112 episodes

A weekly reality check on sensible investing and financial decision-making for Canadians. Hosted by Benjamin Felix and Cameron Passmore of PWL Capital.

The Rational Reminder Podcast Benjamin Felix & Cameron Passmore

    • Investing
    • 4.9, 263 Ratings

A weekly reality check on sensible investing and financial decision-making for Canadians. Hosted by Benjamin Felix and Cameron Passmore of PWL Capital.

    Understanding the Fed’s Money Printer, and Lessons from the Crisis

    Understanding the Fed’s Money Printer, and Lessons from the Crisis

    Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. But what exactly does that mean? In today’s episode, Benjamin and Cameron are going to address this topic, avoiding highly politicized aspects, like whether or not central banks should be involved in the economy in the first place, and focusing purely on the operational perspective of quantitative easing – what is it, how it works, and what the intended transmission mechanisms are. Benjamin explains what he has learned through his extensive research, from what money printing and the stock market have to do with one another, where the money for loans comes from, how central banks can influence lending rates, and the difference between regular open market operations and quantitative easing. We also cover how quantitative easing works, the relationship between bank reserves and money in the economy, and what causes inflation, as well as the effect of quantitative easing has on stock prices (if any). We also catch up on recent news stories, and Cameron takes us through five key personal finance lessons we can learn from this crisis. If you’re looking to understand quantitative easing, this episode will hopefully become a useful resource! Tune in today.
     
    Key Points From This Episode:
    This week’s book of the week is Mindf*ck: Cambridge Analytica and the Plot to Break America by Canadian, Christopher Wylie [0:04:38] A chart showing the ratio of the Nasdaq 100 index divided by the Russell 2000 [0:08:22] University endowment sued for active investing by 94-year-old Clarence Herbst. [0:10:02] This was not the first time Clarence Herbst had an issue with his alma mater. [0:13:05] Multimillion-dollar mismanagement of public pension funds in Maryland, 2014. [0:13:22] Benjamin introduces the main topic, quantitative easing (QE), a central bank action. [0:14:42] What do money printing and the stock market have to do with one another? [0:17:37] You can summarize money as a social construct that facilitates economic activity. [0:20:06] As long as there are credit-worthy borrowers, banks will print money out of thin air. [0:22:28] The distinction between central banks and private banks, which interact with customers and have to monitor their net flow of money. [0:25:27] Open market operations allow a central bank to influence overnight lending rates. [0:28:30] The difference between regular open market operations and QE. [0:33:14] A couple of theories about how QE might work, like the portfolio balance theory. [0:37:42] There is no relationship between reserves and money in the economy. [0:41:11] What causes inflation? It’s not reserves! Demand for loans drives demand for loans. [0:43:07] What about the effect of QE on stock prices? We would expect a positive impact. [0:45:14] Money is this medium that facilitates economic activity and that's all it does. [0:47:40] Five key personal finance lessons we can learn from this crisis: Stocks are volatile [0:50:35] Debt is dangerous and emergency funds have a very important purpose. [0:50:35] Don’t stop spending, always prepare for the worst – disability insurance is crucial! [0:54:51] Cameron still wants to understand how fee-free trading platforms make money – nothing is for free! [0:50:35]

    • 1 hr 3 min
    Dr. William Bernstein: Praying for a Bear Market

    Dr. William Bernstein: Praying for a Bear Market

    In keeping with our recent tide of incredible guests, today’s one is no exception. Dr. William Bernstein, a financial theorist, advisor, and neurologist, joins us to share some of his incredible insights. As the author of several seminal books such as The Intelligent Asset Allocator and The Four Pillars of Investing, Dr. Bernstein has made his mark applying his medical evidence-based approach to investing. These works have had a particularly strong influence on Cameron when he made the transition from active mutual funds earlier in his career, so it was an incredible honour to have him on the show. In this episode, we dive into a range of topics. We kick off with the importance of understanding investment theories and market history along with why Dr. Bernstein believes young investors should cross their fingers and hope for a bear market. We then take a look at how overconfidence and ill-discipline affect investment decisions and how investors can test their risk appetite in real-time. From there, we turn our attention to small-cap and value stocks and Dr. Bernstein’s take on them and the role they should play in your portfolio. We round the show off by discussing the real economic issue that Dr. Bernstein thinks the pandemic is bringing to the fore in the US, the parallels he has seen between his medical and his financial advisory career, and some of his frustrations in communicating financial advice. Be sure to tune into this phenomenal episode. 
     
