Key Points From This Episode:

• Should you lease or buy your vehicle? [0:01:40]

• How are the new mortgage stress tests affecting Canadian real estate? [0:04:04]

• Home ownership is not required to build wealth, with a little discipline [0:05:06]

• Amazon’s size is not unprecedented [0:08:32]

• Successfully investing in growth stocks is really hard [0:14:09]

• Are backend loads on mutual funds still a thing? [0:17:27]

• Fund companies pushing anti-evidence [0:18:35]

• Consolidation in the Canadian asset management industry [0:19:35]

• Independence benefits wealth management clients [0:20:17]

• Financial advice is about more than just the portfolio [0:21:23]

• We are still waiting for lower stock valuations, high inflation, and high interest rates [0:22:25]

• If you’re not worried, you don’t have a high expected return [0:23:06]

• Are we living in exceptionally uncertain times? [0:23:35]

• Small cap and value returns comes from rebalancing [0:27:47]

Read the Transcript:

Ben Felix: This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making for Canadians. We are hosted by me, Benjamin Felix and Cameron Passmore.

So I'm getting a new car. Going to get the Subaru Ascent, leasing it.

Cameron Passmore: Which hurts for you. 

Ben Felix: I don't know if it does hurt. I mean, I made a pretty deliberate decision to lease. We bought the last one used also a Subaru, but now I've got this vehicle that I own and I want a new one, but I own the old one. I have to do something with it. Do I trade it in? Do I sell it?

Cameron Passmore: So how did you come to terms with leasing instead of buying it outright?

Ben Felix: Well, if I'm going to get a new vehicle every whatever five years, which I don't know is reasonable I think every five years, especially with all the new technology coming out in vehicles. If I'm buying, it's the same thing. I'm just paying for the depreciation.

Cameron Passmore: Most people don't understand the math of leasing and how you're basically leaving the residual costs down the road, paying the interest on the residual costs and prepaying a certain amount of mileage each year. So I think that's where most people would get confused is in paying for more mileage than you're actually going to be using. So depending on if you're high or low mileage. I mean, you're probably normal mileage user.

Ben Felix: Probably low. I walk to work. Susan takes the kids to school and goes to Whole Foods maybe.

Cameron Passmore: Yeah. So you can choose and at the end of the lease if you want it, I would just buy it out if you like and if you don't want it, you just give it back and try to hang on to some of the equity if you're way under the mileage. And that's it people. I've had a number of conversations this past week with people who didn't know that they're way out of their mileage on a lease, you actually have embedded equity.

Ben Felix: I didn't know that. What does that mean?

Cameron Passmore: So if you were leasing your new vehicle and you pay for effectively 20,000 kilometers a year, after four years in a typical lease, they probably have a residual value of 40%. So let's say you buy your truck for 30,000, they're going to say in 4 years time it's worth 40 or 30,000, so 12,000 will be your buyout. But if you show up in four years' time, then you've only got 30,000 kilometers on it, it's worth way more than 12. You want to make sure it's let's say it might be worth in the marketplace 16,000, so you have $4,000 of embedded equity. You want to make sure you're able to keep that equity, roll it into your next vehicle because that car is worth more down the road.

Ben Felix: Oh, I didn't know that didn't know that.

Cameron Passmore: So it's all about the equity. It's just math in the end. That's what I tell people. I mean, so many people lease because it enables them to get into a fancier car for the same monthly payment and you get used to making that payment. And that works in a low interest rate environment because less of that payment will be interest. If they're in a high interest environment, if you're buying say a $60,000 car that's worth 30,000 in four years time, you're paying the interest on that whole 60 plus the depreciation on that car. The main thing is to hang onto your equity down the road. If you know, you want to buy your car long-term, why not lease it? You have the choice in four years time to buy it out at preset value and carry on if you like. If you don't like it, you give it back. So I've always been a leaser.

Ben Felix: I think when you look at the numbers, if you're going to buy, especially used, if you're going to buy used and keep the vehicle for 15 years or something like that, I mean, at the end of 50 years, it's a pretty rough vehicle. But if you're going to do that, yes, financially that's better than leasing. But if you like having a half decent vehicle, I don't know, leasing seems like way less of a headache.

