Benjamin Felix

August 28, 2018

Episode 7: Buying WEED

Benjamin Felix

August 28, 2018

Key Points From This Episode:

Ottawa home prices [0:02:11]
The longest bull market in history [0:02:53]
What goes up does not have to come down [0:03:47]
All time highs are normal and should be expected [0:04:23]
Is the market overvalued? [0:08:11]
Even the CAPE only explains 40% of future return differences [0:08:38]
Should you dollar cost average or invest in a lump sum? [0:09:16]
You’re better off in the market than trying to time the market [0:12:04]
Was WEED an obvious buy at $2.00? [0:13:28]
There are still plenty of public companies to invest in [0:20:04]
Small cap returns need to be taken in context [0:23:45]
Bad behaviour is not always easy to spot [0:27:07]

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.

We're hearing from more and more people who are listening to the podcast, which we both find, I think, a bit surprising. We started this thing thinking that maybe some of our clients would be interested in hearing us chat about what's going on and what we're thinking about, but there are a lot of non-clients and people that I don't even know who seem to be listening to the podcast. That's been kind of neat.

Cameron Passmore: Even asking how to access it on different platforms and different devices.

Ben Felix: I've had people reach out on Twitter, LinkedIn. I had some emails. It's crazy.

Cameron Passmore: Question came in this week as well, which we'll answer later on.

Ben Felix: Yeah.

Cameron Passmore: Keep the questions coming in. It does make it certainly more engaging for us as well.

Ben Felix: Yeah, definitely. If you are listening to the podcast, it would be great if you could rate it on whatever podcast app you're using. If you want to leave us a comment too, that'd be awesome. It's been really interesting hearing from people that we don't even know since we started doing the podcast.

Cameron Passmore: Yeah. I was out in BC last week, right near where you were born and raised. It's so beautiful out there in Victoria. Unbelievable how much smoke, though, from the fires. Really sad. The friend's house I stayed in, they had to actually unplug their smoke detectors, it was so bad.

Ben Felix: Wow.

Cameron Passmore: Saw people out there actually that mentioned they were listening to the podcast that are on our newsletter list. They enjoyed it, so it's kind of nice.

Ben Felix: Yeah, that is nice.

Cameron Passmore: What's new on the home front?

Ben Felix: Oh, well, we had the third addition to the family a couple weeks ago. I think we're pretty much settled in at this point. I did a couple of ... We had to do an iteration each night because my oldest son was having some trouble, but we made adjustments each night. I think we're all good now. That's been a pretty smooth transition, all things considered.

Cameron Passmore: Anything happening in general across clients recently that come to mind?

Ben Felix: Like kind of questions that have come up?

Cameron Passmore:… one thing that I've noticed this past couple weeks, that a number of people are buying houses. It seemed, on a very small sample, granted, but it seems that housing prices are coming down, where people are actually bidding under ask. I don't know if that's because the asking price is going up. I don't know all the details, but these are in pretty hot neighborhoods, and they were going below ask.

Ben Felix: Wow, I had talked to somebody a couple of days ago where they had the opposite experience. They lost out on a bid. Then in the next one that they went for, they went way over asking. So different ... Your sample size was too small.

Cameron Passmore: Perhaps. It's still nice to see them get the house that they wanted, and not have a crazy bidding war, which is what we hear from our clients in Toronto, where it's just mayhem on [crosstalk].

Ben Felix: Well, Ottawa's been crazy this year. We've had a lot of people lose out anyway.

Last week, something that happened, well, maybe. We'll talk about whether it happened or not. But the longest bull market in US history may or may not have occurred last week.

I'm saying there may or not, because there's some debate around how you define a bull market. It's all a little bit subjective anyway. Most people will kind of agree that a 20% decline defines a bear market, and therefore the bull market would start when that ends. But the 20% is also arbitrary. There's no reason that it's at that level.

The US market has had some fairly substantial drops over the time that some people are saying has been the longest bull market in history. So whether or not those would be considered bear markets are not as ... Yeah.

