There is no doubt that housing in Canada is expensive, but are we really in a bubble? Today on the show we explore the user cost equation and how it can help us answer this question. Before the main topic, we get warmed up with a behind-the-scenes look at Dell’s growth path in Cameron’s review of Play Nice But Win. From there we address Peter Lynch’s recent warning against passive investing as well as reiterate our position on the performance of small-cap value versus large-cap growth. Heading into our discussion on housing in Canada, we provide a working definition of a housing bubble and present the model used to work out user cost, addressing each factor in some detail. We discuss the risk premium for owning versus renting and highlight an interesting point on high price sensitivity during low-interest rates. The major takeaway after looking at Canada from within this framework is that user costs are in line with what they should be historically, and that saying we are in a housing bubble would be a little drastic!
Key Points From This Episode:
The effects of the plot of Sex and The City 2021on Peloton stocks. [0:00:20.1]
A book review on Play Nice But Win which tells the story of Dell. [0:08:01.1]
Mixed responses to the paper, ‘Want to Be Happy? Hire a Financial Advisor’. [0:13:01.1]
Active fund performance and thoughts on Peter Lynch’s recent warning against passive investing. [0:17:14.1]
Responding to listener disagreement with our research on the high returns of small-cap value ETFs. [0:22:46.1]
The huge delta between the performance of ARC versus AVUV. [0:30:27.1]
Using the concept of user cost to assess whether there is a housing bubble in Canada.[0:33:52.1]
The different inputs into the model used to work out user cost. [0:38:22.1]
The definition of a housing bubble and how the facts hold up. [0:39:36.1]
The risk premium for owning instead of renting; why owning could be risky. [0:43:39.1]
Perspectives on the chance that high prices could be driven by real estate investors.[0:47:03.1]
An offsetting factor in the form of a reason for why owning is not risky. [0:49:06.1]
If owning a home in Ontario is expensive from a user cost perspective.[0:52:45.1]
Whether homeowners are willing to pay inflated prices for housing because they expect unrealistically high housing appreciation in the future. [0:53:54.1]
Prices are sensitive to interest rates when interest rates are already low. [0:55:59.1]
Tradeoffs, insurance, and taxes in this week’s iteration of Talking Sense. [0:59:27.1]
Read the Transcript:
Ben Felix: This is The Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We are hosted by me, Benjamin Felix and Cameron Passmore, portfolio managers at PWL Capital.
Cameron Passmore: Welcome to episode 180. Did you know, Ben that we don't record another podcast for four more weeks?
Ben Felix: Four weeks? What am I going to do?
Cameron Passmore: Four-week break we have now, which as much as we love recording these, having a bit of a break is nice because it is always on our mind. This is always on my mind through the year.
Ben Felix: Is it going to be off your mind for the four weeks that we're not recording?
Cameron Passmore: I don't know, but maybe. We'll see. We're trying for the first time ever to take a real Christmas break here at the company. So we'll see how able we are to check out. Also, got my booster vaccine booked. Very excited about that.
Ben Felix: Nice.
Cameron Passmore: To kick it off, this is not a very important topic, but for once you and I are actually on the same page from a viewing standpoint, but for different reasons. So I had texted Ben this morning to see if he was about to or planned on watching Sex in the City. And if you are, and if you've not seen it yet, you might want to skip ahead a couple minutes to avoid a spoiler that's going to be coming up here. Although, I'm guessing most people have probably heard the news. I hadn't when I watched it. But you would say, "Yeah, you did want to mention this show," but for a completely different reason, you weren't about to watch Sex in the City, were you?
Ben Felix: Yeah, I didn't. I didn't watch it either. I just read about what happened.
Cameron Passmore: So this is the show that I'd watched back in the '90s. Lisa had watched it as well. As soon as it came out, she wanted to watch as we watched it on the weekend. First of all, it took a couple of jabs at the quintessential 55-year-old, made fun of podcasting. They actually use the exact same mic as we do, Carrie is a host of a podcast.
Ben Felix: Wait, wait. How did they make fun of podcasting?
Cameron Passmore: Well, they just made fun. Of course, if you had a podcast basically was the message, right? So it was kind of funny. And then Carrie is still married to Mr. Big. So again, hit fast forward if you don't want to spoiler, but still married to Mr. Big. It's kind of cool to see the characters 20 plus years later. Of course, Mr. Big has got a Peloton in his beautiful workout area linked to his bathroom. Anyways, Mr. Big starts working on the Peloton and Carrie is out at an event and then he get off his workout. I mean, he has a heart attack. Carrie comes home and he dies in Carrie's arms.
Ooh, that took a turn. So they're kind of making fun of the Peloton, but then this 55-year-old passes away after getting off the Peloton. And the reason why you wanted to bring it up is because this came out on Thursday and the share price of Peloton dropped 11% after the episode aired.
Ben Felix: Yeah. I read an article that just talked about this, talked about how the show took this jab at Peloton and then the share price tanked. And I just thought to myself, geez, what a great example of idiosyncratic risk.
Cameron Passmore: And that it was. The show did not disclose that this was coming up to Peloton. They had no idea that storyline was coming up. But they came back with a pretty good rebuttal. So I saw a statement that was released to the publication, Insider, where a cardiologist and member of Peloton's health and wellness advisory council did a pretty good job of distancing itself from what happened to Mr. Big saying that, "I'm sure Sex in the City fans like me are saddened by the news that Mr. Big dies of a heart attack."
Dr. Suzanne Steinbaum told Insider, "Mr. Big lived, what many would call an extravagant lifestyle including cocktails, cigars and big stakes, and was at serious risk as he had a previous cardiac event in season six. These lifestyle choices and perhaps even his family history, which often is a significant factor were likely the cause of his death." Shares continue to go down on Friday. I see they're up a little bit today on Monday the 13th for what it's worth.
Ben Felix: I had no idea that you were a Sex in the City fan.
Cameron Passmore: I watched it. It's entertaining. It's fun to see the character. I wouldn't say I'm a huge fan. Anyways, I was a butt of a few jokes on the weekend. Anyways, some very kind recent reviews. Ali.2E said our podcast was approachable yet very thorough. And they say that you and I strike a perfect balance of bringing rigor into every topic and thoroughly exploring it as we did with Sex in the City. Yet at the same time keeping the podcast approachable to lay people, willing to put in the time to learn about the history, theories and nuances of investing. To undo the review?
Ben Felix: Sure. Maybe one of the best investing podcasts of out there for Canadians. That's the subject or whatever of the review. "I've been listening to this podcast since around when it first started after the Canadian Couch Potato podcast ended. It's amazing to see how far these two guys have come." I hope so. I've never gone back and listened to the old episodes, but I don't think they're very good.
