In this episode, Ben Felix and Ben Wilson tackle a wide range of listener questions covering portfolio construction, home-country bias, currency exposure, ETF selection, retirement decumulation, leasing versus buying a car, discounted cash flow valuations, and the real work of portfolio management. Along the way, they revisit the Rational Reminder model portfolios, discuss how new products like CAGE have changed the DIY investing landscape, and explore whether Warren Buffett’s long-term record still provides evidence that active management can outperform.
The conversation also offers a behind-the-scenes look at PWL Capital’s planning-centric approach to wealth management and why helping clients make better financial decisions often matters more than portfolio construction itself.
Key Points From This Episode:
(0:28) Why AMA episodes have become less frequent despite hundreds of listener questions waiting to be answered.
(2:07) Ben shares observations from PWL’s growing institutional investment business and why low-cost, planning-focused institutional advice remains surprisingly rare.
(6:37) Revisiting the original Rational Reminder model portfolios and how newer products have simplified implementation.
(10:09) Should U.S. investors underweight the U.S. market relative to global market-cap weights?
(11:07) Research, home-country bias, and Ken French’s arguments for overweighting domestic stocks.
(18:11) Asset-allocation ETFs in retirement: Is there any benefit to separating stocks and bonds during withdrawals?
(21:03) Leasing versus buying a vehicle, opportunity costs, depreciation, and convenience.
(26:13) Currency exposure, RRSPs, withholding taxes, and common misconceptions about USD-denominated ETFs.
(30:30) If Dimensional funds were unavailable, what would Ben choose instead?
(31:26) Are there any popular ETFs investors should avoid? A look at Canada’s largest ETF holdings.
(38:28) Why discounted cash flow models often produce wildly different valuation estimates.
(41:47) What portfolio managers at PWL actually do when they are not trying to beat the market.
(45:57) Concentrated stock positions, client coaching, and helping investors make better long-term decisions.
(50:02) Why financial planning questions are often portfolio management questions—and vice versa.
(52:53) Helping clients navigate the transition from wealth accumulation to wealth preservation and spending.
(58:06) Revisiting Berkshire Hathaway’s long-term performance versus broad-market index funds.
(1:02:35) The challenges of active management as assets under management grow larger.
(1:04:22) Aftershow: Ben reflects on his experience appearing on Diary of a CEO with Steven
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, Chief Investment Officer and Portfolio Manager, and Ben Wilson, Head of M&A at PWL Capital.
Ben Wilson: And this is episode 414.
We're doing another AMA. I think it's actually the first one of the 2026 calendar year, so I'm excited to get back into some questions.
Ben Felix: Which means it's been like six months-ish since we did an AMA.
A lot of people ask, for more AMA episodes, people seem to like them a lot. I was going through the questions to choose them for this episode. There's like over 300 in the bank.
Ben Wilson: Oh, wow.
Ben Felix: And that's from what I downloaded in December, I think. And so there's probably a bunch more that if I reopen the form, there'll be more AMA questions.
So we're working through them slowly. But it's just between interesting guests that come up and timely topics that come up, we fell out of the cadence of doing an AMA. We were doing them very intentionally every third episode for a bit.
We'll try and get back into it now. I do think we have some good questions. We have some on the old Rational Reminder model portfolios.
An interesting question on what popular ETFs we would avoid, which is kind of hard to answer actually, but I tried to work through it. Someone asked if we were wrong about Warren Buffett's long-term performance back in episode, I think it was 335, where we talked about Berkshire Hathaway's long-term performance relative to index funds and the implications of that. Someone had a good question that introduces some interesting topics that we can talk about.
I do want to mention that we are recording this on May 26th and the episode will come out on June 18th. So when you're listening, it'll be far in the future relative to when we recorded it. I just mention that because it always feels a little bit weird talking to people far in the future because stuff can change.
Maybe some big event happened and the comments we make in this episode might feel out of touch for some reason or whatever. Just keep that in mind as you listen.
Ben Wilson: Either that or it just feels weird for us.
Ben Felix: Maybe. I don't know. Like some major world event happens and we don't mention it and it might feel out of place.
Ben Wilson: Oh, for sure. I get that.
Ben Felix: I'm going, taking my family to the West Coast of Canada for a little vacation.
So we're going to be gone for a couple of weeks. So we're recording this ahead of time because when this comes out, I will be on vacation. Real quick, before we get into the content, I do want to just mention that PWL's institutional business has continued to see a lot of success, which has been really cool.
It's a part of the business that I'm increasingly passionate about as I get increasingly familiar with the institutional space. It's one thing to read papers about or practitioner reviews about how institutions invest, but seeing actually what PWL is coming up against is really eye-opening. One of the things that we're seeing is that it's really hard to find institutional investment management service providers that will just take an institution's money, invest in low-cost index funds, not push active management and alternative investments and take a holistic planning centric view of the institution's objectives.
That service, as far as I know, maybe it exists outside of PWL, but it's really hard to find.
Ben Wilson: Yeah. There's been some really cool, interesting stories talking to Lucas on our team who has been involved in a lot of these discussions.
Ben Felix: Yeah. And we will get Lucas on at some point to talk about his learnings working with institutions and just seeing what else is out there in the institutional space. One of the really interesting things that we're learning as we onboard more institutional clients is that PWL's fees are broadly actually really similar to institutional service providers on the advice and implementation side.
Because there's always, just like with PWL, there's a fee that you pay to the firm to build the portfolio and give you advice and all that stuff. Then there's a separate fee for the investment products that they use to build portfolios. We're pretty similar on the advice and implementation side, right in line with all the other major providers in this space, which is cool because we didn't really know that when we were pricing the service.
But because we're using mostly low-cost index funds for institutions just to reduce tracking error, it's this whole interesting thing. We believe in Dimensional. We use that for retail clients pretty much exclusively.
But when you get into the institutional world, tracking error relative to index benchmarks matters a lot. It's really hard. What we're learning is that it's really hard for an institutional investment committee, which tends to turn over over time, which is normal.
It's really hard for them to buy into the Dimensional philosophy and deal with tracking error. We've pivoted to mostly using index funds for institutions. Because of that, Dimensional would be low fee too.
But because of the index funds, our total fee, the advice and implementation plus the product side, tends to be quite a bit lower because most institutional service providers are using actively managed funds and alternatives. Our total costs come in pretty low. The other interesting thing that we're seeing is it's increasingly clear to us that our planning-centric approach that we use for individuals and households, which in the institutional world just means thinking about the institution's cashflow needs and modeling long-term scenarios to inform spending policy and asset allocation, just like we do with households, is quite unique.
It's rare to find, from what we've seen, institutional service providers that are taking that type of planning view of an institution. I think that our retail background and our planning work with clients really informs how we're thinking about institutional service offering.
Ben Wilson: I find that part fascinating.
Not really surprising, but fascinating. Maybe there's not that much competition out there, but institutional business is a pretty large part of the marketplace, and it's just a bunch of active managers competing against each other for the most part.
Ben Felix: Yeah. Well, the service is so focused on asset management. We're going to build a better portfolio as opposed to how can we help the institution make better long-term decisions, which is, I think, what we're really focused on. One of the AMA questions that you'll speak to, Ben, we talked about how we think about that on the household side, on the retail side, but the same value applies to institutions.
It's just not commonly thought about that way. Anyway, I think that our roots with a planning-centric approach for households is really putting us in a unique position to add value to institutions. All that to say, if you're listening and you're on an institutional investment committee, we'd love to talk to you or your committee or your board about PWL's approach and how it differs from what else is out there.
We will get Lucas on at some point, like you said, Ben. He's got some really interesting stories and learnings from working with our institutional clients.
Ben Wilson: Great conversation for sure.
Ben Felix: All right. Let's get into AMA number 12, I believe. I'll read the first one.
Hi, everyone. Kindly, can you ask Ben Felix if he still agrees with the Rational Reminder model portfolios from the past or if he would modify it and how he would modify it if he did? I feel like we've answered similar questions to this in the past, but I think it's interesting to speak to now because I still agree with that model in the sense that it's an overall good portfolio and it was designed to get as close as possible to the Dimensional model portfolios that we use for clients, but using the ETFs that were available at the time.