Cameron Passmore: To think back to when this bull market started, it was horrifying to be in this business, but even just to be a normal person working in North America, it was awful. Talk of food stamps and lineups, and what could collapse and pensions. It just went on and on and on.

I can tell you, living it every single day, you could understand how many people could not see the way out of this, let alone to have almost 3,500 days or something of almost straight line growth, it feels like. [crosstalk] a whole generation of investors that have never really seen down markets.

Ben Felix: Well, the current generation now, that's where we are. There are definitely a ton of people like that. Views on investing have changed too, with the rise of index funds, and the idea that you can't really do anything to outperform when the market crashes. It'll be interesting to see how this generation of people responds if that does happen.

Anyway, when the market's rising, or hitting all-time highs, or having the longest bull market in history, all these different things, it makes people start to worry that it's got to be at the top. Like if we hit an all-time high, it's got to come down, or it's been the longest bull market in history, it's got to come down.

Cameron Passmore: How many times have you been asked that question lately?

Ben Felix: Well, I just got an email this morning about that exact issue, like it's been such a long bull market, it has to come down sometime. That's, I guess, kind of inherently true maybe, or at least it has to be possible that it could come down at any time. That's the risk of investing in stocks.

But we looked at the previous all-time highs in a couple different markets. We had, from Robert Shiller's website, data for the US market, price only, so not including dividends. That would change it a bit. But price only going back to 1871, the US market has hit all-time highs in 16% of months. So 16% of months since 1871 have been months where there was an all-time high.

Cameron Passmore: Wow.

Ben Felix: Yeah, pretty interesting. Then we looked at what happens after an all-time high. In 67% of months that had an all-time high, the next month was also an all-time high. So it's not like the all-time highs indicated a drop going forward.

The data was almost exactly the same for the MSCI EAFE and the S&P/TSX. That's representing developed international markets and Canadian markets. They had a relatively higher number of months with all-time highs. I think it was closer to 30%. I didn't take a note of the number, though. But it was, in terms of months following all-time highs, again, I think it was 63% for the EAFE and 67% for the S&P/TSX.

Cameron Passmore: But the fact that people are asking is the market about to crash, I'm worried about it. That lends me to think that many, many participants are thinking this, which is priced into the market.

Ben Felix: Right.

Cameron Passmore: Very different than, say, back in '99, 2000, where everybody just saw things going up forever. Yes, we're at an all-time high, but the conversations don't feel like that.

Ben Felix: Right. It feels different. We always have to remember too, that all the media coverage, or most of the media coverage, is about the US market. Yes, the S&P 500 has had some crazy growth. International and Canadian stocks have not been growing at rates higher than we would expect, at least based on long-term averages. Obviously, who knows what that means, but the US market has been outpacing historical growth, which is, I think, what makes people scary.

I saw a post from Ben Carlson last week, I think. I didn't read the full post. Maybe it was a tweet. Anyway, it said that earnings have actually outpaced returns in the S&P 500. So if people are worried that it's getting out of control or whatever ...

Cameron Passmore: Wow. It's not even keeping up.

Ben Felix: It's the economy. Actual earnings growth is outpacing price growth for the S&P 500. I thought that was really, really interesting. [PWL's 00:07:53] research department does a cheap, rich analysis. How much value is there in that for what we do? Who knows?

Cameron Passmore: It's for information purposes, not trading purposes, for sure.

Ben Felix: But yeah, it's interesting information.

Cameron Passmore: The higher the multiples, the lower the expected return. We don't use it for any more than that.

Ben Felix: Well, we use it for financial planning.

Cameron Passmore: Yeah.

Ben Felix: For developing projections. But for whatever it's worth, [PWR 00:08:15] research view is that Canadian and international stocks are currently fairly priced. US stocks are overvalued by 22%. Emerging markets are undervalued by 18%. But the point of that is markets aren't crazy, crazy out of control.

Cameron Passmore: All of our portfolios globally diversified, rebalanced regularly. So you're getting exposure to all those markets.

