% number comes from, because it isn't from thin air. There is some basis for it. If we go back to 1950 in the US, through 2023, US stocks have delivered a 11.32% nominal return. Not adjusting for inflation. That's measured by a total US market index, or the return over that same period, 1950 to 2023, not adjusted for inflation of the S&P 500 is 11.43%. It's in that range. 10% to 12% sure. Then for the last 20 years, the US total market returns 9.81% and the S&P 500 is 9.69%. It was not hard to see where that 10%. Yeah, around 10% comes from.

Mark McGrath: That's in US dollars, presumably?

Ben Felix: That's a good point. All the figures I'll talk about are in US dollars, just because those are easier.

Cameron Passmore: These are indices and not ETFs. These are pre-fee, correct?

Ben Felix: Yeah. Index returns. Not index fund returns.

Cameron Passmore: But no cost in there. No withholding taxes. These are just raw index returns.

Ben Felix: Correct. US dollar. We'll talk about real and nominal. The numbers just now are nominal, but it's all US dollars, pre any taxes, or fees, or anything like that. Actually, that's a good time to mention this. I do want to talk about the difference between nominal and real returns. Whatever, 11.3%, those numbers I was just talking about, those are nominal. No adjustment for inflation. That's meaningless to talk about, though. It's meaningless, because nominal returns don't feed you. They don't feed your family. They don't put food on the table. Real returns do. Inflation matters. People invest to fund their future consumption.

I just want to give a quick example to explain why real returns are more useful than nominal returns. If we look at the 15 years ending April 1985, the US market over that period did return 10.58% annualized. We got that 10% on average number for 15 years. Great. But inflation over that same period was 7.05% annualized. A huge portion of that return was gone. It wasn't a real thing. You didn't get to buy groceries with it.

Mark McGrath: People, I think, misunderstand how impactful that is over long periods of time. Just yesterday, I was meeting with a client of mine, his daughter, she's 14. Really, just very novice level understanding of money. We just went through basics like, debt, taxes and inflation. I think it's the Bank of Canada website, there's an inflation calculator that you can use and you can look at historical inflation. She was born in 2010. We just plugged in her birthday and put a $100 in and said, well, what is an item that cost $100 the year you were born? What’s it cost today? 14 years later, it's a $140. It's a 40% aggregate increase in the cost of living over time. These percentages on an annualized basis, they compound in a very meaningful way.

Ben Felix: Yeah. Yeah, it’s a cool example.

Cameron Passmore: I remember being at a Nick Murray seminar back in the early 90s, the educator financial advisors. He said, just hold up a stamp on an index card to show the compounding effect of inflation there. I just looked it up. A stamp in the early 90s was $0.42 in Canada and now it's $1.07.

Ben Felix: That's another good example. Anyway, two good examples to explain why it's important to think in terms of real returns, not nominal, which makes the whole topic we're talking about hilarious also, right? Yeah, you're going to get 10% a year. Okay, 10% nominal returns. What's the real return? What's your inflation assumption? That's what we should ask the people saying this, maybe.

Okay, so to flip those US stock returns that I mentioned a minute ago into real terms, from 1950 through 2023, the real return in US dollars was 7.63%. Then for the last 20 years, it was 7.16%. I'll come back to this later. But when people say, yeah, 10% return is what you should expect from stocks, what they're really saying based on historical data is you should expect about a 7% real return. We'll talk more about that in a minute. That 7% or higher in those two examples is still exceptional. It's even exceptional for the US market. I find this super interesting.

From 1900 through 1950, US stocks returned an annualized 5.57% real. That's a lot closer to what global stock returns have been from 1900 through 2023. I'm going to dig more into this in a minute. Basically, US stock returns post-1950 were exceptional, relative to pre-1950 US stock returns and relative to global stock returns. It was this exceptional period on many different ways of measuring that. I think the big question for investors thinking about, or hearing that they're going to get a 10% return is whether that pre-1950 sample, US sample, or the post-1950 sample is more relevant for thinking about expected returns, for thinking about the future.

Mark McGrath: That's the argument I always get is the market's different now. Back then, it was very difficult to invest. It was only for the wealthy. Nobody owned stocks back in the 30s and 40s. Now you can buy stocks at three clicks from your cellphone. The dynamics and the fundamentals of the market are totally changed. The pre-1950 period is not something we should put any weight on. I don't know that that's true or not, but that is the pushback that I get every time I talk about that.

Cameron Passmore: But is the perception that stocks are riskier today, or 50 years ago?

Ben Felix: Well, it's not even that. I'm glad you brought that up, Mark, because I've seen the same thing, but they get it backwards. That is completely backwards. The fact that it's easier to invest in stocks today and that the market is arguably safer than it was back then, reduces expected returns.

Cameron Passmore: That’s where I was going.

Ben Felix: It doesn't increase them.

Cameron Passmore: Exactly.

Ben Felix: We'll see if there's research on this. We'll talk about it in a minute. The market has gotten safer, or it's perceived as being safer over time and it's easier to invest. People have more access to financial markets. More people can invest. All of those things drive expected returns down, not up. They drive realized returns over the period up, because valuations increase as markets get safer, or more accessible, but that drive expected returns down, not up.

Mark McGrath: Financial risk has been around for thousands of years in some form or another. A lot of this is just behaviour, right? It's what type of return do I need to be earning to be compensated for the risk that I'm taking. Yes, maybe the technology is a lot different. Like you said, with that comes higher valuations and potential for lower returns, but the concept of risk on your money is not new. I don't know that humans have changed all that much in terms of their behaviours in psychology over that period. I agree with you that we shouldn't discount that period in the past, just because technology is different now, right? Or there's more participants now.

Ben Felix: Yeah. If anything, it's backwards. If anything, that period where there was broader adoption of stocks, that period had higher realized returns, because valuations went up. But that means expected returns are now lower.

Cameron Passmore: Exactly.

Ben Felix: I'm really glad you brought that up, because it's a super common counter argument to discount all of historical data. I mean, the other thing about that is, okay, what about the rest of the world? Do we ignore all of the other countries, other than the US for the last, since 1950? I don't know. I haven't used that counter argument on Twitter yet.

Cameron Passmore: All these countries, people are still making decisions to buy and sell, so how can the dynamic not continue to other parts of the world? That doesn't make sense either.

Ben Felix: Well, yeah. Real returns have been pretty consistent. Real stock returns have been pretty consistent for a very long time, other than the US being the big exception. Australia has done actually a little bit better than the US since 1900, but nobody focuses on that. People just care about the US doing so well.

Mark McGrath: The Australians do. The Australians –

Ben Felix: Let's focus on that a lot.

Cameron Passmore: They retract that –

Ben Felix: That's very plausible. Well, even Canada, Canada and the US were neck and neck for a very long time. It's just relatively recent history that Canada's stock returns have not been as strong and the US has been crazy. Okay. A big reason for that, though, is rising valuations on US stocks. We alluded to that, when we were talking about more people adopting, investing and all that stuff. That would get reflected in rising valuations and that's what has happened in the US market. From 1950 to now, US stock valuations went up a ton, if you look at the Shiller CAPE ratio.