The big thing that's changed more recently is that there are now funds like CAGE available in Canada, which is an asset allocation ETF using Avantis funds to build a single ticker ETF that has factor tilts. It's giving you a global portfolio just like what we use for clients with our Dimensional funds, but instead of using the US listed Avantis ETFs, small cap value ETFs to get a factor tilt in there, using CAGE gives you that in a single ETF. I today would be a little bit more hesitant to tell people, hey, you should use that old Rational Reminder ETF model, not because I think it's a bad model, but because I think CAGE is just so much easier for people to implement.
That being said, I have heard from as I've started talking about CAGE and we've had Avantis folks and CIBC folks on our podcast to talk about it. A lot of early adopters of the old Rational Reminder model portfolio are still using it successfully and they've found ways to implement it efficiently and then they don't find the currency conversion and the rebalancing to be bothersome, which is great. If people are still using it, I still think it's a decent model, but I do think there's a ton of value in simplicity.
We saw something similar actually with Dan's model portfolios. I had Justin Bender's model portfolios on his website over time is that they went from having lots of individual ETFs and it was like, here's how you can build your own model, but they over time transitioned to just presenting the asset allocation ETFs that are available to investors as being like here, if you want to implement this asset allocation, you can use this asset allocation fund. That's just because of their observation, seeing people trying to implement the more complex models, it's hard and it's another thing to think about.
All that to say..
Ben Wilson: Yeah, it's just more involved. Simplicity shouldn't be understated.
When you buy a single all-in-one ETF or fund, the decisions made, you don't have to go back, rebalance. You don't have to keep track of it throughout the year. It's just one and done.
As you have new money, you add it into the same fund and just easier to manage, especially if you have a full-time day job where this is just a hobby on the side.
Ben Felix: Yeah, I agree with that. To answer the question, I still agree with that old model portfolio.
I think it's worth rethinking how to implement it using some of these new Canadian listed Avantis funds as opposed to the US listed tickers. You still have to think about things like what account type you're in. Using the US listed Avantis funds for US equities, specifically in an RRSP account, you're still going to save a layer of withholding tax, US dividend yield's pretty low right now anyway.
It's not a huge deal either way. I think the thing that has changed from my perspective on the Rational Reminder model portfolios is there are now new products available. The original model was really a workaround because there were not products available in Canada.
I would think about that carefully for anybody deciding whether they should implement that old model now, given that there are new products available that do a lot of the work for you.
Ben Wilson: Agreed.
Ben Felix: You want to read the next question?
Ben Wilson: Yes. Next question is, for a US-based investor, what are your thoughts on underweighting the US relative to its market cap? I.e. instead of 65%, how about 50%? My reason is that the US market cap is high relative to its historical average, and international is much cheaper. So why not buy low international and emerging markets? Another related question.
In general, the podcast definitely seems to promote home country bias. However, as a US investor, I feel a little lost. Tilting toward the US even more than the current global split leads to a lot of concentration.
Would you still recommend a home country bias even to US investors or maybe even an underweighting?
Ben Felix: Oh, that first question was from Marcel. I forgot to say that.
These ones were from Danny and Otter Taco Bean. It's an interesting name. I wonder if that's a given name or an adopted name.
Ben Wilson: I would assume adopted, but...
Ben Felix: I don't have a really strong opinion here. If someone wants to be whatever below market cap weights for the US allocation, I don't know.
It's hard to think about what is the optimal amount. I did like how Scott Cederburg's results were pretty flat for home country allocations using domestic markets, which is what they were looking at. But their results were pretty flat for home country allocations, roughly between 10% and 60% in domestic stocks.
That's over a million bootstrap simulations. What they did is they compared allocations. The point of comparison was the equivalent savings rate that you would need to match the expected household utility or retirement consumption and bequest across the million bootstrap simulations where they're using a whole bunch of historical data for I believe it was 39 countries.
They're comparing the savings rate to the optimal base case, which is the 33% domestic allocation. Now keep in mind that the optimal case in their paper, the base case, is using a 10% savings rate. Then they're asking what would the savings rate be for these different allocations, different home country allocations.
10% is the baseline. Then they're looking at how much does it change if you do something different from the optimal allocation, which again is 33% domestic. The equivalent savings rate is below 11%.
At a 10% domestic allocation and at 60% domestic, it's around 11%. It's a chart, which we'll show in the video, not a table, which is why I don't have exact points, but it's pretty close to the optimal base case between 10% domestic and 60% domestic. It's a pretty big range of domestic allocations that are pretty close in terms of the end result.
To hit that optimal 33% allocation to domestic stocks in Canada, which is what we've always done, which was great confirmation bias when this paper came out because we'd been doing that for years. To get to that 33% allocation to domestic stocks in Canada, we are way overweight relative to market cap, which is about 3%. If someone in the US wants to be 50% US instead of market cap, so say it's around 65%, I don't have great arguments against that.
If someone says they want to be 50% instead of, okay, sure. It's fine. That being said, I think it is worth considering Ken French's arguments he has made for home country bias as a US investor.
This is all, I'm going to be quoting Ken French from a post that he wrote for Dimensional. Ken says, my pro rata slice of the global market portfolio would probably be a fine choice for my portfolio if my preferences and circumstances matched those of the global average investor. He's saying, if you are the global average investor, just market cap weight everything.
But then Ken's point and what he goes on to say is, but his preferences and circumstances don't match the global average investor. He says that the differences between him and the global average investor help him think about how his portfolio should be different from the global market portfolio. Then he talks through for the US allocation.
He says, I live in the United States. Almost everything I buy will be denominated in US dollars and I may not be treated as well as local investors in foreign markets. All three facts lead me to overweight US investments.
Then he adds some more detail to those points. First, economists talk about something we call keeping up with the Joneses and younger readers know that as FOMO or fear of missing out. The point there is that if your neighbors overweight US investments, you can reduce your risk of suffering while they prosper by also overweighting US investments.
He's saying like most US investors have a home country bias. If you yourself decide not to and the US market does well, you might be sad. Then he says, since the things I expect to consume are priced in dollars, investments denominated in other currencies have an extra risk.
The dollar payoff from a foreign investment will be smaller if the foreign currency depreciates. Then he goes on to say, local investors have an advantage over foreigners in some markets. Foreigners sometimes pay higher effective tax rates than locals, which for sure is something that we see in Canada too.
In some countries, capital controls make it difficult for foreigners to repatriate their wealth. It's another interesting point. Then he brings up Argentina as an example, which instituted restrictions on the flow of capital in 2019 and that continues to be a challenge for foreign investors.
Ken says that those and similar factors push him and other US investors to overweight US investments and underweight foreign investments relative to their market cap weights. Then he also comments that this seems to be a universal result because as a group, locals overweight the investments of their home market. It's interesting.
It's saying here's the reasons that you might overweight your home country stocks. On top of that, empirically, that is what people tend to do. That often gets talked about as a mistake.
Too much home country bias probably is a mistake. Ken's point is that there's probably information in the fact that most domestic investors overweight stocks in their home market. It can't all be a mistake.
There's probably some sense behind that, which are related to the points that Ken made.
Ben Wilson: I think he makes some good points. The point about comparing to the neighbors, I always find an interesting one.
It may be true, but how many people are comparing line by line their portfolio with their neighbors'? You might feel a little bit better, maybe not, but I think it's an interesting way to think about regardless.
Ben Felix: Before our time working with clients directly, Ben, in the early 2000s to 2010 or so, it did happen in Canada where Canadian stocks did really well.
The Canadian dollar did really well. US stocks over that period did not do well. It's the US lost decade.
In Canadian dollars, they did even worse. I think that even if you're not comparing line by line your portfolio to your neighbor, there's definitely an effect where Canadian stocks had done really well.
Ben Wilson: Oh, for sure.
