The Rational Reminder Podcast

Welcome back to another episode of our series focusing on cryptocurrencies. In this episode, we dive into conceptual complexities surrounding cryptocurrencies and how this might affect the financial system in future. To help us unravel this nuanced subject is Professor Eswar Prasad, a senior professor of trade policy and Professor of Economics at Cornell University, and a senior fellow at Brookings Institution. He is also a research associate at the National Bureau of Economic Research and was a former head of the IMF China Division. Besides his wealth of experience regarding traditional economies, he is also an authority on cryptocurrencies, which he explains in detail in his book The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance. In today's conversation, we discuss broad conceptual ideas surrounding money and finance, such as the basic functions of money, the difference between outside and inside money, the limitations on creating wealth, how cryptocurrencies work, how cryptocurrencies may disrupt financial systems, why cryptocurrencies need trust to work, the future of cryptocurrencies, and much more. Tune in today to get insider information on cryptocurrencies with our special guest, Professor Eswar Prasad.

Key Points From This Episode:

• A brief outline of Professor Eswar Prasad's professional background. [0:01:14]
• Professor Prasad explains what the basic functions of money are. [0:01:59]
• We learn if money is a commodity or a social contract. [0:02:33]
• The problems associated with fiat currencies. [0:03:00]
• What the concepts of inside and outside money are. [0:04:12]
• Factors that constrain the creation of outside money. [0:05:34]
• Whether mechanically constrained money is good for economies. [0:07:07]
• Learn whether commercial banks need deposits to make loans. [0:08:46]
• What the definition of fungibility is. [0:10:24]
• How and why reserves are usually maintained by a central bank. [0:11:19]
• What the differences are between physical cash and electronic money. [0:12:25]
• The anonymity associated with each of the payment methods available. [0:13:28]
• What the main functions of the financial system are. [0:15:14]
• Find out what the definition of shadow banking is. [0:17:01]
• How trust in the financial system is facilitated. [0:18:29]
• We find out if modern financial systems can be disintermediated by technology. [0:20:33]
• The potential effects that intermediaries can have on economies. [0:22:59]
• What Satoshi Nakamoto's 2008 innovation was. [0:25:51]
• The resilience of the underlying system for Bitcoin is explained. [0:28:12]
• Learn about the three elements that make Bitcoin decentralized. [0:30:12]
• How the decentralization of Bitcoin can be overcome. [0:31:39]
• Learn about the value of blockchain and emerging validation technology. [0:34:07]
• The key reasons why cryptocurrencies have value. [0:36:14]
• Ways in which a decentralized system would be beneficial. [0:38:32]
• Outline of the downsides to decentralized finance. [0:41:01]
• Why trust is also essential to the long-term viability of cryptocurrencies. [0:43:03]
• What role unofficial digital currencies will play regarding monetary policy. [0:44:05]
• The influence that Satoshi's innovation had on the development of a central bank digital currency. [0:45:49]

Welcome to another episode of the Rational Reminder Podcast. In today's jam-packed episode, hear updates regarding our goals survey, the schedule for upcoming guests on the show, the latest news and highlights from the financial world, and some of the feedback we have received about the show. We also highlight interesting articles and papers regarding tech valuations, expected stock returns, the performance of venture capital funds, and a book recommendation that will help you understand the finance game. Tune in to learn about the results of the recent social survey in Canada, the basics of private equity funds, the challenges of calculating the Internal Rate of Returns for investors, some of the misconceptions surrounding private equity, and much more! Don't miss out on this informative and well-rounded episode of the Rational Reminder Podcast with your two favourite Canadians!