Ben Felix: Yeah. Even if markets were hot ... Say the US, it is overvalued a bit. There's that old Vanguard paper that looked at all the different valuation metrics to see if they could be predictors of future returns. They tested a whole bunch of different ones. The best one was the Shiller CAPE, so the cyclically adjusted price earnings, that's the price over ten-year trailing earnings. They showed that it only explains ... It's the best one out of all these different metrics that they tested. It only explains about 40% of the difference in future returns.

Cameron Passmore: Right.

Ben Felix: So the best metric is not great in terms of actually using it to make investment decisions.

Cameron Passmore: This leads to the listener question from last week, which we get fairly often, which is if you have a bunch of cash from whatever, selling options or sale of a business or inheritance or something, and you want to invest, should you invest as a lump sum or dollar cost average it in over time?

Ben Felix: Yeah, it's a good question. Common question, like you said. The 67% number that we were talking about with all-time high months being followed by all-time high months with 67%. That is the exact same number of months overall where the market is increasing. So the market's increasing, in general, about two thirds of the time.

Based on that ... This is actually another Vanguard research paper they did a while back, but based on that, at any given time, investing in a lump sum gives you the better outcome about two thirds of the time. So if we're saying what gives you the positive expected outcome? It's investing in a lump sum.

Cameron Passmore: But some people just have a preference for pulsing in it over time. If you have a million dollars to invest, you can put in whatever, a hundred thousand a month for 10 months. You can see the emotional appeal.

But I remember sitting with, had the luck of having breakfast once with Ken French and asked him that question. He said, "What matters is the riskiness of what you're investing in and not when you're investing in it." He was quite a categorical about it. Doesn't matter when. Just do a lump sum.

Ben Felix: In a risk-appropriate portfolio.

Cameron Passmore: Correct.

Ben Felix: I think that's the big thing, right?

Cameron Passmore: That's the big thing.

Ben Felix: Someone who's going to retire tomorrow, they're not going to invest in a lump sum in a 100% equity portfolio. But they might invest in a lump sum in a 50% equity portfolio. I don't think there'd be a problem with that.

But then the answer to the question is it's optimal statistically to invest in a lump sum, but for actual humans who are investing, a lot of the times they don't feel comfortable doing that.

Now, when you explain that to a lot of people, they'll say, "Just do a lump sum," because they don't want to think about it. But if someone's nervous, then yeah, we'll do dollar cost averaging. I would say with people that we talk to who are actually doing this, investing a lump sum of cash ... I don't know. I don't have actual data on this, but I would estimate somewhere around 50/50 where people want to dollar cost average versus doing it in a lump sum.

Cameron Passmore: Yeah. Maybe a bit more as a lump sum.

Ben Felix: Yeah.

Cameron Passmore: But it depends on their starting point too, and what percentage of their net worth are they investing.

Ben Felix: I think that, along the lines of what Ken French said, the biggest thing is the riskiness of the portfolio, and either way, whether you dollar cost average over a reasonable period of time ... If it's over a year or six months ... If it's over 10 years, that's a different story. But if we're dollar cost averaging over a reasonable period of time versus lump sum, I don't think it's going to materially affect your financial, your ultimate outcome.

Cameron Passmore: But sitting on the sidelines, holding onto that cash to wait for a market correction to buy in, that's not a winning strategy for sure. You might get lucky, but it's not a persistent strategy.

Ben Felix: That's exactly ... Getting lucky. We did a post on that a while ago. I think it was the end of 2015 that we wrote it. But it was talking about if you invested ...

We obviously had the benefit of hindsight. If you invested right before each market crash in recent history, how would your returns have been? I think a lot of people might think they'd be negative, but if you held after each crash, and just kept holding on, even though you invest your next lump sum and markets crash, which hurts, but over the long term, you ended up with a very reasonable return, obviously far better than sitting in cash.

So even if you are taking the emotional hits of those crashes, your ultimate outcome is still pretty good, as long as you're getting invested. That's the key is getting invested.

Cameron Passmore: So Canopy.

Ben Felix: Yeah, Canopy Growth.