Cameron Passmore: It's still 15 people a day listen to the first episode.
Ben Felix: That's just embarrassing. "By far one of the best, if not the best podcast on investing." I appreciate that very much. "Ben and Cameron are so articulate and informative on their discussions as well as backing everything up with data from academic literature."
Cameron Passmore: Yeah. REI expert 101.
Ben Felix: That's true.
Cameron Passmore: "It's that amazing podcast blown away by it and pack with incredible content and phenomenal guest." I'll second that. The guests we've had, have been pretty incredible.
Ben Felix: Yep. Oh, that, that previous comment that I didn't finish reading the end there. They mentioned the physician financial conference that I spoke at was kind of cool. It was like a conference for physicians on financial wellness and they had four or five speakers, and it was all online, but it was, I don't know, a few hundred doctors that attended. It was a pretty neat experience to be a part of. I think they're running it as a sort of not for profit conference that a physician has started.
Cameron Passmore: That's very cool.
Ben Felix: Yep.
Cameron Passmore: And then Money Smart Mom said, "Deep dives into personal finances, investing in much more. Great week to listen to those. Looking to learn more about personal finance with episodes on renting versus buying, which have been extremely popular. And investing with episodes on index investing inflation." They like the two hosts format. So it's very kind to them. And they also appreciate the book and TV recommendations.
Ben Felix: Your book and TV recommendations are huge, huge hits on the podcast.
Cameron Passmore: Yeah. Next week is the third year end episode. And then the week after that we are off. Then we kick off the new year with an interview with Mac McCowan. And then two weeks after that with Trillions author, Robin Wigglesworth. As always connect with us on LinkedIn, Twitter. I'm on Peloton. All jokes aside Cp313 on Peloton and #rationalreminder. Rational Reminder on Instagram. I don't know if you saw the Instagram post today with Oscar at my desk at home.
Ben Felix: I don't have Instagram. So I don't see any posts in there.
Cameron Passmore: Pretty funny pictures. So sun didn't put it out and got a lot of good comments. And I am on Goodreads. Anything to add?
Ben Felix: Nope. You're way bigger on social media than I am. I don't think I stay connected on LinkedIn. I probably won't answer the connection request. Sorry. Apologies.
Cameron Passmore: I will. There's lots of neat people to connect it with. Actually, I heard from someone today in New Jersey. So shout out to Daniel for reaching out to us. It was great to hear from him.
Ben Felix: Very cool.
Cameron Passmore: Okay. Let's go to the main part.
Ben Felix: Let's go.
Welcome to episode 180 of The Rational Reminder Podcast.
Cameron Passmore: Okay. Let's kick it off with the book review as always. So a few weeks ago, I mentioned the book by Michael Dell. I heard him on a podcast and he wrote the book called Play Nice But Win. So this is his version of Dell computers about it being founded, going public, taking it private, then going public again. Unbelievable story. And so many things could have gone so bad all the way along the way.
Anyway, so it starts out he had an incredible observation about computers and obsession with computers early on. So he is one year older than I am. So I remember back in the mid to late '70s in high school being told, "Eh, don't worry about computers. Everything that needs to be programmed has been done. There's no point to be coding. It's just going to be a fad. There'll be one computer. It'll be all done."
Okay. He took a different path. He's worth $57 billion or something today. Anyways, he was obsessed with computers, but also the personal computer and how it could change how productivity levels could explode with what he saw coming, which is so cool. Anyway, so he started college in the nearly '80s and started building custom computers early on. He actually would take apart IBM computers and realize that they were full of components that he could buy off the shelf. They weren't IBM components, right?
IBM saw PCs as simply a way for their customers to connect to the mainframes, which was their real business. It wasn't really too fussed about someone else kind of ripping off or improving computers. At the same time... This is the '80s. This is before the tech boom. He also figured out that the better business model was one where you could build computers on demand. Therefore, the technology is fresher. Computers are faster. They can make it cheaper and have less inventory cost, which obviously is the Dell model.
Get this. At 22 years old, which is in the mid '80s, he had $60 million in annual sales. By the year 2000, they were up to $25 billion in sales. He actually comments in the book about the whole tech bubble and how he felt the price was so inflated. He felt that they were getting credit for things they hadn't done yet, which in hindsight, I guess is true. But I can tell you, I remember the year 2000 in the tech bubble here in Ottawa, where big companies like Nortel were buying all their gear from Dell and you would place an order for Dell and you would just wait so long to get delivery of it because the demand was just through the roof.
Anyways, he tells a story going through time, 2001 after 9/11, how they supplied thousands of computers into New York City and Washington after the destruction of what happened. The best part of the book for me was how he negotiated to take the company private and how he had to deal with companies like Blackstone as well as Carl Icahn. He was unbelievably blunt about how awful a person, he puts it, Carl Icahn was.
Anyways, they ended up figuring how to do it. They got financing from a company. He ended up with more than 70% ownership after that. So this was in 2013, 2014 timeframe. They went private. He ended up with 75% of the company. And then the years after that, he decided he had to broaden the offering and get into other areas of IT infrastructure. So in 2016, when they're still private, they took over EMC, which I'd forgotten about, which is a cloud computing product and services company.
EMC owned VMware, which is a cloud computing software company. So this made Dell a leader in infrastructure IT. Get this, sales at this point, get up to $70 billion and hit $100 billion a year by 2018. But because the share structure at VMware, they decided to bring the company public again in 2018. So it's just an unbelievable story of going to the wall on risk. It almost completely blowing up dealing with Icahn and Blackstone back in 2013.
It wasn't obvious that he was going to pull this off. And here he is today. His net worth is well over $50 billion and it's just a massive, great success story and how IBM had it and they didn't see the value in it at the time.
Ben Felix: Yeah, unreal.
Cameron Passmore: Another story, which I'd asked you this morning, if you had heard about, and I didn't know this story, but he talked about how being... He was friends with both Steve jobs and Bill Gates. This kind of links back to idiosyncratic risk we talked about earlier. But in 1997, Apple was on its death bed and Microsoft gave him $150 million lifeline, if you can believe it. I didn't know that story.
Ben Felix: No, I didn't either. That's a crazy story.
Cameron Passmore: Anyways, it's a really enjoyable book. Easy read. Play Nice But Win.
Ben Felix: On to the study that you found?
Cameron Passmore: Sure. Fire away.
Ben Felix: All right. So you sent me this study, want to be happy? Hire a financial advisor. Now I'm very skeptical.