Key Points From This Episode:

• We start the show with an exciting announcement for our listeners. [0:02:07]
• An update regarding the Goals Survey Project and what needs to be done. [0:03:30]
• A rundown of the upcoming guests for the show. [0:04:44]
• Outline of the reviews and criticisms received about the show. [0:05:55]
• A breakdown of the book for today's review, Finite and Infinite Games. [0:10:07]
• Background about the author of the book, James P. Carse. [0:10:57]
• The main point of the book: the differences between finite and infinite games. [0:11:16]
• An interesting quote from the book regarding culture. [0:14:42]
• Highlights of the recent news and updates in the financial world. [0:17:02]
• Insights from an interesting article about tech valuations by Cliff Asness. [0:19:47]
• Another interesting paper by David Blitz about expected stock returns. [0:23:09]
• A discussion regarding the recent social survey implemented in Canada. [0:26:07]
• We discuss the basics of private equity as an investment strategy. [0:30:06]
• Why the math used is problematic for calculating the Internal Rate of Return. [0:32:35]
• The results of a paper which investigated the performance of venture capital funds. [0:39:01]
• More insights from follow-up papers about private equity. [0:42:24]
• Examples of the type of risk exposures that private equity provides. [0:49:36]
• The impacts associated with the preference for illiquid assets. [0:52:00]
• Some of the misconceptions surrounding diversity in private equity funds. [0:52:44]
• What are the best metrics to use to measure returns on private equity. [0:56:00]

Understanding the complexity surrounding cryptocurrencies is essential in making the correct decisions regarding investing in DeFi technology. To help us understand the basics, we talked to Dr. Igor Makarov who is an expert on cryptocurrency and Bitcoin, particularly Bitcoin and the associated mining processes. He is based at the London School of Economics, where he serves as an Associate Professor of Finance. Dr. Makarov is also the author of several papers focusing on DeFi and crypto markets in general and has provided new insights surrounding governance and mining processes. In today's show, we learn about the basics of cryptocurrencies, mining and the future of DeFi. In particular, we talk about the role of intermediaries, what drives the prices of Bitcoin, how concentrated mining processes are, the role DeFi in increasing governance, the upsides and downsides of cryptocurrencies, and much more. Tune in to make sure you don't miss out on advice from a respected figure in the industry, Dr. Igor Makarov!

Key Points From This Episode:

• A brief outline of Dr. Makarov's professional background and experience. [0:00:39]
• What role do intermediaries play in the traditional financial system. [0:02:36]
• Find out if economic rents that intermediaries collect are unwarranted. [0:03:36]
• Makarov explains the complexities of cryptocurrencies and the elimination of fees. [0:06:06]
• How rents are different on cryptocurrency exchanges. [0:09:44]
• Systemic risks associated with the traditional banking system. [0:11:24]
• Whether Bitcoin and DeFi can improve banking by reducing systemic risk. [0:13:22]
• Learn if blockchain or DeFi ecosystems can exist without human intervention. [0:15:06]
• Why it is unlikely decentralized autonomous organizations will improve governance. [0:17:06]
• Breakdown of the potential problems that concentration of ownership could have on governance. [0:19:53]
• Opportunities where cryptocurrencies and DeFi can improve the traditional financial system. [0:21:44]
• Some of the potential benefits of a permissioned distributed ledger system. [0:24:39]
• Why is it important to understand the Bitcoin ecosystem. [0:26:22]
• What are the limitations of understanding the Bitcoin ecosystem. [0:27:12]
• How Bitcoin addresses are associated with with real-world entities. [0:29:36]
• Ways to differentiate between addresses belonging to individual investors and those belonging to intermediaries. [0:31:42]
• What happens when you send Bitcoins to an exchange. [0:32:49]
• Details on how Dr. Makarov calculated the concentration of Bitcoins. [0:33:25]
• How did Dr. Makarov gain an understanding of what Bitcoin is used for. [0:37:14]
• The role exchanges play in influencing the total volume of Bitcoin transactions. [0:39:00]
• Why exchanges are essential to the overall network. [0:41:06]
• The challenges in enforcing KYC and AML rules for the crypto ecosystem. [0:41:56]
• How fungibility could effect the use of cryptocurrencies in the marketplace. [0:45:19]
• Whether most important cryptocurrency exchanges are generally decentralized. [0:46:36]
• What portion of Bitcoin transactions does Dr. Makarov consider to be economically meaningful. [0:47:06]
• Why most Bitcoin transactions comprise of irrelevant transactions. [0:48:08]
• What the meaningful Bitcoin transactions are being used for. [0:50:06]
• Why the estimates of illegal activities by Dr. Makarov differs from other studies. [0:52:56]
• A more in-depth explanation of what is driving the price of Bitcoin. [0:55:54]
• How Dr. Makarov was able to identify individual Bitcoin miners for his paper. [01:01:57]
• Makarov explains why the original vision of DeFi has not been realized. [01:05:52]
• Reasons for the concentration of miners in the Bitcoin space. [01:06:42]
• What are the risks are for the Bitcoin ecosystem when mining concentration is high. [01:08:24]
• How Dr. Makarov determined the geographic locations of mining operations. [01:10:52]
• What the function of a mining pool is. [01:13:36]
• How the concentration in mining power affects the security of smaller proof of work blockchains [01:16:20]
• How concentrated the ownership of Bitcoin in the hands of individual investors is. [01:22:40]
• We find out if cryptocurrencies are democratizing financial services. [01:25:03]