Cameron Passmore: Man, it looks so obvious in hindsight.

Ben Felix: Yeah. They're-

Cameron Passmore: Their change in policy with new companies developing, the Hershey plant, Smith Falls, the perfect story to make a killing. It's so obvious.

Ben Felix: Yeah. Are you-

Cameron Passmore: [crosstalk] all the time, it's so obvious.

Ben Felix: Are you joking or are you serious?

Cameron Passmore: Well, it's so easy to write this script now that it was easy to have made ... What was it? You could have bought it for two, and now it's at 60 bucks, so a 30 bagger on that.

Ben Felix: That's a real question. I did want to ask you, actually. You said it before I asked the question, but when it was at, say, 2 or $3, was it an obvious buy? Knowing what we know now, obviously it is obvious. At that time, was it obvious?

Cameron Passmore: Well, it would have been obvious to have sold it at four or five, because you made two, three times your money, which the story I told three, four weeks ago with my shares of JDS. Would you held on to 50, 55? Now it's 60 today. Just keeps on going. Would you held on after Constellation Brands bought in? Who knows what you would have done? It would have taken a lot of guts to have hung on with a lot of cash for that long. I can tell you that much.

But I think back to when they started raising capital. Where'd it go public at? I don't remember the number, but would have been the handful of dollars. Why did they let go of equity at such a low price if it was that obvious they were going to go through the roof?

Ben Felix: That's a great way to look at it.

Cameron Passmore: Why would they have done it?

Ben Felix: That's a great way to look at it.

Cameron Passmore: Clearly, it wasn't risk free.

Ben Felix: Yep. There were so many people who did make money. Well, so many. You hear about the people who made money. Obviously, there were probably a lot of people that lost money too. But people made money investing in Canopy and other weed stocks when they were at relatively low prices. They went up in price and like, "Oh, this was so easy. It was so obvious."

I don't think that's the case. Like you said, with the prices, I think that there were probably a lot of people who did the opposite of what you said. They bought at four and sold when it went back down to two, or maybe they bought at 30 and sold when it went back down to 20. To hold from two until now? That's ...

Cameron Passmore: With a lot of money.

Ben Felix: Yeah.

Cameron Passmore: If you have just a little bit of money and a big portfolio, it's not relevant.

Ben Felix: Yeah. And then it doesn't matter anyway.

Cameron Passmore: To have an impact, you have to put a big chunk down, let it grow to be a bigger chunk, and keep him hanging on. That takes a whole lot of behavioral fortitude, for sure.

Ben Felix: Yeah. I think this stuff is never, never obvious. But at this point, Canopy is bigger than, in terms of market cap, bigger than Bombardier.

Cameron Passmore: Unreal.

Ben Felix: Bigger than Canadian Tire, bigger than Metro, bigger than SNC-Lavalin, edging up on Shopify, which is obviously one of the most storied companies that we've had in Canada for a while, still a ways off of Molson. But their market cap's growing like crazy.

Cameron Passmore: Yeah. It's like 13, $14 billion market cap.

Ben Felix: Yeah. It's unreal. They've got international expansion going on. I saw one headline that said that they could be the Google of pot, which I thought was kind of funny. But it seems like they do have a bit of a leg up on the competition, all this stuff.

This leads me to the next question that I wanted to ask you about Canopy. We talked about was it obvious at the time that it was buy, when it was at 2 or $3. Now, it's at ... I don't know what the price is. I haven't checked since this morning, but say it's at 60. If it's at 60 now, is it an obvious buy from here? Is it going to go up more than the market going forward?

Cameron Passmore: You're asking me, of all people?

Ben Felix: What do you think? How would you answer that question?

Cameron Passmore: What do I know that the market doesn't know?

Ben Felix: Yep.

Cameron Passmore: Nothing. There's a whole lot of analysts pouring all over this, a whole lot of interest. You have to be right, now, on the buy side. That means someone else is wrong.

Ben Felix: Right.

Cameron Passmore: Then they have to be wrong again to overpay you on the sell side later on. Maybe.

