In today’s episode, we beg the question: is factor investing worth it? Factor-tilted portfolios tend to perform independently of the market and today, we break down a few of the characteristics associated with higher expected returns, as well as the challenges of factor investing. We give a brief history of pricing models and walk step-by-step through a hypothetical factor investment; taking the Fama and French five-factor model into account. Additionally, we discuss liability duration and bond returns and speculate whether pooling finances results in greater relationship satisfaction. Tune in to hear our take on everything from book clubs and the impact of inflation on consumption liability assumptions to our final verdict on whether factor investing is, in fact, worth your while.

Key Points From This Episode:

• The latest phenomenon of people paying to go on popular podcasts. [0:01:58]
• Interesting feedback we’ve received for our Crypto series. [0:03:49]
• Why not to make an investment decision based on one person's opinion. [0:04:53]
• The evaluation skills our Crypto series equips listeners with. [0:06:05]
• Upcoming guests on the Rational Reminder Podcast! [0:07:31]
• Some interesting LinkedIn connections we’ve made in the past few weeks. [0:16:06]
• Recommended book for kids: Way of the Warrior Kid 3. [0:18:11]
• Recommended book for adults: The Psychology of Money. [0:21:08]
• The model of our firm’s book club and our experience of it so far. [0:22:02]
• Does pooling finances result in greater relationship satisfaction? [0:24:35]
• Liability duration and bond returns according to the current change in bond yields. [0:26:22]
• How inflation impacts consumption liability assumptions. [0:29:11]
• The positive effect the changes in the bond market have had on pension funds, relative to their liabilities. [0:30:20]
• The main topic of the day: is factor investing worth it? [0:32:30]
• The long-term volatility for factor-tilted portfolios. [0:33:56]
• What factor investing is and the added risk it entails. [0:34:51]
• A brief history of pricing models. [0:35:53]
• A few characteristics associated with higher expected returns. [0:39:25]
• The challenges of factor investing. [0:39:47]
• How to determine the mix of factors that captures all relevant state variable sensitivities. [0:42:56]
• The significance of size premium. [0:46:07]
• Speculating whether factors deliver premiums. [0:47:57]
• The steps involved in a hypothetical factor investment. [0:48:57]
• A few important facts about factors. [0:53:23]
• The benefits of having more independent risk premiums in a portfolio. [0:54:56]
• Our verdict as to whether or not factor investing is worth it. [0:57:02]
• Why it’s important to take tracking error into account. [0:57:38]
• The tendency of factor-tilted portfolios to perform differently from the market. [0:57:48]

There is a lot of hype surrounding cryptocurrencies and DeFi technology, with excitement around the potential innovations they offer financial systems. Often lacking in the discussion is an objective and critically informed viewpoint, leading to confusion and misunderstanding. In today’s conversation, we get the balanced perspective that we need with Professor Hilary Allen, who has a wealth of experience in banking, law, financial regulation, corporate finance, and business administration. She is a law professor at the American University of Washington College of Law and her research focuses on the impact of new financial technologies on the stability of the current finance system. She has written many academic papers on the subject, including the book Driverless Finance, which provides readers with a balanced perspective on the opportunities and threats of fintech innovations. In our candid and fascinating conversation with Professor Allen, we learn about the threats and opportunities DeFi technologies pose to the financial system. We hear what shadow banking is, the similarities that decentralized finance has with shadow banking, the risks of cryptocurrencies, if innovation in finance is always positive, why regulation is essential, whether DeFi is actually decentralized, the basics of stablecoins, how you can help affect change in the financial system, if you should invest in cryptocurrencies, and much more. Tune in to get the clarity you need about the world of crypto with expert Professor Hilary Allen!