John List is the recently appointed Chief Economist at Walmart, and is also a Professor of Economics at the University of Chicago, having worked as the Chief Economist at Uber and Lyft. He has published a huge array of important papers in the field of economics and is also the author of the recent book The Voltage Effect, which deals with the question of how to scale ideas successfully. We are very excited to bring you this episode, which is a particularly illuminating one, in which we draw on John's treasure trove of insight and experience, to answer a long list of questions related to personal finance decision-making. A large portion of our chat focuses on the central ideas of critical thinking and fieldwork, practices that our guest views as indispensable in making the world a better place. Along the way we get John's thoughts on retirement planning, public policy, charitable donations, and much more, so make sure to press play on this fantastic episode of the Rational Reminder Podcast.

Key Points From This Episode:

• John explains the importance of fieldwork in the study of economics. [0:03:51]
• Examples of field experiments that overturned a supposed economic truth. [0:05:15]
• Finding ways to test theories that previously proved difficult. [0:08:30]
• The question of generalizing findings from an experiment to a wider rule. [0:13:30]
• Replication in academic studies; John unpacks its central importance. [0:20:46]
• Why positive results tend to garner a publication bias. [0:23:38]
• John's perspective on checking in on investment portfolios. [0:24:40]
• What the data shows us about investment behaviours of men and women. [0:28:38]
• Accounting for the drive to give to charity. [0:35:20]
• Advice for how to make the most of your donations. [0:39:42]
• John unpacks his findings on scaling, its importance, and what he calls 'the voltage effect'. [0:44:41]
• The impact of technological advancement on our ability to scale certain solutions. [0:48:27]
• How field experiments can influence the process of scaling big ideas. [0:54:47]
• Hindrances to healthy scaling; confirmation biases, and herding. [0:56:17]
• Impacts of loss aversion and marginal thinking when scaling ideas. [1:05:28]
• Reasons for the difficulty of tackling globally important issues; multidimensionality and politics. [1:15:10]
• Weighing the utility of incentives when trying to encourage retirement savings. [1:19:16]
• Thoughts on bringing more reliable science into the policy-making process. [1:21:26]
• How parents can approach the promotion of critical thinking in their children. [1:25:45]
• John's approach to the questions he pursues; how he evaluates potential ideas and questions. [1:31:10]
• A little bit about John's new post as Chief Economist at Walmart and what the job entails. [1:33:53]
• How John defines success at this point in his life and his focus on inputs. [1:33:53]

Fundamentals of the Blockchain with Daniel Mescheder

Episode 1: Show Notes

Welcome to the first episode of our limited series focusing on cryptocurrencies and everything you need to know about them. Our first guest is Daniel Mescheder, who joins us to appropriately break down some of the basic concepts and engineering of the blockchain, using his expertise as a software engineer as the lens for this discussion. We felt this chat was the best way to launch the series and prepare listeners for the following episodes on the subject, and you can expect to hear Daniel share very helpful insight and explanations of fundamental terms and concepts such as distributed systems, consensus, hashing, digital signatures, and more. We also have time for our guest to weigh in on the subjects of smart contracts and NFTs, both of which are regular points of intrigue for the uninitiated. Importantly, we do hear from Daniel about the limitations of the technology at present, and which types of technological problems that he believes the blockchain is well-suited to address. So for all this and more, and to start this journey with us into such an important and hot topic, make sure to listen in.