Ben Felix: Yeah.

Cameron Passmore: You could have bought this, what, two weeks ago for 38 bucks.

Ben Felix: Right.

Cameron Passmore: Could've made a quick $22 in two or three weeks.

Ben Felix: Yeah. I think the thing is that it ... It's like what you said. What do you know that the market doesn't? For the price to rise faster than the market going forward, the company doesn't just have to do well, because the company doing well is already priced in. The company has to do better than current expectations.

Cameron Passmore: Right.

Ben Felix: And you can't ... Nobody can know that. The company doesn't know that. We don't know that. So it doesn't just ... A successful company does not necessarily mean a share price rising faster than the market.

Cameron Passmore: No.

Ben Felix: It has to beat expectations. If it doesn't, it'll drop from where it is. That's one of the tough things. And this is still such a new market, nobody knows how things are going to play out. Ontario changed the rules on who can sell.

Cameron Passmore: It would be neat to know who owns these shares too, like how much of it's institutional, how much is individual. No idea.

Ben Felix: That would be really interesting.

Cameron Passmore: To see what the volume is on it.

Ben Felix: In terms of public listings, obviously, we're talking about Canopy, which-

Cameron Passmore: Seven million shares traded today, so it was a lot of shares moving.

Ben Felix: A lot of volume. There was an article I saw ... I think it was New York Times. There are a couple of different publications writing about this, actually. That the number of publicly listed stocks in the US is decreasing. I found the data. The number of publicly listed US stocks was around 7,000 in 1997.

Cameron Passmore: Yeah. This surprised me.

Ben Felix: It's down at 3,400 at the end of 2017.

Cameron Passmore: Incredible.

Ben Felix: So far less in terms of number of shares, and the average market cap of the remaining companies is increasing. That's all interesting. The articles were basically saying this is a bad thing, and it's not good for the economics, or it's not good for the market.

As always, we like to look at the global data to see what's going on other than the US. The story has been very, very different. From 1990 through 2017, the number of ex-US, so global ex-US, public listings rose from 9,739 in 1992 to 39,333 at the end of 2007.

Cameron Passmore: So fourfold in 27 years.

Ben Felix: So if you're worried about the opportunity set shrinking, maybe in the US. Does that matter or not is a whole other story, but the opportunity set globally does not appear to be shrinking. It's, in fact, increasing

Cameron Passmore: Is that because the buybacks are much higher in the US perhaps?

Ben Felix: I don't think it's got a whole lot to do with buybacks. That maybe decreases the number of shares outstanding. If capital is being returned through buybacks, as opposed to dividends, that could be increasing the share price. But I wouldn't blame it on buybacks. Mergers probably.

Maybe companies choosing not to list, because there are more regulations in the US market, which is true. That's not a bad thing for investors. If we look at private companies like Theranos, which was obviously a massive fraud, if you think about that, first of all, would they have been able to go public? Probably not. If they had been a public company, how long would that fraud have lasted?

Cameron Passmore: Not long.

Ben Felix: Yeah. So all the disclosure and regulation, I don't think it's a bad thing for investors.

Cameron Passmore: There's still plenty of companies for diversification.

Ben Felix: Yeah. There are tons. Now, public companies have had frauds in the past. If we look at Enron, obviously, that was a major issue. But in that case, the auditor, Arthur Anderson, was complicit in the fraud. Could that happen again? Sure. I guess, yeah.

If there are fewer shares ... There was an interesting piece of research that Dimensional Fund Advisors did on this. If there are fewer shares, does that affect the ability to capture factor returns?

Cameron Passmore: Factor being the size of a small cap premium and the value premium.

Ben Felix: Value profitability. The Dimensional piece just looked at size, but same idea. They looked at is there a relationship between the number of shares ... They looked globally. Is there a relationship between the number of listed companies and the existence of the size premium? They even looked at a hypothetical US market, where they only maintained the largest 3,400 stocks. In that case, they did still find a size premium.