Cameron Passmore: I agree. The main thing is, understand what equity you have at the end of the day and don't give up on that equity.

Ben Felix: Yeah. That's interesting. Didn't know that.

Cameron Passmore: I tell people any financial kind of decision that you're making, why not reach out to us? Like we're fee based. So you're paying for some level of service anyways, so why not reach out?

Ben Felix: Clients. Not anybody, clients. We don't charge fees to... Yeah. Okay. There was a report from Mortgage Professionals Canada that came out last week. They were raising a bunch of concerns about the new stress tests for mortgages. They said that 100,000 people have already been prevented from buying a home based on the new stress test. What do you think about that?

Cameron Passmore: So I was doing some poking around on this and it sounds like cheaper houses are going up a lot in value because now people have to move downmarket to pass the stress test, which effectively says you have to be able to handle a 2% increase in rates and still meet the affordability test. I listened to a mortgage broker show on the weekend and they were saying that markets have slowed down due to this, but I just saw another article saying that it hasn't. Auto Montreal is strong at a lower end of the market in Vancouver and Toronto is also strong because people are going down market.

Ben Felix: Because of the stress test.

Cameron Passmore: Because of the stress test.

Ben Felix: It's really interesting. Second order effect, in that Mortgage Professionals Canada report, they're kind of raising concerns about increasing wealth inequality because people can't buy houses and we've done some work on that in the past and there's no reason to believe that buying a home is an automatic path to wealth. You can do just as well renting. I think the biggest difference is that renting takes a ton of discipline to actually build wealth because you have to save your money.

Cameron Passmore: Yes. And if people love their portfolio as much as they love their house and put a bunch of debt on top of it, so you get-

Ben Felix: [inaudible] to invest.

Cameron Passmore: [inaudible] to invest, they would do much better, but people don't love their portfolios. And also you don't get a monthly statement from your house showing you what the value is. So there's great behavior reasons to own a house for sure.

Ben Felix: Right. And you look at other wealthy countries or developed countries, whatever you want to call them, the US home ownership rate is 64%, Canada's 67, Germany, 51.7%, Switzerland, 42.5%. So there are other developed countries where people are doing just fine without owning real estate as much as Canadians do. Canadians fall right in the middle of G20 countries.

Cameron Passmore: I like owning my house. I enjoy having my place, so I get utility out of that. It's not an economic decision necessarily for me. I wanted a place for the family and our own space that I like working on. You are very different than that though.

Ben Felix: Do you think you'll keep owning when the kid... I mean, the kids are almost out of the house. Do you think you'll keep owning? You'll sell them rent?

Cameron Passmore: I think so.

Ben Felix: Interesting. I rent for now. We were talking earlier though about how Susan and I have devised a plan where we're going to completely max out all of our registered accounts, RSP, DFSAs, RESP, and once those are maxed out is when we'll start saving more aggressively for a house, but-

Cameron Passmore: That's a very logical analytical decision, whereas we know home buying is a very emotional decision.

Ben Felix: You're right. And a lot of people who are choosing to rent are probably not focusing all their energy on maxing out their RSP and DFSA.

Cameron Passmore: Many are. We have a lot of younger clients that are very good, great savings habits.

Ben Felix: Yeah. But our client set is a very biased sample because that's why they're our clients.

Cameron Passmore: So this Amazon story never goes away does it? Every week someone talks about Amazon. I even saw an article the other day talking about how Amazon is getting into our space, more and more financial services.

Ben Felix: I haven't seen that for a while.

Cameron Passmore: Checking accounts. And it's only a matter of time, I think until they get into the investment asset management business I would think, but-

Ben Felix: I've been reading that for years. Google's going to do that apparently, eventually. It's all speculation though.

Cameron Passmore: So this is a winner take all the question right? And you saw an article on BNN Bloomberg last week.

