In this episode, we unpack key tenants of investing and the quality of financial advice in Canada's banking industry. In our conversation, we present a list of lessons we have learned about investing, which has been consolidated from contributions by the Twitter community and the Rational Reminder Community. In our conversation, we discuss ways to beat the market, how narratives can impact the economy, and why timing the market is a bad investment approach. Discover why performance chasing is not a successful strategy, why incentives matter, and why economic growth is a poor predictor of investment success. Learn about the nuanced relationship between expected economic growth and stock returns, why wealth does not give you access to market-beating investments, and the effectiveness of investing in low-cost total market index funds. Finally, in our after-show segment, we delve into the quality of financial advice provided by Canada's six big banks, investment strategies, listener reviews, and much more. Gain valuable insights into navigating the complexities of investing and learn why simplicity, discipline, and skepticism towards overly complex or costly strategies are vital for financial success. Tune in now!
Key Points From This Episode:
(0:00:00) Introduction and outline of today’s topic: The Most Important Lessons in Investing.
(0:04:55) Why you cannot outsmart the markets and what it takes to beat the market.
(0:07:47) The notion that "this time is always different" during times of financial upheaval.
(0:10:45) Explore the forward-looking nature of markets and their impact on decision-making.
(0:12:08) Unpack the unreliability of market forecasts for making investment decisions.
(0:14:48) Hear why time in the market beats timing the market.
(0:16:11) Important aspects of funds and why investors should not chase portfolio performance.
(0:19:20) Learn about the role of incentives in the distribution of financial information.
(0:25:09) Common misconceptions about the link between economic growth and stock returns.
(0:27:28) We discuss the importance of good financial planning over portfolio management.
(0:30:51) Uncover the relationship between risk and expected returns in financial markets.
(0:32:33) How the risk-return relationship changes over different time horizons.
(0:34:59) Why fees and taxes matter and the nuances of permanent insurance.
(0:41:55) Find out why there is no such thing as a perfect investment strategy.
(0:44:51) Tailoring your investment portfolio to meet your goals and sticking to it.
(0:46:48) Investigate why there is no such thing as a passive investment.
(0:50:59) Understanding why wealth does not provide access to market-beating strategies.
(0:53:22) Why diversification is the only free lunch in investing.
(0:58:58) Recommendations and pitfalls to avoid when assessing investments.
(1:01:02) What the structure of a financial portfolio looks like for most people.
(1:03:11) The aftershow: the state of Canadian banks, investment advice, 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're hosted by me, Benjamin Felix and Cameron Passmore, portfolio managers at PWL Capital.
Cameron Passmore: Welcome to Episode 299. Good to see you guys. It's fun once again to be the three of us hosting the podcasts. I think the feedback has been pretty positive on this.
Ben Felix: I would say, overwhelmingly so.
Mark McGrath: I got a ton of great feedback emails from people.
Cameron Passmore: Very cool to have you back on, Mark. On today's episode, the main topic, and I'm really looking forward to this because you put a lot of work into this. The most important lessons in investing. Ben, why don't you tee this one up?
Ben Felix: Oh, sure. I did put a lot of work into it, but so did a lot of other people. I had this idea to try and take what have I learned about investing over the last, whatever, 10 or 11 years that I've been thinking about this stuff. I started writing that down, but then, I asked people on Twitter, and then I asked people in the Rational Reminder Community for them to contribute. People just like loved the idea and had a lot to say. I took all that and tried to consolidate it into a cohesive list of lessons that I think are useful for investors to know.
Cameron Passmore: That's a great list, so looking forward to going through that. I know, Mark, you get a lot to add to that conversation.
Mark McGrath: I do. The only problem is, it's so good that if everybody just learned to do exactly what Ben's going to describe, then, we'd be out of a job, wouldn't we?
Cameron Passmore: It actually could just be 20 cents as read by Ben, but we'll add in some comments. Then, we're going to go to the after-show. To kick off the after-show, we're going to jump into a topic that is certainly near and dear to our hearts being Canadians in an industry that has dominated – the financial services industry in Canada is dominated by Canada's six big banks. A regular topic in Canada is to scrutinize the quality of financial advice as given to individuals by these banks. There was a recent CBC feature that talked about that. We'll have a little bit of a roundtable on that subject in the after-show, which should be fun.
Ben Felix: There's a lot to say on that. I tweeted about it a bit and found an academic research paper on the quality of advice from banks. So yes, should be an interesting discussion.
Cameron Passmore: Cool. Plus, other subjects, of course, in the after-show.
Ben Felix: Yes. I did want to mention that I got a DM from someone on Twitter, who mentioned that their father is nearing retirement. He's got a lot saved up but doesn't know how to take that and turn it into a sustainable retirement income. He was kind of like nervous or hesitant to ask me about this on Twitter, but he wanted to know if PWL works with people in that situation. And also want to know if we work with people that live in the city that they live in. I wanted to bring it up on the podcast, because people may not realize that PWL is taking new clients, which we are. And yes, we deal with people retiring and figuring out how to fund their retirement sustainably.
But also, people may not realize that we take clients all over Canada. We don't consider ourselves to be geographically constrained at all, like Mark, you're in BC, and I'm in Quebec, and Cameron's in Ontario. We don't worry too much about that. So if anyone's listening and wants to get in touch for themselves or a family member, we are putting a link to book a meeting with a PWL financial planner in the show notes.
Cameron Passmore: It always amazes me how many people are lurking on Twitter, and kind of just following content that mainly you guys are putting out. But there's so many people just watch that are engaging.
Mark McGrath: Yes. You get DMS from people all the time, and a lot of them are anonymous. They use Twitter as a news feed, so they don't feel compelled to post anything or put the real picture, or do much of a bio. They don't care about how many followers they have, all types of people on Twitter.
Cameron Passmore: Cool. All right. With that, let's go to our episode.
***
Ben Felix: Okay. Like I mentioned in the introduction, kind of late in 2023, I had this idea of making a list of the most important stuff that I've learned about investing over the last 10 or so years. I started a list and then I asked people on Twitter and got a ton of ideas there. Then, I also posted in the Rational Reminder community, and that turned into a really rich discussion on what people think is important. So I tried to just kind of take all of that, and assemble it into one cohesive list. I tried to put it in order that kind of makes sense where I grouped ones that are related together. We'll see what people think, but I think we can just go through the list.
Cameron Passmore: Do you think you're going to make a white paper or some sort of summary of this?
Ben Felix: I didn't put footnotes in here, but there are probably like – I don't even know, a hundred footnotes if I were to put all the references from where all the ideas came from. So I don't know, making that new paper could be interesting.
Cameron Passmore: Yes, I think so.
Ben Felix: Am I going to read the items, and then we're going to fire back about them?
Cameron Passmore: Yes.
Ben Felix: Okay. The first one is, you're not that smart relative to the market. I say that with all due respect, and I don't think that I'm that smart either. It's not a slight against anybody. But the problem for most people is that, as smart as they may be, in absolute terms, they're up against all the smartest people when they interact with financial markets, the market aggregates, everybody's information. It's not good enough to be smart. If you want to beat the market as an investor, you have to be smarter and faster than the competition. The competition is no joke. If you think you have an edge in a trade, you got to ask yourself, why the person or institution on the other side of that trade might be willing to trade with you. And you've got to ask yourself, what do you know that they don't, and what might they know that you don't?
Cameron Passmore: Yes. And the trading volume is so high. I remember the stat from a few years ago, and I tried to find it, but I couldn't. But I think it's like 100 million stock trades, not number of shares, but number of transactions, happen every day worldwide, so it's probably more than that now. But you think of the amount of technology, and brainpower, and motivation to make a good trade, that's a lot of brain power and that collective wisdom.
Mark McGrath: Yes. Like on a dollar basis, and it depends on the day, but it's a trillion-dollar flow through global stock markets on most days, right? It's not like 100 million individual trades by retail traders who are trading against each other. The dollar-weighted power of most of these trades is done by hedge funds and institutions with vast access to resources and talent. That's who you're competing with, it's the aggregate intelligence of the people in these firms who are setting prices on a day-to-day basis.
Ben, as you pointed out, if you think you have an edge, you're assuming that they don't, and they've got a much higher probability of making a smart trade than you do from reading The Economist or news from yesterday, right?
Ben Felix: Yes. Even for them, they're competing against other highly skilled institutions. As the market gets more skilled, it gets harder for everybody to beat. The aggregate level of skill of people competing for alpha in the market as that increases, the ability to actually win consistently decreases. That's the paradox of skill. I think it's what that's called.
Mark McGrath: Man, it's got to be the fiercest arena in the history of humankind.
Ben Felix: It's up there for sure. It's up there for sure. It's so easy to play, not easy to be successful. But to access financial markets is pretty easy, and painless, and low cost.
Mark McGrath: You don't see your competition either. So it's you against the computer, but what you're not seeing is the computers of everybody else that you're competing against. It's not like you're at a sports game competing with somebody. It's you on your screen.
Cameron Passmore: It's also super lucky to have a great outcome. You happen to pick the right stock; you can make a lot.
Mark McGrath: Yep. And you'll think of that skill, not luck.
Ben Felix: There is a lesson on that later. Number two, this time is always different. It's never the drop in stock prices alone that makes market crashes scary. Or the increase in prices alone that makes bubbles and assets hard to resist. It's the narrative that goes along with them. A large drop in prices is definitionally going to be accompanied by a huge amount of uncertainty about the future. There's always a narrative about why that time is different. I mean, we've recently lived through that with COVID. A narrative doesn't change the actual facts of a situation, but it can easily change how people respond to the facts as they exist. The facts remain the same, but the narrative can change how people respond to it.