Cameron Passmore: Well, I knew you would when I shared it to you, I thought you were going to shoot it down pretty good. And you know what? The industry would be all over this just by the title. Right?
Ben Felix: You know they would be. But, hey, we're talking about it. So I guess they did. They did something a little bit right maybe. But the other big reason for skepticism is that it's from a company that consults for and trains financial advisors. It's not a peer reviewed paper. So I went into it very skeptical, but I read through it and there were a couple interesting data points that I thought it was worth at least briefly going over it.
So they surveyed a thousand randomly selected consumers across the US. To be included in the study, the respondents had to have self-reported household net worth of $250,000 or more. Just over half of the respondents were male and 79% were either married or living with a significant other to gauge happiness. Because that's always one of the big questions, how do you measure happiness? They created a list of 43 statements where respondents were asked to indicate how strongly they agreed or disagreed with a series of... Well, with the statements, with the 43 statements. And that's what gauged their happiness.
It was set up by a PhD like the person doing this research is a PhD in psychology. So they identified four distinct and highly reliable factors that were significantly predictive of happiness and those were fulfillment or fulfilled, intentional, impactful and grateful. All four factors in their study were heightened among the 66% of consumers who work with a financial advisor versus 34% of those who do not win controlling for age, gender, income and asset levels.
So they're basically saying people in their sample who have a financial advisor are happier. I mean, measuring happiness is pretty sketchy regardless. So I'm still skeptical, but...
Cameron Passmore: But they're not suggesting causality? Maybe happier people work with advisors as opposed to advisors make people happier?
Ben Felix: Well, I think they are suggesting causality, which is one of the many reasons I was a bit skeptical. I mean, they're saying people with financial advisors are happier. What was the title of the article? Wants to be happy? Hire a financial advisor. That's suggesting causality.
Cameron Passmore: That is pretty funny. It may just be that happier people reach out to advisors.
Ben Felix: Yeah. It could be. That's like successful people are happier, but it could just be that happier people are successful. Same idea. So far, I read it and I was like, okay. I mean, that's not worth talking about. But then there's one chart in the paper that... I mean, I don't know. It just spoke to me because the anecdotal experience for us is somewhat similar, I think. But they found that the differences in happiness for households with assets below $1.2 million are... I mean, they're there. There is a difference in happiness where the people with financial advisors are happier, but above the 1.2 to $2.6 million asset level, there's this massive divergence where households with a financial advisor are significantly happier and those without are significantly less happy.
I don't know. I looked at that. It's a big enough difference that even with a small sample size, it's like there seems to be something there at least in their sample. But then just thinking about our lives and what we do for people, it's not like it's glamorous work. And there's definitely a correlation between complexity and assets. So it would makes sense that households with like 3 million plus, which is what they found of assets. I mean, it's a lot to manage.
Cameron Passmore: It's complexity, but it's also responsibility, right? We've met so many people who just can't pull the trigger on large amounts of money.
Ben Felix: Yeah. There's more stuff. There's more tasks to keep track of, more decision that have to be made. Anyway, so I don't think this study is going to make it into any peer reviewed journals. It was interesting and I just thought that last point about the relationship between asset levels, advice and happiness was interesting in my probably biased opinion, for sure.
Cameron Passmore: You want to talk about Peter Lynch?
Ben Felix: Yeah. I just saw this article with Peter Lynch warning passive investors, they're losing out and backing the best fund managers to keep beating the market. So Peter Lynch is saying that he expects the top active managers to beat the market, whether that's a reasonable expectation or not. Probably not. Not statistically anyway.
Cameron Passmore: I've heard of this name for so long. It's come up so many times.
Ben Felix: Peter Lynch?
Cameron Passmore: Oh my God.
Ben Felix: So he says the move to passive is a mistake and people are missing the boat. He compared the process of selecting a good fund to seeking out an orthopedist or heart surgeon in the top quartile of their profession. Now, we'll talk about quartiles in a second. Why do we listen to Peter Lynch? And this is the main reason that this article jumped out at me is worth talking about on the podcast.
Lynch ran Fidelity's Magellan fund from 1977 to 1990. The fund earned an average annual return of 26.4% over the period that he managed it. Doubled the S&P 500. It was the best performing fund in the US while he managed it. Now, there's the blemish on that number is that the average investor return in the fund was like... I can't remember. Well, below the fund return. I think it might have even been negative for the average investor because they were getting in and out at inopportune times as investors tend to do.
Lynch grew the funds assets from 18 million to 14 billion between 1977 and 1990. One of the things that is pretty much always ignored unless you really dig for the information is that the fund wasn't open to the public until 1981.
Cameron Passmore: So that I did not know.
Ben Felix: Prior to that Lynch was managing private Fidelity family like the Johnson family and partners money. Then even before that. So the fund was established in 1963 as an incubator fund. So only insiders could put money into it, including for four of the years when Lynch managed it. And the idea of course being fund companies do this. They start funds. They well throw a bunch of funds at the wall, see what sticks in incubation and then whatever does well. It's like, "Hey, look how well this fund did."
But the ones that don't do well, you never hear about. It's one of the funny things that active management industry does. Prior to Lynch taking over, the fund had been managed by Edward C. Johnson, the founder of Fidelity until 1971. And his returns were actually great too. I just thought that was kind of interesting. And then there was one other manager in the interim and then Lynch takes over.
Cameron Passmore: But Lynch was enable to find a successful successor to him.
Ben Felix: I know.
Cameron Passmore: That's one of the good points.
Ben Felix: Well, Lynch is saying, "Hey, you can find good active managers." "Okay. Why didn't you do it after you left Magellan?" So from 1977, until '81, the period, when you couldn't invest in the fund. He returned an annualized 44%, which is pretty astonishingly great. When it was open to the public for those nine years, it returned 22%, which is a bit better, 6% better than the S&P 500 over that time period. So it's not doubling the market's return. It looks like it is if you look at the full performance period, including when it was not open to the public.
Now, the five factor alpha was statistically significant over this period. So he was doing it. I'm not saying that Lynch didn't do a good job. There's definitely some credit due there. But then the point that follows is what you said, Cameron is, say, he was a skilled manager. He left on a good note. Good for him. His job on departure is to help find a successor that should be able to continue delivering the same type of performance. Especially, considering that he's going public saying, "You can find a good active manager that's going to beat the market." Well, yeah, didn't...
Cameron Passmore: You had one job. You had one job.
Ben Felix: Yeah. I looked at the SPIVA midyear 2021 report. Over 20 year periods, roughly 90% of active managers trail their index and between 20%, which is crazy and 50% of funds survive for 20 years depending on the fund category. I can't remember which category it was, but in a one to fund category, their survivorship is 20% for 20 years, which is astonishing.