Ben Felix: Yeah. Well, we've had this question. So it's always interesting to see other people writing about it. BNN Bloomberg had an article with kind of a funny title, it said, "Amazon's eating the world and the stock market." Amazon is huge. Apple's also huge. There's a speculation on which company is going to reach a trillion dollars in market cap first, which is obviously a massive valuation.

Cameron Passmore: So you being you, you go back and test the data. There was some pretty cool data points you came up with.

Ben Felix: We wanted to see how unprecedented is the size of these companies based on what we've seen in the past. So technology is making up a bigger and bigger part of the market. We went way back, 1900. In 1900, about let's say, 50 [inaudible 00:08:53] a pie chart. So I don't have the exact number, but I'd somewhere between 50 and 60% of the US stock market was rail companies in 1900. Also in 1900, standard oil had an inflation adjusted. If we adjust for inflation to today, had a valuation of $1 trillion. And then we look back not quite as far as that, but 20 years ago, just to see kind of what was going on in the market then-

Cameron Passmore: In the bubble.

Ben Felix: Yeah, that's right. Yeah. The beginning of it. I guess, nearing the crash, 1998. So July 1998, the largest market capitalization company in the United States was AT&T and they're, I mean, not the largest now. They're followed by GE.

Cameron Passmore: And like what happened in GE, was it last week or two weeks ago, pulled out of the... or they were removed from the DOW Index, replaced with Walgreens. So the iconic GE is not in the DOW Index.

Ben Felix: Wow. Interesting. If we adjust for inflation, AT&T's 1998 valuation market cap would have been 504 billion, which is kind of close to what Facebook was before they dropped earlier this week. In 1998, AT&T made up 3.4% of the total US market cap. And as of June 2018, Apple's 2.6%. Yeah, it was really interesting.

Cameron Passmore: Who would have thought?

Ben Felix: We pulled a chart or created a chart where we looked at the ratio of the largest company in the United States as a percentage of the overall US market cap. And it's been pretty stable over time. It's not like the winner take all question. It's not like there's been a winner take all environment where the largest companies are just taking over the whole entire stock market. It's been a pretty stable relationship around, I don't know, 3%. And it's not just the largest company. We also looked at the five largest companies.

So in 1998, the five largest companies made up 11.6% of the US market. Five largest companies today-

Cameron Passmore: 11.5.

Ben Felix: Almost exactly the same. 

Cameron Passmore: So there's nothing to see here basically.

Ben Felix: Nothing to see. I mean, we've seen large successful companies in the past. I'm not saying that Apple and Amazon aren't changing the world. They are. They're innovating and they're doing stuff that other companies haven't done before, same as Facebook with their mission of connecting, whatever their mission is, connecting everybody regardless of the cost.

Cameron Passmore: I was listening to Barry Ritholtz's podcast this morning with Rob Arnott. Great podcast. And he was talking about how Domino's and I forget the time period. We can go back and get it, but for a certain time period, Domino's actually outperformed Apple. I think it was the last five years or something.

Ben Felix: It might even be longer than that. But yeah, I saw that data point too.

Cameron Passmore: So you just don't know where the outperformance is going to be.

Ben Felix: Yeah. On that same thread, we looked at the five largest companies in the US in 1998. And if you had invested in those then, obviously same kind of question as Amazon right now it's the biggest company, should you invest in that company? In terms of market cap, the five largest companies are now ranked 18th, 44th, 5th, 27th and 10th in the market. So obviously they have not hung on to their title as the largest companies. And then speaking of like major innovation, we're talking about Amazon. What are they doing? They're providing scale and allowing people to access products easily, cheaply I guess.

You look at the Dutch East India Company in the 1600s and they were opening up global trade. 

Cameron Passmore: Where did you find this?

Ben Felix: Visual Capitalist had a nice post on the largest market cap companies.

Cameron Passmore: You're going back almost 500 years.

Ben Felix: It's amazing. So you think about what Amazon is doing today and what Apple is doing today and yeah-

Cameron Passmore: It's really no different.

Ben Felix: I would say Dutch East India companies, that's changing the world.

Cameron Passmore: Exactly. They're both changing the world.