I just meant more in the context of this question when we're asking from the US perspective, like US, whether you pick 40% or 65%, you're still going to have a large portion of your portfolio relative to a global market. In the case of Canada, I definitely agree. For most people, there's patriotism and just wanting to invest in your country because you want your country to do well.
When it does well, you want to benefit. I think there's definitely value there for a country like Canada who makes up such a small portion of the global stock allocation. Just the US is such a monstrous part of the global stock allocation.
It's more just a preference in my opinion.
Ben Felix: Let's not forget that to Ken's point about the treatment of foreign investors, nothing crazy has happened, but there's been a lot of unusual geopolitical tension. There have been times where I've thought, geez, I wonder if anything is going to happen to foreign investors in US stocks or US investors in foreign stocks.
It hasn't happened yet, but Ken's point, and Fama has made this point when he was on this podcast as well, it could happen. That's an additional risk that you bear by going outside of your home country.
Ben Wilson: Agreed.
Ben Felix: Okay, the next question. In decumulation, would you use an asset allocation ETF such as VBAL or break up the stock and bond allocation so that you could avoid selling stocks when they're down? Pros and cons.
It's an interesting question. I think it's a bit of a misconception. It is true that asset allocation ETFs are always rebalancing, but it's not really true, and I'll try and explain why, that you're selling stocks when they're down using an asset allocation ETF in a way that's different from what you would be doing while maintaining the same allocation yourself.
If you're managing, say, two ETFs, a stock and a bond ETF yourself, you might sell your bonds down if stocks have dropped to avoid selling stocks. Yes, you're selling bonds instead of stocks, but if you think about what's happening in the asset allocation ETF, it's buying stocks while they're down. It's rebalancing into cheaper stocks.
Then if you sell a slice of the asset allocation fund, you're selling stocks that you just bought while they were down, which I think ends up being a pretty similar result overall, assuming that you're maintaining your allocations. If you're rebalancing your two ETF portfolio and the asset allocation ETF is rebalancing itself, it is true that you're selling a slice of stocks instead of just selling the bonds to rebalance, but you're also buying stocks when they're cheap because the asset allocation ETF is constantly rebalancing. I don't think it makes a difference.
I think you're in a very similar position if you're selling slices of VBAL versus managing a 60% stock ETF and 40% bond ETF portfolio and rebalancing it over time.
Ben Wilson: The question almost implies, though, that they're proposing some version of market timing because if you do have the separate and that introduces another question, if you are going to sell a portion because the market's doing one thing or another, when do you rebalance back to your target asset mix? If you're making those tactical decisions, that might be a bigger impact to your portfolio than maintaining it and splitting it up or using an asset allocation ETF.
Ben Felix: Not necessarily in a good way.
Ben Wilson: For sure. Could get lucky, but it could have a much more dramatic impact to your portfolio in the negative direction.
Ben Felix: That's why I specified that assuming you're rebalancing your ETF portfolio, but you're right. The question does, to the extent that it implies market timing, I think that's a whole other conversation.
Ben Wilson: I agree with you.
As long as they're maintaining the target asset mix, it's almost a moot point. It's probably easier to just use the asset allocation ETF. Again, going back to the first question, there's value in simplicity.
Ben Felix: If you have cases like the COVID crash, the automatic rebalancing of all-in-one ETFs, the asset allocation ETFs, and we saw this with Dimensional portfolios too, was really valuable because of the violent swings that we had. Stocks dropped a lot and if you chose not to rebalance at that time, you missed a bunch of the rebound, which in that case happened very swiftly and very aggressively.
Ben Wilson: Exactly.
Ben Felix: This is one that I'm definitely interested in your thoughts on, Ben. You've talked in the past about leasing a car instead of buying it and that some of you preferred it. Can you discuss this in more detail?
Is it a financially smart decision or a pure luxury? I think in principle, like when you lease a car, you're predetermining the amount of depreciation that you're going to pay for. All new cars depreciate.
They depreciate pretty quickly as soon as you drive off a lot. You're going to pay that depreciation whether you lease or whether you buy. When you lease, you're predetermining what that depreciation is.
When you buy, the depreciation could be higher or lower than the lease residual that you would have set with a lease. I think if you're buying used vehicles and driving them into the ground, that's probably going to be better financially than leasing new vehicles. If you're going to buy new vehicles and get new ones every whatever it is, three or four years, I think leasing can be pretty close financially.
I personally really like leasing because you wash your hands of the vehicle at the end of the lease. If you want to buy it at the end of the lease, you can do that too. I've got four kids.
We use our vehicles a lot to transport them around. The doors get dinged up no matter how careful we are. Knowing that I don't have to worry about that at the end of the lease, we pay an extra, I think it's like 700 bucks for damage protection.
If the doors do get dinged up, you don't have to worry about it. You just give the vehicle back and it's the end of it. For me, the not having the mental overhead of worrying about the maintenance on the vehicle, you still have to take it in to get it serviced.
Things go wrong, we always lease within the warranty period. You just don't have to worry about it. If things get dinged up, you don't have to worry about it.
For me, it's much lower stress to lease. I think you just went through this decision.
Ben Wilson: Yeah, I did just go through this decision.
The recent car I got, I did decide to lease and that's the first time I've ever leased before the cars that we've owned. I think the car before, the car my wife drives, the van for the kids, that's the first brand new car we bought and that was just exciting. We wanted to get a new car and we financed it at a very low rate.
Bought that car in 2019, I guess. So it's been quite a few years and still in good shape. It's a family van with the kids.
They're trashing it inside and probably going to leave it like that until they're a bit older to the point where they're not complete slobs in the back seat and we have to get it detailed multiple times a year just to keep it clean. But the leasing became attractive to me when I traded in my car recently for the reasons you just stated. Having the car in warranty for the whole period of the lease.
The other point you didn't mention is whether or not this works out to be true. Just the opportunity cost of not putting down a big lump sum on a car up front and just paying the lease premium month by month. That's attractive to me.
It may come out in the wash at the end but it just feels better to pay a monthly payment rather than spend $40,000 or $50,000, whatever the car costs. So that's pretty attractive to me and then depends on the consumer behavior. If you are going to want a new car within three to five years, you're probably better off leasing.
If you're getting beyond the six, seven to 10 years, owning a car long-term, there's probably some value there. But I like the idea of being able to swap in for a new car within three or four years and not having to worry about it.
Ben Felix: I would say it probably is a luxury because it's equivalent to buying a new car every few years, which that is without question a luxury, but given that is what you would want to do, yes, it's a luxury, but I do like driving newer vehicles that are in really good shape.
Could I save more money by buying used vehicles? I could go and get a beige Toyota Corolla. I couldn't fit all my kids in there.
Ben Wilson: In a wood panel station wagon?
Ben Felix: That'd be cheaper for sure.
Ben Wilson: When you have family and kids, there's safety concerns.
Older car, there's maybe more risks. There might be some luxuries and maybe it is a luxury, but if you have the means to afford it and you care about new working vehicle safety features, the most up-and-coming safety features for your family and just driving a new car, then it's attractive. But if you got a car that checks all the boxes and you don't care, then keeping one longer term and owning it is probably going to save you money over the long run.
Ben Felix: Some people talk about buying used vehicles, keeping them in really good shape, maybe even improving the shape that they're in over the time that you own it. Then sometimes you can even sell them for what you paid for them or maybe even more. That's financially great, but I don't want to do that.
If I were a mechanic, maybe I would do that.
Ben Wilson: Yeah, I don't really view my car as a big financial decision or opportunity. It's a consumption.
I need a vehicle to get me from point A to point B. I want a vehicle that I'm going to enjoy driving and I like driving new cars. That's just a preference, not necessarily the right answer for everybody.
Ben Felix: You want to read the next one?
Ben Wilson: Yeah, next one. USD is one of the strongest currencies in the world and seems like the gap between CAD and USD has grown over the last decade.
Would you recommend holding some stocks in USD in an RRSP where the tax treaty exemption is in place? Thinking about mimicking VEQT allocation, but with a 60 USD, 40 CAD split to further diversify. This question comes from Stan.