Weighted by assets. The average fund in the all domestic funds category roughly underperforms the S&P 500 by fees, 81 basis points. A bit more, I think, than the average US mutual fund fee, equity fund fee. But equal weighted the average fund trail is by 127 basis points. And that just demonstrates the skewness in active manager fund returns. Some funds do really well.
"But those funds that do well, do they continue to do well?" As Lynch says, "Do we find that top quartile manager?" Well, let's see. So there are 549 top quartile fund managers in domestic US equity funds in June 2017. By June 2021 only 13 of those of the 549, that's 2.37% had managed to remain top quartile.
Cameron Passmore: Incredible.
Ben Felix: So Peter Lynch had impressive performance, particularly when the fund that he managed was not available to the public, but also when it was, but he wasn't able to successfully pick a successor manager. And the broader data showed that what Lynch is telling people to do is just not likely, I guess.
Cameron Passmore: Unreal story.
Ben Felix: I think so. The other one I want to talk about is listener question that came up a little bit in the Rational Reminder community. It came up twice in two days on YouTube. I don't know why. But I don't always look through all the comments that I get on YouTube, but I'll flip through them, I don't know, once every couple of days. Sometimes they catch my eye and these ones did, especially because there were two of them from different people. So we don't make predictions as people know, but we do talk about expected returns.
A couple times in the last couple of years, we've made some pretty strong statements about expected returns related to FANG stocks when they were just returning huge amounts for a period of time there. Likewise with ARK Funds with Cathie Wood's funds when, again, just they had huge returns. And whatever stuff has huge returns, people talk about it. So we did too.
In September 2020, we released a video on large cap growth stocks that was on common sense investing. We also talked about it on the podcast. They basically said, "Yeah, these things have had really good performance in recent history, but now that they are these massive high priced companies, they have low expected returns, which is true. It has to be.
It's not a lot of physics, but it's close. Someone commented on that saying that an interesting theory, but this video didn't age well based on the performance of large cap growth since it was published. I read that comment. I didn't have in my head what was the performance of large growth versus the market or large growth versus small value or anything like that?
Because I said in the video, these things have low expected returns, large cap growth. If you want higher expected returns, you should look at small-cap value stocks. So I went and ran the numbers because I was curious.
Cameron Passmore: And we know how this goes.
Ben Felix: So from September 2020 until the end of November 2021, the equal weighted portfolio of Facebook, Amazon, Apple, Google, Microsoft and Tesla, which is what I talked about in the beginning of that video had underperformed AVUV, which as many listeners know as a small-cap value fund. So those big stocks had underperformed a small-cap value fund by an annualized 19% from September 2020 until the end of November 2021. They didn't outperform. The big stocks didn't outperform. So I don't know about the video not aging well. And then the NASDAQ 100 index. So a broader index of those high priced large tech companies. I used QQQ. This is after fees, an actual index fund. It trailed AVUV over the same period by an annualized 29%.
Cameron Passmore: Incredible.
Ben Felix: Ouch.
Cameron Passmore: That's a big number.
Ben Felix: That's a big number. No it's AVUV. That's extreme. It's a small-cap value fund. It's not the market. Year to date 2021, and this is as of December 9th. So Friday of the week previous to recording this, the equal weighted portfolio of those same big stocks, Facebook, Amazon, Apple, Google, Microsoft and Tesla had underperformed AVUV by 2.5%. And the QQQ NASDAQ 100 index fund had trailed AVUV by 11.2% year to date, so far.
Now, of course, this is just short term noise just like those stocks outperforming prior to video being released was also short term to noise. But I don't know. It's just interesting to see that a couple people out there were saying large cap growth has continued to do well when it actually hadn't at least not relative to small value.
And then another commenter in one of these threads said that they feel better about QQQ than AVUV long term. They kind of said, "Okay, fine, Ben, you got me there." But I feel better about QQQ long term. Again, I just thought, I wonder how QQQs... Because it's been around for a long time since 1999. So I wondered how has it done relative to small value since then? Because we know it's been a rough go for small value recently, right?
So QQQ has returned 10% annualized since inception of March 1999. Pretty good. DFA US small value, which is like EVUV. But the dimensional fund has a benefit of going back to 1993 instead of 2019 for AVUV. That dimensional us small-cap value fund has returned 11.01% annualized. And that's after fees in both cases. But keeping in mind that dimensional fees on that small-cap value fund, they've come down significantly since the fund was launched in 1993.
Cameron Passmore: Isn't that interesting?
Ben Felix: Yeah. So if we went back and looked at the performance net of current fees in both cases, that spread would be even more significant. The other interesting point on this is for someone to say, "I feel better about QQQ than AVUV like today." I'm sitting here looking at the market today. I feel better about QQQ. The last time valuations on the large cap growth stocks looked like they do today or that they're higher today. But if you use book to market and I know some people don't like using that metric, but if you do use that one, valuations are currently a lot higher than they were in 1999.
If you use price to cash flow, they're roughly the same as they were back then. So the last time valuations were around here, QQQ had a decade of meaningfully negative performance. You lost 8% per year on average for the decade ending February 2010 in QQQ. Over the same period, US small value returned 8.54% per year.
Cameron Passmore: And even the S&P 500 was negative a little bit like negative 0.3 for that decade, I think? Something like that?
Ben Felix: Yeah, a little bit negative. I think the US total market was flat. That's the US lost decade. But if you were in large growth for the lost decade, ouch.
Cameron Passmore: But it wasn't the lost decade. Your point is, it wasn't the lost decade for small value?
Ben Felix: Yeah, it wasn't. Well, it wasn't the lost decade for small value, for value, for international stocks, for Canadian stocks.
Cameron Passmore: Emerging markets, yup.
Ben Felix: Just in US market. That was not the best time to be a US cap weighted investor. Okay. So that was small value, large growth. And then I just started thinking. What other predictions have we made? Or not predictions. What other statements have we made about expected returns that could be viewed as a prediction? So in December 2020, we made the video on technological revolutions. We did two Rational Reminder episodes on that. And that was kind of motivated by Cathie Wood.
What really got me thinking about innovation is that we had several clients reach out saying, "Why are we investing in this value stuff when innovation is the key?" You got to invest in this technological revolution that we're living through. If I saw that, I was like, "Geez, what is the response? I didn't really know." So we went and figured it out, came back and then everyone knows the rest because they heard those episodes or some people did at least.