Ben Felix: Yeah. I mean, Dutch East India... In different ways. Sure. Sure. Worlds Unexplored and Dutch East India Company's opening up global trade and going to places that have never been visited before. And they're the first public company that we have record of anyway. Adjusted for inflation in 1637, they were worth 7.9 trillion. So we're talking about Apple and Amazon edging up towards a trillion dollar market cap and Dutch East India Company was worth almost eight trillion.

And that was around the time of the Tulip Mania bubble. So some people might say, "Well, that was just a bubble," but if we take the efficient market approach, it's not a bubble. It's just that those were the expectations. Just like- 

Cameron Passmore: That's only a bubble in hindsight.

Ben Felix: Exactly. That's what Eugene [inaudible 00:13:36] always says is that you can't call it a bubble unless you can tell me when it's going to end. And that's the big challenge with being a growth investor is that it's like, "Yeah. We can see now that Amazon and Apple and Google, they've increased in value a ton. And if you invested in them five years ago or whatever, you've made lots and lots of money, but now we're here. They've done that. Now what?"

Cameron Passmore: Especially in the light of all the science that's been done, that shows that value stocks, so stocks that have not done well, typically do better going forward than those that have gone up dramatically.

Ben Felix: That's the toughest thing. If you don't get the winning growth stocks, which we can't see until they've won, if you don't get those ones and you just say, "Well, let's invest in all the growth stocks," you underperform value. You underperform market. Yeah. It's tough stuff being a growth investor. Not to mention the volatility. I don't know. It was a while ago I saw somebody did a post on what you would have had to endure to get the gains of Amazon. And it's like insane drops because it's a growth company.

Many times. That's right. So it's not just, "Well, invest and close your eyes and hold on." You've got to endure these massive drops and not sell, keeping in mind that at point you do have to sell it because growth companies don't perform well over the very long term. 

Cameron Passmore: So you want to talk about Scotia's acquisition? We talked about Scotia's acquisition of MD Management last week. And the fact they bought the big, money manager, Montreal Jarislowsky Fraser. And now TD is just picked up by Greystone Investments. This thought surprised me. You're now saying that TD is Canada's largest asset manager, even above Royal Bank.

Ben Felix: Yeah. That's what the article said. I didn't verify that, but that's what this article said.

Cameron Passmore: So it really makes you wonder... maybe it doesn't make you wonder, but I mean, the banks are all about delivering shareholder return. That's their mandate.

Ben Felix: That's right. TD did not acquire Greystone with the intention of giving their clients more fiduciary service.

Cameron Passmore: I think that's safe to say. I mean, it's very different than how our firm is structured. Not that we're a not-for-profit, but clearly the motivation here, I mean, being owner-operated, the motivation is to take care of clients in a fiduciary type of environment and what will be for the company will be for the company. And we're very conservatively structured owner operated type company, but it's a very different mandate that I think is safe to say typical bank environment type company.

Ben Felix: We need to start looking at the bank brokerages. What was it? Two years ago that all the banks were cutting revenue payouts if your numbers were below a certain threshold, like if you're not making half a million dollars, your payout is decreasing. So they put a ton of pressure on their advisors to crank revenue. And we don't have that. Obviously, we want revenue because that is our income, but there's no one breathing down our neck saying, "You have to produce this much revenue."

Cameron Passmore: I even heard like floor space. Depending on your revenue, your team needs certain amount of floor space and person count, which I get it on a national scale, hundreds if not thousands of advisors, it matters. It's just not the environment that we could work in. None of us.

Ben Felix: And that's why we're independent and have committed to remaining independent.

Cameron Passmore: And thankfully, we have not been on embedded commission for years. We have a few smaller accounts that have some embedded commission, but that's going away very quickly.

Ben Felix: I mean, we talk about embedded commissions like they're the devil, but this is embedded commissions on a DFA fund that just happened to be the most efficient thing to use for that person at that time.

Cameron Passmore: Correct. It doesn't change our compensation in the end. It's still embedded, but we're changing that. But it's a very, very small part of our overall.