That's something that's a component of returns that I don't think investors should count on repeating consistently. You shouldn't expect a valuation to increase forever. It doesn't make sense. Valuations are the closest thing that we have to gravity in financial markets. It's obviously very, very different and it's not actually like gravity, but it's the closest thing.

Mark McGrath: Can you just explain that, the increase in valuations, like what that means? Because you will hear people talking about multiple expansion and increasing valuations. What they're really saying is that people are willing to pay more for the same stream of future cash flows on a stock. Stocks are more expensive. I think for a lot of novice investors, that just means they're going up, which to them is a good thing. But what you're saying is that if you hold future cash flows, or future profits, or earnings of a company stable, price matters. If you're going to pay a lot more for a stock for that same level of cash flow, then you should expect lower returns. Is that right?

Ben Felix: Yeah. I’m thinking about the Shiller cyclically adjusted price earnings ratio, which is the price relative to the 10 years smooth real earnings for the companies in the index. Over this period, 1950 to now, it's exactly what you said. The price that someone's paying per unit of earnings, I guess, has increased quite significantly. Some people are paying more for the earnings of US companies, much more than they were 70 somewhat years ago.

Cameron Passmore: I would suggest that the awareness of that fact, it's probably not that broadly held.

Ben Felix: Based on the amount of interest people have in investing in the S&P 500, yeah, I think that very few people, especially casual investors, understand that.

Mark McGrath: Well, and they'll always invoke Warren Buffett in these arguments, right? Because Buffett's always said, “Just go buy the S&P 500.” But Buffett is a value investor, right? It's funny for in the same conversation to hear somebody talk about that, because they're really talking about the Warren Buffett style of investing, which is buying cheaper stocks. At the same time, what you're saying is a lot of the returns have been driven just by stocks getting more expensive.

Ben Felix: Yeah. I mean, Buffett and Bogle both said, just by the S&P 500, which has been pretty good advice historically. I mean, we're going to talk about not even why that would be bad advice going forward, but why the realized returns of US stocks maybe just aren't representative of what their expected future will be like. Fama and French actually had a paper on exactly this, on whether pre or post 1950 returns are more representative of expected returns for US stocks. This is a 2002 paper and their post-1950 sample only goes to the year 2000. But if you look at valuations in the US market, they're actually similar today as they were when the paper came out. I think their arguments are still worth hearing.

Their approach in this paper is to estimate expected stock returns using dividends and earnings. Then they use that estimate of the expected stock return to judge whether realized returns over a given period are low, or high relative to expectations. What they find is that their expected equity risk premium for the period 1872 to 1950 is very close to the realized average equity risk premium over that period. But then, the 1951 to 2000 realized risk premium is almost three times the estimated premium. The paper is basically suggesting that the earlier period, 1872 to 1950 delivered on expected returns. You got the expected return. Which should form expectations about the future.

Then the later period delivered unexpectedly higher returns. Those unexpected returns, I don't think are something that investors should count on when they're setting expectations for the future. The paper basically finds that it's attributed to rising stock valuations. Discount rates over the period fell, expected returns fell, which caused valuations to increase. It’s exactly what we were talking about earlier.

I think that rear view mirror bias idea that when you look at past returns that have been high on the back of rising valuations can be really misleading. Context about why did those returns happen matters a lot. That's where looking at what happened to valuations over that period becomes important. There's a more recent paper from Jules Van Binsbergen, who's been on the podcast and a few co-authors. They suggest in that paper that survivorship bias probably contributed a lot to the historical US equity premium. It's kind of this no one thing in financial markets that the longer a market survives, the higher its return will tend to be. The argument is representation of survivorship bias.

A lot of that's just luck. The stuff that has not happened in the US that could have happened and stuff that has happened in other countries but hasn't happened in the US, not because it can happen, just because it didn't, it hasn't. That's the survivorship bias piece. Then the other component in this paper is that they talk about how the fact that that hasn't happened, the disasters haven't happened, has allowed investors to learn, or perceive that the US market is increasingly safe. The more time that passes without a major disaster in the US, the safer investors perceive the US market as being. They refer to that in the paper as the learning, learning about the safety of the US market.

That again, similar to what we were talking earlier, that drives down the discount rate. That's learning, but we were talking about more access to markets, which I think is also a valid point. We've got these various pressures pushing down discount rates for US stocks, which pushes up their valuations. They find in this paper, using a bunch of interesting modelling techniques that when you take those two components, survivorship and learning, valuation increases, they explain about 2% of the historical US equity risk premium for the period 1920 through March 2020, which is the data they were looking at in their paper.

Mark McGrath: That's an annualized number. 2% of the annual returns.

Ben Felix: Yeah. I think one of the things that's similar to the one you raised earlier, Mark, about how people have more access to markets and stuff like that, the US market has historically been the place to invest, the best place. That wouldn't have been obvious at the beginning of the period, like in 1920, or 1900 or whatever, but it's very clear now, looking backward, that this has been the best place to invest. It is still an incredible market. There's no denying that. I'm not arguing that at all.

The thing that matters to investors is, to what extent is that reflected in market prices? We know US stock valuations are high. We know the US market is amazing. We know it has been amazing, and we know it still is amazing, but everybody knows that. That's not a secret.

Cameron Passmore: Will it be more amazing than expected?

Ben Felix: That’s the question, right? When you just take the Shiller earnings yield right now, Shiller earnings yield is the inverse of the cyclically adjusted price earnings ratio. Just take the inverse of the Cape ratio, that gives you an estimate of the real expected return. The real discount rate that the market is pricing. That's around 3% right now. Well, it's a little below 3%. The real return in –

Mark McGrath: In real returns. Yeah.

Ben Felix: Yeah. The real expected return being priced into US stock is about 3%. For future realized returns to be higher, there's got to be more good luck, or more rising valuations, or some combination, which could happen. I'm not saying that it won't. But on expectation, you wouldn't expect a 7% real return.

Cameron Passmore: But you mentioned seven real earlier, and you said the multiple expansions added two. That's a lot of multiple expansion to get to that seven from the three, am I correct? Just to make this real simple.

Ben Felix: The three is the current expected return. If you look at current, oh, like a lot of future multiple expansions.

Cameron Passmore: Yeah. Yeah. You have from the three to the seven, which explains the 10. That's a lot of tubes to get there.

Ben Felix: I agree.

Cameron Passmore: Do you know what I mean?

Mark McGrath: It’s got to be a lot better than expected to see a repeat of historical performance.

Ben Felix: Yeah. I agree. The unexpected portion of returns going forward has to be a lot higher than it was in the past, for future returns to be similar to past returns. Yeah.

Mark McGrath: Which can only be explained by surprises, essentially.

Ben Felix: I agree. Yeah.

Mark McGrath: Right? Which is the hilarious part of all of this, is that the only way to repeat this is to have things that people don't see coming technically, right?