So from when that video came out in December 2020, and this is the common sense investing version of it release date, until November 2021, the flagship ARK Innovation ETF returned and annualized -4.27% while AVUV has returned an annualized 47% over the same period. Again, in that video, I'm kind of saying, "Listen, if you want excitement, if you want high expected returns, large growth is not the way to go. You should look at small value." And there we go.
Then we released another one and this one was even more directly related to Cathie Wood because ARK returns were just insane and we're getting questions about it. So that was the one on chasing top fund managers. At the time, when that video came out in February 2021 ARK was still killing it. I got comments when the video came out like, "Ben, you're crazy. Cathie has taken us to the moon." And she was at that time.
Cameron Passmore: Sure was. The money was pouring in.
Ben Felix: Oh yeah. I've got some notes on that. Now in hindsight, and a lot of people said this in comments and in the Rational Reminder community that that video came out basically at the peak for ARK, which is kind of funny. I didn't time that. It wasn't on purpose. The expected returns were just so low. It was kind of obvious. So from March to November 2021 ARK delivered a -18.87% return while AVUV had delivered 14.84%. Pretty rough spread there.
Cameron Passmore: That's positive 14.84%. Not 18
Ben Felix: Yeah. -18.87 for ARK and 14.84 positive for AVUV.
Cameron Passmore: So that's 32, 33% Delta.
Ben Felix: Yeah.
Cameron Passmore: Ouch.
Ben Felix: I'm not saying I predicted it. I'm not the hedge fund manager, but it's just kind of fun to look back. Now on ARK, so you mentioned when the money came in, Cameron, $3.2 billion were in the fund at the start of 2020 and then the returns were just screaming. It was crazy. By the end of 2020, ARK had $34.4 billion in it. So calendar year 2020. Massive inflows and most of those inflows came in late in 2020 and early 2021 continued to have big inflows.
Investors were adding more than $2 billion per month during December, January, and February. December 2020, January and February of 2021 this year. The assets hit a high of 51.3 billion at the end of February of 2021. And then as we just said, it's been negative performance since then. So most of the dollars in the fund got in as tends to happen. I mean, there's data on this. It's not just this one instance. This is what tends to happen with crazy successful fund managers.
Most investors get at the worst possible time. So I don't have the data on the average dollar performance. I know there was some analysis that was posted in the community probably six months ago. So I didn't put it in the notes just because it's a bit stale at this point, but they were showing really bad returns for the average investor in the fund base on the timing of the cash flows.
Cameron Passmore: But the money weighted returns.
Ben Felix: Right? So AVUV, like we're talking about a small-cap value ETF. It's not a good benchmark for large growth or for Cathie Woods's funds. But I just thought it was interesting because in all those videos where we're talking about listen, expected returns are low on these assets that everybody's excited about. If you want excitement at high expected returns, you should look at this small-cap value stuff. And there we go. It happened. At least over this time period. By next month, maybe we'll be wrong again.
Cameron Passmore: Yeah. You're not doing a bit victory lap here. You're just pointing out where higher expected returns are.
Ben Felix: It's not a victory lap, but a little bit it is. A little bit, but not really.
Cameron Passmore: Okay. You wanted to talk about housing.
Ben Felix: Yep.
Cameron Passmore: And the B word.
Ben Felix: Yeah, is there a housing bubble in Canada? I think it's a pretty interesting question. I'll give away the answer. I don't think there is, which might surprise a lot of people.
Cameron Passmore: So where did the inspiration for this come from?
Ben Felix: You always ask me that question. I never have a good answer. I don't know. I don't know. I was thinking about it and then I started modeling it. Then the model was pretty interesting. So I started writing about it. I don't know what the seed was. I don't know what the Genesis was.
Cameron Passmore: That's a good answer.
Ben Felix: So Canadian home prices as people in Canada and maybe even other people outside of Canada know are very high, but this is the key. The key to this whole thing, are we in a housing bubble? The key is that the cost of living in a house is not the price of the house. So we have to understand this concept called user cost, the user cost of housing. I got this from a paper by Himmelberg, Mayer and Sinai. It's a 2005 paper Assessing High House Prices, Bubbles Fundamentals and Misperceptions.
It's kind of like the unrecoverable costs. The user cost is like the total unrecoverable cost of living in a home, which is different from the price, and much more relevant for assessing how expensive is housing in a region. So people need a place to live, of course. And in economic speak, people consume housing services. So theoretically, it shouldn't make much of a difference whether people choose to own, which provides both housing services and a real estate asset or by renting, which kind of disentangles the housing services flow from asset allocation.
In equilibrium, you'd expect the user cost of owning to be very similar to the market price of rent. In equilibrium. It doesn't mean it's always going to be true obviously, but in equilibrium, that's what you would expect. What can happen though, and what people I think are saying when they say that we're in a housing bubble is that the cost of owning can be subsidized by high price returns on real estate.
If you buy a house, you buy a house and you start living in it and it returns 20% a year on the asset. Your cost of living in it is negative, right? You've made money by owning a home instead of investing in some other asset. Unless the other asset was AVUV I guess because they had 40% returns. At least recently.
Adjusted for inflation home prices in Canada tripled from 1990 to 2021 and incomes over that period only rose by 20% total. So you can see house prices, outpaced incomes in real terms, pretty significantly over that time period. If we compare prices to incomes, it looks like a bubble. We'll put a chart on the YouTube video. It's just this hockey stick line of prices increasing. Well, incomes increase pretty modestly over the same period.
And it's the same kind of story. If you compare prices to rents, it's the same kind of hockey stick like, "Geez, we must be in a housing bubble for prices to be that high relative to rents, but that comparison is irrelevant. It doesn't make sense to compare prices to rents. To understand the relationship between prices and housing costs, that's where the user costs concept comes into play and becomes really, really important.
Once we have a user cost figure, what is the actual cost of living in a home? It's price. What is the actual cost? Once we have that, we can compare that to incomes historically, and we can compare that to rents historically. And then we can see, "Okay, are user costs higher or ridiculously higher relative to history?"
This is pretty similar to the 5% rule stuff that we've done in the past. The big difference is I've used... Actually, I might like what they do better although they have different purposes, I think. But they've used the 10% real interest rate on government bonds, really yield on government bonds as the opportunity cost. And then they've separately assigned a risk premium for owners over renters because owning a home is risky. And we'll talk more about that in a second. People might be raising an eyebrow owning a home, being risky.
I used no risk premium for the owner and used stocks as the opportunity cost. So it's a slightly different model. I think they have different applications for someone actually making the decision to rent versus buy. I like my 5% rule for assessing housing costs. I think this model makes a lot more sense.