If we go back through history, the narratives around major market crashes have been genuinely scary, including the recent one, COVID, that we all live through. But the empirical reality, especially for broadly diversified investors is that things have typically turned out okay. Returns after major crashes are more often positive than negative. Then, similarly for bubbles, exciting narratives about the new paradigm or whatever it may be, consistently convince people to invest, usually at the peak or close to the peak. But the reason why we saw with that was the ARK Funds, where everybody got in after things had gone up, up, up. Then, the average investor return in an ARK has been just awful because of that.
Cameron Passmore: It's always the story that changes, right? There's always some new story, and I've been through so many stories in this industry going back the tech bubble, and 9/11. There's so many that happened like that. Remember when Morgan Housel was on, saying, "It's the same as ever. There's always some new story that happens that you didn't see coming." This week, look what happened in Baltimore with the horrific collision between the container ship and the bridge. That wasn't foreseen, that's going to have an economic impact on the supply chain, apparently, in the States.
Mark McGrath: I think people largely forget that markets are really a derivative of human behaviour in a lot of ways. Technology changes and everything else, but people don't tend to behave differently over long periods of time, I think, I don't know. I'm sure there's research on that. But to your point on ARK, I think – was it the Magellan Fund, Peter Magellan, all-star, all-star man.
Ben Felix Passmore: Peter Lynch.
Mark McGrath: Peter Lynch, sorry. Yes, the Magellan Fund. Average returns of like 27%, annualized. I'm going totally from memory here. I didn't look this up before the show. So either way, absolutely crushed it. But because of the behaviour you just described, Ben, with people piling in after they see the great returns, the average dollar lost money, I think the average investor lost money in that fund over the period where he completely crushed. Ancillary to that, I think, is that the portfolio manager that he selected to run the fund when he retired, went on to underperform. Even the best manager in history wasn't able to pick a manager that could outperform the market over the next term.
Ben Felix: Yep. Number three, the market is forward-looking. This messes people up so bad. When you hear something in the news, or like a tip about a hot stock from a friend, or whatever, that can cause people to take action in their portfolios. Like, I need to go and act on this information, but the market generally incorporates new information very quickly. It's constantly predicting the future. It's a prediction machine. It's not just taking current information into account in pricing assets. It's taking expectations about the future into account. So most of the time, a piece of information that you have is already captured by market prices, because they're aggregating all of this predictive information about the future.
That's not to say the market can successfully predict the future, but asset prices contain current predictions about the future. It doesn't mean that they're going to come true, but whatever prediction you think you might have, you've got to think about how that differs from the market's prediction, not from how valuable that piece of information is on its own.
Cameron Passmore: It's interesting. After reviewing your notes this afternoon, and scrolling through Twitter at the same time, I saw a quote from Michael Mauboussin, here it is. "Perhaps the single greatest error in investment business is a failure to distinguish between the knowledge of a company's fundamentals and the expectations implied by the market price," which is effectively what you're saying.
Ben Felix: Number four?
Cameron Passmore: Number four.
Ben Felix: All right. Market forecasts are not useful.
Cameron Passmore: Oh, Ben.
Ben Felix: There's a bunch of research on this. Like I said, I didn't put footnotes in, but if I did, there's, I think, three or four papers that I have on this one. Market forecasts are wrong more often than right, but they feed into investor psychology like we talked about the narratives earlier. Paying attention to market forecasts, and worse yet, acting on them is not going to improve the quality of your investment decisions.
Cameron Passmore: I always remember that brokerages giving out the annual forecast book back in the day to be big bound thing. It was like the annual forecast book, anything of how many people would have received that book and would supposed to be good for the whole year? Like that information has to be incorporated very quickly in the market prices, how could it not be?
Mark McGrath: You can see that from the 2023 predictions that were made by Wall Street's top analysts. If you just Google that, you'll find a list of predictions from what are considered the best analysts or forecasters on Wall Street. There's a massive range. The S&P 500 crushed even the highest forecast in that range. Because I mean, to your point, surprises that move markets, and nobody can foresee those surprises, especially a year in advance. It's interesting to see even people who are considered to be the best so get it wrong often. It's not that useful piece of information to make portfolio decisions with.
Ben Felix: That shows up everywhere. I mean, it shows up in predictions, like explicit predictions about whatever what the return is going to be next year. But it also shows up just in the returns of active management and of tactical managers who are basically acting on forecasts trying to beat the market. They struggled to do it, which is related to number five. Time in the market beats timing the market. People probably heard that one before, probably related to market forecasts. A lot of investors try to get in and out of the market based on what they think is going to happen in the future. And related to the general failure of forecasting, successful market timing has proven to be extremely difficult. Investors often fail to fully capture the returns of stocks due to poor market timing decisions. Even professional fund managers who try to beat the market by timing, like a tactical fund, or just active management in general, they tend to underperform. I think for most people, sticking to a discipline strategy is going to be a lot more effective than trying to time the market, especially when you factor in costs and taxes.
Mark McGrath: I think people are so bad at understanding the time horizon that matters to them personally. If you're 35 – when we do financial planning for clients, we go out to age 95. If you're 35, we're planning for 60 years. Investors are always – not always, but often, short-term thinkers. They think if they can sidestep one bear market or what have you, then they'll come out ahead. But you've got to do that successfully over the entire course of your investment horizon and outperform your benchmarks over that whole horizon. Not only you have to get out at the right time, you've got to get back in. You've got to do it correctly all the time, over a massive time horizon. The probability of you doing that consistently and successfully are just nil.
Cameron Passmore: You talked about these returns, Ben, two weeks ago. Just achieving market returns, it's really hard to do. You have to be really disciplined for a long time. To your point, Mark, for 60 years, it's hard just to capture the benchmark, let alone maneuver around it to do better.
Mark McGrath: And people have to pull up charts, and be like, "Well, look, the S&P 500 did 12%, but you didn't." Because it's easy, very easy in hindsight to just go look at a graph. But when you're at the hard right edge of something like a COVID event, and this goes back to one of your other points of this time, it's different. When the market's down 30%, and you're at the edge of that graph, you don't know if it's going down another 30%, another 50%, or if it's going to come back up tomorrow. People tend to make incredibly emotional decisions in those times. But then, after the event, and this is just a ton of hindsight bias. You'll look back at the chart and be like, "Oh, yes. I totally would have sold here and bought here." Like, no, you wouldn't have. You absolutely would not have.
Ben Felix: Yes. All right. We mentioned funds not beating the market. Number six, most funds do not beat the market. There are tons of funds out there. There are more funds than there are stocks. A lot of them are implementing strategies designed to try and outperform the market to try to perform the market index, which you can of course capture using a low-cost index fund. These funds are often sold by financial advisors and by banks, and other financial intermediaries who talked about the skill of the fund manager. But few of the funds are actually successful at delivering on market beating performance.
A huge portion of funds perform poorly, a lot of them closed down too, like survivorship on mutual funds in Canada over 10 years is not great. I think it's around 60%. So 40% of funds are closing down over 10-year periods. That's in the Standard & Poor's SPIVA report, which actually just came out for year end 2023. And showed that about 90% of active funds underperform the index over 10-year periods, over that specific 10-year period. Now, the important piece here is that the funds that do survive and are successful in one period do not tend to be successful in future periods. If you go and say, "Well, I'm just going to pick the winning funds." That doesn't tend to predict which funds are going to win going forward.
Despite all of that, investors allocate a huge portion of assets to active funds, and particularly to active funds that have been successful in recent history, in hopes that the performance will continue. Typically, I didn't have this in my notes, because I was thinking about putting this into like a simple YouTube video that I didn't want to go too in-depth in. But since we're on the Rational Reminder, there's a paper from Rob Arnott and some coauthors looking at this at performance chasing, basically. They find that funds that have done well tend to be invested in styles, or like in factors basically that have done well in recent history. But there tends to be some mean reversion there.
If you're constantly buying the best funds, you're going to be buying funds that load on factors that are relatively rich in valuation. So you end up getting a bit of a drag on performance because of that. They show empirically in a paper that that's what happens. So, performance chasing, not so good.
Cameron Passmore: Markets work and people suffer from the illusion of control. They want some sort of feeling of control over an uncertain future. That's what the reported pitch of active management is. But it's tough to beat markets, and you get the hurdle of cost. Active managers cost a whole lot more than a straightforward index or structured portfolio.
Mark McGrath: I mean, that's the value proposition of a lot of advisors out there, just being able to put together the best portfolio of funds. When you ask for their methodology, it's usually, bring up Morningstar, ranked by 10-year performance, and Morningstar star ratings. Then, put them all together in a jumble, and there's the best portfolio you can get. There's often very little philosophy around portfolio management.
Cameron Passmore: How can you be an advisor in today's day and age, and not be aware that you have to have a very good pitch to compete with the index fund solution?
Ben Felix: Well, why don't we move on to item number seven in our list, which is that incentives matter. Incentives are super influential in the way that information about personal finance and investing gets distributed. Content creators on YouTube, we talked to Darren Soto about this in a past episode. Content creators on YouTube have an incentive to make exciting and often fear-inducing content to attract the eyeballs. Product salespeople have an incentive to sell whatever product it is they're selling. Financial advisors have an incentive to make investing seem more complicated than it actually is. None of this means that there can't be good content creators, salespeople, or financial advisors.
But, as a consumer, I think it's really important to understand how you're paying for the information that you receive, and what behaviour that payment incentivizes. Now, I segued into this from our previous point, because in Canada still, and around the world, but Canada's I think particularly bad, a lot of mutual funds are still sold on a commission basis. There are, as far as I know – I'm happy to be proven wrong here. But there are no index funds that pay a trailing commission, at least not a 1% trailing commission.