Ben Felix: And there's no DSC fees like this is still index funds. It's not-

Cameron Passmore: Is backend load even used anymore? Can you use backend load funds anymore?

Ben Felix: So the CSA proposals we talked about in our very first episode, I think that they've eliminated... I think they've eliminated DSC entirely. I know investors group stopped doing it last year, but we started looking at the CRM2 disclosures that are now in place. And no one's going to do DSC when they know the client's going to see you. They made 30 grand or whatever on the sale.

Cameron Passmore: $800,000 purchase. You had a $30,000 commission. I don't think people would tolerate that.

Ben Felix: No one's going to do that.

Cameron Passmore: I remember back in '95 when we last did it. I mean, the revenue was ridiculous. So we put a stop to it right away. We just couldn't take it.

Ben Felix: Well, that was one of the red flag for you when you realized the model wasn't sustainable. Yeah. It just didn't make sense.

Cameron Passmore: We felt good about the work we were doing, but it's not this good. You start getting five or 6% of every dollar coming in. W didn't at the time, but you hear people doing million dollar buys, you're getting a 50 or $60,000 commission. So all your comp is all front end loaded, but people want long-term service. I mean, it's complete incongruity, so it makes no sense at all.

Ben Felix: Meanwhile, you're being told by the fund company that they're active managers, what your client needs.

Cameron Passmore: Yeah. We were actually trained to fight against index funds and why index funds makes no sense. I look back now and it was absurd.

Ben Felix: I remember that. The year that I spent in the active mutual fund commission business, Fidelity had a whole slide deck to rebut against index funds like, "Here are the arguments to tell your clients."

Cameron Passmore: It's just nonsense.

Ben Felix: And you know why it focused so much on... Look at these funds. Look at these five funds. They've outperformed the index, so therefore indexing doesn't make sense.

Cameron Passmore: Therefore, go sell these funds.

Ben Felix: Yeah. Crazy. But if you don't know, if you don't have the framework as an advisor to understand why that is insane, it's really hard to-

Cameron Passmore: You have an engineering background, MBA background and you didn't know.

Ben Felix: Right. At the time. Yeah. But I figured it out pretty quick to my credit. Come on.

Cameron Passmore: That's my point.

Ben Felix: But most people don't.

Cameron Passmore: But not every advisor has an MBA or engineering background.

Ben Felix: I've read a couple of things about expected consolidation in the Canadian asset management space, just due to these new regulations that CSA is rolling out. There was a letter written by Ian Russell, who's the president of the Investment Industry Association of Canada, IIAC. He wrote a lot about, well, basically what I said, that he expected to be a lot of consolidation. And he's worried about the industry and he's worried about the clients. And he thinks that firms might have to close because they can't deal with the new compliance requirements and they can't deal with having to disclose all the embedded commissions and things like that. I thought that was pretty interesting because all of those things are just not issues for us.

Ben Felix: We are independent, but we're also financially stable as a firm. We're big enough I think that we've got some scale. And all the disclosure we've been doing since before it was required, fee-based. We've been doing that since way before it was even a trend. So I'm not too worried about all of that. Famous last words maybe.

Cameron Passmore: But in the end, people want to deal with people they know and like and trust, that are going to be here. The bank model is to, in my opinion, keep you dedicated to the bank brand. And whoever is in that seat happens to be the person of that day. But over time, I hear people tiring of telling their story over and over again, whereas here we know the people, our team knows everybody. So it's a whole different environment.

Ben Felix: Yeah. Yeah. And that's totally what people want. Our clients want that anyway, but that's why they're calling us I guess.

Cameron Passmore: How can you give advice if you don't know the client, like really know the client, what are they thinking, what's going on in their lives? You can't walk up to a counter and expect adequate, thoughtful advice.

Ben Felix: Sure. That's at the bank branch, but even you look at most people giving financial advice... and I mean, I'm not in everybody's office, I don't know, but a lot of people out there are still giving advice based on either product or security selection with not even a consideration for financial planning advice. And it's like, yeah, you don't know the client. You know their portfolio. You know which stock you're going to recommend to buy next or which fund or whatever, but that's totally different from our model. I mean, you look back that's even before indexing was part of PWL. That was the business model. It was the combination of planning like financial advice and portfolio management, which nobody was doing at the time.