Ben Felix: Correct, which was what has happened. Throughout history, the US has continuously been surprisingly amazing, but it has to continue doing that. We see that everyone knows how amazing it is now. We see that in US stock prices. That things have to be that much better going forward. If we take the 2% out of the historical return over that period, 1920 to 2020, netting up to 2% of unexpected return gets us to 5.28% real annualized over that period. Now, that number is a lot closer to pre-1950 US returns. It's also a lot closer to global returns, which we'll talk more about in a second. I do want to be clear that I'm not suggesting that we just throw out US historical returns. I think eliminating outliers is about as foolish as focusing solely on them. Maybe not quite as foolish. Still, I think it would be a mistake to just say, well, we don't like what the US data shows. We're going to ignore that.

An alternative approach is to broaden the scope. Look at more data outside of the US. Focusing on this one outlier in the best period, I don't think makes sense. We know that US stock returns have been high enough to be deemed a puzzle. There's this well-known thing in academia called the equity premium puzzle. It's basically like stocks returns in the US have been too high for the amount of risk and batches have taken for owning them. One of the ways that some researchers have tried to address the equity premium puzzle is looking at global stocks. We know the US has been an outlier, so is there an equity risk premium puzzle outside the US, or globally?

If we look at global stock returns from 1900 to 2023, excluding the US market, real returns have been 4.35% annualized in US dollars. Or 5.16% if we include the US market. Again, that number, 5.16% is pretty close to the 5.28% if we net out the unexpected portion of the return from 1922 to 2020. Then there's the Scott Cederburg research where they look at 38 developed markets with data for some countries going back to 1890. Then they used block bootstrap to simulate returns over a 30-year period. That gives them a range of returns, but if we just take the median of their bootstraps, the median annualized return for international stocks was 5.28%. For domestic stocks, it was 4.78% in real terms. 

Again, similar to that 5% real range. Now that 10% return that we're addressing in this segment, remember that's roughly equivalent to a 7% real return. That 7% is about 2% higher than unbiased estimates of US expected returns. That comes from the Binsbergen paper that we talked about. It's about 2% higher than US equity returns before 1950. It's about 2% higher than global stock returns for the period going back to 1890 through 2023. I think, assuming that the best historical period for the best performing stock market, assuming that's going to persist in the future and basing your financial planning on that, especially when valuations in the US market are suggesting a 3% real return expectation, I think that's crazy. I think it's ridiculous.

I think the people who are repeatedly spouting this information and who don't back down when you present information like this, I think they need to learn a little bit more about market history and valuation theory. The way we do this, because we have to do this at PWL, we give people financial planning advice, so we need to have expected return assumptions. We take the global historical return from 1900 through 2023. We net out the return over that period from valuation changes, and then we account for current valuations using the earnings yield for the different markets that we're looking at, which is US, Canada, and international and emerging markets.

Then we combine all that together, and that gives us a real expected return for a globally diversified portfolio with a Canadian overweight of 4.62% real. Or, if we apply our 2.5% inflation expectation, that's a 7.24% nominal expected return, which is a lot different from 10%, but I think it's a much more reasonable estimate.

Mark McGrath: The other thing, I think, investors fail to remember, or understand is that it's actually really difficult to just capture the market return as an investor. We're talking about index level performance over certain periods. Any of these are maybe near zero now for do-it-yourself investors using broad market ETFs. But humans are still humans, and they're subject to all sorts of biases and behavioural errors.

As an individual, unless you're incredibly stoic and have gone through multiple bear markets and know exactly how you're going to react to adversity in the market, to assume that you are going to capture the return of that market, even if it is 10%. I think a discount needs to be applied there, or at least some buffer to the assumptions, because investors notoriously and advisors are subject to biases, too, but people have difficulty capturing returns. It's very easy to observe these returns in hindsight and just plot it on a graph. It's much more difficult to capture those returns live in your portfolio.

Cameron Passmore: It's interesting you mentioned being a stoic. That's a big message in Scott Galloway's book, where we have Scott coming up in a few weeks on the pod. But that is a huge part of his book, is to really be a stoic about investing.

Mark McGrath: Mm-hmm. Yeah, absolutely.

Ben Felix: It's an important point that you've got fees, taxes, and there's a behaviour gap who’s like, if you look at the data, it's 1% or higher. One other thing I wanted to mention, because I see this come up a lot when I have discussions about this online, people say like, “Well, why are you looking at data for a 124-year period? I'm not going to be investing for 124 years.” That's not the point. You don't have to live for a 124 years for the return over that period to be relevant to you. The idea is that a large sample of data gives us a more unbiased estimate of the expected return. To illustrate that, I mean, I think, well, one of the data points we mentioned does this explicitly, but if we took the data that I've mentioned for that 1900-2023 period, if we split that up into 30, or 50-year chunks and just looked at rolling 30-year, or rolling 50-year periods and then took the average of the returns over all those periods, it would be pretty similar to the full period return. I've played with that. It's usually pretty similar.

Then even more explicitly, the Scott Cederburg research is explicitly looking at 30-year bootstrap samples, and we're looking at the median 30-year compound return. It's a funny thing where people want to discount the historical data, because their time horizon doesn't match the horizon of the historical data, but I think that that completely misses the point of why we care about long-term data. The idea is that it gives us a more unbiased estimate of what expected returns are over any period.

Mark McGrath: The other thing I hear a lot of is that the data pre – I don't know what date you want to pick, but pre-1930 isn't good. There just wasn't a lot of data, and especially prior to the 1900s. I know you guys have gone back with one single French company, it's the late 1600s, and it's one sample, sure. But one of the arguments there is, well, the data pre-this period and pick a starting date to cherry pick from, there's not enough data, it's not good, we can't trust it. The 1950 period onwards is much more reliable, because we had better data, it's more accurate, and there's more of it. I don't know if you have opinions on that. I don't know enough about it, but it's a common complaint I hear.

Ben Felix: Yeah. We asked Scott Cederberg about that when he was on, and his answer was basically, if you look at the characteristics of the return experiences over the historical periods, you can split it up by pre, or post-whatever time period. What their observation was, was that the things like, drawdowns, and recoveries, and volatility, and average returns, all that stuff, are relatively stable over time. Stuff changes. The world changes, technology changes, and all that stuff, but it's like what you said earlier, Mark, the people are ultimately what are driving asset prices.

That behaviour, the asset pricing, seem to be pretty consistent over time, because the characteristics of returns are pretty similar. We could say that the quality of the data in the earlier periods is bad, but it looked a heck of a lot like the data in the later periods. Other than the fact that US valuations have increased, driven their stock returns up. But if you look at other characteristics of the returns, they've been pretty consistent over time. The idea that the quality was poor back then doesn't seem to hold a whole lot of water.

I think if we saw drastically different volatilities, or drawdowns, or some other characteristic, then we would have to seriously consider whether those data are useful. But the consistency over time, I think, should give us some level of confidence that the historical data are pretty – at least good representations of how assets are priced over time.

Mark McGrath: That's interesting. There's something you said earlier, and I just want to make sure I understood it correctly. Even after adjusting for the unexpected returns in the US, the adjusted returns of the US were still marginally higher on a real basis than the returns of global stocks in those 38 developed countries. Is that right?