You can buy like an index mutual fund, that you pay a point 5% fee to own, but actively managed commission-based funds pay a 1% trailer fee. A lot of financial advisors in Canada live on that, so incentives matter. I've been that guy, I've been the financial advisor selling commission-based mutual funds, looking for index fund options, and they didn't exist, at least back then. So, incentives matter. The only way I could make a living at that time was to sell actively managed mutual funds.
Mark McGrath: I think there are some now. To your point, their mutual funds, like their ETFs, and mutual fund wrappers that pay a trailer. I believe the trailer's lower than what you'd expect from a typical active fund. But I did find out somewhat recently that, like that 1% trailer, that's not a regulation. There are funds that pay higher trailers and funds that pay lower trailers. To your point on incentives matter, if I've got the option between a fund that pays me 1%, and one that pays 1.3% incentives are likely to drive that outcome, right?
Cameron Passmore: Yes. I think back to the old days, when indexing wasn't even a thing, this pre-ETFs. We used to be trained to get indexing because more of the banks back then – think it was TD started to get into the index business. We used to be trained to compete against the indexing arguments, which of course, in hindsight, are complete nonsense. I'm happy to say, we changed course, early on, but still is an incredible time. If you weren't fee-based, you couldn't do this stuff.
Ben Felix: That's not ancient history. I've seen within the last 10 years, for sure. Material from Fidelity on why index investing is inferior to active management. That stuff's still out there.
Mark McGrath: Was it all about downside protection.
Ben Felix: If I remember correctly, it's a while since I looked at this brochure. But if I remember correctly, it was all about how well many of their active funds have done relative to a comparable index fund.
Mark McGrath: I think it was last year. Regardless, I called one of the major fund companies. I was having a discussion with some other advisors that I was working with at the time. They were saying, "No, no, no. Most of the funds beat the market." I was referencing the SPIVA report and all this kind of stuff. They're like, "Well, most of the stuff in the SPIVA report are just trash funds that nobody would use anyway, and the data's skewed and everything." I was like, "Okay."
I called up one of the major, major fund companies in Canada. I said, "I'm looking for information on how many of your funds beat the market." And the response from the sales rep is, "Well, most of them. They're benchmarks, right?" And they said, "Well, most of them." I was like, "Well, no." I'm like, "Okay, that's interesting. I want information on all of your funds, going back to inception, including the ones that you've closed down or merged, so we can actually see since launch, how many have beat their benchmarks." They basically told me they don't have the information; they couldn't give it to me. I doubt that that's true, but I can see why they wouldn't want it getting out there. But the answer is just like full stop, no, we're not giving it to you.
Ben Felix: It probably is true, because a lot of the databases that report on performance don't include closed funds. I wouldn't be surprised if they legitimately weren't able to access that information.
Cameron Passmore: Yes, maybe.
Mark McGrath: Still.
Cameron Passmore: Amazing.
Mark McGrath: It's convenient, isn't it?
Ben Felix: Who hasn't heard of survivorship bias? Like in the business?
Mark McGrath: It's not whether you've heard of it or not. It's whether you're going to acknowledge it?
Cameron Passmore: Okay, fair enough.
Mark McGrath: Incentives drive outcomes, Cameron.
Ben Felix: This one, it's crazy, though. Because I remember learning how this actually affects people way back, I don't know, probably about 10 years ago. I was giving a talk to a group of employees at a company, like we're talking about all this stuff, about how active funds tend to underperform, and why index investing makes sense. The person's like, "Well, I just sat down with a financial advisor at one of the big banks, and they showed me this whole menu of funds, and all of them had beaten the market." That's like, that's where survivorship matters." Okay. That's exactly your question, Mark. They should have asked the bank financial advisor to show them all of the funds that have closed down over the last 10 years. But of course, nobody has that. It's not in any of the sales material. It's not in any of the easy-to-access databases. Closed funds just kind of disappear. Makes it very hard for people to make good decisions.
Mark McGrath: I think the reality is, for many advisors, their entire value proposition is picking winning investments. The idea that they can just buy an index fund portfolio completely removes what they believe to be their value proposition. Especially, if you've been in the industry for a long, long time, that's what you've always done. It's really not easy to just switch over to index funds, especially if you've convinced your clients for years that you have an ability that they can't go and do themselves, or that nobody else could do for you. If they do that, what's left to be paid for if they haven't been providing other benefits, and financial planning services, and behavioural management, that type of thing. Then, they will basically talk themselves out of the job if they switch to a low-cost index fund portfolio.
Cameron Passmore: I think you're dead, right.
Ben Felix: Yes, definitely. All right. Number eight, expected economic growth and stock returns are not related. This one also messes people up. It kind of comes back to the narrative thing too, I think. But it's got to be one of the most persistent misconceptions among investors, particularly among inexperienced investors, it's my observation. The idea is that if you invest in the highest-growth company, or sector, or country, or whatever, your investments are going to outperform. But I think the reality is a lot more nuanced than that. Expected economic growth is incorporated into asset prices, markets forward-looking, and all that stuff we talked about earlier.
If high expected economic growth materializes as expected, investment returns will not be spectacular. They'll be in line with the risk of the investment. If economic growth is much better than expected, an unexpectedly good economic outcome for that thing for whatever it is, then returns can have a positive surprise. And if it's worse than expected, then it can have a negative surprise. You get worse than the expected return. The relationship between expectations and actual economic outcomes is what's going to drive investment returns, not the economic outcome itself. I think that's really important. The result is a pretty random relationship between realized economic growth and stock returns.
In a lot of cases, it's even a negative relationship. It's not a super statistically strong negative relationship, at least at the country level. But there is an economically negative relationship, because things that people expect to do well, often have, what you could argue, are overly optimistic expectations. I think an interesting recent one, I saw a chart on Twitter, I don't know when that was, a couple of months ago. Just on the stock returns in China, relative to GDP growth, over, I don't know, 10 or 15 years. Their economic progress has been incredible, stock returns, terrible. That's a conversation I've definitely had within the last 10 years, of people wanting to invest in China, because it's such a high-growth economy. But those things are less connected than I think people realize.
Cameron Passmore: Totally. It's so counterintuitive, but people really do have to have an open mind and follow the evidence on this one. It's something you've done lots of work on this over the 299 episodes.
Ben Felix: All right. Number nine, good portfolio management does not make up for bad financial planning. I think is another really important one. Investing as a means to meet long term financial goals, that makes understanding yourself an important first step in deciding how to invest, taking lots of risk in hopes of earning high investment returns is not going to lead to living a good life, even if the risk pays off, and it probably won't. But even if it does, trying to solve the perfect investment portfolio without knowing what it's supposed to accomplish doesn't really make sense.
People tend to fixate on their investments, and they tend to chase past returns like we talked about earlier. They try to pick winners, they try to do lottery-like stuff, when they should be focusing on how much they need to save, minimizing fees, and taxes, getting the right insurance in place, planning for their retirement, planning for their estate to pass efficiently, and to the right people. I think, financial planning mistakes, a lot of the stuff that I just mentioned can't be resolved by getting great investment returns.
Again, to reiterate, you're probably not going to get the great returns that you think you will. But I think a lot of people think about how great their financial future would be if they just won this lottery effectively, if they just picked the right stock, or got in on canopy growth at the right time, back when that was the thing before it blew up.
Mark McGrath: Yes. I got out at the right time too.
Ben Felix: Yes, that's right.
Mark McGrath: Yes. I see this stuff all the time with clients and somebody DM me on Twitter just last week. I said, "Hey, my accountant wants me to put all of my investments into Canadian dividend stocks for the tax benefits." This is so common, right? People focus so much on one area, let's say, lowering tax, that they completely ignore the potential impacts of that decision. Imagine missing the returns of the US stock market over the past decade, all because of a tax decision. If you want to pay less tax, just go make less money. Take all your money, and stick it under your mattress, you'll generate zero income, and you'll pay less tax.
What you should be concerned about is the after-tax outcome of all of this. You can put together a better portfolio that might pay a little bit more tax, but that gives you a better after-tax outcome. That's obviously better than just being tunnel vision, laser-focused on paying the least amount of tax possible.
Cameron Passmore: That's been a pet peeve of mine for a long time. People who haven't had the good financial habits through their earning years look at the portfolio to do the heavy lifting. It's like, if you just had the right habits at the right time, you wouldn't have to be in that position.
Mark McGrath: And usually over a short timeframe too. They'll come at 57, 58 years old, and be like, "Okay. Now, I'm ready to start thinking about retirement." But we needed to get you 20 years ago on the right path because now, the required return on your portfolio to meet the goals you've set for yourself is just totally unrealistic.
Cameron Passmore: And, “Mark, show me how you've beaten the market over the past five years” is the point of conclusion right?
Mark McGrath: Of course.
Cameron Passmore: That's often the point of decision, right?
Mark McGrath: Yes, 100%
Ben Felix: Yes. It's a good way to think about it. People are hoping that they can undo bad past decisions by hitting it out of the park. But that gets increasingly difficult, the longer people are not following the right habits because of compounding. If you could get a 6% return for 35 years, that's great. But if you miss the first 25, you need a really high return those last five years to get anywhere close to where you should be.
Mark McGrath: As like they say, you can't outrun a bad diet. I don't think you can out-invest bad behaviour or bad savings habits, right?
Cameron Passmore: Good way to put it, yes.
Ben Felix: Okay, number 10. Number 10, risk and expected returns are positively related. I think risk is required if you want to earn positive expected returns in financial markets. The most obvious example is contrasting stocks, which have higher expected returns with short-term government bills, which have lower expected returns. You know exactly what your short-term bills are going to be worth tomorrow, at least in nominal terms. But your stock portfolio’s value is going to change from day to day. It's a requirement to endure the uncertain and volatile nature of stocks in order to participate in their higher expected returns.