Key Points From This Episode:

• The reasons for Daniel's interest and involvement with the blockchain and cryptocurrencies. [0:03:33]
• Daniel compares the hype around AI in the 1980s and the current atmosphere for crypto. [0:04:50]
• Getting to grips with Daniel's specific perspective on the blockchain and explaining distributed systems. [0:06:34]
• How the concept of consensus fits into the subject of distributed systems. [0:11:17]
• Looking at Byzantine consensus problems and how these occur on the blockchain. [0:13:51]
• Daniel gives an overview of the elements that make the blockchain functional; hashing and digital signatures. [0:19:17]
• How Satoshi Nakamoto introduced an economic incentive to comply with the protocol. [0:24:09]
• Differentiating between the public and permissioned blockchains, and databases. [0:27:33]
• How Bitcoin achieves consensus and some of the downsides of proof of work. [0:33:31]
• An assessment of the decentralized status of the Bitcoin and Ethereum blockchains. [0:41:16]
• The amount of control that is held by miners in relation to transactions. [0:45:27]
• Understanding interactions between the blockchain and other external systems. [0:49:16]
• Immutability and the blockchain; what the rules allow and the questions that still need to be answered. [0:52:47]
• Basic engineering downsides to the blockchain. [0:54:40]
• Vulnerabilities on the blockchain and how these have been exploited by hackers. [0:58:23]
• NFTs, DAOs, and smart contracts; weighing how neatly these fit into the current blockchain ecosystem. [0:59:27]
• The abundance of rhetoric surrounding discussion about the future and validity of the blockchain. [1:06:09]
• Which problems would be well-suited to a solution found within the blockchain? [1:08:10]

We have a jam-packed episode for all of our listeners today, with two guests, a lot of news, and many great resource recommendations. We start off by rounding up some recent updates from the world of finance and the Rational Reminder community, and spend some time talking about Ben's recent paper, titled 'Finding and Funding Good Life'. We are then joined by Robb Engen, for his third appearance on the show, to talk about how he helps his clients move on from unhealthy advisory relationships. Robb shares some of the surprising, disturbing, and ridiculous rebuttals that he has come into contact with over the years, and we reflect on the recent Twitter storm that occurred as a result of Robb sharing some of these. After this great chat with Robb, we are very happy to welcome back author of How to Change, Katy Milkman, who was recently a guest on the show, to discuss her reading habits, tips for memory, and how she balances producing and consuming both podcasts and books. To take part in this bounty of great information and inspiring ideas from these two guests, please make sure to join us today.

Key Points From This Episode:

• Reflecting on and investigating Ben's paper, 'Finding and Funding Good Life'. [0:10:59]
• How this podcast has increased our interest in learning about and sharing non-financial ideas. [0:15:30]
• The part that hindsight and regret play in our estimations of happiness. [0:20:08]
• Looking forward to our podcast miniseries in which we explore cryptocurrencies. [0:22:41]
• The basics of the blockchain and digital cash in light of new technology. [0:29:02]
• The context that sparked today's conversation with Robb. [0:35:49]
• Robb explains his typical client, their portfolio, and why they contact him. [0:38:30]
• How Robb approaches assessing a portfolio and communicating possible drawbacks. [0:40:43]
• Ways in which active managers are practicing bad investment habits themselves. [0:44:02]
• Tracking the progress from active to passive for those that Robb works with. [0:47:09]
• Advice from Robb for managing the end of a relationship with an active manager. [0:48:15]
• Robb shares some examples of how advisors have responded to 'break-up notices'. [0:52:07]
• A round of Talking Cents cards with Rob; addressing social issues in a new business, quitting a job, saving versus spending, and more. [1:02:26]
• Katy describes her reading habits and her use of audiobooks. [1:08:15]
• Tips and tricks from Katy for information retention and idea compilation. [1:09:20]
• Thoughts on the connected nature of the behavioural science community and the benefits that Katy sees in this. [1:13:39]
• Some of the classic behavioural science books that Katy recommends. [1:15:07]
• How Katy approaches podcasting, writing, and consuming the different mediums. [1:17:05]
• Advice from Katy for anyone wanting to increase the amount that they read. [1:21:00]