Ben Felix: It's a bit of a common misconception. Owning an ETF denominated in one currency or the other, in Canadian or US dollars in this case, doesn't matter to your long-term returns measured in your home country. Assuming all is equal, like the treatment of foreign withholding taxes was mentioned.
We'll talk about that in a second, but assuming all is equal, the fees in foreign withholding taxes, owning a US listed ETF of US stocks or a Canadian listed ETF of US stocks that trades in US dollars gives you the same return measured in Canadian dollars as a Canadian listed ETF of US stocks that trades in Canadian dollars. There's no currency diversification benefit from holding ETFs that trade in USD because the Canadian listed Canadian dollar denominated fund of US stocks reflects the currency return. I think where the confusion comes from is that people look at the relative returns of Canadian and US listed ETFs of the same underlying and see that they've performed differently, but that difference is coming from the fact that a US listed ETF's returns are measured and reported in US dollars and a Canadian listed ETF that trades in Canadian dollars, the returns are measured and reported in Canadian dollars. If you compare them, the returns will be different, but if you bring it all back to the same currency, so if you're measuring everything in Canadian dollars, the returns will be close to identical. Now, it is true that in an RRSP, a US listed ETF of US stocks bypasses US foreign withholding tax on dividends, so that can be a reason to opt for US listed, but there's no currency diversification benefit.
It's a separate thing. The only way to change your currency exposure would be to purchase an ETF that's currency hedged. If you purchase a Canadian listed fund of US stocks that is currency hedged, that might give you something closer to the US dollar return, but delivered in Canadian dollars because the currency exposure is hedged away.
Now, all that said, I think it's also worth mentioning that it's really hard to take a position on future relative currency returns. Looking forward, does it make sense to have more exposure to one currency or another? We can't really know that.
The Dimensional portfolios that PWL uses do have a partial currency hedge. Now, it's hard to say whether that's optimal or not on a forward looking basis. All the analysis that I've seen on currency hedging is very mixed.
There can be long periods historically where, and we've seen this, I mentioned it earlier, where the Canadian dollar appreciates a lot relative to the US dollar over an extended period of time. That can make US stocks look really bad measured in Canadian dollars. Then more recently, it's gone the other way.
Most recently, it's been not that interesting, but from 2000 to 2010, Canadian dollars appreciated relative to US dollars, then it went the other way following that period. That can meaningfully affect in Canadian dollars, your returns of foreign stocks. The partial hedge that Dimensional does, which to be completely clear, I'm not claiming is optimal, but it kind of splits the difference.
The view on that when Dimensional designed those portfolios with input from the advisors that were using them is that the partial hedge minimizes regret. Where if you do get a long period of Canadian dollar appreciation, you're not going to be quite as sad with your foreign stock returns. If it goes the other way, it's only a partial hedge, so you're not going to be totally sad in that direction either, but all things considered, I don't think it makes a huge difference either way.
It's one of those things that's really hard to say should you currency hedge or not. A full hedge probably doesn't make sense. I think there probably is a little bit of diversification benefit from having exposure to foreign currencies.
Partial hedge, like I mentioned, kind of splits the difference.
Ben Wilson: We've had a lot of discussion about this internally and never really landed on a conclusive answer, but as you've said, it's kind of just a when it works in your favor, you're going to be happy to have the partial hedge. If it works against you, not ideal, but it's only a partial hedge.
You benefit some of the time.
Ben Felix: Next question. If DFA products were not available to you, would you then rather use an Avantis ETF like AVGE or a market cap fund like VT?
I personally wouldn't use either because those are US listed. I would personally prefer to use Canadian domiciled funds. I did say in the Rational Reminder community years ago that if I could not use DFA 607, like if I didn't work at PWL, I would probably just buy one of the EQT like VEQT or XEQT or ZEQT or whatever market cap weighted ETFs just for the simplicity.
I made that comment pre-Avantis having CAGE launched in Canada. If for some reason I lost access to DFA, I would probably use CAGE before going market cap weighted. For the reasons we mentioned earlier, it still gives you that globally diversified, internally rebalanced portfolio, but it has built in factor tilts.
Ben Wilson: Makes sense. I agree. If we believe that the factors premiums exist and will continue to exist, which we do, that's why we use Dimensional with clients and it's a natural parallel option for a DIY investor to use the Avantis CAGE ETF.
Next one. Are there any widely used ETFs that you would stay away from and why from Isaac?
Ben Felix: I read this question and I was like, oh, that's an interesting question.
Then I was like, how do I measure what a widely used ETF is? What ETFs is Isaac referring to? I don't know.
I did something that ended up being kind of interesting, trying to think about how to measure it. I looked at the top 20 Canadian listed ETFs by AUM. Together, these ETFs cover just under 400 billion in AUM.
Interestingly, this was genuinely interesting. I didn't know what I was going to see when I pulled that list. They're mostly market cap weighted total market ETFs.
Good job, Canadians. You're allocating wisely.
Ben Wilson: Makes sense, but good to see that it's actually happening.
Ben Felix: Would have been different with mutual funds. I could have done that too and that maybe would have been interesting. I just didn't have time to do it.
The aggregate ETF portfolio of at least the top 20 ETFs is actually pretty good. I'll talk more about that in a second. The one exception, and this is one of the largest by AUM ETFs in Canada, it's a PIMCO actively managed fixed income ETF.
It is actually managed. It does have an 85 basis point MER, which listeners will cringe at. It's performed really well.
I do know other advisors in the sort of Dimensional Avantis index fund camp who do use PIMCO for fixed income. It's not like a totally crazy thing to do. As I mentioned, it's actually performed quite well.
It's got a little bit more duration than a Dimensional fixed income fund, for example. That's the only holding that was active. By far, the most popular underlying for all these ETFs is the S&P 500.
Of the top 20 AUM ETFs in Canada, six of them are S&P 500 ETFs. The single largest ETF by assets in Canada is an S&P 500 ETF. 32% of the dollars in the top 20 ETFs is in S&P 500 funds.
That was pretty interesting. Would I avoid the S&P 500? I don't know if I would necessarily say that, but just in case listeners don't know, the S&P 500 is an index representing 500 leading US companies selected by a committee. It's not the largest 500 companies. It's committee selected to be the leading 500 companies in the US stock market. It covers around 80% of the US market by market capitalization. It is leaving out 20% of the market. I would prefer to use a total market ETF rather than an S&P 500 ETF to get exposure to the remaining 20% of the US stock market. But when you look historically, S&P 500 versus total market, it's been pretty close.
Maybe some of that is just the fact that the S&P 500 has performed so well recently and smaller and mid-size companies have not performed as well, but the long-term data is pretty close.
Ben Wilson: I wouldn't say I would avoid the S&P 500 ETFs, but just as a caution out there, particularly to newer or less experienced investors, is that people often refer to S&P 500 as the go-to index, so may build their portfolio around that. It's not necessarily wrong, but you are just effectively making a concentrated bet in large US growth companies, which could pay off. As you said, Ben, it's been comparable performance over the years, but you are effectively making a geographical tactical allocation by choosing S&P 500 only.
Ben Felix: There have been long periods, like we mentioned the lost decade earlier, where the S&P 500 has delivered very low returns.
Ben Wilson: For sure.
Ben Felix: It is worth reiterating that caution that a lot of times people will say, yeah, I invest in index funds and it'll just be the S&P 500. Or you talk about the market and people like, well, the S&P 500 was up by so many points or down by so many points and that is their marker for how the global stock market is performing. With the amount of Canadian ETF assets that are in the S&P 500, the other thing that I got curious about was what does that aggregate portfolio look like overall?
Is it way overweight US stocks? Is it way overweight US large caps? I loaded up those 20 ETFs weighted by their AUM and modeled that as a portfolio.
It's so interesting. It ends up being roughly 80% equity, 20% fixed income portfolio and it looks almost identical to VGRO and XGRO in terms of geographic allocations and market cap exposures. Again, I didn't expect to see that. I didn't know what this was going to look like.