Okay. So the user cost. It breaks down as the opportunity cost, the foregone investment return that the owner could oversee investing in something other than a house. And like I mentioned, Himmelberg, Mayer, and Sinai use the real yield on 10-year government bonds. So that's the first term. Plus property taxes. Minus the tax deductibility of mortgage interest.
I'm not going to mention that one again, just because it's not relevant in Canada. In the states, there is a deduction for mortgage interest. In Canada, there is not. Plus maintenance cost is a fraction of the home value minus the expected capital gain on the real estate asset, plus a risk premium to compensate the owner for the higher risk of owning versus renting.
So we'll talk through each of those terms. The expected capital gain on the real estate asset is really important because like I mentioned earlier, if you expect huge capital gains, you'd be willing to pay a lot for a house. Your cost of living there could be negative and you could be speculating on the future appreciation of the asset. And that actually ties into the definition of a bubble that Himmelberg, Mayer and Sinai used.
They describe a bubble, a housing bubble as being driven by home buyers who are willing to pay inflated prices for houses today because they expect unrealistically high housing appreciation in the future. So that's a key definition there and it's what we're going to try and answer based on where prices are now is Canada and the housing bubble based on that definition.
Do people have to be expecting unrealistically high housing appreciation to justify current prices? And I think a lot of people would think, yes, that is the case, but I don't actually think it is. So what is reasonable to expect? What is the housing expectation? Globally, it's been price return about 1% above inflation, historically.
In Canada from 2002 until now prices have increased by 5.5% per year after inflation, which is pretty significant, and that's Canada wide. Some cities and provinces would be a lot higher. Prior to that, from 1980 to 2001 Canadian average home prices appreciated about 1% above Canadian inflation. So in line with the historical average. So it's this more recent history, which interestingly lines up with interest rates falling. And we'll talk about why that's important and interesting in a bit, but there is some coincidence there.
In a 2004 paper, Robert Shiller and Karl Case, they documented survey data in us real estate markets in 1988, which ended up being followed by pretty significant price declines in the US. In 2003, which was early on in the US real estate bubble that culminated in the great financial. This is a fascinating paper that they did on this topic.
There are a lot of papers in the US from economists because they obviously had this big incident. So lots of people wrote about it. They show that most respondents view their home primarily as an investment with the remainder viewing it at least in part as an investment. A minority of respondents to their survey viewed real estate as involving a great deal of risk.
So most people view it as an investment, few people view it as having risk, and a vast majority of respondents expected positive price returns for the next several years with estimates for the 10-year price return ranging from 7.3% to 15.7% depending on the city and time period in the survey. So big, big price expectations in 2003 and 1988 in the US.
Now, of course we know now look back that those expectations were not realistic. And even though they seemed to come true for a bit, following 2003, as we all know, US real estate prices did fall dramatically, not long after. In Case and Shiller finding their survey that most respondents, keeping in mind their unrealistic price appreciation estimates believe that desirable real estate just naturally appreciates rapidly.
So if you're in Vancouver, Toronto, places like Ottawa right now, places where it's desirable to live, Vancouver Island where I grew up. Places where it's desirable to live, there's finite land, people. In Case and Shiller's survey, people believe that places like that, they just have high price returns. They just do. But that doesn't make any sense.
And Case and Shiller cleared this up on their paper. They say that this is economically flawed thinking. Properties that people find most attractive will be highly priced, but they're not necessarily going to be increasing more rapidly in priced than other properties. Which I mean that, of course that makes sense. But people have the idea that, well, if you buy in Toronto, returns are going to be 6% a year forever because it's Toronto. No. Prices are going to be high today.
Cameron Passmore: Otherwise that person would not have sold it to you.
Ben Felix: Yeah.
Cameron Passmore: If they ever expecting the same return that you were, they never would've sold it.
Ben Felix: Right. Okay. So one of the other big inputs for the user cost is the risk premium for owning instead of renting. I think the common perception is that home ownership is the safer option. So why would there be a risk premium for owning? Owners have to deal with real estate price risk on a single real estate asset. And we'll talk about why that's important in a second.
They also have large lumpy maintenance expenses and potential changes in debt service and costs if they have a mortgage. On the individual real estate asset, if you look at aggregate real estate indexes, they're less volatile than stocks. So people say, "Well, okay, real estate is a safe asset class to own." But the price risk of an individual home is substantially greater than an index.
There's a paper from Case and Shiller on this topic. A 1989 paper. They looked at the standard deviation of real estate indexes and say, "Yeah, it's pretty low." But real estate is heterogeneous. It's not like stocks where they're kind of fungible. Every stock is the same, but every real estate asset is unique. They're like NFTs, but real. Even if you take an identical home on the same street, there's going to be some differences like the view or the proximity to the bus stop. I don't know what else could be closest to the school or something.
Cameron Passmore: Curb appeal.
Ben Felix: Yeah, curb appeal. In Case and Shiller sample in this 1989 paper, they find that the standard deviation of individual home prices. So not the real estate index. Individual home prices is about 15% per year, which is more volatile than stocks. And that's really important. Because if we look at long-term real estate data, there's the rate of return on everything paper that goes back to the 1800s and it shows that yeah, real estate and aggregate. Residential real estate and aggregate has performed roughly the same as stocks-ish, but it's been less volatile.
Great. But nobody buys or in the real estate index. They buy a single property and Case and Shiller find substantially more volatility if we measure it by individual homes. So that's important. Himmelberg, Mayer, and Sinai in their paper, they use a 2% risk premium. And that came from another paper, a 2002 paper. Owner-Occupied Housing and the Composition of the Household Portfolio by Flavin and Yamashita.
They also note that that 2% risk premium is unlikely to be constant, particularly for markets with high prices relative to fundamentals or so called glamor cities where the risk of owning can be much greater measured by the standard deviation of prices. And that difference in volatility for glamor cities versus other cities, that's also documented in Case and Shiller's 2004 paper that I've mentioned a couple times.
So I think that that price risk of individual homes, I mean, I think it often gets ignored especially in Canada where we're just seeing prices go up and up and up. But I think it makes sense to model a risk premium for owning instead of renting. I don't think that's an unreasonable assumption. Whether it's 2% or not, and that's something that I'll touch on briefly later, but that's an open question. I think it's one of the things that we can answer with the model.
So once we have the user cost equation set up, we can see holding everything else constant, what risk premium are people using to price homes or what appreciation rate or whatever. It can be some combination of changing those variables to observe them based on prices.
Now, one of the other things that came up in doing research for this is high prices could be driven by real estate investors, which is a scary thought. I think people worry about that a lot, at least in the media. There was a talk that the Bank of Canada, deputy governor did in late November of this year. And they showed data that the largest increase in new mortgages during the pandemic housing boom came from real estate investors by a pretty wide margin.