Key Points From This Episode:

• We start the show by learning what shadow banking is and how it is associated with the financial crisis in 2008. [0:04:05]
• Professor Allen explains what DeFi is and gives us some examples. [0:07:16]
• Learn about some of the innovations that DeFi technology proposes. [0:09:21]
• Similarities between shadow banking activities and DeFi technology. [0:11:06]
• Other risks that Professor Allen sees with the DeFi system. [0:12:12]
• What effect replacing intermediaries with algorithms have on financial systems. [0:16:03]
• The effect complexity has on a financial system. [0:17:19]
• She explains what financial stability is and the objective of financial regulation. [0:19:27]
• How the financial stability of the existing system compares to the DeFi system. [0:21:01]
• Whether stability of the existing financial system is exposed to problems within DeFi. [0:22:14]
• Which DeFi innovations pose the biggest risk to the current financial system. [0:23:23]
• Find out if stablecoins could affect monetary policy. [0:25:23]
• The regulatory lessons from the 2008 financial crisis that are relevant to DeFi. [0:26:28]
• Outline of the problems that the existing financial system has. [0:30:44]
• How successful DeFi has been at being decentralized. [0:33:14]
• If Professor Allen has any concerns that regulation might stifle innovation in DeFi. [0:36:06]
• Find out if financial innovation is always a good thing. [0:37:41]
• What the best possible regulatory outcomes are regarding crypto and DeFi. [0:39:30]
• Whether it is too late to regulate cryptocurrencies. [0:42:48]
• Why Professor Allen thinks some politicians are pushing crypto-friendly agendas. [0:43:52]
• How people can affect change in the right direction regarding the financial system. [0:46:08]

If you’re ready for a serious education on market elasticity, demand system pricing, and stock market flows, you’ve come to the right place (disclaimer: don’t expect light entertainment). Today’s guest is Ralph Koijen, AQR Capital Management Professor of Finance and Fama Faculty Fellow at the University of Chicago, Booth School of Business. Tune in for a fascinating conversation about some of the most fundamental characteristics of our economy. To say we learned a lot from this conversation is an understatement, and we’re sure you’ll walk away with just as many lightbulb moments and impactful lessons as we did.

Key Points From This Episode:

• Ralph provides an in-depth explanation of demand system pricing. [0:02:48]
• An example of how valuations can be affected while the connection between fundamentals and valuations remain relatively unaffected. [0:08:18]
• How Ralph’s model for demand system asset pricing differs from other models. [0:41:26]
• The two components that investor demand is made up of. [0:14:54]
• Exploring the concept of latent demand and how to estimate it. [0:17:57]
• How the price impact from institutions and elasticity of markets has changed over time. [0:20:34]
• Understanding the surprising impact of households on stock market volatility in 2008. [0:20:34]
• How latent demand can be used to predict differences in expected returns. [0:25:46]
• Examples of factors that drive latent demand. [0:30:42]
• The most impactful group of investors (and why this is the case). [0:33:17]
• An overview of what would likely happen if the most influential investors switched to market cap indexing. [0:35:22]
• How huge firms influence the setting of prices. [0:36:25]
• Ralph shares his thoughts on the idea that index funds are distorting market prices as they continue to grow in magnitude. [0:35:22]
• What demand system pricing tells us about the effect of socially responsible investing on prices. [0:43:01]
• How US asset prices would be affected if foreign demand for US assets decreases. [0:35:22]
• Inelastic versus elastic markets. [0:47:23]
• Why prices are so much more volatile than fundamentals. [0:51:11]
• Comparing micro-elasticity and macro-elasticity. [0:52:18]
• Ways to estimate micro-elasticity and macro-elasticity, and the limitations of these approaches. [0:54:00]
• Ralph’s estimate of what the macro-elasticity is. [01:01:00]
• Risk factors that impact elasticity. [01:02:07]
• An example which shows how flows work. [01:03:32]
• Factors that impact how long the price impact of flows lasts. [01:05:24]
• Dividend irrelevance in inelastic markets. [01:10:30]
• The role of the increasing market share of cap weighted indices on market elasticity. [01:12:28]
• How investors should behave when markets are inelastic. [01:15:11]
• Ralph’s definition of success. [01:18:47]

For this week’s episode, we are revisiting a portion of our conversation with the legendary Professor Campbell R. Harvey and and his more optimistic viewpoint on the crypto space.  Campbell is the Professor of International Business at Duke University and is also a Research Associate at the National Bureau of Economic Research. In 2016 he served as the President of the American Finance Association, and from 2006 to 2012 he occupied the incredibly demanding role of Editor for the Journal of Finance. We hear about Campbell’s latest book DeFi and the Future of Finance along with his most recent research. Discover how Campbell first became interested in the topic several years ago and decided to put together a course for his students. We also delve into the rise of decentralized finance (DeFi) and how we can expect it to shape global finance, trading, and the future of the internet. 