Ben Felix: Yes. We took the return from 1920 through 2020, which gave us 5.28%. We netted out the 2% return. It's a bit of a different time period, though, because then we have 1900 through 2023, the global X US return was 4.35%.

Mark McGrath: Okay. Does the unlucky events from certain countries drag that down? You're comparing a very lucky situation with the US, and basically, them avoiding certain catastrophes that other countries did face, but you had catastrophes in Germany and Japan with their markets in China, and that must, I'm assuming, bring down that historical average. Comparing a very single, very lucky market to 38 developed nations in aggregate, where some of those who had high weights in the global markets experienced really, really bad outcomes, drags that average down as well. Because I can just see listeners going, well, even then the US marginally outperformed. But a lot of that, I think, is because the US got lucky and other countries didn't, right?

Ben Felix: For sure. Japan, I don't know if it's the best counter example, but Japan is always the counter example to the US’s success, because there was a time when Japan made up a huge portion of global capital market, as the US does now, and it didn't work out so great, after the 1990, Japan was massive and economically powerful. Then, it since then has struggled. Its capital market has struggled for sure. Yeah. It's not a guarantee that the US will continue to have the good fortune that it's had historically. Yeah, I think that's a great point, Mark. In that sample of non-US countries that have a lower realized return, there's a lot of stuff that just didn't work out so great.

Cameron Passmore: Great conversation. You guys good to move on?

Mark McGrath: Sure.

Cameron Passmore: Okay, so Ben and I had a chance to chat with Nicolas Bérubé, about his recently released book From Zero to Millionaire: A Simple and Stress-Free Way to Invest in the Stock Market. Nicolas is an award-winning financial writer and reporter with La Presse, which is one of the largest news organizations in Canada, and he joined us from Montreal. Here's our conversation with Nicolas.

***

Cameron Passmore: Nicolas Bérubé, it's great to welcome you to the Rational Reminder Podcast.

Nicolas Bérubé: Thank you for having me.

Cameron Passmore: Hey, great to see you and congratulations on your book.

Nicolas Bérubé: Thank you.

Cameron Passmore: Let's dive right in. What did you learn from your failed options trade before you started studying markets?

Nicolas Bérubé: Well, I learned that losing a good chunk of your money very quickly is not fun at all. When I started investing in 2010, my big genius idea was that the S&P was going up, up, up, up, way, way, way too quickly. I was living in LA at the time. The fact that around me, a lot of people were losing their jobs, a lot of people were losing their house, so it made no sense to me that the market was so “healthy.”

I went online and what do you know? I found a lot of people who taught the exact same thing. I had confirmation bias really, really quickly in my investing journey. As I say in the book, I lost about $10,000 in a matter of months, because I bought put options on the S&P. What did I learn? I learned that my gut feeling was absolutely not to be followed at all in investing. Really, that drove the point to me that the market doesn't really care how you feel. It doesn't care about your macro views. It doesn't care about what you think the price of oil is going to be a year from now. The human brain really is not well equipped to be an investor. You can read about it, but once you experience it, you really tend to not forget it.

Ben Felix: Hmm. You also tell the story in the book of a conversation with a friend of yours in a cafe, I think, and he was going through similar thoughts about the market crashing and all this stuff. What do you think people like that and your previous self can do to become optimists, which I think you've accomplished through your research on this?

Nicolas Bérubé: Yeah, it's really hard. First of all, being slapped sober by the market helps, because there's no way you can hide, right? The numbers don't lie. That was helpful. Myself, I was never quite an ideologue. I was never against the Fed. Or, really, I had a strong opinion held loosely approach. The fact that I lost money was a wake-up call, but it pushed me to get more and better data.

One of the first book I read after that was A Random Walk Down Wall Street that Burton Malkiel that you guys invited on your show. That book really made an impression on me. The systematic approach to investing, the way forecasting is pointless, and you don't even need to know what the forecast is for the next year, or two, or anything really. That really was helpful. There's another book. I don't think it get mentioned that often. It's a book called Everyone Believes It; Most Will Be Wrong by Morgan Housel, who was on your show not too long ago. That book is a collection of his essays for the Motley Fool. It was published, I think, in 2011. You can download it on Amazon. It's an eBook. It's a dollar on Amazon, so probably the best dollar you'll ever spend.

Really, what comes across in these essays is an optimist, and is a way of looking at the world through long-term view. Across many data points for human success or for health, for education, for wealth, throughout history, we're on a good trend. It's hard to notice that on our day-to-day life. Morgan has a way to explain that. I think it's very, very compelling.

The last thing I would say is that you need role models. I mean, I don't think we mentioned it a lot. Imagine if Warren Buffett and Charlie Munger and Jack Bogle, imagine if these people were pessimists. Imagine if every time they opened their mouth, it was like, “Oh, everything is so terrible. Inflation is going to eat you alive.” I mean, how would we go about investing our pay check every week? I mean, it's hard to quantify, but there's something. So, be careful with the role models you choose. You tend to keep them for a long time. Be very, very careful. That was helpful for me.

Cameron Passmore: You had the chance to meet Mohnish Pabrai. Perhaps, tell us who that is and what did you learn from that meeting about investing?

Nicolas Bérubé: Yeah, Mohnish Pabrai is Indo-American investor. He manages hundreds of millions of dollars. He's been very, very successful in the market. In, I think it was 2013 when I was still in LA, I contacted him and I had the opportunity to meet him at his office with a bunch of UCLA students. He was super kind. He talked to us about his way of investing. One of the big takeaways for me was his calm. I don't know if many people know that story, but in 2008, the fund that Mohnish Pabrai manages lost 67% of its value in the 2008 crash.

A few years after that, his wife was looking at this old annual report. She saw that figure, 67%. She went, “Wow, I had no idea.” She said, “I had no idea, because you didn't change in 2008. You were not angry, you were not stressed, you were not different from the year before that and the year after.” That made a big impression on me. I mean, wow. We like to talk about volatility. I think sometimes these words are a bit too polite, because when you're down 67%, I mean, it's “volatility.” Yes, of course. It can be more than just a little word like that. It made a big impression on me.

Another thing Mohnish Pabrai talked to us about is about stacking the odds in your favour. The way he meant it was he's buying a few bets. Even if some of those bets don't work, it's not matter, because he's not betting the company on every bet. As index investors, we don't really make bets like that. If you're going to buy the whole market and even internationally, you'll have part of your investments that will do well and parts that won't do well. In a way, this is what we do. We stack the odds in our favour and just accept that at some point in time, some investments will work better than others. That's just part of the cycle. It's nothing to worry about.

The last thing Mohnish Pabrai showed us in his office, he has a little room where there's a bed, so he can take a nap every afternoon. I remember being very jealous of that, because I'm not a napper. I thought it was cool that he's like, “Yeah, yeah. I take a nap every afternoon. I think way more clearly after a good nap.” That was cool. 

Ben Felix: That is cool. Can you talk about how you would describe investing in the stock market being different from playing in the stock market?

Nicolas Bérubé: Yeah, as I say in the book, I hate the word playing in the market. I know sometimes people mean well when they say that, is just natural way to approach the market. It comes from this casino mentality that most people who have not spent a lot of time thinking about the market have, it's the default mode where if you want to do well, you have to find the next Nvidia, or the next Apple, or the next Google. That's what, I think, is probably the default mode about how people think about the market.