The Bank of Canada's warning in this talk about extrapolative expectations driving real estate investor behavior. So we're back to that idea of a bubble of prices being high because people expect them to be high in the future.
Cameron Passmore: So these are investors, they're not people living in the homes?
Ben Felix: That is correct. And I think we can put a chart up on that. I think I screencaptured something from that Bank of Canada talk showing it was the increase in mortgage origination for different categories of buyers, but investors had the largest increase. Now, what information does that contain? Does it contain any information? If we look at the US experience, it's probably not a good thing. There's a 2011 staff report from the federal reserve bank of New York titled real estate investors, the leverage cycle and the housing market crisis.
In that paper, the authors find that in states that experience the largest housing booms and busts. At the peak of the market, almost half of purchase mortgage originations were associated with investors. Maybe that is a red flag, something to be worried about. I mentioned earlier, price risk is particularly problematic in high priced cities. I think that's a lot of places right now.
I mean, Ottawa, I think became a high priced city in the last couple of years even though it wasn't. Prior to that, probably still not as high as some other cities. But in any case, high priced cities are riskier at least based on Case and Shiller's US data. You could always argue that it's different in Canada and maybe it is.
Okay. So risk in the market. Investors, maybe driving up prices, who knows? I think it's important to mention though, that there is an offsetting effect. So we have that 2% risk premium that this paper that we're talking about used for owners over renters. I just talked about a bunch of reasons why owning a real estate asset could be risky, but there's an important point to why it's actually not risky or at least why there's an offsetting effect.
Price risk only materializes if you need to sell your home and buy in a relatively expensive market. That's important because if you sell your home, even if Ottawa real estate tanks and you, Cameron decide to sell your house and you decide to move to... I don't know. Where would you move?
Cameron Passmore: It doesn't matter. Somewhere cheaper.
Ben Felix: I was trying to get some imagery of where you'd be living, but yeah, sure. Somewhere cheaper, that it doesn't matter. If Ottawa drops 20% in price, but you're moving to some weather city that's dropped 30%., That's not so bad. But if Ottawa goes up 10% and you need to move to Toronto, that's up 20%. That's price risk. You're taking a loss on that asset. And that can happen for lots of reasons. Why do people move? Work, family? I don't know. Other reasons.
But if you don't need to move, or if you're moving to a correlated market, if Ottawas was up 20% and wherever you're going is also up 20%, it doesn't matter. You lose on transaction costs, but you're not taking the price risk. So I think that speaks to the careful consideration for time horizon when you're buying a house, if you're going to need to move in three years. I probably wouldn't buy, if it's going to be 25 years.
Well, you're not taking a whole lot of price risk. When you buy a house, you receive a housing services perpetuity. That's a term I got from one of John Cochran's papers. I think his paper on... I can't remember which one it was. But he refers to housing as a housing services perpetuity. I thought that was elegant. It's like a perpetuity and John Cochran talked about this when he was a guest in our podcast.
Perpetuity, if you mark them to market are going to be extremely volatile on price. But if you're a long-term investor, you don't care about that because you're collecting the cash flow stream from the perpetuity, which is why you bought it. Houses are pretty similar where the price is going to be volatile if you're marketing it to market every day. But if you bought a house to live in forever, you're going to receive the housing services perpetuity, and it doesn't matter.
Cameron Passmore: Exactly. Interesting.
Ben Felix: But if you move frequently between transaction costs and price risks, that just deserves careful consideration. The hedging property of owned homes is documented in a paper by Sinai and Souleles. It's a 2005 paper, Owner-Occupied Housing as a Hedge Against Rent Risk. They find that the insurance demand, they found this in a model, but then they've tested empirically and found it to be true.
The insurance demand for home ownership will increase with households expected horizon and with the interaction of horizon with rent risk. So households and areas with greater rent volatility are going to be willing to pay more to own a home, to hedge their housing costs. And this is increasingly true. The longer that people plan to live in that area.
So households with longer horizons are less exposed to price risk, like we just mentioned, and they're more motivated to hedge their rent risk. And that's particularly true in cities where rent is volatile. So that all sounds pretty good ensuring against rent volatility by owning, but remember the perpetuity case, if you're not going to live in a house forever, then you're exposed to the mark to market value of your housing services perpetuity. I think that can introduce some pretty significant risks.
That was a long way saying that I think the 2% risk premium estimate for owning over renting is probably fine at least as a starting point. So we put all that together using Ontario as an example. The opportunity cost measured by the real yield on 10-year government of Canada, bonds is -0.04% plus 1% for property taxes, plus 1% for maintenance cost as a fraction of the home value minus a 1% expected capital gained on the real estate asset, plus a 2% risk premium for owners bearing the risk of a single real estate asset.
All that sums to a little under 3%. And you multiply that by average prices in Ontario, and you get a dollar figure for user cost, which can be compared to rents and incomes. Make sense?
Cameron Passmore: Very much.
Ben Felix: So from a user cost perspective, owning a home in Ontario, and we we'll put charts up in the YouTube video, owning a home in Ontario is currently more expensive than history going back to 1990, which is as far back as I could find data for all of the different points that we needed to calculate the user cost. But it's not as exorbitant as prices relative to rents would make it seem. So that's pretty interesting.
Prices are high. Our user cost of housing is high relative to history back to 1990, but it's nothing like when you look at prices relative to rents. So back to the bubble question, are our homeowners today willing to pay inflated prices for housing because they expect unrealistically high housing appreciation in the future?
So I looked at the ratio of user cost, that's the implied rent that owners are paying to live in an owned home. I compared the ratio of that to actual rent and it is historically high. But to bring that ratio back down to the historical average level, owners only have to be counting on a 1.84% real price return or a lower risk premium of 1.2% instead of 2%.
So think about that for a sec. To bring the ratio of the user cost of housing to rents back to its historical average level, back to 1990, owners are only assuming an additional 84 basis points in real price return over the 1% sort of baseline that I'm saying makes sense. So it's not like they're assuming a 7% or an 8% or a 15% return to justify current prices. So the prices are a bit high. They're a bit elevated, but is that a bubble? I don't know. I don't know if we could say that.
You could argue that based on where things are like where interest rates are and where prices are and housing affordability and all that stuff, maybe it's reasonable to expect a lower than historical return. So maybe expecting 84 basis points is high compared to the, I don't know, 0% that you should be expecting, but you can't say that. You can't say what you should be expecting. It's an unknown.