Ben Wilson: It's fascinating. It reinforces the market efficiency paradigm.
The example that comes to mind is Dimensional as part of their training use like the gumball machine example. Ask everybody in a conference to come and guess how many gumballs are in the machine and there are going to be answers that are way low, way over, but the average ends up being about close to the actual gumballs in the machine. It's very interesting that this is proving the same point.
Ben Felix: The top 20 ETFs portfolio does tilt slightly toward larger stocks, which is probably that big slug of S&P 500, but not that much. I looked at the top 20 ETFs portfolio has 47% in mega caps and 33% in large caps, but XGRO is 45% in mega caps and 30% in large caps. Slightly less large, but it's not that crazy.
Ben Wilson: Very similar overall.
Ben Felix: Geographic tilts were very similar overall too. The top 20 ETF portfolio is a little bit underweight emerging markets, but overall pretty close.
At least in the Canadian sample, thinking about that question, are there popular or widely used ETFs that you would avoid? I actually think the most widely used ETFs in Canada look pretty good. To your point, Ben, it's like the market has chosen a portfolio that is pretty similar to what Vanguard and iShares have put out and what Dimensional does too, although with different factor tilts, has put out as this is a pretty good portfolio for Canadian investors.
Now, the other way we can look at this is widely promoted ETFs, which is different from widely used, like how much do we hear about them as opposed to how much do they actually attract in assets. There's lots of stuff there, like covered call ETFs, which we've beaten that horse to death. Thematic ETFs, similar story there.
Those are ones that might get talked about a lot, but in terms of the actual usage, actual dollars in the funds, people in Canada, at least in the ETF space, seem to be making pretty good decisions, which I thought was interesting.
Ben Wilson: That's very cool. Cool data point.
Next question, do DCF valuations provide any useful information? I've been scrapping DCFs from many stock valuation sites for hundreds of stocks, and at least short-term, less than one year, the resulting values are just noise, and usually not correlated across multiple sites. From Alexandru.
Ben Felix: This is interesting. There is research on how well analysts' forecasts predict stock returns. They don't tend to be great.
I have more of a personal anecdote for this. One of my first realizations, when I started studying finance, that fundamental active security selection is really hard, came from me, myself, being an analyst on the student investment fund, while I was doing my MBA. It was a cool experience.
This is a fund with real money, managed by students at Carleton University. Lots of universities have similar funds. The students on the fund act as analysts.
There is an overall portfolio manager, who's also a student. It was overseen by a finance professor. Honestly, super cool experience.
If anybody listening is currently studying finance, I would do whatever you can to get onto the student investment fund. At least at Carleton, it was very competitive. You had to do a bunch of interviews, and it was not easy to get in.
I got in. I built a DCF, a discounted cash flow model for Apple. That was the company that I was assigned to analyze, and I had to pitch it to the fund, whether we should buy it or not.
We did have a model template for DCF analysis that was built by one of the analysts, who went on to be an actual professional analyst afterwards. The template was fantastic. It had tons of different parameters that you had to fill in.
I spent a ton of time going through every assumption, modeling it out. What I noticed was that my target price would swing wildly around with small changes to things like future revenue growth, steady state revenue growth, and the discount rate that you're applying to the future cash flows. I remember looking at that and just playing with the variables and seeing points of a percent would move the target price by huge amounts.
I was thinking, how can I possibly make a recommendation to buy or sell this stock with this information? It didn't make sense to me. This is pretty early on in my career learning about finance.
Then when I later learned about index investing and the general struggles of active management and the data around the value of analysts' forecasts, I was like, oh, okay. It doesn't actually work. I was not wrong to think that I could not accurately forecast the price of Apple.
Anyway, that's my experience with DCFs. I think Alexandru's observation is very accurate. This is a cool question, and I'm excited for your thoughts on this, Ben.
What does the typical day on the job as a portfolio manager at PWL look like, and how does it differ from a hypothetical manager who works at a run-of-the-mill financial services firm? Frankly, it sounds like the oversight of passive style portfolios like you offer would be pretty simple. What do you do with your time that you don't have to waste making active trading decisions or pitching access classes to your clients?
I want to hear what you say, Ben, but I will just comment before you start that this is one of the things that we have always found valuable about our investment philosophy. Yes, the oversight of passive style portfolios is pretty simple. What we do with the time that we don't have to waste making active trading decisions is exactly one of the main reasons that we've chosen this investment approach because there is a lot of stuff that we can focus on.
We call it focusing on the things that you can control because we cannot control market returns or security selection outcomes or anything like that. Ben, I'd love to hear your thoughts on this because you are still a client-facing portfolio manager at PWL.
Ben Wilson: I also talked to some other portfolio managers on the team to get input from them.
I think this is a good question and a question that often comes up in prospect meetings. When people think of portfolio managers, they're probably picturing an investment professional that's analyzing markets, picking individual securities, making forecasts, and trying to do things to position their portfolio for the next market opportunity to beat the market. At PWL, we've designed the portfolio manager role differently.
On purpose, our portfolio managers are all also CFP certified financial planners. They take both hats and summarize a combination of three main things. They focus on a deep understanding of their client, they take a disciplined investment approach, and also we want to make sure they have a thorough understanding of the financial landscape.
Then the value to clients often comes by bringing these three main areas together to offer personalized advice that improves the client outcomes. We do use the globally diversified factor-tilted portfolios through Dimensional, as we've talked about a lot on the podcast, because we believe in the core principles of investing that markets are efficient, we want to keep costs low, focus on global diversification and tax efficiency, while also being aware of investor behavior. I think the investor behavior piece informs a lot of decisions and shouldn't be taken for granted.
It also doesn't mean that our job as portfolio managers is simple. It means we spend less time trying to outguess markets and more time applying judgment where it matters most on the things that we can control for clients. As you mentioned, Ben, we want to take time to understand the client's full picture, getting to know them, understand their goals, their objectives, their financial needs, their current financial circumstances.
As we consider what's important to clients, we take the time to assess their risk tolerance, their time horizon, their personal circumstances, understand some of their behavioral tendencies, so that we can help provide customer advice that best sets them up for success. The context of a particular client situation matters greatly and can have a big impact on the advice we give to clients. Like for example, a client with a large pension in retirement might be able to take on more equity risk than someone that's entirely relying on their portfolio withdrawals.
Or a client with a big upcoming expense, we might need to plan for short-term cash in a high-rate GIC. Or someone with a big concentrated position, we'll help coach them through the implications of whether they hold it or sell it. But one of the biggest things we do, and we've got a lot of clients like this through our relationship with tech firms and other clients that have come into sudden wealth through company equity, where they have a large portion of their overall portfolio in a concentrated individual stock.
We want to help them to understand the trade-offs of holding or selling that position, but also the risk to their plan. Like I said, we have many clients where they came from a tech company, so a lot of their net worth was because of the growth in the company stock. There tends to be some sentimental value in holding that stock, or they feel like they have this insider knowledge and higher expectation of better returns for that stock, which may turn out to be true, may not.
But the reality is when you have a large portion of your portfolio invested in a single company, your full financial plan relies a whole lot on that single position. So we try to put into perspective and we often model out, here's what your plan looks like with the current value. What happens if it gets cut in half?
What happens if it disappears altogether to really show the client the implication? And that often leads to a decision like, I'm okay to hold for now. Or, wow, I didn't realize the lifetime value.
If I sell this, I'm locking in $10,000 a month of lifetime spending. Maybe I do want to take some risk off the table.
Ben Felix: It's not usually a one and done decision.
As you just mentioned, it'll often be a case of selling a portion of the individual security. But then over time, as the price of that stock changes, that decision is revisited many, many times. It's an example of an ongoing conversation with the client about their overall financial picture. It's not just we made this decision once and then we carry on.
Ben Wilson: And not every client is comfortable with the same approach. Some people take a more emotional approach to selling stocks like that.