But I have a quote from the conclusion of the paper that says it better than I can. In the Dimensional paper, they said, "We observe a positive size premium in big markets, in small markets, in markets which naturally vary in size through time, and in a hypothetical market that does not vary in size at all." That was that largest 3,400 stocks. "Taken together, this evidence suggests that, while the size of the market and the performance of different asset classes will fluctuate across countries and over time, there is no compelling indication that a smaller number of publicly listed stocks is correlated with a smaller size premium. Instead, it is more important to consider all information and prices about expected returns, such as information contained in profitability, relative price, in addition to market capitalization."

Cameron Passmore: So it's a relative story. You have 3,400. Even though they're larger on average than they have been historically, you still get a small cap premium, because there's enough dispersion in returns based on size, not ...

Ben Felix: Right.

Cameron Passmore: That really interesting.

Ben Felix: Right. It's all about the risk being priced into the price. Regardless of the number of shares, you can still capture these factors, and you can still build a well-diversified portfolio. On a-

Cameron Passmore: If you think of a country like Canada, which doesn't have the breadth of the US market, as long as you have dispersion in returns that'll be explained by small cap, you'll still capture that effect, even though it's a more narrow market.

Ben Felix: Yeah. Yeah. Canada's a great example. Actually, in the Dimensional paper, they look at a whole bunch of different countries with way less shares. But if we're worried about a decreasing number of shares in the US, decreasing to 3,400, and you look at the number of stocks in Canada, it's way less, and it's always been way less, and will probably continue to be way less.

But does the Canadian market still have a positive expected return? Yes. Are companies still raising capital in Canada? Yes. Are they still doing well? Yes. So I'm not very concerned about ...

And you think about what's the alternative? Companies stay private. Then, we talked about a minute ago, there's less regulation, less disclosure. It's riskier for investors.

Cameron Passmore: Yeah.

Ben Felix: Yeah. So I'm not overly concerned about a declining number of publicly listed stocks.

Cameron Passmore: The size premium question comes up a fair amount, because the returns have not been there recently. There's a ton of research around this.

Ben Felix: Well, the returns haven't been there recently sort of. But this is the thing with the size premium is that people look at small cap indexes, and if you look at a small cap index, the returns haven't been great, but that doesn't tell the whole story. The research-

Cameron Passmore: Well, it does if you focus on recent returns.

Ben Felix: Well ...

Cameron Passmore: Which is not ...

Ben Felix: It's about the ...

Cameron Passmore: [crosstalk] sensible to do.

Ben Felix: It's about taking all of the research into account when you're looking at small stocks. The research says, yes, it does say that small stocks outperform large stocks over the long term. But there are multiple layers. There's the size premium. You've also got to look at the value premium. That's relative price. And you've also got to look at profitability. These are three very well-researched factors. In the investment products that we use, those are the three factors that are used to tweak the weightings relative to the market.

But the thing about the small cap performance is that we know, so based on all those three pieces, size, relative price and profitability, small stocks tend to outperform large; value stocks tend to outperform growth; and high profitability stocks tend to outperform low profitability stocks.

If you sort the market by those three factors, and you take the small cap stocks that are categorized as growth and that have low profitability, that category, so that's small growth, low profitability, they have the worst risk return characteristics of any category. So to really look at the small cap return, if you're thinking about just small cap in isolation, the returns haven't been great. But if you take out the small growth, low profitability, small cap return looks pretty good.

So if we just talk about small cap in isolation, that ignores the rest of the research. Why would you do that? Why would you look at one piece of the research and ignore the rest? But all the conversation around the size premium having disappeared and not existing, I don't really buy it.

Cameron Passmore: This is something typical indices don't do. They don't go and take out the small growth, low profitability stocks.

Ben Felix: Yeah. Just for this conversation, I looked at the US market for the past 10 years. Very common comment that [inaudible] the last 10 years, US markets underperformed. The Russell 3000, which is the total US market, has returned 10.23% per year on average in US dollars. The Russell 2000, so that's the smallest 2,000 stocks, as a subset of the Russell 3000, it's returned 10.6% over the last 10 years. So barely a premium, not enough to-

Cameron Passmore: 37.37%.