I think this is important for two reasons. If you want to earn higher expected returns, you need to be willing to take on more risk or at least more volatility. Measuring risk is a big mess. You'll be able to take on more volatility if you want higher expected returns. The other piece, the reason this is important is that, if someone tells you that you can earn high returns with low risk, I think this kind of relates to what we're just talking about. You've got to be extremely skeptical.
Mark McGrath: Yes. I think one thing that investors often misunderstand is that higher risk doesn't mean higher returns. It means, the possibility of higher returns. You've talked a lot about compensated risk versus uncompensated risk in previous episodes. Like I can go buy a zero-day expiry call option contract on GameStop tomorrow, like the highest risk thing that you could buy. It's either zero or it's going to make me a millionaire. But just by taking a higher risk, I shouldn't expect a better outcome. But it gives you the opportunity to get a better outcome. But it's not perfectly correlated, or I can just crank up the risk in my portfolio and expect a better outcome. How you put those risks together in a portfolio is really important.
Cameron Passmore: Number 11, I have nothing to add.
Ben Felix: Okay. Number 11, the risk expected return trade-off has a term structure. Might be the most jargony item in the list, but I do think it's really important, that's why I kept it in there.
Mark McGrath: I read that like three times, and I was like, "Okay. Ben will explain it, because I don't understand it."
Ben Felix: Okay. I said, measuring risk is really messy. An important follow-on lesson from the previous one is that, the risk-return relationship, the risk expected return relationship changes with time horizon. For a short-term investor, volatility in asset prices is a pretty good way to measure risk. You care about how much your bank account is worth from day to day. But long-term investors may not be as concerned with short-term volatility. So due to the nature of stock returns, which tend to be somewhat mean reverting, stocks are a little bit less risky at long horizons than we would expect if returns were completely random. Due to the nature of inflation, which tend to be persistent over time, assets typically considered safe at short horizons can actually be extremely risky at long horizons, like short term government bills. You know how much they can buy at the grocery store tomorrow, but over 30-year periods, they're more likely to lose purchasing power than stocks.
Mark McGrath: Yes, I've said this before. But if you think investing is risky, wait till you hear about inflation, and it's exactly that. Like over long periods of time, inflation is potentially the biggest risk. In the short-term, it's market volatility, maybe. That's mostly because of how you might behave in the face of volatility. But over long periods of time, it's the decrease in the purchasing power of your money. That if you're not keeping up with it, you can have a bad time.
Cameron Passmore: Absolutely.
Ben Felix: Yes. Mark, you had a question there. I think it's worth answering.
Mark McGrath: Yes. You've said inflation is persistent, and I wanted to know if what you meant by that was that you should always expect some level of inflation, like is persistent through time? Or, do you mean the rate of inflation over long periods of time is relatively stable? I guess, it depends what country or market you're talking about, but I'm curious how you explain that.
Ben Felix: Inflation is both of the things that you said, but what we're talking about there is how high inflation tends to be followed by more high inflation. Whereas, stock returns, low stock returns are a little bit more likely to be followed by high-stock returns. So you get a little bit of mean reversion in stocks, which is protective, whereas the big risk in bonds is inflation and inflation tends to be a little bit more persistent. So you get mean aversion, I guess, in periods of high inflation.
Mark McGrath: Interesting. So it can snowball basically.
Ben Felix: Pretty much. All right. Number 12, fees and taxes matter. We've touched on this as we've gone through the previous ones. But one of the reasons that actively managed funds underperform the market is their fees. Everybody knows that. But the thing is, investment products that aim to beat the market also tend to be less tax efficient. They've got higher fees, for sure, but they also tend to be less tax-efficient. We know, Morningstar has done a couple of studies on costs. Lower fees are one of the best predictors of future fund performance. That just is a fact. If you stratify funds by their fee level, higher fee funds will tend to have worse performance on average than lower fee funds, which shouldn't be particularly surprising, but that is what it is. But fees are only one piece.
Active strategies are going to tend to have more trading in the fund, which results in additional costs, trading costs inside the fund, but also, for taxable investors’ taxes. There's an older paper and an update more recent paper that looks at the after-tax performance of actively managed funds. Basically, it's even worse than the pre-tax performance that we know about. Like if you compare active funds to index funds. Pre-tax, active funds will tend to underperform. Post-tax, it's even worse, because active funds tend to be less tax-efficient than index funds. ETFs have changed that a little bit in the US, because of the way that they're taxed in Canada. We don't have the same advantages. But anyway, fees and taxes, they matter a lot.
Mark McGrath: This is the pitch for the permanent insurance industry, which is – I saw something on LinkedIn the other day, and it's like, "Wouldn't you love a supersize TFSA?" It was a pitch for Wholelife. I think people are so sensitive to tax, and the idea of something being tax free, and we're fairly heavily taxed, I think, in Canada. So the idea of being able to have your cake and eat it too is very compelling for people. But as we talked about earlier, it's the after-tax outcome, the after-fees, after costs, after tax outcome that you need to compare when you're looking at alternatives. The idea that something is tax-free, like I said, I mean, if you stick your money under your mattress, that's tax-free because you will never earn anything on it. So you need to be aware of the after-tax cost. With respect to the taxation or the after-tax performance of funds, doesn't Morningstar have some way of kind of measuring this for certain funds? Like it's another ratio that they put – I don't know if the public has access to it. But I've seen it in Morningstar, where there's kind of an estimated tax cost to the fund as well that they provide.
Ben Felix: Yes. Yes, they do have a that. You can run after-tax returns based on their calculation, which is based on US taxes, so it doesn't work perfectly for Canada. They also have, I think it's called the tax cost ratio, which basically calculates like an expense ratio equivalent based on the tax drag from the fund.
Mark McGrath: Yes, that's interesting.
Cameron Passmore: One of the things that jumped out, and I know we're going to talk about that CBC cover story. But the lack of awareness on management fees, I think, must be really low. The awareness is really low, the lack is high, the awareness level is really low. Because some of the answers that were given by several examples of bank employees was clearly wrong, like not even close, right? Only charge on the growth. So I'm guessing the public must be incredibly – many people in the public must have incredibly low knowledge of these management expense ratios, which I think Canada is well known to have pretty high MERs.
Ben Felix: You got me thinking. I got to find it now. The OSC did a study in 2022, and it was a financial literacy survey, basically. They asked questions with a whole bunch of topic areas, though, not just like the big five. They went much deeper than that. One of the questions on investment cost, so there's six financial literacy questions on the survey, focused on investing costs. They relate it to the link between fees, and returns MER impact, index funds, no load mutual funds, products with MERs, and advisor costs. On average, respondents answered 36%, two out of six of the investment cost questions correctly.
Cameron Passmore: Wow.
Mark McGrath: Well, you've probably heard from people when you ask them, "What are you paying your advisor?" and they say, “Nothing.” Okay, you think it’s free because you don't see it, and they're paying the MER inside the fund. Usually, these are those commission-based funds, where there's a trailer fee pay, but you don't see, it's not very transparent, so they think they're not paying it.
Ben Felix: I've seen that. I've also seen functionally the opposite, where people know what they're paying their advisor because it's a fee-based advisor, but they don't realize that they're paying another 1% or more MER for an F Class mutual fund. I talked to somebody online a few weeks ago, where they were asking you about PWL's fees. They were kind of like, "Well, I only pay my advisor 1%." I was like, "What are you invested in?" They've gave me the name of a fund that I looked it up, and the fund had, I don't know, around 1% MER. So their total fee was more than 2% in that case. Yes, big lack of awareness on fees. I would guess, even, less so on taxes, on the tax efficiency of whatever investment.
Mark McGrath: For sure. I mean, a lot of people are invested in RSPs and TFSAs, where this is less important. Like there's some nuance with foreign withholding taxes and stuff. But for the most part, when we're talking about taxes here, we're thinking nonregistered accounts. If you've filled up your RSP and your TFSA, you've got investments in a taxable account. You need to be aware of how your portfolio is being taxed based on the types of assets you're invested in, the turnover, and everything you just discussed.
Ben Felix: Yes. To your point on permanent insurance, number 13 on our list here is complexity and costs are positively related. Permanent insurance contracts tend to be pretty complex, and the payoffs tend to be pretty complex, and there are meaningful fees buried inside, and taxes. That's a whole other interesting topic. People think permanent insurance is tax free, it's not. There are layers of tax that you just don't see as explicitly. But anyway, that's a topic for another day.
Complexity and costs are positively related. I think a lot of investors are attracted to complex investment products. They're marketed as having special features, like high-income yields, downside protection, leverage, maybe access to private assets, maybe tax efficiency in the case of permanent insurance. Typically, though, complex products are going to have higher fees and costs to the end investor. Most evidence does suggest that complexity generally makes investors worse off. All else equal, a more complex product will tend to be worse for the end investor. But due to the complexity, it's not always easy to see the added fees and costs. I would say, as a rule of thumb in investing, simple, low-cost solutions are going to tend to dominate more complex ones.
Mark McGrath: Yes. The complex ones always come with great narratives, great stories, and so people buy into these narratives. I call it manufactured complexity, right? Like, where you intentionally obfuscate stuff and make stuff complicated to make people feel that they couldn't go and do this on their own. Or, to make it look like you're doing more work than justifying the cost that you're paying. The advisors I found, obviously, when I say advisors, I'm never talking about everybody. I'm just calling out certain bad actors. Well, people will intentionally create complexity to confuse clients, and to justify the work that they're doing.