    Key Points From This Episode:
    Learn more about today’s guest, Dr. William Bernstein, and his background. [0:01:06.0] An overview of value averaging and how it’s different from dollar-cost averaging. [0:02:37.0] Why Dr. Bernstein believes it’s so important for investors to understand investing theory. [0:05:14.0] What it means to understand the several facets of market history. [0:06:28.0] Insights into return sequence and why young investors should hope for bear markets. [0:08:11.0] Why generational underperformance is arguably a bigger risk than volatility. [0:09:39.0] Why people are so bad at evaluating their risk tolerance and how they should assess it. [0:11:54.0] Bernstein’s take on whether young investors should be using leverage. [0:15:15.0] Insights on premiums for small-cap and value stocks and the reason to not build an entire portfolio of them. [0:15:49.0] Dollar-cost averaging vs value cost averaging: Dr. Bernstein’s position. [0:19:37.0] Factors that influence the shift from an equity biased portfolio to a fixed-income one. [0:21:08.0] How to reconcile the idea that stocks can be less risky than bonds over time. [0:23:58.0] When Dr. Bernstein would make the rare recommendation of an annuity. [0:25:33.0] The difference between financial systems and airfoils and electric circuits. [0:27:29.0] Why Dr. Bernstein calls mean-variance optimizer an error maximizer. [0:29:28.0] Bernstein’s opinions on gold and some of the problems he sees with it. [0:30:34.0] What Dr. Bernstein is really worried about with the securities market in the COVID crisis. [0:31:49.0] The similarities between neurology and financial advisory and what motivated Dr. Bernstein’s transition. [0:35:04.0] The impact that the current crisis is likely to have on global trade. [0:38:01.0] Find out what Dr. Bernstein thinks about the US Central Bank’s crisis response. [0:39:24.0] The lessons that Dr. Bernstein has learned about communicating financial topics. [0:40:46.0]

    • 43 min
    Yale vs. Norway, Income Splitting, and Avoiding Ponzi Schemes

    Yale vs. Norway, Income Splitting, and Avoiding Ponzi Schemes

    As the expression goes, another day, another dollar. Today’s episode is a roundup of news and analysis with deeper dives into behavioural and risk-based market explanations, active management, and endowment investing models. We open with a book review of Essentialism: The Disciplined Pursuit of Less by Greg McKeown, a book that’s getting a lot of attention at the moment. Another topic that’s getting a lot of attention, we discuss how Tesla’s huge market cap growth makes it feel like it’s 1999. We also offer our opinions on why Tesla has been so highly valued despite increasing competition in the electric car market. Answering a listener question, we explore how Robinhood makes money through ‘payment for order flow’ and the debate about if this is in the retail client’s best interest. Following another listener question, we answer if the podcast suffers from confirmation bias and how you can never know the ‘why’ behind stock returns. We talk about risk versus behaviour market explanations and use sound clips from previous episodes to present views on this subject. We then discuss Yale and David Swensen’s endowment investment model, focusing on his strategy of finding uncorrelated asset classes and then hiring active managers to meet target allocations. We look at the model’s benefits and its similarities to Canada’s CCP before examining how Norway invests based on oppositional ideas of the marketplace. Near the end of the episode, we continue our conversation on spousal loans by listing more family income splitting strategies. Tune in to hear more from the financial world.
     