And others, some of the clients that have done most effective strategy, it's been just a very pragmatic. Every quarter or every month, I'm going to sell X number of shares, X percent of shares, regardless of the market price. I'm just going to stick to that to remove the emotion.
And both ways work. No approach is right or wrong. It's just whatever you're comfortable with to get you to your goals.
Another big part of the role, especially when it comes to onboarding clients, is reviewing the existing portfolios of the new clients that are coming in. Help to look through and explain any issues. One of the biggest hurdles for a client coming in is, oh, I've got large embedded gains.
I don't want to sell these investments right away. The tax implications is an important consideration, but it's not the only consideration. We want to look at fees in the portfolio, but also like the after-tax implication of fees.
Once you consider forced capital gains distributions in a given year, for example, that the tax inefficiency compared to the Dimensional portfolios that we typically mention, any concentration issues or poor diversification, and try to build a plan that is in their best interest that they're comfortable with. And they understand the trade-offs of either prepaying tax or holding a more concentrated portfolio to spread the tax out can sometimes be the right decision, but there's also implications from that, from an investment performance perspective, there's trade-offs to all decisions. And we help the clients walk through those different scenarios.
I think a big part of our role that can often be underestimated is behavioral coaching. Reality is we're all human and no matter how much we feel prepared for any market condition or financial decision, there's sometimes things that come up that it's nice to have a sounding board to talk to an advisor and having a consistent defensible investment approach has been very much a welcome change for investors that have started working with PWL. When you come to us and say, okay, the stock market's looking a bit questionable, are you going to change your approach?
And we always come back with, no, we want to stick to the long-term plan. Our portfolios are designed in such a way to capture long-term returns. And we also kind of emphasize we have stress tested this plan to account for times where the market's more volatile.
And that often gives clients peace of mind. This ties into where the financial planning role matters because the investment portfolio is part of it. And when clients are asking investment questions, they may actually be asking planning questions.
Can I retire earlier? Can I spend more? Should I take a pay cut?
How much cash should I hold in my portfolio? Should I maintain or sell a concentrated position? How should I think about my asset allocation pre-retirement or post-retirement?
There's all these different questions. These are just examples. And every situation has to be tailored to that client situation.
And a more traditional portfolio manager might spend more time on product selection. We want to spend a lot more time diving into the financial plan, understanding their risk, building a strategy to help them achieve their goals in a way that's sustainable and manages their cashflow and helps clients feel better about the decision rather than focusing on the benefit of the portfolio itself.
Ben Felix: Every financial decision affects all parts of someone's financial situation.
You could, like you mentioned, that a lot of times investment questions are really planning questions. And I would say the reverse is true where planning questions are implicitly portfolio management questions. One of the things one of our portfolio managers said to me, I think they actually said that I said this, but I didn't remember saying it.
And then they said it to me. I was like, wow, that's such a smart thing to say. And they were like, you said that.
And I was like, oh. But it was our job is to help people make the decisions that they would make if they had the knowledge that we have. People make so many financial decisions and they often just don't have the knowledge of base rates.
They don't have the context. They don't know how all the different parts of their financial plan or financial situation connect together. And so our job is to when people have questions, when something in their financial situation changes, our job is to take that information and help guide them to a decision that they would make.
They are not us. Clients are different from their portfolio manager, but we can help guide the decision of the client to the decision that they would make if they had all of the knowledge that we have. So it's really imparting the exact knowledge and context that the client needs at that moment to make the right decision for them.
That can be an explicit portfolio management question, but it can also be all sorts of other things that come up in people's financial lives. And to the point that you made earlier, Ben, because we're not focused on all the other stuff, we are fully focused on this aspect of the advice and the client relationship. And this stuff comes up all the time.
People's financial situations are always changing. There are always new questions. There's always something happening either in their own lives or in the world that they're not sure what to do about. That is what our advisors are spending time working through with clients.
Ben Wilson: Absolutely. I often find that some of the clients that say like, well, what's the value in working with you?
Or when you work with an advisor, I think there's going to be seasons in your life where it's a lot more interaction with your advisors. There's a lot more going on. And then there's going to be periods of just coasting along and there's not much happening.
So you may wonder, why am I paying for this advice? You may not need it. If you've got it figured out, you've got the knowledge to manage your own portfolio, then that's a great option for you.
Some of these things come up at the time that's unexpected. Being able to have someone available basically on call anytime is helpful and that's where clients do find value in it.
Ben Felix: Not just someone, someone that's ingrained in your financial life.
Our client relationships are super close. We know what people's goals and objectives are. We know what decisions they have made in the past.
We know what decisions they've regretted in the past. When someone comes with a question, the advisor is able to work through it with all of that context specific to that person and their objectives and their tendencies and their past behaviors and all that kind of stuff.
Ben Wilson: One analogy I wanted to share on this question that Jordan on our team provided, he said one of the things he brought up in a prospect meeting recently was a helpful way to think about how we help clients is to think about how they accumulate wealth.
Most clients accumulate wealth in one of two ways, either quickly or slowly. If you accumulate wealth quickly, our role is often helping the client move from wealth creation to wealth preservation. The things that got them to their current wealth may not be the things that keep them there and you only need to become wealthy once.
The people that come into sudden wealth have a much more unique set of challenges than the people that have built and grown their wealth over time. The other group, if you've accumulated your wealth slowly, challenge can be different. These clients are used to saving, budgeting, being careful.
They may actually need help on the other side to give themselves permission to spend. There's been so many times where I've had client conversations and their plan is so secure that they could substantially increase their spending, but they don't know what to spend on and they don't change their behavior. But some of the best stories I hear from clients is when we have helped them to do things they didn't think were possible and gives them that freedom.
I've got a client that I've actually been talking to quite a lot recently. They have always been religious about saving as much as possible to reach this goal of financial independence. But as we talk about it, they probably don't actually want to fully stop working.
So they're saving all this extra money to the point where they have way more than they need and they're earning a high level income already. So one of the cool stories that came out of this is the more conversations we've had, the more they've realized, yeah, we could spend a little bit more. So they've gone on some trips.
They ended up buying a 3D printer, which is something that they were excited about. They did some work on their house that they're really pleased about. And before this was like a foreign concept to them, like, no, we want to invest as much as possible, pay off our mortgage as quickly as possible.
Then what? Now you've got all this extra money that's just going to build up and it feels great, but it's more than you need. So you might as well enjoy the money while you have it.
Just to finish this off, like we intentionally avoid unnecessary complexity in the portfolio. One, we believe this is truly the best way to approach portfolio management, but it also gives us the capacity to focus on what matters more. Helping clients to use their wealth wisely and make better decisions and to stay aligned with their goals over time is the true priority of our advisors at PWL.
Ben Felix: I think that's a great explanation. It really is a good question. Like, what are you guys doing with all that time that you would be spending analyzing stocks or whatever?
I mean, that's it. It's helping clients connect their money with living a better life and make good long-term decisions. I love that example of managing that trade-off between saving and spending.
Future consumption versus current consumption. I think you're right that a lot of people do get into the mindset that they want to reach financial independence as soon as possible. I mean, listeners know I've had my criticisms of the FIRE movement.
I think this is an example of that where the concept of being financially independent is great and people should, of course, aim to achieve that at some point in their lives, but figuring out how to balance that with enjoying life today and having memories with your kids and improving your house if you want to do that. Renovations. I shouldn't have brought that up.
It's hurting me. Anyway, managing trade-offs, helping people make good long-term decisions. As I mentioned before, this stuff comes up all the time.
The idea that we're not doing much because the portfolios are simple, I think that's not the case. I think we're able to focus much more on what really matters and what we have more control over, which is helping clients live better lives and use their financial resources as efficiently as possible, both for today and living a good life today, but also balancing that with what that means for the future. Then you overlay all the other complexities like tax and estate planning that we did not talk about much, and that's a whole other thing that gets overlaid on every one of those conversations.
Ben Wilson: This was the peak of the iceberg. We could talk in depth about every different area and the possible scenarios that we deal with, but the reality is that, as you said, each decision impacts both the planning and the investments. With that, there can sometimes be a ripple effect.