Welcome to another episode of the Rational Reminder Podcast! We start by reviewing The Fearless Organization, and learn some important concepts such as psychological safety in the workplace, allowing people to voice their concerns, and the value of continuously learning. We also discuss a paper on index investing followed by a quick discussion on gender equality in finance.  We then take a deep dive into today’s main topic, ‘Stocks for the Long Run…?’, by unpacking research to see if stocks are still a valuable long-term investment. Finally, we end the show with a conversation about our 22 and 22 book challenge with Mark Sutcliffe, and find out about his reading habits and the books that have had the biggest impact on him.

Key Points From This Episode:

• An update about the podcast and feedback received about the crypto series. [0:03:55]
• A rundown of the guests we have planned for future episodes. [0:07:43]
• Outline of the ‘mixed-bag’ reviews received about the show. [0:08:28]
• News and updates regarding the Rational Reminder reading challenge. [0:13:07]
• This week’s book review of The Fearless Organization by Amy C. Edmondson. [0:14:45]
• We talk about an interesting paper ‘On Index Investing’ [0:24:42]
• Follow-up on and discussion concerning gender equality in finance from previous episodes. [0:28:34]
• We dig into today’s main topic, ‘Stocks for the Long Run.’ [0:33:38]
• Issues surrounding using Stocks for the Long Run data to draw insights. [0:35:22]
• What has been achieved to solve issues regarding a lack of data on stock returns. [0:41:45]
• An important insight from research on the value of stocks and bonds in the long term. [0:47:17]
• A breakdown of some interesting findings from the paper, ‘Global factor premiums’. [0:48:00]
• Overview of the research discussed and whether stocks are still valuable long-term investments. [0:53:54]
• The Rational Reminder 22 and 22 book challenge conversation with Mark Sutcliffe. [0:55:09]
• What Mark has discovered about the world of social media while working remotely. [0:56:58]
• Mark shares details about his reading habit and his favourite books growing up. [0:57:53]
• Whether he has a favourite genre of book. [01:00:11]
• How Mark sources books to read and how he captures interesting information. [01:00:44]
• The books that Mark commonly recommends to family and friends. [01:03:05]
• Find out if Mark thinks being an author changes how you read books. [01:05:12]
• Advice that he has for people who want to read more. [01:06:33]

Welcome back to another comprehensive and informative episode in this limited series of the Rational Reminder Podcast, a weekly reality check about the world of cryptocurrencies. We are lucky to have another respected figure in the crypto world on our show, technology veteran Tim O’Reilly. Tim is a well-known educator and publisher in the crypto community and the Founder, CEO, and Chairman of O'Reilly Media. He has been involved in the technology industry since the inception and rise of Silicon Valley and, with over 35 years of industry experience, he is known for popularizing the terms ‘open-source software’ and ‘Web 2.0’ and is a respected commentator on the space. In today’s show, we do a lot of looking backwards with Tim and draw insight from his vast experience in the industry to discuss what the future of cryptocurrencies holds. We also talk about what separates companies that survive from those that do not, problems in society that blockchain technology can be used for, and changes that have taken place in the technology industry during Tim’s career, as well as what the definition of true innovation is, and much more.

Key Points From This Episode:

• What Tim’s definition of a technology unicorn is. [0:03:07]
• The problems that Web3 could solve and what makes a product innovative. [0:04:39]
• Differences between companies that survived the .com bust and those that did not. [0:11:05]
• Whether Tim thinks there are promising projects in the crypto or Web3 space. [0:18:36]
• How society would change if Web3 became the new normal. [0:22:19]
• Examples of the applications blockchain technology could have for record-keeping. [0:24:36]
• Tim shares his thought son whether or not we need blockchain technology for aspects where the state is involved. [0:27:24]
• Ways in which the evolution of crypto has changed Tim’s mental map of the future. [0:31:37]
• The role public blockchains could play in breaking the recentralization trend in decentralized technologies. [0:35:02]
• Tim tells us if he thinks centralization is a bad thing. [0:37:15]
• Past mistakes and innovation within the tech industry. [0:41:39]
• Tim’s opinion on the support of Web3 from venture capitalists. [0:44:02]
• Whether or not building technology outside of the government's reach is the right way to improve society. [0:46:46]
• Advice Tim has for those who are looking to get rich from cryptocurrencies. [0:50:35]

