BARENAKED MONEY PODCAST: EPISODE 5

Transcript

Announcer (00:00):

You're about to get lucky with the Barenaked Money podcast. The show that brings you the naked truth about personal finance with your hosts, Josh Sheluk and Colin White, Portfolio Managers with WLWP Wealth Planners, iA Private Wealth.

Josh (00:24):

How are you Colin?

Colin (00:26):

I'm doing great. How are you doing?

Josh (00:28):

I'm ready to get naked? How about that?

Colin (00:32):

Well, I'm not sure that that's going to make it past the editor, but you know, good swing.

Josh (00:37):

So what are we talking about today?

Colin (00:39):

Well, there was some news came out, uh, actually a couple of weeks ago. Now that kind of caught my eye for a couple of reasons. Canada pension plan, investment board, or as an organization, I've got a lot of respect for seeing them speak and read a lot of their stuff and other people in terms of the Canada pension. Uh, now the Canada pension is envy or the industrialized world because it's actually a publicly funded pension plan. So we actually have funding behind it. It's not coming out of tax revenue. So there's a very sizable amount of money being managed on behalf of all Canadians. And there's some really smart people making those decisions. But the news was that they had dramatically underperformed their benchmark, the most recent period. And there was a bit of a fall of people were flocking to, and trying to assign all kinds of blame and what mistakes they made in the sand. And the other thing, and it brought to me the topic of, Hey, let's talk about benchmarking. Let's talk about indexes. Let's talk about what those things really are because they so often good misused and misapplied and in general life. And so you're a real smart feller. And I figured that if I asked you the question, so, you know, what an index is, you might be able to start the classroom. What Is an index?

Josh (01:53):

Yeah. So a lot to unpack there and an index at, at a very, very basic level. It's just a set of rules that define a basket of investments. And where does this set of rules come from? And we've been talking about it a little bit this week. It's not like the set of rules is handed down as a gift of God, to the people or anything like that, right? Somebody is out there an individual, you or me an investment individual, a group of individuals, somebody is coming up with this set of rules that defines what this index is. And again, index is just, just a basket of securities.

Colin (02:31):

And normally what they're doing this, like, Hey, everybody's talking about marijuana. We need a marijuana index. How are we going to do that? So it tends to be very opportunistic when they have those conversations. It's not just a academic procedure where they're going to go through and try to have an even hand over the whole space is once everybody talking about what can we sell? Ooh, let's have a marijuana index. And then they put together their set of rules and everything else and they make it look like it did come from the hand of, yeah,

Josh (03:00):

Yeah, you're right. And these indexes, they've just been proliferating over the last five, 10, 15 years, because as you said, there's an advantage or advantageous sort of point of view one creating an index because then they could go sell this index and use it to create investment products for the people. So I heard on a podcast this morning, which I don't know if I entirely believe this number, but there's 3 million indexes out there in the world. That seems like an absurd number. I don't know how that could be possible, but even if it's 300,000 or 30,000, that's still a hell of a lot of indexes.

Colin (03:38):

Yeah, no, absolutely. And that is as they become more popular and as this whole conversation about beating the index, you know, there's more and more on, on main street, it's more taken as, you know, a good commentary on something and then more and more people come to the come to market with them. And I know it's been fascinating to watch some of the product that's come out lately. So the major index is Josh. I mean, maybe you can give me your comment on what percentage of that are our rules and how much discretion around there. And again, there's discretion the rules too, but you know, it's, it's not just a mathematical equation that puts a stock on an index.

Josh (04:13):

Yeah. So the major indexes you're talking about things like the TSX composite or the S and P 500 did the TSX comp, is that we'll reference it a few times throughout this conversation. And it's just a representation of sort of the largest companies in Canada, uh, the S and P 500, the 500 largest companies in the U S uh, you know, give or take, uh, and there's rules to be included on these indexes. So again, somebody is coming up with these rules, how much, uh, for these, these sort of broad based indexes, how, how strict are the rules? You know, there, there's a couple of defining things like they have to be filing quarterly and annual reports. They have to meet a certain size to be on that, that index. So for the ...