Cameron Passmore: Simple is beautiful.
Ben Felix: Totally. All right. Number 14, there is no single optimal investment strategy. I think it's common, and I see this all the time in the Rational Reminder community. For people to agonize over the contents of the perfect portfolio or to argue with other people on the Internet about why their portfolio is superior, their investment strategy's superior.
Mark McGrath: I've never done that.
Ben Felix: Yes. No, never.
Mark McGrath: Just to be clear, I've never argued on the Internet, with people about portfolios. You're talking about other people, I agree.
Ben Felix: Other people, not you. I've done it too. I do enjoy taking shots at dividend investors. Although I've softened on that a bit. I think that there are some actually pretty good behavioural arguments for people to invest with a dividend focus if it makes them behave better than whatever. But it is fun to see the reaction of dividend investors because – you know what? I'm going to stop there. Let's carry on. But the reality is, and to the point that I just made about behaviour and dividend investing, everyone's got different objectives. They've got different constraints, they've got different beliefs, they've got different preferences. I think it's perfectly normal for two people to have different portfolios, while both being optimal for their respective situations.
It doesn't mean that all investment strategies are good, I'm not saying that I'm a dividend investor now. I also think that a lot of people make big mistakes to their investments, and a lot of people still own actively managed funds, and so on, and so forth. But I think the main point is that, perpetual tinkering of portfolios to try and find the perfect thing, or comparing your portfolio to somebody else's, and being like, "Oh, maybe I should be doing that." I think that's probably an error. I think two people can have materially different portfolios, while both of those portfolios being perfectly fine for their specific situations.
Cameron Passmore: I agree. I remember being in a presentation a long time ago, and it's either Gene Fama or Ken French has said, "The perfect portfolio is only known in hindsight."
Mark McGrath: Yes, 100%. If you can see it with foresight, then we'd all own it. And if everybody on the same portfolio, there'd be nobody on the other side to trade with, right?
Ben Felix: Wait a second. Does that mean that the market portfolio is the perfect portfolio and everyone should just index? Holy smokes, Mark. You just solved investing.
Mark McGrath: Crazy. You're welcome, Ben.
Ben Felix: That's actually point number 20. But we're not going to get ahead of ourselves.
Cameron Passmore: You're stealing his thunder.
Mark McGrath: But on that point, though, just quickly. If you look at a lot of the content that's on the Internet, or even just a lot of amateur investors, I think they have trouble understanding the point that you just described. I'm not calling anybody out in particular, but oftentimes, one individual's answer will be, V grow and chill. Like there's a subreddit on Reddit called V grow and chill. The idea behind this is that, nobody never needs to own anything except for Vanguards, like whatever it is, the balanced growth fund, VGRO. To your point, for some people, that's absolutely the perfect portfolio. It's not for me, and it's not for a lot of people, and it's not for some of my clients. It's a great portfolio. It's a good starting point, perhaps, but the idea that there's one strategy that is just applicable to everyone regardless of risk tolerance, and risk profiles, stage of life goals, everything else is just silly.
Ben Felix: Back to the dividend behaviour point number 15 on this list is, the best investment strategy for you is the one that you can stick with. There is no objectively optimal investment strategy, like you're just saying, Mark. But the best strategy for each individual investor is the one that they're actually going to stick with. I think sticking with an investment strategy through bad times, it is a requirement of capturing its benefits. We talked earlier about time in the market versus timing the market. But we also know empirically, that it's one of the hardest things for investors to do.
I think a big part of sticking with a strategy is separating your decision to invest in the strategy from the outcome that you get, especially in the short term. But I also think, dividends are such an obvious example, where even if it's objectively suboptimal on all other measures, tax inefficient, poorly diversified, like blah, blah, blah, we can go on. Even if we agree that that's true. If dividend investing lets someone stick with their portfolio, and motivates – I've heard that from dividend investors many times that it motivates them to save and invest. Like, "That's great. Why would I say that that's not a good idea?" I think that's important.
Mark McGrath: Yes. I think to be clear, it has to be a reasonable, rational strategy, though. The diet that I can stick with is just eating chocolate doughnuts all day, like I could do that, but it's not good for me. Likewise, I can pick a really bad investment strategy that I can stick with and not expect to get outcome. Well, I think when you're making this point, you're talking about reasonable portfolios, like a diversified dividend portfolio, versus the market portfolio, versus a factor-based portfolio or something like that. There are reasonable strategies. If you can pick one over the other, and stick with that one better, then that makes sense.
Ben Felix: Yes. The best investment strategy for you is “reasonable”, one that you can stick with. Yes, owning Tesla is not a reasonable investment strategy.
Cameron Passmore: Oh-oh. Here we go. Here we go.
Ben Felix: Number 16, there's no such thing as a passive investment. There's a spectrum of how passive or active any investment strategy is, but nothing is truly passive. People often refer to the S&P 500 as the passive benchmark, but even that's full of active decisions in the way that constituents are chosen. Then, in addition to that, choosing to invest in the S&P 500, rather than the MSCI All Country World Index is itself another active decision. I think the positive attributes associated with what is often referred to as passive investing are low costs, low turnover, tax efficiency, and broad diversification. But there are lots of funds that meet none of those criteria, lots of index funds that meet none of those criteria, and lots of active funds that meet all of them, or most of them. Because every investment is active on some level, I think it's important for people to understand which active decisions they're making, and why.
Cameron Passmore: Passive is such a loaded word as is active, right? I mean, one definition of active investing that I like is anytime make a decision to not simply invest in something that's total market, it's an active decision. To your point, the S&P 500, even to go only into that is an active decision. You can argue. Let alone what S&P does, in terms of the constituent's selection, the reconstitution, and everything else that goes along with that. So, I agree with you.
Mark McGrath: I try not to even use the word anymore. I've tried to replace it with indexing when I'm talking about that topic. As passive, to your point, it's such a loaded word. It's confusing now to people. I think the media has talked about things like mutual funds versus ETFs, and active versus passive. A lot of the nuance discussion has been lost. So I tried to specifically say like, global market cap weighted indexing. Even though it's a mouthful, to me, it's a much more accurate depiction of what you're trying to capture, which is broad diversification, low turnover, low fees, and everything else.
Cameron Passmore: That sounds so lazy. Who wants to be lazy?
Mark McGrath: Yes, you don't wanna be average, Cameron, right? Who wants to be average? Even if the average beats 90% of professionals, but that's another discussion.
Ben Felix: I mean, even calling an investment strategy indexing – that can also be problematic. Because you look at funds from Dimensional, for example, which are explicitly active, like they're not index funds, they don't track a third-party index.
Cameron Passmore: They're different than the total market.
Ben Felix: They're different than the total market, but they meet all of those criteria that I just listed. They've got low cost, low turnover, tax efficiency, broad diversification, but they're not index funds.
Cameron Passmore: Yep. There's so much nuance in that. Often, people don't have the driver desirability to understand and pick up on this nuance. It's a complicated world, even though the solutions can be so simple.
Mark McGrath: Especially if you're trying to talk to somebody about how markets work, and why something like index investing or factor investing makes sense. You’ve got to walk before you can run. So, trying to explain to somebody all the things we've been talking about; stock picking and everything else. Trying to take them in one brief conversation, all the way to factor investing, or even market cap weighted indexing becomes very easy to just explain something as say, passive. I think it's reasonable to call it indexing or passive as a tool for educating people on how things work. But at some point, you've got to get deeper into the subject to make sure that you understand, to your point, Ben, that everything is active to some degree.
Ben Felix: Yes. I've also seen people who are like, "Yeah, I'm an index investor." I see the portfolio, and it's like S&P 500, and I don't know, like a mining index or something.
Mark McGrath: Yes. I have a client like that, and that's how we started talking. We started talking on Twitter. He said, "No, I'm an index investor." I was like, "Oh, cool. Let's see your portfolio." It was industrials and REITs, just those two sectors, but they were index ETFs. So, he considered himself an index investor. Once we had the conversation about what the spirit of indexing really means like a global market cap-weighted portfolio, it was kind of an “aha” moment for him. We've been working together for over a year now. Great client. I think you're absolutely right. Owning index funds doesn't make you an indexer.
Ben Felix: Yes. It's a tough one. Because people hear the media or whatever, us just now talking about, yes, index funds are good. Like, great. I'll buy this. Like you said, I'll buy an –
Cameron Passmore: Technology ETF or something.
Ben Felix: Yes. Well, it's an index fund, I'm doing the right thing.
Cameron Passmore: That's right.
Ben Felix" Number 17, wealth does not give you access to market-beating investments.
Cameron Passmore: Let that sink in.
Ben Felix: Warren Buffett has talked a lot about this in a couple of his annual letters. But a lot of the benefits of investment, or suppose the benefits of investments like private equity, real estate, direct real estate, hedge funds, permanent life insurance, like you brought up earlier, Mark. They're probably more fairy tale than reality, at least, on average. They typically have super high costs, they're often sold on a xeric of exclusivity, but their economic benefits to most investors. I say most because there are some weird characteristics, like there's major skewness in venture capital fund returns. If you can get the best funds, they tend to be persistently good. Most people can't, including the ultra-wealthy. But anyway, on average, the economic benefits of these more exotic investments are not well supported.
Mark McGrath: Somebody called them access funds a while back, like on Twitter. I just think that's just such a perfect way to describe it. As you guys know, I work with a lot of physicians, and I think many of them do very well and become wealthy. There's a sort of peer comparison at some point that happens, not just amongst physicians, but amongst a lot of people. As you get wealthier and wealthier, you want exclusive access to things that other people don't have, because you feel you deserve it because you're special. And it doesn't mean they're, like you said, market-beating investments, but they feel special.