If you have any interest in private equity or have thought about it as an asset class, then this episode is for you! What is private equity? This might seem a simple question but the answer is more complex than you think. Private equity is a nuanced subject that requires a deep understanding to make successful investments. To help unpack this non-trivial subject is expert Ludovic Phalippou, a Professor of Financial Economics at the University of Oxford Saïd Business School. Although he studied economics in general, his research mainly focuses on unravelling the complexities of private equity. He has written many papers on the topic, including a book called Private Equity Laid Bare. He has a Masters in Economics and a Masters in Mathematical Finance from the University of Southern California and a Ph.D. in Finance from INSEAD, making him well versed in the subject. Besides his impressive qualifications and experience, his insight and ability to speak to the data make him stand out from other experts. In our conversation, we get into the basics of private equity and what makes it attractive to investors. During our conversation we discuss the challenges for measuring performance, how to best measure the performance of private equity funds, the different facets associated with private equity, how to tell if certain private equities are a good investment, and the differences between private and public equity. We also hear how it is applied as he walks us through some real-world scenarios and gives us some insider knowledge on the best private equity options. As you will hear from our conversation, there is no easy answer!

Key Points From This Episode:

• We learn what asset classes are included in the broad term of private equity. [0:03:39]
• The end-to-end process for investing in a typical private equity fund. [0:06:49]
• The challenges with measuring the performance of private equity managers. [0:09:48]
• How investments that have not yet been sold are treated when a manager is reporting on their performance. [0:12:48]
• Professor Phalippou explains how well the IRR captures the economic results delivered by a fund. [0:14:04]
• Whether there are alternative approaches to evaluating performance. [0:17:52]
• A discussion about the typical characteristics of a buyout fund. [0:19:35]
• The best approach for evaluating your private equity. [0:21:24]
• Find out if a public equity benchmark has to be adjusted for leverage, regarding buyouts. [0:24:26]
• We learn about the fees that private equity limited partners typically pay. [0:26:34]
• Outline of the less obvious fees that limited partners might be paying. [0:28:11]
• Whether an investor paying carry is a sign that the investment has done well. [0:31:07]
• Comparison of private equity performance relative to public equities. [0:32:31]
• What number Professor Phalippou would assign on an expected return to private equity, as an asset class. [0:38:46]
• How successful investing in private equity has been for institutional investors. [0:39:32]
• The performance of Blackstone and KKR is discussed relative to an average private equity fund. [0:42:11]
• We get details about the Yale situation and how it manifested. [0:44:24]
• Reasons why private equity is regarded as the best performing asset class for institutions. [0:45:32]
• Professor Phalippou tells us if he thinks private equity offers diversification benefits to a public equity portfolio. [0:46:01]
• He discusses a recent case study regarding Hilton. [0:47:11]
• Why he thinks sophisticated investors are allocating funds to private equity. [0:48:14]
• Professor Phalippou shares how to be successful when investing in private equity. [0:50:00]
• Whether the returns of private equity can be replicated in public equity. [0:53:09]
• How Professor Phalippou defines success. [0:55:18]
• We end the show by finding out if the value premium is risk-based or behaviour-based. [0:55:35]