We have to be aware of the impacts of the decisions, both positive and negative, so that we can evaluate the best trade-off for a given client situation. There's situations that are similar, but we rarely take the cookie-cutter approach of, this model fits this client and this model fits that client. It's what are the tools in our toolbox and how can we use those tools to build a solution that makes sense specific for this client.
Ben Felix: The advisors are still grinding. It's super busy. They're constantly fielding questions from clients.
They're constantly in meetings. It's no joke. It's just that they're not spending that time on stuff that we don't believe adds value. All right. Last question.
Ben Wilson: The last question?
Ben Felix: In episode 335, what about Warren Buffett, you say that Berkshire Hathaway has underperformed the S&P 500 for the last 22 years, or that is what I think you said. I looked at the charts and it seems the opposite, that in aggregate, Berkshire Hathaway has outperformed the S&P 500 and on a year-by-year basis, Berkshire has outperformed the S&P 500 almost every year. Am I misunderstanding what you said?
Can you clear this up for me? I looked at the next episode and the end of year AMA episode and did not see a clarification. I hope I did not miss something.
David, and that question was submitted on March 10th, 2025, which is a date that will matter as I'll explain in a second. Also, yes, this question was submitted in March 2025, which shows you how behind we are on AMA questions. We're working on it.
The Berkshire Hathaway data in episode 335 was for the 22 years ending October 2024. At that time, and I went and double-checked this to be sure, Berkshire had indeed trailed VTI, which is what I was using as the benchmark, not the S&P 500, for 22 years. Now, here's the important part and why that date that David submitted the question matters, keeping the same start date, but ending on March 10th, 2025, Berkshire had narrowly outperformed VTI, which is likely why David was confused by my comments, especially compared to the S&P 500, which does not have a fee.
Comparing that would have been an even bigger gap. Extending the sample period to the day of writing these notes, which was data as of market close on I think May 22nd, 2026, Berkshire at that time had underperformed VTI for the full period, which now extended to closer to 24 years. The recent outperformance of VTI and relative underperformance of BRK at the time that we're recording, it's actually interesting.
It's enough that Berkshire has, at this moment in time, underperformed VTI going back to a start date of January 1999 through to May 22nd, 2026. Now, it's only three basis points annualized outperformance for VTI. Actually, it's not VTI.
I had to use VTSAX to go back that far. VTI didn't exist back that far. The fees would have come down over time on VTI versus VTSAX back then as well.
That long-term underperformance has now reappeared. I think there are a few things worth thinking about here. One is that long-term performance comparisons are highly sensitive to start and end dates, which is why if you really want to dig into stuff like this, it can make sense to use rolling periods, rolling return periods like a five-year rolling or a 10-year rolling period.
The other thing to think about is that valuations in the US stock market at the time of recording are very close to peak dot-com bubble valuations, at least measured by the Shiller CAPE ratio. Berkshire could look really smart for holding all that cash that they hold if US stocks start to deflate. Now, that being said, I could have made similar comments for the last decade or so.
US stocks look expensive, but over that time, Berkshire's cash holdings have not looked so smart. Buffett acknowledged that at a past shareholder meeting. He was asked about their performance and he did comment that all the cash they hold has hurt them while US stocks have gone on just an absolute tear over that period.
I think Buffett was actually being asked if they should just take all the cash they have in T-bills and stick it in an S&P 500 index fund. Buffett had said, yeah, maybe looking back, that would have made sense because we've been in such a strong bull market, but he also says that that would have hindered their ability to make the strategic moves that they did in the 2008 financial crisis. We'll see what happens, I guess.
The other thing to note here is that Buffett stepped down as the CEO of Berkshire Hathaway as at the end of 2025. Going forward, it's not even the Buffett question anymore. We'll be measuring the abilities of Greg Abel going forward, who, as I understand it, is more of an operator and less of a security selector than Buffett.
It's interesting that long-term comparison of does Buffett prove that you can pick stocks and beat the market, that era is over. At least for quite a while now, Berkshire has underperformed the market. David just happened to check the data on a date where that was not true.
It is now true again at this moment.
Ben Wilson: Interesting.
Ben Felix: We'll see.
Ben Wilson: When you looked at the data, is there specific periods that account for Berkshire Hathaway's outperformance or underperformance?
Ben Felix: Well, if you go further back, to be fair here, if you go further back, I started my original comparison was from 2002 to 2024. Over that period, Berkshire had underperformed by a bit.
If you go back further, Berkshire has outperformed by a ton. Buffett's lifetime returns are unquestionably market beating. It's just when you start in more recent history.
The point that we made when we recorded that episode, episode 335, was largely about the difficulty for active managers to continue doing well because the size of their fund, or in the case of Berkshire, the size of the company gets bigger and bigger. It makes it harder and harder to outperform, which Buffett has talked about in the past. I think Buffett's made comments like if he was managing whatever, a million dollar portfolio or a 10 million dollar portfolio, he has no doubt he can outperform.
Because Berkshire is so big, it's really hard to move the needle and you start looking more like the market. That is one of the challenges of active management. There's that.
Then a big thing is that Berkshire has not performed as well in recent history and the US stock market has continued to be on an absolute tear. You see it in the chart. There's this inflection point where Berkshire slows down and has some flatter, even negative returns, whereas the US stock market is just on this like hockey stick.
In recent history, that's really what it's been. Berkshire has not done great and the US market's done great. Again, if the US market crashes, that could change and that long-term performance data could change again.
It's interesting to look at it at a point in time and talk about it at a point in time, but the future could change those data as David, who asked this question, noticed.
Ben Wilson: Yeah, it makes sense.
Ben Felix: Into the after show.
Ben Wilson: Let's go.
Ben Felix: I'm pretty sure this is the first episode we've recorded since I was on the Diary of a CEO podcast where Steven Bartlett and I had a pretty wide-ranging discussion on all sorts of personal finance and financial decision making topics. That was an unexpected thing.
Ben Wilson: Wild.
Ben Felix: Yeah, it was wild. Came out of the blue.
I was not expecting that. I was pretty sure that I was being scammed and that I didn't believe that they were actually inviting me on the podcast, but I went and clicked through all the people's email addresses and confirmed they were real people that worked for real companies that Steven Bartlett runs. I was like, huh, this is wild.
Ben Wilson: Yeah, it's legitimate. They're actually asking me to come.
Ben Felix: Flew over to London, recorded with Steven, had almost no time to prep, which was an interesting part of the overall experience because it's like we had one prep call, pin down the general topics we're going to talk about, and then I basically got on a flight that night.
Flew to London, flew through the night, got there, had enough time to get to the hotel, shower, went to their studio, and then recorded. It was wild.
Ben Wilson: And then in your typical style, spent a total of 27 hours in London, England.
Ben Felix: Well, I didn't want to – what was I going to do? I had some dinner, walked around, checked out London a bit. It was nice weather.
It was nice to walk around, but I wasn't going to just, I don't know, stick around and hang out. I got stuff to do.
Ben Wilson: I know.
Ben Felix: So that was cool. It did result in some combination of that. One of the things we talked a lot about on that podcast was the PERMA model and just like the connection between money and living a good life.
I knew that there would be a lift to my channel and this podcast channel from me being on that podcast. So as soon as I got back, I cranked out a video on the connection between money and living a good life and got that recorded. I was like jet lagged.
It was brutal, but I was like, got to get this video because I think it's going to make a difference. That ended up being to date, like for the first whatever it's been now, four weeks since it was posted, the best performing video in channel history. So some combination of the interview with Steven and that video doing really well, which was probably partially because of the Diary of a CEO podcast, that's resulted in almost 40,000 new subscribers to the channel over the last month or so, which is awesome. It's cool.
Ben Wilson: Yeah, it's crazy.
Ben Felix: I also did two episodes with the BiggerPockets Money podcast, one on index investing and small cap value tilts and one on the FIRE movement.
There's lots of interesting discussion there. These have all been posted in the Rational Reminder community and discussed at length, which has also been interesting to read what other people think about those conversations. This episode should come out on June 18th.