    Key Points From This Episode:
    A quick book review of Essentialism: The Disciplined Pursuit of Less by Greg McKeown. [0:03:25] Key ideas of this book; being busy isn’t always a positive, and if you don’t prioritize your life then someone else will. [0:06:02] Why Tesla surpassing General Motors’ market cap makes it feel like it’s 1999. [0:07:32] Opinions on why Tesla has experienced such incredible growth. [0:09:06] How Robinhood makes money if they don’t charge any trade fees. [0:12:15] Discussion on whether Robinhood’s service benefits the end-user. [0:13:19] Dave Nadig’s take on Robinhood and why it’s a “tempest in a teapot.” [0:15:46] Answering the question; “does the podcast suffer from confirmation bias?” [0:17:30] How the podcast’s stance on behavioural versus risk-based explanations have softened. [0:18:38] Sound clips from previous episodes on the reasons for different stock returns. [0:21:00] Examining a paper arguing that active management can create value for investors. [0:23:10] Deep dive into our portfolio topic; Yale and the endowment investment model. [0:27:30] Why it’s so difficult to replicate David Swensen’s endowment investment success. [0:32:00] The correlation between endowment size and allocation to alternative asset classes. [0:34:30] How many endowment investment portfolios have performed poorly. [0:36:35] Differences between the Yale and Canadian endowment investment models. [0:40:15] How Norway operates the biggest wealth fund in the world. [0:45:40] How Norway’s model is completely at odds with the Yale endowment model. [0:48:20] Family income splitting opportunities in Canada that attract less tax. [0:52:00] [0:52:00] Why you should seek legal counsel when setting up family trusts and using family income splitting strategies. [1:00:05] Hear the crazy, bad financial advice of the week; Ponzi schemes are still selling. [1:06:15]

    • 1 hr 9 min
    Jim Stanford on The Economics of Capitalism in a Crisis

    Jim Stanford on The Economics of Capitalism in a Crisis

    Today’s guest is Dr. Jim Stanford, Economist and Director of the Centre for Future Work and author of Economics for Everyone. We kick things off with Jim hearing his perspectives on what makes this recession unprecedented before he argues that a traditional approach to macroeconomic policy won’t be enough to augment more than a crippled and unstable recovery. This situation might hold a silver lining though and Jim sketches out the opportunity it provides for rethinking employment ethics. After weighing in on why the deficits caused by a much-needed post-war style economic reconstruction might not such a bad thing, Jim does an amazing job of explaining the connections and differences between quantitative easing and government deficit. On this topic, he talks about why fears around credit creation are centered on an outdated concept of banking, and the potential quantitative easing has for facilitating investment and economic activity in this recession rather than buying corporate assets in the secondary market. From there, we talk about wealth distribution, the inevitability of an economic system that supersedes capitalism, and the concept of the political economy. Jim gets into how issues about history, norms, culture, and power – things that don't show up in your usual supply and demand graphs – are actually crucial inputs for understanding the economy and understanding economics. Don’t miss this incredible conversation about ethics and capitalism with today’s guest.
     
    Key Points From This Episode:
    Introducing Jim Stanford and his work on economics and quantitative easing. [0:00:05.3] What makes this recession unprecedented; the ‘Loch Ness Monster’ recovery. [0:03:16.2] How many of the most vulnerable groups are experiencing more job losses. 0:06:27.3] Challenges of remote work and implications that only 25-30% of jobs can be done remotely. [0:09:32.3] Impacts of social distancing on the economy, a socially constructed phenomenon. [0:12:07.7] Avoiding the Loch Ness recovery by implementing a post-war style recovery plan. [0:14:53.3] The silver lining of this crisis: putting an end to inhumane work arrangements. [0:18:38.4] Why large deficits that could come with a reconstruction might not be a problem. [0:21:02.0] Connections and differences between quantitative easing and government deficit. [0:24:30.3] Dispelling fears of credit creation inflation; how banking actually works. [0:28:14.7] The dangers of quantitative easing and how it can be better used in the recovery. [0:32:44.3] Why GDP might not be the best measure of how well an economy is doing. [0:35:49.1] Metrics that make skew wealth distribution seem less harsh than it is. [0:38:58.2] The precariousness of the bank and mining-based Canadian economy. [0:41:49.9] How Capitalism is not perpetual and examples of seeds of change. [0:46:17.3] Why the capitalist economy is political and gross inequality contradicts it. [0:50:21.8] Jim’s education, early activistic goals, and definition of success. [0:53:28.5]