Dr. Nicholas Weaver’s well-known lectures on cryptocurrencies explain why he believes it needs to be “burned with fire.” Today, we speak to Dr. Weaver, an expert in computer science and a long-time observer of the cryptocurrency space. He holds a BA in Astrophysics and Computer Science and a Ph.D. in Computer Science from UC Berkeley, where he was also a lecturer until recently. His primary research focus has been network security, among other topics. His interest and search for comedy “godl” have also resulted in published papers on cryptocurrency. In our conversation, Dr. Weaver untangles the complexities of the perceptions of cryptocurrencies with the actual technology. We talk about decentralization, if cryptocurrencies are achieving it, and the underlying concept of blockchain technology, as well as whether or not blockchains are secure and what the potential benefits of cryptocurrencies are to developing countries. We then go into detail about why Dr. Weaver thinks the crypto space is not beneficial, why prestigious academic institutions are teaching about it, and why he thinks it will never work in the log-run. Please tune in for a truly eye-opening, no-holds-barred episode as we learn the harsh truth about cryptocurrencies with expert, Dr. Nicholas Weaver!

Key Points From This Episode:

• What public blockchain technology can achieve that was not previously possible. [0:02:51]
• How well the original concept, introduced by Satoshi Nakamoto, is living up to its theoretical promise. [0:04:06]
• Weaver explains and outlines the general appeal of decentralization. [0:04:57]
• He elaborates on his perspective on trusted and honest authorities. [0:09:39]
• An explanation of how Lightning Network attempts to solve throughput limitation. [0:10:36]
• We find out if major blockchains like Bitcoin and Ethereum are decentralized. [0:13:08]
• Differences between how nodes and miners influence the network. [0:16:23]
• How secure public blockchains really are. [0:17:45]
• Whether a facility for censorship-resistant transactions, like Bitcoin, is a good thing for society. [0:20:30]
• Potential benefits of cryptocurrencies for people in countries with limited access to banking and a good legal system. [0:24:35]
• Steps governments can take to regulate and control cryptocurrencies. [0:26:47]
• Weaver’s opinion on why the regulation of cryptocurrencies has been so slow. [0:29:17]
• Outline of how Dr. Weaver sees cryptocurrencies developing in future. [0:31:38]
• How to incentivize miners not to attack the system to retain the value of Bitcoin. [0:38:24]
• Weaver on how stablecoins fit into the crypto ecosystem and if they’re decentralized. [0:39:18]
• A rundown of the new properties the blockchain data structure provides. [0:45:59]
• Find out if Walmart using a private blockchain is just marketing hype. [0:51:20]
• Why the popularity of cryptocurrencies amongst venture capitalists is rising. [0:53:12]
• Why prominent schools like MIT and Cornell are emphasizing blockchain programs. [0:55:23]
• Weaver explains what the smartest way to invest is, in his opinion. [0:58:34]
• Who the technologists in the crypto-space are that he respects professionally. [0:59:51]
• He tells us whether he has heard any compelling arguments for cryptocurrencies. [1:00:31]
• A discussion about Dunning-Kruger economics in relation to cryptocurrencies. [1:04:38]
• What the general opinion of other technologists is on crypto and blockchain. [1:06:23]
• We end the show with a final takeaway from Dr. Weaver. [1:07:31]

Welcome to another episode of the Rational Reminder Podcast! In today’s jam-packed episode, we start by going through the feedback received on our limited crypto series and outline upcoming guests. We also give a breakdown of Cal Newport’s book, Deep Work, and the importance and long-term benefits of engaging in deep work. We then follow-up on our recent episode with Rebecca Walker by discussing gender equality in financial planning. Lastly, tune in to also have a rundown of the housing market and its investment potential, price risks associated with home ownership, the effects homeowner’s occupation has on their household investment and more!

Key Points From This Episode:

• We go through feedback received on the limited edition crypto series. [0:01:40]
• An outline of the upcoming guests we are going to have on the show. [0:05:51]
• This week’s book review, Deep Work written by Cal Newport. [0:09:01]
• Some of the common workplace problems highlighted in the book. [0:14:30]
• How work can be more enjoyable than free time and reasons why. [0:15:56]
• Ways to overcome common workplace problems and engage with ‘deep work.’ [0:16:47]
• The long-term benefits of engaging with deep work and why it is needed. [0:20:21]
• A follow-up on our recent episode with Rebecca Walker and the feedback received. [0:20:49]
• Discussion about the data that is related to Rebecca’s points from the episode. [0:22:10]
• We unravel the nuance concerning the gender pay gap and financial planning. [0:26:10]
• An important takeaway concerning our discussion on the gender pay gap. [0:33:19]
• Rundown of the housing market and its investment potential. [0:33:58]
• Find out how an owned home can act like an investment. [0:37:42]
• Learn more about ‘Portfolio Theory’ concerning property investment. [0:40:50]
• An interesting aspect regarding peoples’ occupation and property investments. [0:46:18]
• How people reduce the risk associated with property investments. [0:47:45]