Ben Felix: Not enough to really worry about, especially, probably after costs, because small cap funds tend to have higher expenses.

Now, Dimensional Fund Advisors, and I wouldn't say that this is biased data, because they're just sorting the index based on their research, but the Dimensional US index, which is an index of US small cap stocks with the removal of the small cap growth, low profitability, and the higher weights in the small cap value, high profitability ... That's how they structure their actual investment products. This index is following the same methodology. Over the past 10 years, it has returned at 12.02% on average per year in US dollars. So we've gone from probably no premium after costs to a fairly reasonable premium.

Cameron Passmore: Yeah. It looks some normal type of premium that you hear the academics talk about.

Ben Felix: Right. Anyway, that's something that's been bugging me, because I've seen a few different sources talking about how the small cap premium is gone. It's like, yeah, depending on how you look at it.

Cameron Passmore: If you look at the indices, the public indices, you can that.

Ben Felix: It doesn't look great. I was thinking about this when we were preparing for this show. I was thinking about this exact thing. Well, it's been on my mind, but then I started thinking about, we talk about one of the things that people pay us for is behavioral coaching. People think ... My perception is that people look at behavioral coaching and think, "Well, I don't really need that. I don't need behavioral coaching."

But anything about stuff like this, where it's out there in the media that all small caps underperforming. If you're someone who's investing in small cap stocks, and you see that small caps might be underperforming, you don't want to be in small caps anymore. So if I'm an individual investor without a ton of time to do research, I'm probably going to go ditch small cap stocks.

But we're sitting here thinking about this all the time. We're obviously familiar with the research, and we're able to say, "Well, you've got to look at it properly. You've got to take all the research into account."

Cameron Passmore: It's so much more than typical handholding, which I think people in our industry say way too much. "We're there to hold your hand through tough times." It's more than that. We're going to give you, this is a great example, the data behind it, what to expect.

Ben Felix: Right.

Cameron Passmore: We had those questions last week around expected returns on fixed income. No different, right? When you show the data to someone, "Oh, that's interesting," and adjust their behavior, but it's not just about simple handholding.

Ben Felix: Yeah. We did pull some good data on the fixed income returns too. I don't have it in front of me, but ...

Cameron Passmore: Oh, the GIC comparison?

Ben Felix: Yeah, yeah.

Cameron Passmore: Two thirds of the time, a five year GIC is better than the fixed income pool.

Ben Felix: No, it wasn't two thirds of the time. I think it was 23% of the time the GICs outperformed a fixed income index.

Cameron Passmore: Yeah, yeah, exactly. Something like that. We'll update that next week. But it's some neat data on why to not get frustrated just because you could have bought a GIC that had a better rate than bonds may have had in the last 12 months.

Ben Felix: Yeah. The interesting thing about it is that you do have to ... Just like investing in stocks. You do have to endure some periods of underperformance, because bonds are riskier than GICs. GIC, you're getting basically a guaranteed return.

Cameron Passmore: They're priced to market too.

Ben Felix: Right.

Cameron Passmore: But at the same time, the expected returns ... returns earned on the equity side of the portfolio were higher than expected, so overall, it was very good returns.

Ben Felix: In the portfolio, yeah. I do think it's pretty interesting to talk about the difference between GIC and fixed income returns, where ...

It's the same story as stocks and bonds. Stocks underperform bonds sometimes. Does that mean we stop investing in stocks? No. It's a risk premium. You're accepting risk for higher expected returns.

The exact thing same thing with bonds and GICs. You will underperform sometimes, because bonds are riskier, but over the long term, you expect a better outcome. We can chat about that post next week, but the data was interesting.

Cameron Passmore: Yup. Anything else?

Ben Felix: I'm good.

Cameron Passmore: Send in your questions.

Ben Felix: Yeah, please. Please rate us. Rate us on your podcast app. Shoot us a question. Send us an email. Love to hear from you. Thanks for listening.

Cameron Passmore: See you next week.