    • 56 min
    Dimensional's ETFs, Private Equity, and Prescribed Rate Loans

    Dimensional's ETFs, Private Equity, and Prescribed Rate Loans

    With private equity investments increasing in popularity, you may feel the pressure to expand your portfolio. Today’s episode, we look at the data behind private equity returns to see if these investments add something to your portfolio that you couldn’t get elsewhere. But first, we discuss some big news — that slow-moving Dimensional Fund Advisors are entering the ETF marketplace. After looking at the implications of this move, we use a Harvard paper as our springboard into the topic of private equity. By exploring the shift in demand for private equity, the paper establishes the context for why investors, especially institutions, are seeking higher returns. Looking at research from AQR, we talk about their finding that private equity returns are overvalued, despite them being historically good investments. You’ll hear how the risks underlying private equity are obscured by a ‘return smoothing effect’ and why people are willing to overpay to get smooth returns. We examine how the gap between private and public equity returns has narrowed along with AQR’s argument that market changes have caused private equity investments to perform poorly. After AQR, we move onto a paper by Erik Stafford which shows that small-cap investing yields similar returns to private equity — with the advantage that you don’t have to pay high private equity fees. We round off the episode with a discussion on the benefits of spousal loans before talking about this week’s bad financial advice. This is a valuable episode for those wondering about adding private equity to their portfolios. Listen to find out why that might not be in your best interest. 
     
    Key Points From This Episode:
    Updates on our brilliant future guests — Jim Stanford and William Bernstein. [0:01:50] That Jim Stanford’s book provides an excellent view of money and banking in capitalism. [0:02:49] The big news; Dimensional Fund Advisors are entering the ETF marketplace. [0:04:50] The similarity between Avantis Investments and Dimensional Fund’s offerings. [0:06:05] Speculation on why Dimensional Fund Advisors are moving into the ETF space. [0:09:06] The benefit of ETFs — if you want out, then you have to pick up the spread [0:13:12] How ETFs might affect investor discipline and what ETF demand might look like. [0:14:06] Other Dimension news; 16 Canadian funds will get a management fee reduction. [0:15:39] Corrections to a chart on Twitter showing investors selling their equity holdings. [0:16:16] Hear about Capital and Ideology, Benjamin’s book of the week. [0:17:38] How private equity is becoming increasingly popular. [0:19:26] Why, generally, you shouldn’t include U.S ETFs in your portfolio. [0:21:20] The massive shift towards private equity investment from numerous entities. [0:24:08] How the timing has caused large institutions to look for higher returns. [0:25:33] Why expected returns from private equity were historically good and why this is no longer the case. [0:27:50] How private equity trading results in an artificial ‘return smoothing effect’. [0:29:10] That the valuation gap between private and public equity has narrowed. [0:31:40] What other mechanisms lead to an overvaluation of private equity. [0:32:28] Why IRRs, as opposed to PMEs, can be easily gamed, rendering them unreliable. [0:37:00] The historical conditions that led to high returns from private equity. [0:40:50] Comparing the expected return for public and private equity. [0:43:25] How Erik Stafford’s paper agrees that public equity risk is under-stated. [0:47:06] The difference in dispersion between private and public mutual equity funds. [0:49:30] Why private equity past performance isn’t a predictor of future returns. [0:50:55] How spousal loans allow your partner to make investments with your money. [0:54:24] The potential tax savings that result from spousal loans