Welcome back to another episode of our limited addition Crypto Series on the Rational Reminder Podcast, a weekly reality check about sensible investing and financial decision-making. Are cryptocurrencies and the associated technologies beneficial? Could they change the world for the better? There is a lot of controversy surrounding the use and application of cryptocurrencies and the associated technologies. Some say the innovation is ultimately useless while others think it is the answer to society’s problems. To help us unpack this complicated and hot-button topic is Bruce Schneier, an internationally-renowned security technologist, author, and educator. The focus of his work is the intersection of security, technology and people. Bruce also has an immense passion for educating people about cryptocurrencies. Examples of his well-known books include Liars and Outliers and Data and Goliath, which provide much-needed insight to readers about DeFi technologies and big monopolies. He also lectures in public policy at the Harvard Kennedy School and is a fellow at the Berkman Klein Center for Internet and Society. In our conversation, we discuss the debate surrounding cryptocurrencies such as privacy concerns of digital cash, what makes Bitcoin different from earlier digital currencies, aspects of public blockchain technology, the misapplications of crypto technology, the different forms and approaches to cryptocurrencies, and whether DeFi technologies can be beneficial to society, and what the biggest concerns are regarding cryptocurrencies. Join us today as we take a detailed look into the value and drawbacks of crypto and DeFi technology with Bruce Schneier!

Key Points From This Episode:

• What the objective was of early digital cash projects, like DigiCash. [0:03:27]
• The privacy concerns associated with digital cash. [0:04:45]
• Whether financial surveillance should be a concern for people. [0:05:45]
• Differences between Bitcoin and earlier forms of digital cash. [0:08:35]
• How good technology is at solving economic and political problems. [0:09:30]
• Details about the pieces that come together to make public blockchains work. [0:10:29]
• Why Bruce considers proof of work to be an idiotic way to form consensus. [0:13:43]
• Whether alternatives to proof of work resolve wasteful energy practices. [0:16:01]
• The new properties that public blockchains offer. [0:17:04]
• We find out if public blockchains do what their proponents say they do. [0:17:37]
• The claims that crypto proponents make regarding blockchain are discussed. [0:19:29]
• We discuss the misapplications of crypto and DeFi technologies. [0:20:23]
• Outline of the systems of trust that humans use to incentivize good behaviour. [0:23:26]
• Whether cryptocurrency technologies will become secure and trusted. [0:27:49]
• Reasons for the perspective ‘code is law’ from crypto technologists. [0:30:02]
• Whether ‘one CPU, one vote’ is how blockchains are working in practice. [0:31:35]
• We discuss other ideas and emerging technologies in the crypto space. [0:33:24]
• If government intervention is needed for crypto technologies and currencies. [0:36:21]
• How cryptocurrencies can be included in the mainstream financial system. [0:39:06]
• Bruce shares his opinion on the future of NFTs for artists to be able to capitalize on their creativity. [0:40:08]
• What the potential impacts of crypto technologies on younger generations are. [0:43:48]
• How blockchain erodes moral and reputational incentives to act responsibly. [0:45:26]
• Ways in which cryptocurrencies can help people who are ‘bankless’ and avoid high bank fees. [0:46:13]
• Break down of a real-world scenario where blockchain is being used in an alternative way. [0:49:00]
• Bruce tells us whether Bitcoin is suitable as a global currency. [0:50:55]
• The message that Bruce hopes his students will take away after his class. [0:51:59]
• If the government is beginning to take regulation of cryptocurrencies seriously. [0:52:43]
• What aspects, if any, excites Bruce about cryptocurrencies. [0:53:04]
• What Bruce’s biggest concerns about cryptocurrencies are. [00:53:43]