As we talked about earlier, you can craft a very good narrative around these things. It's very easy to sell stories, it's a lot harder to sell, being boring. and sitting in your seat, and just keeping costs low. It's a lot easier to talk about the newest, sexiest, asset class that exists, and why everybody – pension-style investment management is my new favourite. Every firm in the country is talking about pension-style investing. Your goals and how a pension manages their money are two totally different things. But pensions have alternative asset classes like real estate and infrastructure, and that kind of stuff. This has become a new marketing engine, in our industry, is selling the idea of pension-style investing. That sounds great, but it doesn't necessarily mean you're going to get better returns, or lower risk, or anything like that.
Cameron Passmore: Don't forget, these stories help people tell their story. If you're able to get into something of great return, some something that's a little more exotic, little more private, it helps tell your own narrative. We're all here trying to tell our own story in life. I think that's a big part of it too.
Mark McGrath: That's a good point.
Ben Felix: All right. Number 18, diversification is the only free lunch in investing. It's been called the only free lunch in investing because it offers this rare opportunity to reduce risk, measured by return variance without reducing expected returns. It's like magical. Usually, as we talked earlier, you have to take more risks to get higher expected returns. But this is a case where that relationship does not exactly hold up. That the extreme buying a single stock exposes you to a little bit of market risk, which has a positive expected return, and a lot of company-specific risk. Like I made the joke about owning Tesla not being a good strategy earlier. Company-specific risk does not have a positive expected return.
Now, the exact number of stocks needed to call it a diversified portfolio is kind of hard to pin down. But in general, more diversification is going to be better than less. There are some cases where you might want to have a more concentrated portfolio to get exposure to some specific thing, like a small-cap value fund, for example that's a little bit more concentrated, but it's targeting very specific stocks with higher expected returns. And the small-cap fund is still going to have whatever hundreds of stocks in it.
Then, the other thing is that, other than just reducing return variance, diversification also helps reduce the impact of skewness and individual stock returns on portfolio outcomes. Some stocks do really, really well. Most stocks don't do so well. So you're much more likely to miss out on winners by having a concentrated portfolio. That skewness is probably another reason that most actively managed funds underperform. They tend to be a lot less diversified than an index fund. That probably contributes to their difficulties and beating the market.
Mark McGrath: Tell me if I'm wrong here, but like if you look at something like the S&P 500, the returns of the S&P 500. Is it not true that most of those returns are driven by a very small subset of the constituents?
Ben Felix: Yes. For sure, the wealth creation, which is distinct from returns is driven by a single-digit percent. But the actual returns would be probably more of the constituents a little bit more. But most stocks in the market have underperformed. A lot of stocks have negative absolute returns.
Mark McGrath: The reason I ask is, because you often hear, there's been studies that show that the diversification benefits after owning – there's different studies, but 30 to 50 stocks is commonly quoted, as you know. After 50 stocks, the diminishing benefits of diversification start to fall off so quickly that you don't need more than 50 stocks. I think, if I understood correctly, that argument completely ignores the fact that most stocks underperform. So yes, you might get the risk diversification benefits by owning only 50 stocks. But the probability of you underperforming significantly by missing the stocks that are going to drive the performance of the market in the future is huge.
Ben Felix: Yes, I think that's correct.
Cameron Passmore: And I think those charts used to be called diworseification. I don't think there's a line has said more in this business than, diversification is your buddy. Perhaps, markets work, but markets work and diversification is your buddy.
Ben Felix: Yes. There's nuance here too, like if you're concentrating a portfolio in stocks exposed to specific factors than a concentrated rebalance portfolio, is maybe less likely to underperform the market. But it's going to be a much bumpier ride than a more diversified portfolio exposed to the same factors.
Mark McGrath: Can I just buy a high conviction funds, Ben?
Cameron Passmore: You can.
Mark McGrath: I love high conviction funds, because the implication is that there are other funds or low conviction funds, or your other funds is doing it. These are the funds we really believe in our stock picks, and these ones, but these ones, yes, whatever, right?
Ben Felix: That is pretty funny. High conviction probably just means more concentrated, is that right?
Mark McGrath: I think it's –
Cameron Passmore: More concentrated.
Mark McGrath: Yes. Yes. It's taking their best ideas, and overexposing.
Ben Felix: It is funny, though.
Cameron Passmore: I remember a fund back in the day, and someone can help me remember the name. But they had the highest conviction managers pick their highest conviction stocks. I think it was five managers and might have been five or 10 stocks each. This is going back a long time. Total train wreck. Great story.
Mark McGrath: Yes. It's all marketing, good marketing.
Cameron Passmore: It's great marketing. You get double conviction.
Ben Felix: I think diversification is super important. I'm not saying that it's not, but I think about like the Alpha Architect products, which are relatively concentrated for a very specific, intentional reason. Still, I think they have 50 stocks. I haven't looked at them in a while. Concentrated compared to a total market index fund, but set up in a way that you could argue has a positive expected outcome over the market with the way that they've done the weighting, and the rebalancing, and the general design. But, anyway.
Cameron Passmore: As West said, that's pretty risky stuff, right? Like the calls that compound your face off.
Mark McGrath: I think, even those guys, and with apologies to the Alpha Architect team. I don't know that they would even recommend for the majority of people that they go 100% into these strategies. I know portfolio managers in Canada, they use Alpha Architect, and they use it as sort of a sleave. I mean, they take the market, and then they use that as their factor exposure by taking 10% of the portfolio and going into one of their value funds, for example.
Ben Felix: Yes. They call it capital efficiency. Instead of having a factor fund that has a relatively high fee on the whole fund, you have a very, very cheap beta fund, and you can combine it with a concentrated factor fund. Anyway, so there's some nuance on the diversification stuff. We did an episode years ago now on concentration versus leverage as different means to get higher expected returns. That's the topic that's been discussed in, I don't know, thousands of posts in the rational minded community.
Anyway, number 19, investments should be evaluated on process, not outcome. I think people can get lucky or unlucky with an investment after they've made the decision to make the investment. But outcomes are so noisy, and investing, that it's really hard to say over – I mean, any period of time. I don't know. Any period of time that would be relevant to most investors. It's really hard to look back, and say, based on the outcome, whether it was a good or a bad decision. But you can look back on the process that you use to make the decision and the information that you had as inputs. That's really important.
Cameron Passmore: But it's so easy to make that decision based on the outcome. We can pay homage to Danny Kahneman who we learned passed away today. You can use system one thinking, which we look at the outcome and say, "Oh, great outcome, great performance, I'm in." System two, I think it's a little more difficult to understand the nuance, what is the process.
Mark McGrath: Wasn't there a paper that suggested that it takes something like 68 years to prove skill in stock picking? Have you guys heard of this paper?
Ben Felix: I don't know if it was paper, I think it was just a very simple statistical demonstrations.
Mark McGrath: Yes, it was. Most of the stuff that I get, Ben, I get it from Twitter. I don't know how well thought out some of this stuff is, and I'm not going to actually go and read 100 pages of academic papers. It's what I get you for, man. I'm not going to go and read, I'm going to ask for your opinion on it. I don't know if it's true or not, but – and we see this with investors all the time. Even when I'm talking to people, they'll say, "Oh, I've crushed the market. It's easy to beat the market." "What's your time horizon?" "Well, over the past 18 months, I've dominated the stock market." "Okay. Well, you picked nine stocks and got lucky, right?"
As we went back to earlier, if your time horizon is 60 years, the probability of you continuously outperforming. or outperforming enough in one period such that your probable underperformance in another period is overcome by those good periods. Some people will, some people will do it, absolutely. But it's just a game that most people shouldn't play and evaluate your performance over a reasonable timeframe as well as the process.
Ben Felix: Yep. All right. Last one, number 20, which I alluded to earlier, investing has been solved. No one's going to fail to meet their financial goals, because they didn't have, I don't know, tail risk insurance or structured products in their portfolio. I think for most people, investing in a broadly diversified portfolio of low-cost total market index funds is good enough. Even if it's not perfect, even though it has some warts. I'm actually going to work on a video, and we'll do it on a podcast episode two about the problems, or the downsides of the growth of indexing. I think there are some interesting arguments on that. But anyway, it's not perfect, it's pretty good. There are enormous incentives for people to tell you that you should be doing otherwise. Even if they're right, even if there are ways to potentially optimize a portfolio, low-cost index funds are, I think, good enough, as the approximate solution to investing for most people.
Mark McGrath: Especially these days, it's is so cheap. You can own the global stock market for a couple of beeps. Like, start there. If you need to deviate for some other reason, like we talked about, with factors, or something that should be the core of the portfolio, adjusting for risk tolerance and that, but start with the market.
Cameron Passmore: Improve your habits, plan better, improve your behaviour. Once you've got all that checked off and figured out, then maybe look for something, maybe. But skeptical, great list.
Ben Felix: Those are the 20 most important lessons that I could think of. If people listening want to chime in with their ideas for additions to the list, then maybe we can read them out in a future episode, so you can leave them as a, I don't know, a comment on YouTube, or post in the Rational Reminder Community, send it to us on Twitter. We'll read out the good ones that we get.
Cameron Passmore: That was awesome. All right, guys. You want to go to the after-show?
Mark McGrath: Sure.
Ben Felix: Yes.
***
Cameron Passmore: Let's kick it off with a discussion around that CBC story that was – I think it was a repeat of something they first did back in 2018. Ben, you got some notes down here. Why don't you kick us off? I mean, this is just such an incredible story. Sorry to interrupt, but you just watch and you're paying for these people. The examples they show in the episode, you're just paying these people gain this kind of advice. We know firsthand, from people we know that there really is a sales culture in many of these environments. With that, Ben, take it away.