The main difference, I would say, is the time horizon. If you want to stack the odds in your favour, you have to have a long time horizon. That's mean, thinking in decades, instead of years. To me, that's the big difference. I would say, the other difference would be a lot of people want to see a quick gain in the market. Even some people who should know better. I get email from readers all the time like, “Oh, I did 30% since Christmas, or these kind of things,” and people get excited. I never really know what to answer, because you don't want to rain on their parade or anything, right? They're not lying to you.

At the same time, when you understand that the real growth in the market doesn't come from one month, or one year, or even five or 10 years. It comes from a lifetime of investing. That's hard for people to understand. It's not a game of who's ahead after the mile four of the marathon, right? If you crash in the middle of the marathon, it won't matter if you were in front for the first few miles. Understanding compounding and understanding that your gains will come from compounding, and compounding doesn't care whether you do 60%, or 30% this year, or 10% this year. It doesn't matter. It's just staying the course for a very long time, stacks the odds in your favour. That's what I would say.

Cameron Passmore: Yeah. In your book, you linked that to what you called infinite vision, a tribute to Simon Sinek, of course. Perhaps, can you talk about why it's important to have that infinite vision when investing?

Nicolas Bérubé: Yeah, exactly for sure. Because sometimes readers write me, “Oh, I'm 50-years-old. I'm going to retire at 65, so I have 15 years. What should I pick? How should I invest?” I always tell people, “Wow, you're 50-years-old. You don't have 15 years left. You have 45 years left. You're an investor for all your life.” People sometimes don't see it that way. Yeah, so seeing the infinite game is basically, the only game in my mind in investing. That's why sometimes it's a misnomer when people use the word average, because if you're going to buy an index, you're going to get the average return. Average is not super exciting. Who wants to be average? Nobody wants to be an average golfer, or average student.

What people miss sometimes is average over five, 10, 20, 25 years, you're not average anymore. You're in the top 10, or 5% of investors, just because of compounding. That's hard for people to understand. They want to see progress quickly when we get a good year in the market, readers, they say, “Oh, I followed your advice. I indexed my investment and I had a good year.” I tell them, “Well, you're excited about your investments are costlier to buy now. It's not in your fabrics, like showing up at the supermarket and everything is expensive.” People are not happy about that. In investing for some reason, they're super happy. The notion of average is, I think, it's interesting and it's fascinating how it really works.

Ben Felix: If a reader comes to you and they maybe don't know about index funds yet, how do you explain the benefits of index investing to them?

Nicolas Bérubé: Well, the first factor to me is simplicity. There's no guesswork involved. You don't have to look around corners, or anything like that. You just buy the thing and forget about it. I tell people, I spent less than an hour a year managing my investments. That's including the time to brew a good pot of coffee, so it's not a really full hour. Yeah, the simplicity is very hard to beat. Also, one of the big data points, and I know you guys talk about this a lot, it's that if you look at the stock market, the growth of the stock market comes from the studies I've seen, from 1% to 4% of publicly traded companies.

The day I understood that, it's hard to forget it, right? 1% to 4%. The cherry on the cake is that it's never the same 1% to 4% every decade. The chances that you'll get those companies, it's not great. If you buy the whole haystack, it removes a lot of the guesswork and it removes a lot of mental energy. You'll have the Googles and the NVIDIA of the world, they'll drift to your portfolio, whether you pay attention to it or not.

Cameron Passmore: Exactly. How big of an obstacle do you think behaviour is to investment outcomes? 

Nicolas Bérubé: To me, behaviour is the number one obstacle. I mean, if you don't have behaviour, you don't have anything really. It's as simple as that. Jack Bogle used to talk about the enemy and the mirror. I use that analogy a lot, because people think that their enemy is the next crash, or the next recession is their enemy. They don't realize that their own worst enemy in investing. It's hard. I mean, not many people are willing to admit that.

I have a friend, who a few years ago was telling me about his performance in the market and he was choosing his companies very, very carefully, reading annual reports on the weekend. I tell him, well, go online, go on portfolio visualizer, and look if you’re beating the market. He did that and he hadn't. He changed all his portfolio for an index portfolio. Very few people can do that. A lot of people gets passionate about their dividend, or their choice, or on their view of the world. But if you're dispassionate, then you can do that. It's super rewarding.

Also, I think doing nothing is hard. I mean, a portfolio manager told me recently about a client of his who has a sailboat. The client was like, “Look, if I'm on my sailboat and there's a storm coming, I'm not just sitting there doing nothing. I'm going to actively try to protect myself. I'm going to find a harbour. I'm going to do something.” In investing, it's so intuitive to try to do that. It's so rewarding. It's like, we're programmed as humans to do that. To tell someone, no, there's a storm coming. You don't know whether it's a big, or a small storm, or even there's a storm at all. If there's a storm, you don't know when it's going to end. Yeah, it's fascinating to see that it never changes. If you're able to master that and master your behaviour, you're more than halfway there.

Ben Felix: I've definitely had that benchmarking conversation, where someone says like, “Yeah, I've beaten the market.” It's like, okay, well, let's benchmark your returns. Then they go on actually look compared to an index. Most of the time, they've underperformed. But people don't do that. They don't benchmark the returns, so they just assume if it went up that they've done well. On the topic of investor behaviour, what effect do you think the financial media has on investors?

Nicolas Bérubé: Yeah. As a journalist, I can tell it's not great. I mean, the media is always after the shiny new thing, whether the market is up or down. I mean, when the market is down, it's all about five ideas to protect your money, or three stocks that did well last year. The rear-view mirror effect is always there. I always tell people, if following the news made you rich, I mean, journalists would be multi-millionaires. I'm here to tell you that they're not. On aggregate, their returns are not super exciting. It's anecdotal.

I think, we need to have a healthy, sceptical look about what we read in the daily paper. It's the nature of the media to go after what's shocking and surprising. I mean, and also, negative. I mean, we all know that if there's a 8% drop in the market, I mean, it's going to be front page news the next day. Sometimes when the market goes up by 8% the next week, it's barely noticed. I think people get the idea. If you're a follower of the news, you don't really pay attention. You get the idea that the stock market is this big, big, big risky endeavour that's really very few people understand. You should really, really don't do anything with it. Let alone, put your money into it.

Yeah, so I think it's not super, super great. Obviously, there are exceptions. I think it's John Galton, the researcher who said that if newspaper came out every 50 years, instead of every day, all the news would be super positive, because the long-term trends are about people getting wealthier, healthier, living longer lives. The nature of the news cycle is not super helpful for investors, unfortunately. Yeah.

Ben Felix: As a journalist, do you get any editorial pressure to write about more short-term stuff?

Nicolas Bérubé: Not really. Well, my beat is a bit different. I have a weekly column on Sundays called – it's in French. It's called Money and Happiness in French. I really have no editorial pressure at all. I think it's just the nature. Some people get excited about what the market does this week and today and who bought what and who's selling what. Ideas in market, there's people interested in that and that's okay. Also, it's interesting to see the GDP.