And the other one is maybe people are using a very low risk premium, and maybe you should be expecting applying a higher risk premium to owning because of where interest rates and prices are. But either way, we're talking about moving the needle by a hair.
Cameron Passmore: But the bottom line is there's more to a story of a bubble than just a simple price increase, a simple snapshot in time.
Ben Felix: Yeah, I don't think we can hand wave and say, "We're in a housing bubble." When you dig into the numbers and the actual cost of living in a home. Now, the other insight that we get from this user cost equation. That's really interesting is that prices are expected to be particularly sensitive to interest rates when interest rates are already low.
So for example, if real 10-year interest rates were 6% like they were in the late '90s, the user cost of housing would be 9% if we plug everything back into the equation. Implying prices should be about 11 times rents. So that ratio of rents to prices based on a 9% user cost back then be about 11 times. If interest rates fall 1% that would lead to an expected 12.5% increase in prices just based on the price to rent ratio.
So holding rents constant. How much should prices rise with a 1% reduction in interest rates? If we're starting at 6%, you expect a 12.5% increase in prices. When real interest rates are 1.5%, which they approximately were in 2019 for a period of time, a 1% reduction that's real 10-year government bond yields. A 1% reduction in the interest rate at that time would lead to an expected 50% increase in prices relative to rents.
So you can see when rates are low already, the sensitivity of prices to rates is huge. And maybe that's what we saw through the pandemic. I don't know. Now, the sensitivity to interest rates is also true in the other direction. Now, I've been in the financial services industry for, I don't know, what eight or nine years now. Geez, time flies. But I've been hearing the whole time that interest rates can't go any lower.
I think they've gotten lower pretty much every year since I've been working in this industry. But this time I think it's really true. Rates can't go any lower if they go up. The expectation is that the sensitivity of prices too small in interest rate increases, it should be substantial is what you would expect. I mean, that's all else equal. Other stuff can change too. But all else equal, rates go up. When rates are already low, you'd expect a substantial change in prices.
If you're a short term buyer or if you're trying to trade real estate, that's kind of scary. If you're buying a housing services perpetuity, , doesn't really matter if you're going to live there for a very, very long time or move to a correlated market. Anyway, I don't think we're in a bubble. I think it's still scary, because I think a lot of people are buying houses that they don't plan to live in forever. And people are maybe buying right now with a pandemic in places that they may not end up if they have to go back to the office.
If you're buying in a small town like I did, that's probably not going to be correlated to the city. So I think there's some price risk that people are taking on right now. But I don't think that we're in a housing bubble. I think user costs are pretty much in line with history. It's just that interest rates are really low. What do you think?
Cameron Passmore: Well, I'm going to make a prediction that this will be an episode or a subject that a lot of people are going to go back and listen to again. There's a lot of details in this that's worth reconsidering slowly. Really interesting data. There's more to the story. There's always more to the story. Good to go into talking sense?
Ben Felix: Let's go ahead to talking sense.
Cameron Passmore: These are the cards from the University of Chicago Financial Education Initiative. It's getting harder to find ones we haven't done, but here we go.
Ben Felix: Wait, wait, wait. What do we do when we run out of cards?
Cameron Passmore: Do them over again, I guess. I don't know.
Ben Felix: Oh, I didn't really think that through. Geez. All right.
Cameron Passmore: Your favorite band is touring. They'll be in your city next week, but they're playing a festival with other bands and only doing five songs. If you wait a month and drive two hours to a nearby city, you can see them play a full show. You can only afford to do one. What do you do? It's easy. Wait a month.
Ben Felix: Same.
Cameron Passmore: The value that shows much higher price is the same. No brainer. Okay. You agree. If you could only buy one kind of insurance, which of the following would you choose? So it says home insurance, health insurance, which in Canada, we have national healthcare. So don't worry about health insurance. So I'll change that to disability insurance and life insurance. Which would you choose? Home insurance, disability, insurance, or life insurance?
Ben Felix: Disability. Probability of being disabled are much greater than the probability of dying prematurely. I think my human capital is worth a lot more than my house.
Cameron Passmore: Right. I mean, you're younger. So I think that makes sense for me. I have to do the math, but I'm guessing life insurance may be more important for me because you can only buy disability insurance another nine years or so for me. But it depends on the circumstances. Okay. Taxes are money you paid to your local state or federal government. The government uses that money to provide different things to the people it serves. What do you think taxes should pay for?
Ben Felix: Roads, public utilities, schools.
Cameron Passmore: Kind of everything that you can't do on your own I guess.
Ben Felix: Things that require scale that individuals can't possibly get. Things that provide utility to a large cross section of the population in question. Safety, national security, food safety. Things that individuals would never have the incentive to do. That's probably another good one.
Cameron Passmore: Yeah. That's a better answer.
Ben Felix: I listened to something really interesting about this a while ago. I can't even remember what it was though, but it was along those lines that there's certain things that individuals just don't have the incentives to do and that's why you'd need a state to do certain things.
Cameron Passmore: Right. That was a good answer. Anything else?
Ben Felix: I don't think so. We covered a lot of material and I'm surprised that it was only the recording time a little over an hour or so. It might be an hour long episode. I would've guessed it would've gone longer.
Cameron Passmore: And next week, like I said, we're back with the year in review, then we're off for a week.
Ben Felix: That's true. I guess since we're going to be off, I'll do my semi-frequent ask for people to continue leaving the kind reviews and comments and rating the podcast five stars that apparently helps other people find it. And more and more people are finding the podcast, which is great. In the Rational Reminder community, which contains a cross-section of the listeners, I think there continues to be lots of really high quality discussions to the point where a lot of the discussions are hard for me to jump into because the people who are having the conversations have done so much background research on the topic that they're discussing. It's like, geez, I just... I can't. I can't dip my toes in there, which is awesome and I love it.
Cameron Passmore: Don't forget hats in the store. Tuques are available. Got lots of merch here. We're happy to move. Okay. As always thanks for listening.
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'Want to Be Happy? Hire a Financial Advisor' — https://static1.squarespace.com/static/5a720f21be42d6c5b35cd2d5/t/61ae8269d3ac6c729c4c4552/1638826601510/Trending_Edition+1_HerbersCo_Final.pdf
'Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions' — https://www.aeaweb.org/articles?id=10.1257/089533005775196769
'Owner-Occupied Housing and the Composition of the Household Portfolio' — https://www.aeaweb.org/articles?id=10.1257/000282802760015775
'Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis' — https://www.newyorkfed.org/research/staff_reports/sr514.html
'Owner-Occupied Housing as a Hedge Against Rent Risk' — https://academic.oup.com/qje/article-abstract/120/2/763/1933972