Cameron Passmore: It's that integration. And I'm sure people are doing it out there.

Ben Felix: It's more common now.

Cameron Passmore: I've had a number of common meetings with clients and their other advisor and the stories that come out about the picks that they're doing, it's crazy when you know the academic evidence that this is basically nonsense. It does not have a higher expected return.

Ben Felix: Do we have a lot of clients with multiple advisors?

Cameron Passmore: I've got a couple I've done. I've just seen it firsthand or heard the stories.

Ben Felix: Huh? Really interesting. Jonathan Clements had a neat post that you sent me over the weekend. I don't remember what the title was, but he was writing about how he's still waiting for all these predictions to come to fruition. So like-

Cameron Passmore: These are predictions he made like 20 years ago.

Ben Felix: They're just general predictions.

Cameron Passmore: He talks about in the article, going back years, waiting for these things to happen.

Ben Felix: Yeah. So stocks returning to their historical valuations was an interesting one. Interest rates rising, inflation coming back aggressively, all this kind of stuff. But he's basically saying all this stuff that people always worry about or say, "This is going to happen tomorrow," it hasn't happened and he's speculating. He doesn't think it's going to happen now. Who knows?

Cameron Passmore: And Rob Arnott in that podcast this morning I listened to with Barry Riddles, talked about how this is why you have higher expect returns in the markets is to put up with this worrying, so get used to worrying. Worrying is normal and we've heard everything. Over the years, there's always something to worry about, which is why you have higher expected returns. And to have a plan in place, an asset allocation in place, such that when the markets do move around for whatever reason, you rebalance automatically.

Ben Felix: Right. Yeah. I wrote a post about uncertainty this week. I think [inaudible 00:23:43] in his book, Antifragile, defined uncertainty really nicely when he's talking about black swans. He says an annoying aspect of the black swan problem in fact, the central and largely missed point is that the odds of rare events are simply not computable. So we talk a lot about uncertainty and volatility in the stock market and things like that, but the reality is uncertainty is not something that can be measured. And I think that based on the human biases that affect all of our thinking, at any given time, the world feels as uncertain as it's ever felt. I always think-

Cameron Passmore: However, we've had like 10 years now good equity returns and we just put out a performance report. Returns have been good for balanced portfolios, but when you isolate the bond returns, the fixed income returns, they're flat plus a minus a little bit for the past year, which has caused some clients to ask like, "Why do I hold these things? I could have bought a GIC and had a guaranteed rate," or, "Why didn't I have all equity?" So people are kind of forgetting what the risk was like back in 2008 because I remember 2008, people want to increase their allocation to bonds after 2008 happened. It's a huge recency bias going on.

Ben Felix: Always. And he started looking at world events like Trump and potential wars and all that other stuff that happens in the world. And at any given time, it feels like this is new, that there's a potential trade war that's a new thing or that there is a potential war that's a new thing. Those things aren't new. They've been happening forever. So in that blog post that I wrote about uncertainty, I looked at... Now, I'm going to talk about volatility. Volatility is not a great measure of uncertainty, but when you think about uncertainty, if investors start to view the market as being riskier or they anticipate worst economic times, discount rates might increase, which means stock valuations have to decrease because it's stocks.

Cameron Passmore: Which means higher expected returns. To compensate you to hold to take the risk.

Ben Felix: Right. Well, that's the discount rate. The discount rate increases. Yeah, you're right. Prices come down, which means the expected return goes up. So anyway, on the topic of volatility, I wanted to see what has volatility been like in the past. So I went and took the CRSP 110 Index, so that's the total US market, and I looked at the 10 year standard deviation for each decade starting in 1926, so 1926 to 1936. And yeah so on. 1926, 1936 standard deviation was high like 30.

Cameron Passmore: Mid 30s right?

Ben Felix: Yeah. 31, which was high. Every other decade, pretty close in the sort of 16, 15 to 17 sort of range.