Ben Felix: Well, before the CBC article came out, somebody had posted on Reddit. They later deleted their post, but I have taken a screenshot of it because I thought it was worth sharing. They posted about their experience working at one of the big banks, and they talked about how the sales culture was super aggressive, and that it completely disregards what's best for the customer. Like they're solely focused on selling products, even if it's detrimental to the customer. I posted that screenshot on Twitter with a comment, "Always remember that banks sell financial products, not financial advice."
Then, along with that, I posted findings for 2018 paper that looks at data from a large Swiss retail bank to analyze how banks and their financial advisors generate profits from customers. But they basically showed that the banks own mutual funds and structure products are most profitable for the bank, which is not surprising. And the bank advisors tend to recommend them, which is also not surprising. They did this interesting experiment where they looked at advisor trades, so trades placed by bank customers that were on the advice of an advisor, and then also, trades independently placed by clients into financial products, and the advised trades that came through the financial advisors were associated with higher profits for the bank, and the performance was worse. That paper suggests the bank financial advisors put their employers' interests ahead of their customers. I don't know if you guys want to say more about the CVC article that came out.
Mark McGrath: I think it's important to also understand like the tiers, and this sort of hierarchy of service that the banks offer to you. I've got friends that work for the brokerage divisions of some of these banks. I consider them to be great advisors, great planners, they're everything we talked about on today's episode, for example. So, they're fee-based planners, like we are here at PWL Capital. So I think it's important to understand that when somebody walks into the bank branch to deposit a check or pay a bill, they're not going to just automatically get access to some of these really good advisors that work through the brokerage divisions of the banks. But there are going to get ushered into an office with somebody potentially called a financial advisor or some other title. It's often those types, or at least in this article, that's the level of service or advice that the investigators in the article we're dealing with.
I just want to be overly critical on the entire institution, because I do know there's great people there. Most people are never going to get to the level of wealth that you would need to be able to work with one of those great advisors. So the average person walking into the branch is likely going to be subjected to the exactly the type of tactics that were exploited in the article.
Cameron Passmore: That's a tough environment, because so many different service request are coming at you, so I'm sympathetic to that. I have great people that helped me in my bank, love them. They're fantastic. I think you raised a good point. But Canada's got this very bizarre level of affection for their banks. As I often say, it's come down to colours in Canada. Like if I say, green, you know which bank it is. If I say blue, you know which bank it is. If I say burgundy, you know which one it is.
I find it kind of weird how it's come down to six colours, and the ability for the banks to extract. Another thing I've heard people say, the ability to extract high expense ratios from people, from Canadians is truly astonishing in many cases, without getting the level of service that would be warranted by paying such a fee.
Mark McGrath: Have either of you guys worked at a bank in your career? Cameron, no. I haven't worked at a bank, I worked at a credit union. It wasn't nearly as bad there as what was described in the article. But I do want to point out that the individuals who were – the term guilty seems a bit too loaded, but the individuals who are going to be responsible for some of the advice that came out of the article, you got to start somewhere. A lot of these people probably think they are doing the right thing. Some of the people they interviewed, it was very clear that they had the moral compass, and at least the understanding that what they were doing was wrong. But I don't think that's always the case, I think some of these people are trained.
I talked about this on The Canadian Investor Podcast with Simon Belanger a couple of weeks back. You're often trained in some kind of corporate environment. If that's the only access to information that you have, and you're not curious enough to seek out other information, you likely think the thing that you are doing is the right way to do it for not only the institution but also for the customers. In a way, I can sympathize to a degree with some of these people, because I did work in, again, not as harsh of an environment. Again, you do have to start somewhere, so they often have little training, little education, and the things that they're selling. I think, to a degree, we should give some of them the benefit of the doubt. But at the end of the day, the outcome to the customer is what matters. I think the institutions have a responsibility to take this one on the chin and do something about it.
Ben Felix: Yep. I never worked in a bank, but I worked in a pure commission mutual fund dealer, which was like, the sales pressure doesn't get higher than that, because you have to sell to eat. Cameron, you've lived that too. I totally agree, Mark, that in that environment, there were a lot of people who, some combination of thought they were doing the right thing, and needed to put food on the table. And didn't think that they were doing anything bad. They just knew they needed to sell this stuff, which they may have thought was good. But they're highly motivated because they needed income.
Then, there's also that paper on the misguided beliefs of financial advisors that looks at it was actually Canadian data. They basically find that financial advisors are doing all of the same mistakes that they're doing for their clients. They're not just selling these high-fee active funds to their clients, because they're malicious. They're doing it because they think it's the right thing to do. One of the things that I remember from that paper is that the advisors continued doing the same stuff in their own portfolios after they had retired, because they're trying to test for like, are they just doing this stuff while they're working to convince their clients to buy the same stuff? But no, they kept doing the same stuff after they retire. So it suggests that it's misguided beliefs as opposed to conflict of interest.
I do want to read a couple quotes from this article on the conflict because these are pretty overt in this case. One TD employee says, "She's usually not acting in the best interest of her clients. She's trying to sell them products that will help her meet her sales targets and keep her from being fired." Another one says, "I had to mislead customers into getting products they didn't need to reach my sales target." Another one says, "It's not a customer service environment, were there to sell and make money for the bank." Now, also keep in mind, that incentives matter on both sides. The media wants sensational stories, so they would have picked excerpts that are sensational. But I think it's worth Canadians being aware, and keeping in mind that there's also that academic paper from 2018 that found similar stuff. The other TD anecdote that came out before the CBC article. So like, it's a thing. It's a thing people should be aware of.
Mark McGrath: Yep. I will say this type of behaviour – I'm playing devil's advocate here if you guys can't tell. The reason is, I can see the reaction of some people going, "Oh, yeah, look at these guys, independent advisors. How easy is it to just slam the banks and looks like you're talking to your book" and all that. I think everything we've talked about and how the banks have perpetrated some of this stuff is absolutely correct. I will say, it's not just the banks. To your point, incentives drive outcomes. You have to be very aware of those incentives. It's probably not the time to talk about it now, maybe we'll talk about it next episode.
But on the back of that CBC piece, I came up with kind of just off the top my head five questions that you should ask an advisor before you engage with them. Or, at least five questions that you must have the answers to, to determine whether or not you're dealing with somebody who you can trust, is giving you advice that's in your best interest. I don't have the questions up in front of me. I did post it on Twitter as a kind of short article if somebody wants to go look it up. Maybe we can talk about it in another episode. But I think, educating the public on how to defend against this type of behaviour is important to.
Cameron Passmore: Swap next year. One of you guys has a note about sleep restriction.
Ben Felix: Yes. I've always struggled to sleep, always. I discovered this thing, it's very evidence-based, it's well researched, it's a form of cognitive behavioural therapy called sleep restriction. It sounds terrifying because it is. So you basically, and this is a gross oversimplification. I follow this whole specific program where you like to calibrate your sleep beforehand, or whatever. But what sleep restriction is, is you basically go to bed late, later than normal for a period of time. In this case, in the program I'm doing for a week. So I normally go to bed at like 10pm. and this thing wanted me to go to bed at, I think 11.30pm. You have to wake up at your target time, which for me is 6.30am. I went to bed at 11.30pm, every night for a week, woke up at 6.30am. I felt awful.
Cameron Passmore: You slept solid straight through?
Ben Felix: Not so much at first. But as you get increasingly tired, what happens is it compresses your sleep window, so you're getting fewer hours of sleep, and it forces your body to reset your, I guess circadian rhythm, and your sleep cycle. So you end up sleeping through the shortened sleep window with better quality sleep. Then, once you've done that, then you extend the sleep window at the back end by going to bed a little bit earlier. I've come out the other side of that now, and my sleep is like dramatically improved.
Mark McGrath: Do you get woken up in the night by your kids, Ben? Or is this just something you've struggled with before having kids, like you wake up frequently? I'm curious. What's the problem with your sleep that you're trying to solve? Is there sort of any exogenous forces, like young children crawling into your bed?
Ben Felix: I used to struggle to fall asleep when I was younger. Now, more recently, I have not so much trouble staying asleep. I keep waking up in the middle the night and can't fall back asleep, but I would wake up way too early and not feel well rested. But so far, this sleep restriction thing seems to be helping. I'm a weekend to extending my sleep window again, so I'm sleeping better. I'm feeling pretty good.
Cameron Passmore: Good for you.
Ben Felix: It's not my kids, though. The way that our living arrangement is set up, my kids don't bother me. I'll say that. I sleep fine.
Mark McGrath: You have to give you some tips. All four of us sleep in a bed most nights. It's not sustainable.
Cameron Passmore: Yes, that is not sustainable. Virtual reality exercise. What is that?
Mark McGrath: Oh, man. I used to do this, and I got back into it the other night. I can barely raise my arms today, because they are so sore. So you guys are familiar with virtual reality headsets, like the Meta Quest, and obviously, Apple just released their flagship version. I got the Meta Quest 2 when it first came out, which was a few years ago now, maybe three years ago. It's a standalone headset, so the battery is inside, the computer's inside. You got your controllers. I've dreamed about this stuff since I was a kid, and I had the – what was it? VR Boy? It was just like these big, nasty, red headsets, and it was nothing like what we've got now, with the technology of virtual reality.
You step into this thing; it feels like you've been transported to another world. It's incredible. What I realized after playing some games there, is that some of these games are very active games, like you're flailing your arms around and stuff. There's a lot of games that are built specifically as exercise tools. So just trying to exercise more, and I do some stuff here and there. But I remember that I used to really enjoy some of these games, and some of them really get the heart going.