To carry on the trend of amazing guests on the show, today we welcome Antti Ilmanen. Antti is the co-head of the Portfolio Solutions Group at AQR, and the author of a couple of really impactful books that we highly recommend. His most recent is Investing Amid Low Expected Returns, and in today's chat, we get to hear all about the ideas contained in its pages, and the most important moments in his career that have shaped his philosophy. Antti received his PhD in Finance from the University of Chicago and has had a long career of working with high profile names that you might recognize from past episodes of this podcast. Our guest talks about the need for cultivating your patience in relation to your investment portfolio and shares many other great pieces of practical advice that you can implement today. We delve into some bad investment habits that Antti noted in his book and also touch on the usefulness of bonds, illiquid assets, trend following, and much more. Be sure to tune in today to hear all that this great mind has to offer.

Key Points From This Episode:

• The power and limitations of using historical data for calculating expected returns. [0:04:17]
• Balancing historical data with market-implied expected returns. [0:07:47]
• Antti comments on shifting into higher expected return equity markets. [0:11:37]
• The role of bonds in revenue generation and why to not give up on them completely. [0:13:00]
• Locating the roots of the positive premium that Antti associates with bonds. [0:16:35]
• The effect of illiquid assets on expected returns. [0:19:44]
• Why recent historical returns in real estate are not indicative of future expected returns. [0:23:40]
• The response from institutional investors to lower expected returns. [0:26:09]
• Situating value's current dip in a broader historical picture. [0:29:57]
• Some comments on the recent performance of rates, growth, and value. [0:33:39]
• Today's expected value returns in comparison with other points in history. [0:37:19]
• Antti unpacks the idea of trend following and its performance during the most recent crash. [0:39:53]
• Defining the defensive style premium and its relation to quality. [0:41:26]
• Antti differentiates carry and value strategies from each other. [0:45:55]
• An explanation of the importance of being 'long-short' to capturing the premium. [0:51:24]
• Locating the difference between alternative risk premia and alpha. [0:55:31]
• Practical tips for investors to wait out periods of poor performance. [0:57:45]
• The need for investors to be more fee-conscious in today's, low-return world. [1:01:35]
• Antti shares about what he calls the investor's 'premier bad habit'. [1:02:33]
• The impact of Ken French on Antti's career and philosophy. [1:05:29]
• How Antti defines success at this point in his life and the priority he gives to balance. [1:07:33]

Today, on the Rational Reminder Podcast, we are tackling a few interesting topics that tie into recent and forthcoming conversations with our amazing guests. In this 'us only' episode, we are focusing on thematic ETFs and the truth about dividend investing. After a quick look at The Quick Fix by Jesse Singal, some reflections on the past six months at ARK Invest, and the lessons we can still learn from the dot-com crash, we get into the meat of today's episode by way of Ben's recent experiences on a discussion panel about the utility of thematic investing. From there, we transition into the 'relevance of dividend irrelevance' and share some of the most illuminating and pertinent findings. In the end, our argument is simply that dividends are not the way to go and are an inefficient policy on many fronts. This has not deterred many investors, however, and we get to grips with the kinds of behaviours associated with dividends before espousing what this can mean for you and your objectives. To catch all of this and links to some of the best research available, be sure to listen in with us today.

Key Points From This Episode:

• Today's book review of The Quick Fix by Jesse Singal and its critique of popular psychology. [0:12:30]
• Inflows at ARK Invest; the startling commitment that we are currently seeing. [0:21:48]
• Reflections and information that we dug up on the dot-com crash in the '90s. [0:22:30]
• Notes on thematic ETFs garnered from the recent panel Ben was on. [0:25:09]
• Disentangling the relevance of dividend irrelevance. [0:35:45]
• The performance of a dividend portfolio and a better idea of expected returns. [0:40:28]
• Empirical findings about dividend investors and their actions in relation to yields, diversification, and more. [0:42:01]
• The tax inefficiency of dividends and what this means for capital gains. [0:49:01]
• Underlining the importance of dividend investor's consumption and its sensitivity to dividends. [0:51:31]
• How the problem with dividends is compounded outside of the US. [0:57:11]

We are so happy to bring you all our 200th episode, and who better to have on the podcast on this auspicious occasion than the legendary, Professor Gene Fama? This is one of the most jam-packed episodes we have ever recorded, with Gene providing concise and thought-provoking answers to our many, many questions. After delving into the foundations of Gene's work and philosophy, covering market efficiency, and its competing theories, Gene entertains our queries about a wide range of ideas and models, and generously shares the decades worth of wisdom that he is so widely known for. We also find time to talk about retirement plans, inflation, cryptocurrencies, and the influence of machine learning. Towards the end of our conversation, our guest touches on some more personal ideas about productivity, his career, his partnership with Ken French, and what success means to him at this point. For a landmark episode, with a true hero of the evidence-based approach to investing, make sure not to miss this.