As soon as we step into projections, or predictions, I'm completely out. I'm just not interested. Just for fun, at the end of the year, I do a little review of the predictions and oh, my God, it's almost to the point, I mean, they bottom-tick every trend. It's almost scary. I mean, at the beginning of 2023, people wouldn't touch tech stocks with a 10-foot pole. What do you know? In 2023, it did incredibly well. The same thing with gold. Some people are interested and there's a market for that, but I just tend to drift towards things that are more long-term and doesn't really change from day-to-day.

Cameron Passmore: Earlier, you mentioned that you manage your portfolio and make a pot of coffee in about an hour a year. Do you have any thoughts about how investors should decide between do it yourself like you, robo advisors, or delegating to a professional?

Nicolas Bérubé: Yeah, I think it boils down, again, to behaviour. I mean, if you behave well around investment, the DIY route is probably good for you, if you have an interest in that. You can tell with a five-minute conversation, usually if someone is interested. If someone has the right behaviour, but maybe no interest at all, I sometimes tell them, just to go with a robo advisor and set up automatic transfer and forget about it.

If you want someone to manage your investments, it's not super easy in Canada, because of course, the big banks are usually, they will build you a portfolio of actively managed mutual funds till in 2024. If you don't have the minimum amount to invest, usually it's $500,000. Many good firms won't take you on as a client. I tell people, they should maybe go the robo advisor route and see if it works for them, and eventually, find a financial advisor who will manage their money for them. That's usually how it works for me.

I used to be more pro, do it yourself. It's so simple. But I changed my tune a little bit on that. It's easy when you do it yourself and you've found joy in that, or if you find it interesting to follow that, but it's hard for me to tell a 57-year-old, “Manage your own money. You'll save 1% a year,” or anything like that. I mean, it's a big leap of faith. I mean, people have so many questions.

I think you had Rob Carrick of The Globe and Mail on your podcast, and he mentioned something along those lines like, “I get so many questions.” It's the same thing for me. I could do that all day long, answer email, readers about what should I do and what does this mean? What would you do if you were in my shoes? It's just a never-ending stream of questions. That gives me pause. Not many people are comfortable. Even if it's simple, as you know it's simple, it doesn't mean easy.

Ben Felix: Yeah, super interesting perspective. That's not the first time that I've heard that from somebody who found DIY investing themselves and figured it out and thought it was easy and loved doing it and built their portfolio, and then started writing about it and interacting with other people and telling them how easy it is. Then once they see all the questions start coming in from people and the things that people get stuck on and where they struggle, you come to the realization that, like you said, even though it's simple, that does not make it easy. People get hung up on stuff that you just can't even imagine would be a hangup if you figured it out yourself, but actually figuring it out is not so easy.

Nicolas Bérubé: Yeah. If the person, is young is an 18-year-old, you say, “Yeah, sure. Just open a robo advisor and get familiar with the market, the up and down.” I opened an account for my son. He's 11-years-old. It's in my name. But he's getting familiar with the ups and downs of the market, so he won't be freaked out in the future about that. A person who starts later in life and has a bit of money accumulated, wow, I wouldn't recommend them to just go about investing it themselves, even if it's simple. I mean, they will maybe freak out in a market storm. There's so many things that could go wrong.

Ben Felix: Yeah, it's totally true. I agree, robo advisors are a great solution for a lot of people, but I see posts on Reddit all the time about Wealthsimple users who are saying like, “My Wealthsimple portfolio is down 2%. Should I sell it?”

Nicolas Bérubé: Yeah. It's a never-ending stream of questions. That's why, I mean, resources like you guys, like Andrew Hallam who was on your show not too long ago. I mean, all these analyses, and it's super helpful, because you just need an index card, basically, with what you need to do to invest well. If it were that easy, I mean, it would be known by now, but it's super not easy at all. All the fear and the uncertainty is just too much for the human brain.

Ben Felix: Someone made this comment before it. I didn't come up with this, but I have a book behind me somewhere called The One-Page Financial Plan, and it's a 300-page book.

Nicolas Bérubé: Yeah, that sounds about right.

Cameron Passmore: That is funny.

Ben Felix: Okay, on the topic of delegating to a professional, someone decides that they do want to do that, you mentioned that in Canada, a lot of the time they're going to put you in to actively manage funds. What do you think people should be looking for, or avoiding if they do seek out professional advice?

Nicolas Bérubé: I think you need to go with low-fee index funds. I know historically, they were hard to find in that space, but since, I think, 2022, there are some index mutual funds that are available in Series F in Canada. I think they have something like, 20 basis points, or around that. People can go ask their financial advisors about that. They can ask about the fee they're paying. I think if they're paying 2%, it's way too much. To me, that's a red flag. You shouldn't be paying 2% on your investments. Because think about it, if you're paying 2% and inflation is 2% or 3%, you're already at 5%. 

Okay, so if you make 5% in a year, you're basically sitting still, not increasing your wealth. That's hard for people to understand. There's a big, big opportunity cost there if you're young and you have many, many decades ahead of you, it can mean having half of the money that you would normally have if the fees were low. That will be the main thing I wouldn't tell them.

Ben Felix: Yeah. Fees are hard. Right now, firms are required to disclose fees paid for advice to the firm, but not the mutual fund MERs, like in statements were required to disclose that. Full cost disclosure is coming, but it's not here yet. I had an interaction on Twitter recently, where somebody knew the fee that they are paying to the firm, to a fee-based firm for advice, but they had no idea what they were paying on the funds that they own. It ended up being a little bit less than 1% that they're paying for advice and they thought that was their fee, but they were paying an additional, I don’t know what it was, 1.5%, or 1.2% or something for the fund that they own. It ends up being way more expensive. Yeah. People have to understand, there are two layers, at least, of fees for even a fee-based firm. You've got to ask, “What am I paying to you for advice? What are the fees in the funds that you're using in my portfolio?”

Nicolas Bérubé: Exactly. Yeah.

Cameron Passmore: Nicolas, you interact, as you said, with a lot of your readers. What do you think investors struggle with the most?

Nicolas Bérubé: I would say, a lot of it is recency bias. If an area of the market has been on a tear and it's super well-performed over the last year, people are excited about that. If something hasn't well performed there, they think there's something wrong with it. I keep getting asked about the S&P 500 all the time. But what I keep telling people is lie, 10 or 15 years ago, you wouldn't have asked me about the S&P 500, because it was super unpopular. After the first decade of this century, the S&P, basically, you couldn't give it away, because people were tired of crashes after crashes. The US was this country that was on the verge of a massive depression and people were not interested. Yeah, recency bias is super strong.

Also, what I realized is that people want to see progress. Okay, so if there's a year without progress, it's like, the markets are broken, or the way to invest is broken. It's almost like a car that only goes backwards. They're like, “There's something wrong with that car. Fix it.” I'm like, “No, it's normal. You don't need to fix it. It's just, this is what markets do. Usually they go up, but sometimes, they go down. This year or these number of years, they've been going down.” That's hard for people to understand. They want to open the hood and do something. That's super hard to understand and viscerally to just do nothing, it's not satisfying, but that's what I try to tell people.