    • 1 hr 9 min
    Fred Vettese: A Complete Guide to Retirement Income

    Fred Vettese: A Complete Guide to Retirement Income

    Today, we get into a masterclass on retirement planning with a true expert in the field whose perspectives are distinctly evidence-based, Fred Vettese. Fred is a Partner and former Actuary at Morneau Shepell and author of three retirement books including Retirement Income For Life. We hear Fred’s thoughts on what people should be spending in retirement, why there is not a retirement crisis in Canada, and how Canadians can live on far less than they have been told. Fred talks about how to prepare for a bad investment outcome, as well as the problem of underspending early on and ending up with too many assets. He is a big proponent of people deferring their CPP until after 70 and buying an annuity with a portion of their money in most cases. Our guest weighs in on annuities, talking about how to buy them, which types to buy, and why ALDAs exacerbate the problem of early underspending. We query Fred about when people should start their CPP and OAS government benefits, and then move to hear his thoughts about different bear markets, how to invest during them, and what the current massive government interventions mean for the future of taxpayers. Fred gets into the risk of getting a retirement age date wrong, why he doesn’t endorse the 4% spending rule, and how retirement planning is affected by owning versus renting a home next. He also makes a case for when reverse mortgages are a good option, why long-term care insurance makes no sense, and why interest rates are so low right now. Wrapping up, we hear Fred’s thoughts on what this all means for early retirees, people still in the workforce, and those just entering it. Tune in for Fred’s brilliant perspectives on all this and a lot more in what should be an evergreen resource for any Canadian looking for solid retirement instructions.
     
    Key Points From This Episode:
    Introducing Fred Vettese and his evidence-based work on retirement planning. [0:00:16.3] How Fred and Bill Morneau dispelled notions of a Canadian financial crisis. [0:02:45.3] Rethinking the rule that Canadians spend 70% of their income in retirement. [0:04:55.3] Fred’s conclusion about how spending tracks inflation during retirement. [0:09:27.3] Strategies for how retirees can take on less risk but still have enough money. [0:12:00.3] Avoiding underspending and ending up with too many assets later. [0:15:08.3] The benefits of annuities and why they might not be that safe anymore. [0:16:55.3] The pitfalls of annuities indexed to inflation over combining all income sources. [0:20:00.3] Why ALDAs exacerbate Canadians underspending at younger ages. [0:22:47.3] When to start CPP and OAS government benefits, and tips for exceptional cases. [0:25:59.3] Whether this bear market is vanilla or not and how it affects investment decisions. [0:30:25.3] The effects that massive government stimulus could have on taxpayers. [0:32:28.3] Drawbacks of saving for an over and underestimated retirement age. [0:35:12.3] Thoughts on the 4% spending rule now that bond returns are 0%. [0:37:20.3] How people owning versus renting a home affects retirement planning. [0:39:09.3] When it’s a good idea to take out a reverse mortgage. [0:41:36.3] Why long-term care insurance makes no sense; poor coverage for the price. [0:44:10.3] The link between aging populations and low interest rates/inflation. [0:47:40.3] The impacts of this low interest rate environment on early retirees. [0:52:10.3] Whether Monte Carlo simulation is a useful tool and what success rates to aim for. [0:53:49.3] Why early retirees can withstand a lower Monte Carlo success rate. [0:56:11.3] The reason people who are not retired yet should be saving 20% of their income. [0:56:59.3] Fred’s advice for people entering the workforce to live within their means. [0:58:52.3] How Fred defines success: having a minimal amount of regrets when it’s all over. [0:59:55

    • 1 hr

Customer Reviews

4.9 out of 5
263 Ratings

263 Ratings

Johnybgood2 ,

Content is great!

Really enjoy all you both do! Learned a lot, so thank you (Regrets I don’t like the new music intro either.)

NewBrunswickGreg ,

Only gave it 5 stars because I couldn’t give it 10

This is such an awesome podcast. It helps one understand the ins and outs of smart, rational investing, as the title would suggest. Not only does it present the theory behind why you should invest certain ways, it strives to teach the reasons why you shouldn’t invest in other ways.
Ben and Cameron have great chemistry, even if you don’t get all the factor-based jokes. They really know their stuff.
One of the most refreshing aspects of the podcast, especially in this day and age, is they will admit when they didn’t know something, or change their mind when presented with new, concrete evidence. I can’t stress enough how rare this is.
Great podcast, 10/5 would recommend.
Keep up the great work.

nolanw ,

Required listening for the DIY investor

I thought I'd heard everything relevant to me in the personal finance world, as a frugal do-it-yourself buy-and-hold index investor. I am pleased to report that I was wrong! Benjamin and Cameron's infectious enthusiasm for research- and data-driven approaches to investing and savings is matched only by their obvious joy at interviewing this all-star guest lineup. Sorry to sound like I'm gushing, but I really enjoy this podcast!

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