On June 2nd, I will have had an episode with AdvisorAnalyst.com. Their podcast is called Insight is Capital. It's like a Canadian publication for advisors, but we had a nice conversation about all kinds of stuff.
People can check that one out if they want. That's all, I mean, recent content. Back in the day, we would talk about Netflix shows that we were watching, mostly that Cameron was watching. I'm just talking about content I did. I don't really watch anything else.
Ben Wilson: I was a guest on my first external podcast.
Ben Felix: Oh yeah, you were.
Ben Wilson: I was on the Future of Wealth Management podcast hosted by Joe Millott. He's at Fort Capital Financial Services.
It was a cool experience talking about what we're doing on the M&A side of the PWL business. We can link that in the show notes. If you're interested in checking that one out, feel free.
It was a cool discussion.
Ben Felix: No, that's very cool. Do you think your Rational Reminder podcasting helped prepare you for that podcast?
Ben Wilson: It definitely helped me be more comfortable speaking on a podcast. That plus speaking into a screen for the thousands of client meetings I've done has also helped.
Ben Felix: True. It's cool. Yeah, you did a good job on that podcast. It was a cool kind of different view of PWL and what we're working on.
All right, recent reviews. We do have a few. Got to do the disclaimer.
We have a few reviews from Apple Podcasts to read. Under SEC regulations, we are required to disclose whether a review which may be interpreted as a testimonial was left by a client, whether any direct or indirect compensation was paid for the review, or whether there are any other conflicts of interest related to the review. As reviews are generally anonymous, we are unable to identify if the reviewer, the client, or disclose any such conflicts of interest, but listeners can be assured we do not pay for reviews.
That would be a weird thing to do, in my opinion.
Ben Wilson: Yeah, I'll do the first one. Titled, Absolute Hidden Gem.
French listener here. I found this via Ben Felix's YouTube, and it's an absolute hidden gem. I love the unapologetically nerdy, rigorous approach.
I often use AI while listening to unpack complex concepts, and I've learned so much. One note, as a non-native speaker, listening on the go audio quality is make or break. Some older episodes with poor guest audio demand too much focus and are practically unlistenable for me.
Please continue prioritizing crystal clear audio for your interviews, especially with remote guests. Otherwise brilliant work. I'm going to butcher this last name, but Adeline, A-D-A-L-U-I-N from France on iTunes.
Ben Felix: It's true. There are some episodes where guest audio has been questionable, but it's kind of hard to solve other than doing everything in person. Diary of a CEO does everything in person. That's a big commitment, man. We could open up a studio.
Ben Wilson: Both in time and economic impact.
Ben Felix: Would be cool if we had a studio and we were flying all the guests in and stuff, but I don't know. I like being in my forest.
Ben Wilson: It's also a constraint for the type of guests you might be able to get.
Someone doing a two-hour recording versus a two-day trip to record is a bigger ask.
Ben Felix: That is true. Okay.
Next one, real unbiased information. This podcast run by wonderful and insightful Canadians offers continued insights into investing wealth and how money works. It is useful to me as an American in highly complicated and confusing times.
I didn't grow up with info on how the stock market works or even what a mutual fund was. These guys make sure we know how the system works and how to have the system work for us. Thank you for all you do. Nate from the United States.
Ben Wilson: We got one more. It's an older review. One of the best financial podcasts around for investors. As a newer investor, this is one of the most informative, interesting, and fun podcasts to listen to. I love learning and geeking out with these guys.
Update. Okay. I've been listening for well over a year and apparently I haven't listened to the disclaimers at the end before.
At least April 2nd, episode 403. I've never laughed that hard in my life. I won't give spoilers.
You'll have to listen to it yourself. You guys are amazing and I really appreciate the content. It is so helpful for learning and has increased my confidence dramatically. Cheers from H.L. Dixon from Canada.
Ben Felix: Very nice. I think it was an older review, but people can update the reviews, I guess.
They added that second part later, but the original part was...
Ben Wilson: Yeah, it's super interesting to go and update your original review. Pretty cool.
Ben Felix: People do it often. It took me a while to realize what was going on because there'd be reviews where I would like, I think I've seen this before, but there's a change to it. Anyway.
Ben Wilson: Yeah.
Ben Felix: All right. That's it for the reviews. I will say in the Rational Reminder community, there has been a lot of interesting discussion recently stemming from the video that I did on the connection between money and a good life.
There's a whole thread that stemmed from that. There were some good discussions too stemming from the podcast I did with BiggerPockets Money on the FIRE movement. Just generally, it's always super active, but it's been really active recently with lots of good discussion topics.
As usual, if people have not checked it out yet, it's at community.rationalreminder.ca. I think there are close to 15,000 users in there now. It's continued to grow.
Ben Wilson: Oh, wow. It's crazy.
Ben Felix: It's highly active. We have volunteer moderators who do a phenomenal job of keeping the community healthy and well-moderated, but they're all not PWL employees.
They're just passionate members of the community who keep things running really smoothly, but it's a very unique place on the internet to discuss money and personal finance and investing. You don't find the same concentration of really smart, but also kind people who are willing to engage on a very nerdy and technical level with other nerdy and technical people.
Ben Wilson: Yeah.
Ben Felix: All right. Anything else?
Ben Wilson: That's it for me.
Ben Felix: All righty. Well.
Ben Wilson: It's a good episode.
Ben Felix: Yeah. Thanks everyone for listening.
Disclaimer:
Portfolio management and brokerage services in Canada are offered exclusively by PWL Capital, Inc. (“PWL Capital”) which is regulated by the Canadian Investment Regulatory Organization (CIRO) and is a member of the Canadian Investor Protection Fund (CIPF). Investment advisory services in the United States of America are offered exclusively by OneDigital Investment Advisors LLC (“OneDigital”). OneDigital and PWL Capital are affiliated entities, and they mostly get on really well with each other. However, each company has financial responsibility for only its own products and services.
Nothing herein constitutes an offer or solicitation to buy or sell any security. Occasionally we tell you not to buy crappy investments in the first place, but that’s not the same thing as telling you to sell them.
This communication is distributed for informational purposes only; the information contained herein has been derived from sources believed to be “truthy,” but not necessarily accurate. We really do try, but we can’t make any guarantees. Even if nothing we say is fundamentally wrong, it might not be the whole story.
Furthermore, nothing herein should be construed as investment, tax or legal advice. Even though we call the podcast “your weekly reality check on sensible investing and financial decision making,” you should not rely on us when making actual decisions, only hypothetical ones.
Different types of investments and investment strategies have varying degrees of risk and are not suitable for all investors. You should consult with a professional adviser to see how the information contained herein may apply to your individual circumstances. It might not apply at all. Honestly, you can probably ignore most of it.
All market indices discussed are unmanaged, do not incur management fees, and cannot be invested in directly. Which is a shame, because it would be awesome if you could.
All investing involves risk of loss: including loss of money, loss of sleep, loss of hair, and loss of reputation. Nothing herein should be construed as a guarantee of any specific outcome or profit.
Past performance is not indicative of or a guarantee of future results. If it were, it would be much easier to be a Leafs fan.
All statements and opinions presented herein are those of the individual hosts and/or guests, are current only as of this communication’s original publication date. No one should be surprised if they have all since recanted. Neither OneDigital nor PWL Capital has any obligation to provide revised statements and/or opinions in the event of changed circumstances.
Is there an error in the transcript? Let us know! Email us at info@rationalreminder.ca.
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Participate in our Community Discussion about this Episode:
https://community.rationalreminder.ca/t/answering-your-financial-questions-414/42444
Links From Today’s Episode:
Stay Safe From Scams — https://pwlcapital.com/stay-safe-online/
Rational Reminder on Apple Podcasts — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder on Spotify —https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=fe7f60349b584026
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on YouTube — https://www.youtube.com/channel/
Benjamin Felix — https://pwlcapital.com/our-team/
Benjamin on X — https://x.com/benjaminfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/