Cameron Passmore: Awesome. The book is From Zero to Millionaire. Great book. Nicolas, great to have you join us.

Nicolas Bérubé: Thank you. It's been a pleasure.

***

Cameron Passmore: Mark, pretty good episode, I'd say. Did you have fun?

Mark McGrath: That was great. It's so cool. I still can't believe I'm on this pod –

Cameron Passmore: It’s your first after show.

Mark McGrath: It's like, I was explaining this to my wife yesterday. I was like, “This is wild. I've been listening to this podcast since the very first episode went live.” It's been what? Six years now, five and a half years since you guys have started this podcast.

Cameron Passmore: Six in August.

Mark McGrath: Yeah. I was working somewhere else, and just learning more about how I was going to use, or deliver financial advice. Obviously, I've talked about this before, but you guys were a huge influence on me. Fast forward to now, and I'm basically sitting around with you guys on the podcast, I still can't believe it's happened. It's super cool.

Cameron Passmore: Yeah. I think this evolution going to three of us is a cool evolution. I like this conversation. It was good today. We enjoy feedback from listeners, of course. Today's topic was good.

Mark McGrath: I enjoyed it, because I only get to see this after the fact, right? I don't know how much of it's edited and how you guys do it live in these conversations. Because when we do the Mark to Market segment, I just pop in, do my thing, pop out, right? It's cool to get a bit of an inside baseball on the live recording.

Cameron Passmore: You guys talk about how you see the planning topics coming into the pod?

Mark McGrath: Yeah. I think we want to include more financial planning topics, specifically for Canadian audience. You guys have global listeners. I don't know how many, probably thousands if not tens of thousands. That's awesome. What we do in our day-to-day life for our clients and the people that we interact with generally is focused on Canadians. That's what the idea behind the Mark to Market segment was, right? Let's bring it back home a little bit, while still having relevant topics throughout the rest of the podcast for the global audience.

I think what we've talked about is expanding the scope of that segment of the podcast that we're going to talk a little bit more about Canadian planning stuff. Less of it just me riffing on a topic for 10 or 15 minutes and more of a dialogue, because you guys obviously have been around the industry for a long time. The stuff that I'm talking about to the audience, you guys know well enough as well. I think there is an opportunity to have more in-depth three-way conversations about those topics.

Cameron Passmore: I think we'll keep that cadence of one week us, one week guest, and the opposite us episodes, we’ll flip between a deep dive with Ben and financial planning topics. Nothing is really set in stone as people know. Ben, what do you think?

Ben Felix: Some people might hear that we're going to talk more about Canadian planning topics and get nervous that it's not going to be interesting, or relevant. But something that I've learned doing Rational Reminder, but also doing Money Scope is that there are generally analogies to other countries. If we talk about something that we think is super niche in Canadian, someone in Australia, or in the United States will say, “Oh, that's like this thing in the US,” and all of the general concepts that we talk about.

I mean, a good example is when Scott Cederburg came on and talked about his paper on optimal funding of pre and post-tax retirement savings accounts. They looked at it from a US perspective, but it is completely relevant to anybody anywhere in a country that has pre and post-tax retirement savings accounts. I think that, well, we will definitely talk more about Canadian planning topics, because that's something we've gotten away from. We used to try and do, Cameron, for a while, we were trying to do an investment topic and a planning topic in every episode, which was intense, so that's probably why we stopped doing it.

Yeah, I think we can do planning topics. Even though it may be Canadian, they'll still be relevant to listeners wherever they are. I think it's a great idea. I’m a big fan of the evolution of having Mark on. I think that the conversation that we just did earlier before Nicolas, I thought it was great. I love having you guys chiming in and making contributions. Hopefully, we can do more like that.

Cameron Passmore: You guys have any content recommendations, anything you listen to on the podcast, or streaming show, or something lately?

Mark McGrath: I don't have time for that.

Ben Felix: I don't either, man. Cameron, I don't know where you got some time relation.

Cameron Passmore: I don't have young kids like you guys. That's why.

Mark McGrath: Well, that's just it, right? I haven't watched a movie with my wife in probably two years, just because life gets so crazy, right?

Cameron Passmore: We just binged the new season of Somebody Feed Phil, you know, Phil Rosenthal, from one of the creators of Everybody Loves Raymond. Oh, such a good show, if you want to check out something about food and travel, and he's hilarious.

Mark McGrath: Where is it? Netflix?

Cameron Passmore: Netflix. Yeah, it's on Netflix. Speaking of food, Lisa and I just went out the weekend in New York City. This is one of my dreams to go to. I'm a huge fan of Danny Myer’s. Listeners know and the book, Setting the Table. I had a chance to go to one of his flagship restaurants, Gramercy Tavern, which was just exactly what you'd expect. Sensational service, food, everything was fantastic. Highly, highly recommend it. Also, had a chance to check out Shake Shack, which is also part of his creation, which was pretty cool. Great trip.

Mark McGrath: Shake Shack is more fast food, is it not? I don't want to say fast food, but it's a quicker in and out experience. It's not a sit-down restaurant, right?

Cameron Passmore: Correct.

Mark McGrath: Do we have that in Canada? I think we do now.

Cameron Passmore: Just one in Toronto, but people can correct this.

Mark McGrath: I had it in Chicago 10, no, maybe eight years ago. It was when it was like a brand-new thing. I just wasn't impressed. All my friends were big foodies. They just like, for anybody who knows me, I'm notorious for terrible food takes. I don't think I have terrible food takes. I think my food takes are pristine, thank you very much. Every time I say like, “Ah, Shake Shack wasn't that great.” They're like, “What are you talking about? It's amazing.” I just don't get it, but I haven't had it since, so maybe I need to just go back and try it again.

Cameron Passmore: It was pretty good.

Ben Felix: I had it once in Chicago, too, but I don't remember how it was, so it wasn't memorable.

Cameron Passmore: We have no recent reviews to read this week.

Ben Felix: That hasn't happened in a while.

Cameron Passmore: That has not happened. I've heard from no one, except people selling me stuff on LinkedIn. So annoying. So annoying. LinkedIn ads and people trying to pitch us on products to sell and finding us guests and all kinds of stuff. 24 in 24 continues, of course. We have 110 active readers. Get this, over 7,700 books have been read since the challenge started just over two years ago.

Mark McGrath: Wow. Is that individual, like different books, or is that the total number of books read by –

Cameron Passmore: Total number of books consumed, yeah. So far this year, just under 500 books so far this year. That's continuing.

Mark McGrath: Very cool.

Cameron Passmore: Also, kicking around the idea of having another round of meetups. Ottawa, Montreal is easy. Possibly Toronto, possibly Vancouver, Mark.

Mark McGrath: What's it going to say? Where's the West Coast representation?

Cameron Passmore: Now we can have the representation. If you can – if there's demand, I'll come out. Ben, we'll see, but I'm willing to come out.

Ben Felix: I might be going to BC in June anyway, so.

Cameron Passmore: Oh, there you go.