Key Points From This Episode:

• The basics of market efficiency and its main implications for investors. [0:04:49]
• Limitations of the efficient markets model for explaining specific cases. [0:08:02]
• Gene's perspective on the inelastic markets hypothesis and his interest in it for the future. [0:09:36]
• The anomalies that brought down the capital asset pricing model. [0:10:26]
• Unpacking the three-factor and five-factor asset pricing models that Fama and French created. [0:11:43]
• Thoughts on the Q-factor model, factor premiums, and data dredging. [0:15:43]
• Gene's reflections on building data sets dating back to the 1920s. [0:17:13]
• The best way to estimate expected returns and expected factor premiums according to Gene. [0:19:52]
• Structuring portfolios and how different investors should approach this. [0:24:10]
• Considering international diversification for investors in Canada. [0:29:05]
• Further thoughts on asset pricing models. [0:32:47]
• The assets that are hedged against expected and unexpected inflation. [0:33:31]
• Gene illuminates the role of the Fed in relation to inflation. [0:36:43]
• Advice for typical retirees from Gene. [0:38:22]
• The challenges that Gene has experienced translating theory into practice. [0:40:16]
• Lesson from Gene's work with Dimension Fund Advisors. [0:43:47]
• Gene's reflections on his impact and having his theories implemented in practice. [0:45:32]
• Weighing the value and impact of behavioral finance. [0:47:53]
• Technology and active managers; is it any different for those aiming to achieve alpha in the current context? [0:50:46]
• Gene weighs in on cryptocurrencies and how his perspective might have shifted. [0:53:08]
• A look at the people who have had the biggest influence on Gene's career. [1:03:05]
• Thoughts on productivity and making the most of periods of clear thinking. [1:03:39]
• Our guest's personal definition of a successful life. [1:06:17]

As we near the 200th episode of our little podcast, we wanted to have a chat with our friend Aydin Mirzaee about one of our favourite topics: books. Before welcoming Aydin into the conversation we round up some important news, go deeper than ever into the fascinating subject of bonds, and share some thoughts on Setting the Table. As the host of the Supermanagers Podcast and the CEO of Fellow, Aydin has an unusual and stimulating perspective on many of our usual interests, and we get to hear from him about the development of his own reading habit, what he most enjoys reading, what would make him recommend a book to someone else, and few pieces of advice for strengthening your reading practices. Aydin also talks about why advice can be dangerous, increasing your ability to retain information, and he is generous enough to do a round of Talking Sense cards with us to finish off the episode. To hear it all, make sure to join us.

Key Points From This Episode:

• Today's book review, looking at Setting the Table by Danny Meyers. [0:08:47]
• Christopher Bloomstran's thought-provoking critique of Ark Invest. [0:18:06]
• A follow-up on our ongoing discussion about bonds and look at their recovery time. [0:20:04]
• Comparing real returns across the different decades. [0:27:30]
• Research into a more complete view of the historical returns of stocks versus bonds. [0:39:31]
• How correlations come into the conversation about stocks and bonds. [0:42:54]
• Aydin describes his reading habits; audiobooks on a commute, hacks, and more.
• The different purposes of books and how Aydin uses business content to generate ideas. [0:49:40]
• Books as leverage and some thoughts from Aydin on his favourite genres. [0:52:27]
• Where Aydin sources his books and what it takes for him to decide to recommend books to others. [0:56:12]
• The role that podcasts play in Aydin's reading habits. [0:58:30]
• Aydin's advice for how to read more and his approach to encouraging his children. [0:59:12]
• Considering different ways to increase information retention. [1:02:11]
• A round of Talking Cents cards with Aydin! [1:03:34]