A couple of nights ago, I fired it up for the first time in like a year, and there's a boxing game called thrill of the fight. I've never been so gassed, and I'm 40 years old, and used to play hockey, like baseball. I've never been so tired in my entire life as I was playing this game. It's a boxing game, and so you've got an opponent, and you're in a ring, and you've got the headset on, you've got your controllers. Basically, the bell goes, and you fight. But because it's gamified, the incentive to just keep going, even when you're so tired, like if I'm riding on a bike or something, I'll just stop when I'm tired. But because I've got an opponent coming at me, I'm throwing haymakers, and overhand rights, and just doing everything I can to – I can barely breathe, I'm so tired. Then the bell goes, and you just kind of rest for a minute, you're like, "Oh, I can't do another round of this."
Then, the bell goes, and you're like, "I didn't hear no bell." Like, here he comes in, and let's do it again. After 10 or 15 minutes of this, l had to lay down because I was so tired, and I can barely move my arms, but it was so much fun. There's like dancing games, and all sorts of other games that are really, really active. If anybody's having trouble finding the motivation to exercise, virtual reality headsets, they're pretty cost-effective, like the Meta ones, at least. The games are really, really cheap. It's a ton of fun. You don't need a huge space. I just love it, so I'm going to get back into doing it every night after the kids go to bed.
Cameron Passmore: So maybe Ben, you should do some VR boxing to go with your sleep restriction.
Ben Felix: I'll stick my real-life basketball. Do you like the idea?
Mark McGrath: It's fun. Maybe we can do that, like play online against each other. We can box each other or something.
Ben Felix: That probably would be a lot of fun.
Mark McGrath: I have to punch up, but I'll figure it out.
Cameron Passmore: My item is a few weeks ago, I was on with Giorgio on Mr. RIP, Retirement in Progress. That's the Twitch that you were on a year ago, Ben, and Giorgio was on with us back on episode 257. I went on his show live, I guess two or three weeks ago now. It was super fun, two hours. Have to hand it to him. He's like a one-man show doing this, especially in English, he's alone, and the questions are coming. He's got his own question. So it's quite something to watch him maneuver that. We'll put a link to that show in the show notes. It's now up on YouTube, along with – yours is up there as well.
But we talked about the history of that company and my background, a little bit about the banking situation in Canada. We talked about ETFs. That was a fun, really fun conversation. Lots of questions came in, which is cool. One of you guys want to read this review we've got here from Bulgaria.
Ben Felix: Mark, you want to read your first review?
Mark McGrath: Oh, big responsibility here, yeah. Thank you. Let's see. Recent reviews. Jiwko, I'm probably mispronouncing that. J-I-W-K-O from Bulgaria, "Interesting, educating, level-headed. The only podcast I regularly tune into. Ben and Cameron are the best. Thank you for your service."
Cameron Passmore: And Mark.
Ben Felix: We have to get your name in there.
Mark McGarth: Yes. It will come in time.
Cameron Passmore: I had a couple of people reach out on LinkedIn, said, "Hope you're doing good. You mentioned the latest episode of RR that you didn't receive any feedback the preceding week. I've been thinking about sending one for some time, so now I thought I'd take this opportunity to chime in. RR was what convinced me to do my master's in finance. As been mentioned before by others, the interview style is commendable, asking well-researched, open-ended questions, and then letting the guests do the majority of the talking. A lot of reporters can learn a thing or two from you both. Love the podcast." That's from [inaudible 1:18:04]. Pardon my pronunciation.
Then, "Brian reached out, saying he loves the podcast. "Just want to let you know, I love listening to Rational Reminder each week The interviews are always interesting. Guests and some of the papers I end up discussing with my workers in the research department. As someone who has family on both sides of the border, I've used your podcast helped found me understand some of the things I do at work. Keep up the great work. If you are ever in the DC or Baltimore area, let me know if you're free to meet up. Looking to my vest for work, and Carhart often does branded gear." Ben, I think you had a suggestion from someone but doing Cotopaxi vest, which I think could be a cool idea.
Ben Felix: Yes. It could be. I'll look into it. People were sad that the Patagonia ones didn't work out.
Cameron Passmore: Yes, it didn't go well. Any scoop on the Money Scope or in the community?
Ben Felix: Money Scope, I realized that I haven't been mentioning Money Scope on Rational Reminder, which I'd had intended to do. I guess, I just forgot. But we had an episode and a case last couple of weeks on taxable investing.
Cameron Passmore: So good. So good. So clear.
Ben Felix: Coming up this week, we have an episode on investing in a Canadian corporation, which is I think one of the episodes that people were really excited about. That's really the topic that motivated us to do another podcast, to talk about really nice stuff like that. The next few episodes are investing in a corporation, and then we've got some – I think there's two on that, and then there's cases. Then, there's corporate compensation planning, like how should you pay yourself from your corporation? That one gets pretty serious. I think there's a lot of new ground that we've uncovered in that episode, like Mark and I dig into stuff together, working on modeling different things.
Then, the other thing we did is once we had assembled our base notes, we brought in two CPAs, and two financial planning experts that I know. And I just said, "Hey, guys. We wrote this thing. I think it's pretty interesting. Can you look at it?" The amount of brain power that went into that thing is just like, I don't know, if anything like that's been done before. Anyway, there's going to be a really interesting run of episodes interesting to people who have corporations or work with clients who have corporations.
Mark McGrath: I show it to a lot of my clients and physicians. I know it's not just for physicians, but obviously being with Mark Soth from The Loonie Doctor, a lot of them are familiar with his work. Those who have listened so far to the Money Scope, absolutely love it. And not just the really detailed, nerdy kind of tax and financial planning stuff, but some of the stuff you guys talk about in terms of goal setting, and finding, and funding a good life, and all that. The feedback that I've heard from professionals that have listened to it has been really, really great.
Cameron Passmore: Same here. So next week, guys is our 300th episode. We have a great guest, an expert in decision-making. So we're welcoming Abby Sussman from Chicago Booth. Great episode. In two weeks, we're joined by our friend, and past guests from Episode 258, Meir Statman, his new book coming out, called A Wealth of Well-Being. He will join us in that episode.
Then, in three weeks, Scott Galloway. Yes, Prof. G will be here. He has a book that's coming out. And in four weeks, our good friend, Dan Solan will be here. Have we mentioned what you're doing with Dan Solan yet, Mark? Can we say it?
Mark McGrath: I don't know. Can we?
Cameron Passmore: I think we can.
Mark McGrath: Sure.
Cameron Passmore: Go ahead. He's a good friend. I'm sure you'll be happy with the plug.
Mark McGrath: Sure. No, sounds good. I follow Dan Solon for a number of years on various social media, and he's a well-published and more respected author from the US. I know PWL, and obviously, you personally Cameron, have a long-standing relationship and friendship with Dan. He's written a number of books, but he's written a new one. It's geared towards the millennial audience, specifically in the US right now. A lot of what this book is about is teaching them how to do things themselves when it comes to financial planning and personal finance, and investing. I think part of the motivation for this is that, from his discussions or interactions with those folks, they will likely at some point maybe benefit from having a great advisor, and maybe not. But to get there, because great advisors often have really high minimums, or are only taking select types of clients.
Millennials, even if they want to work with a great advisor down the road to get there, they're going to have to figure out how to do it themselves in the beginning, and how to develop good behaviours and understand a lot about certain financial planning, and personal finance topics. He sent me an advanced copy. I read it a couple weeks ago, great book, really simple to the point, has just a ton of different things that people need to think about. It's not just on investing, for example, it's talks about insurance, and crypto, and all sorts of stuff. Anyways, he would like to Canadianize this book. He reached out to you two, to Ben and Cameron, to see if there was any interest in doing that. I was fortunate enough to be able to take on that project.
I will be writing with – Dan's have already done the work, but I'm going to take the segments or the chapters that are specifically geared towards an American audience, and rewrite them for a Canadian audience, and release it here in Canada.
Cameron Passmore: And the book is called Wealthier, correct?
Mark McGrath: Wealthier, that's right.
Cameron Passmore: Awesome. So Dan's on to talk about the launch of that book, which would be super fun. We'll all be on that episode. As usual, all of us are on LinkedIn, and Twitter. We all have Calendly links in our Twitter bio as well, which I know is actively used. I love hearing from people, reach out anytime. You guys have any final thoughts this week?
Ben Felix: I'm good.
Mark McGrath: Good.
Cameron Passmore: All right. Great episode. Thanks for listening, everybody.
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 Community Discussion about this Episode:
Books From Today’s Episode:
A Wealth of Well-Being — https://www.amazon.com/Wealth-Well-Being-Holistic-Approach-Behavioral/dp/1394249675
Wealthier — https://wealthierbook.com/
Papers From Today’s Episode:
‘Where’s the Beef?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4035890
‘SPIVA® Canada Scorecard’ — https://www.spglobal.com/spdji/en/documents/spiva/spiva-canada-year-end-2023.pdf
‘Financial Advice and Bank Profits’ — https://academic.oup.com/rfs/article-abstract/31/11/4447/4985213?redirectedFrom=fulltext
‘Hidden cameras capture bank employees misleading customers, pushing products that help sales targets’ — https://www.cbc.ca/news/business/marketplace-hidden-camera-banks-1.7142427
Links From Today’s Episode:
Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p
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
The Economist — https://www.economist.com/
ARK Invest — https://ark-funds.com/
The Canadian Investor Podcast — https://thecanadianinvestorpodcast.com/
Mr. RIP on YouTube — https://www.youtube.com/@mr_rip
Wealth Management with Cameron Passmore, Executive Chairman at PWL Capital — https://www.youtube.com/watch?v=Owm3FeDDjQQ