Cameron Passmore: So that means the annual return could swing plus or minus that amount.

Ben Felix: 65% of the time.

Cameron Passmore: Yeah. Two thirds of the time.

Ben Felix: Yeah. But the interesting observation was that 10 year standard deviation has been pretty much constant over time. And I think people have a feeling that with Trump and things like that, we're in unprecedented times. I mean, there's been stuff happening in the world always.

Cameron Passmore: When your portfolio is 17% lower than you expect, everybody wants to attribute a reason. And when something happens, much like in a car crash, you want to do something to prevent the crash because you have this emotional need to feel like you stepped in. No. Stick to the policy. Rebalance your portfolio. And even in good times, like now there's always stocks that are falling in price. So for someone to hold them because remember everybody, every stock has to always be held by someone and every stock is traded, therefore all information is priced into it. Price discovery happens all the time. Someone's going to hold it. They're going to pay you less, which means they have to take on a higher expected return to take on that risk, so I think it's a risk story.

Ben Felix: It is. It's always a risk story. I listened to that Rob Arnott podcast this morning too and one of the things that was really interesting that you talked about and I've heard this before from, I think Patrick O'Shaughnessy, but just about how the value return comes from rebalancing, which obviously like you buy a value stock, when it stops being a value stock is when you get the higher return.

Cameron Passmore: It's gone up.

Ben Felix: Exactly.

Cameron Passmore: So you're selling high. Taking those proceeds and going and buying something that went down. You got this machinery going on all the time, much like a small cap. Well, if some stock became a smaller cap is because it was a big cap, which means it went down in price. So it's really a price story.

Ben Felix: Or if you own all the small caps and they stop being small caps, which some of them will, and you rebalance out of them into more small caps, you keep running the same machinery. And you're always-

Cameron Passmore: People get this. When I explain this to people, they get it. It makes sense.

Ben Felix: The same thing between stocks and bonds, same thing. It's exactly the same thing. It's just that the rebalancing return that you're getting by rebalancing into the assets that are relatively low in price and out of the assets that are relatively high in price. Yeah. Anything else?

Cameron Passmore: No, that's a pretty good list I think for week three, I believe.

Ben Felix: This is episode number three. We'll back next week.

Book From Today’s Episode:

Antifragile — https://amzn.to/2RsWqQ3

Links From Today’s Episode:

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

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

Report on the Housing and Mortgage Market in Canada — https://mortgageproscan.ca/docs/default-source/consumer-reports/housing-and-mortgage-market-report_july2018.pdf

'Federal policies suppressing housing activity, creating a negative shift in sentiment for homebuyers, according to latest consumer report' — https://www.newswire.ca/news-releases/federal-policies-suppressing-housing-activity-creating-a-negative-shift-in-sentiment-for-homebuyers-according-to-latest-consumer-report-689075951.html

'Amazon’s eating the world – and the stock market' — https://www.bnnbloomberg.ca/amazon-s-eating-the-world-and-the-stock-market-1.1114396

'Is Amazon Changing the World, and the stock Market?' — https://csinvesting.ca/blog/2018/8/3/is-amazon-changing-the-world-and-the-stock-market

‘TD Bank becomes Canada's biggest money manager with $792-million deal to buy Greystone Managed Investments' — https://business.financialpost.com/news/fp-street/td-bank-to-acquire-greystone-managed-investments-for-792-million

'Banning Embedded Commissions Would Not Have Fixed Financial Advice in Canada' — https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmore/Advisor-Blog/Cameron-Passmore/August-2018/Banning-Embedded-Commissions-Would-Not-Have-Fixed

'Transforming Practices in the Wealth Business: A preliminary assessment of the June 2018 CSA reforms to the client-advisor relationship' — https://iiac.ca/wp-content/uploads/IIAC-Letter-from-the-President-Vol.-120-July-2018.pdf

'Not So Predictable' — http://www.humbledollar.com/2018/07/not-so-predictable/

'In these uncertain times' — https://csinvesting.ca/blog/2018/8/3/uncertain-times