Mark McGrath: To the island?

Ben Felix: Yeah.

Mark McGrath: What's the occasion? Just checking out the old stomping grounds?

Ben Felix: The high school that I went to has been doing an alumni basketball game. I went and played in that last year, and they're probably going to do it again this year. It's also the 100th year anniversary for the high school that I went to, which maybe wouldn't seem like a big deal, but my dad also went there. Then he spent most of his career teaching there. We have a lot of family connection to the school. They would do the alumni basketball game around that same weekend where they're having that celebration. There's a good chance that I'll go for that.

Mark McGrath: Do you just dominate or what? Was there anybody that had your basketball skills in high school? Do they get upset when you show up for these alumni games who are like, “Oh, Ben’s here again. We’re going to get smoked.”

Ben Felix: No. What happened is that I played high school basketball there, and then I went and got a scholarship to play NCAA basketball and all that stuff. The coach that had coached me there after I'd left was able to build a very, very good basketball program. I was the first person, as far as I know, to go from that school to go and play high-level university basketball. Since then, there's a ton of kids that have gone from Brentwood to go on to play high-level university basketball. It's actually a really, really competitive basketball.

Cameron Passmore: Speaking of high-level basketball, you're not going to brag about the recent victory that your team had?

Ben Felix: I played in a men's league basketball league. It's over now, but we finished eighth out of 16 teams in the regular season. The league gave us the option of playing in the playoffs for the top division, or the second division. I wanted to play in the top division, but everybody else on my team wanted to play in the second division. We were basically the top seed team in the second division for this league, and we just cleaned out from playoffs. We won. We won the second division championship for my men's league basketball.

Mark McGrath: Nice. You get any medal?

Ben Felix: No medal, but we got to take a picture with the trophy. We got a free meal ticket for the cafe at Algonquin College.

Cameron Passmore: Right on.

Mark McGrath: Not bad. It's all right. Not bad. Yeah, that's good. Good for you. Congrats.

Ben Felix: Yeah. Thanks.

Cameron Passmore: We started the discussion a couple of weeks ago about possibly getting vests. We're still working on suppliers for that. It's a lot harder than we thought. I mean, we're big fans of Patagonia, but –

Ben Felix: They're not fans of us.

Cameron Passmore: They're not fans of us. I'm rapping today, but they don't want us to rep them.

Ben Felix: You better take that off. You're going to get in trouble.

Cameron Passmore: Yeah. So, if anyone has suggestions for other brands?

Ben Felix: I feel like, I may have just made us look bad. Patagonia is –

Mark McGrath: They should explain that.

Ben Felix: They don't just like PWL specifically, but they're very particular about group orders. If you want to order as a company to get swag, corporate swag through Patagonia, you have to go through a pretty substantial application process. They want to see things, like your dedication to sustainability, which we’re not actively unsustainable. But as a financial company other than being able to use ESG investment products, which we do for some clients, we don't have a whole lot of stuff on our website about our approach to minimizing our ecological footprint.

We work from home. I think if we went through some evaluation process, we probably look pretty good on sustainability metrics, but we haven't done anything formal, and Patagonia wants to see that, so they shut us down. We're not overtly sustainable enough to rep Patagonia formally.

Cameron Passmore: Yeah. Hardly anybody comes to the office. We don't do a lot of corporate travel, so I think we're pretty good. We photocopy virtually nothing anymore. Anyways –

Mark McGrath: Yeah, that's true.

Cameron Passmore: So, we're looking for ideas. What else are you guys thinking about? Anything?

Mark McGrath: Did you guys see that LinkedIn video of the AI robot? I don't know what the detail is. It’s called Figure 1, I think. It's a collaboration with OpenAI, and I don't know who the robotics company is, but I believe the robot itself is named Figure 1. Ben has seen it. Cameron, if you haven't seen it, I'll send it to you. But the ability for it to interact and take instructions and have a conversation, and the dexterity that it has, and the problem solving that it has, it completely blew my mind. I just watched it yesterday. I watched it five or six times, because I can't believe that I'm living through this era of human technology.

Ben, you've got young kids. I've got young kids. My first thought was, I had to explain to my son that I didn't even grow up with the Internet until I was 14, and he's just not going to get this, and he's growing up in the age of AI and robotics, and it's just wild to think about, right? I'll send you the video, Cameron. It completely blew my mind.

Ben Felix: Yeah, it is wild. Totally wild.

Cameron Passmore: We're at the 9/11 Memorial on the weekend. They were telling that texting wasn't really a thing, except if you pressed the number. Remember when back in the day, you had to press – because each number was –

Mark McGrath: Like, the Blackberry?

Cameron Passmore: - said to press it down.

Mark McGrath: Oh, the tech headphones. Yeah.

Cameron Passmore: That's exactly what the Nokia phones was it. It just shows you the progress.

Mark McGrath: That was pretty cool back then.

Cameron Passmore: Oh, it was a big deal.

Mark McGrath: It was advanced. Yeah.

Cameron Passmore: Next week, we have Randall Stutman here, and then we're all back together again in two weeks’ time. Okay, you guys good to roll?

Ben Felix: Good to roll.

Mark McGrath: Good.

Cameron Passmore: All right. Thanks, everybody, for listening.

Is there an error in the transcript? Let us know! Email us at info@rationalreminder.ca.

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Participate in our Community Discussion about this Episode:

https://community.rationalreminder.ca/t/episode-297-do-stocks-return-10-12-on-average-zero-to-millionaire-with-nicolas-berube-discussion-thread/28696

Books From Today’s Episode:

From Zero to Millionaire: A Simple and Stress-Free Way to Invest in the Stock Market — https://fromzerotomillionaire.com/

The Algebra of Wealth: A Simple Formula for Financial Security — https://www.amazon.com/Algebra-Wealth-Formula-Financial-Security/dp/0593714024

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing — https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393358380

Everyone Believes It; Most Will Be Wrong: Motley Thoughts on Investing and the Economy — https://www.amazon.com/Everyone-Believes-Most-Will-Wrong-ebook/dp/B00655BGBG

The One-Page Financial Plan: A Simple Way to Be Smart About Your Money — https://www.amazon.com/One-Page-Financial-Plan-Simple-Smart/dp/1591847559

Setting the Table: The Transforming Power of Hospitality in Business — https://www.amazon.com/Setting-Table-Transforming-Hospitality-Business/dp/0060742763

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/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://twitter.com/RationalRemind

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.ca

Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 

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

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/

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

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/

Mark McGrath on X — https://twitter.com/MarkMcGrathCFP

24 in 24 Reading Challenge — https://rationalreminder.ca/24in24

Nicolas Bérubé on LinkedIn — https://www.linkedin.com/in/nicolas-b%C3%A9rub%C3%A9-27b9b111b/

From Zero to Millionaire — https://fromzerotomillionaire.com/

Rob Carrick — https://www.theglobeandmail.com/authors/rob-carrick/

Andrew Hallam — https://andrewhallam.com/

Figure 01 AI Robot Video on LinkedIn — https://www.linkedin.com/feed/update/urn:li:activity:7173681028664901634/