The Rational Reminder Podcast

We often talk about better planning, reduced spending and a consistent long-term strategy on the show and today we have a guest who not only gives that advice himself but clearly lives it too! Andrew Hallam is the author of the new book Millionaire Expat in which he details some strategies for what has been called geographic arbitrage, or moving to another part of the world in order to maximize your financial independence! His earlier book, Millionaire Teacher took a similar approach to education abroad and he has built out his philosophy from there. We hear from Andrew about his definition of wealth and why so many people who earn a relatively large amount of money can never be called wealthy. Andrew lays out the researched correlations between happiness and money and more clearly between debt and misery. He also shares how he has approached spending, saving and budgeting in his own life and relationships before we get into some more technical investing topics such as the benefits of index funds and why many advisors try to persuade clients away from them. Andrew weighs in on finding the right advisor for your needs and when to seek out help with your portfolio. The last part of the show is spent on the topics of education and expatriation. Andrew is a strong believer in leading by example for your children to learn about money matters and he explains his reasons for moving abroad and the gains he has accrued. For all this from a wonderful guest, tune in today!

Key Points From This Episode:

• How Andrew defines the term 'wealthy' and why it does not depend on income. [03:43]
• Links between spending and happiness, and debt and misery. [06:51]
• How Andrew and his wife have managed their own values around spending. [11:55]
• Benefits and costs of borrowing; could you handle it if interest rates doubled? [13:32]
• Andrew's thoughts on index investing and why it is a good idea. [19:06]
• Common tactics that financial advisors use to steer clients away from index funds. [22:40]
• Advice for staying steady for the long term, through market volatility. [25:45]
• Considering the place of investing in gold and the 60/40 portfolio model. [27:46]
• Ignoring all the false information that gets broadcasted and sticking to the data. [35:05]
• Why to only consider certified financial planners and how much this cuts the options down. [39:53]
• Going it alone versus using professional advice; average reactions to volatility. [41:22]
• Education for the younger generation and Andrew's advice for parents. [45:18]
• Who could benefit from moving abroad and the idea of geographical arbitrage? [49:56]
• How Andrew defines success in his own life! The importance of relationships. [54:01]

We spend the bulk of today's episode considering whether Wealthsimple's use of long bonds and low volatility stocks is really protecting their clients' downside, and summing up recent arguments by Cliff Asness and AQR leveled against critiques on value investing. Before that, we kick things off with thoughts on why Elon Musk aims to have no possessions, before looking at the links between empathy and the theory of relativity as well as some productivity secrets in recent books by Charles Duhigg and Shane Parrish. Next up, we briefly address a bunch of listener questions on factor tilting, and ETFs concerning COVID-19, the Smith Maneuver, and more! A final listener question about Wealthsimple's claim mentioned above leads our hosts to wonder whether volatility and drawdown are good measures of risk. Ben made a few models to help answer this question which tested consumption models as another possible measure and brings up an interesting point about the significance of considering long bonds from an expected return or a risk parity perspective. From there, we move to the investment topic of the week – the historic state of value investing. This is a contentious topic with recent papers by Cliff Asness and AQR both weighing in and you'll hear Ben and Cameron distill the main points from both. We hear about medium-term odds being on the side of value, and some great arguments showing common critiques leveled at value investing to be premature. Finally, Cameron takes us through the psychometric profiling side of measuring risk tolerance before telling listeners why they shouldn't make investment decisions based on reckless critiques. Tune in to get it all!

Key Points From This Episode:

• A reminder to comment on the new comments section on the RRP website. [0:00:44.2]
• Why Elon Musk ways he intends throw away his possessions. [0:04:36.1]
• New books about productivity and the links between science and empathy. [0:07:08.2]
• Factor tilting: being aggressive versus non-aggressive. [0:12:43.6]
• Is there a benefit in capturing size premium using a combination of ETFs? [0:16:54.2]
• How to adjust RESP asset allocation as kids get closer to school age. [0:18:46.2]
• What ETFs are best to use while implementing the Smith Maneuver. [0:22:36.2]
• Has the role of bonds ETFs changed in light of COVID-19? [0:24:12.2]
• Thoughts on Wealthsimple's claim to have protected their clients in this downturn. [0:28:34.2]
• Critiquing long term bonds: is volatility/drawdown a good measure of risk? [0:33:28.2]
• Ben's model testing consumption objectives as a measure of risk. [0:36:28.2]
• Portfolio topic of the week: the historic state of value investing. [0:42:22.2]
• Considering Cliff Asness's paper about whether value investing is dead. [0:46:05.2]
• Considering AQR's paper addressing critiques levelled at value investing. [0:54:04.2]
• Planning topic: the psychometric approach to measuring risk tolerance. [1:05:50.2]
• Bad advice of the week: don't make investment decisions based on predictions! [1:10:14.2]

Today on the Rational Reminder Podcast we interview a seasoned journalist from The Wall Street Journal, Greg Zuckerman. With 23 years of experience with the media outlet, Greg has written extensively about the most prominent figures in the world of investing, including Jim Simons, John Paulson and Carl Icahn, generally focusing his attention on significant trades, traders and fund managers. In this episode, Greg shares how covering the stories of renowned investors and fund managers have influenced his investment philosophy. Specifically, we get into his book about John Paulson, The Greatest Trade Ever, and why Greg reckons Paulson never managed to achieve the same level of success following this famous trade. His work on the founder of Renaissance Technologies, Jim Simons, also produces fascinating points of discussion, including why their Medallion Fund became so successful and how capping the size of the fund contributed to its outstanding performance. Greg also talks about the idiosyncratic character of Simons, the role of luck, why taking an algorithmic approach to investing is likely to produce good outcomes in the long run, and why people should not always pay attention to the advice of "smart money" sources like hedge funds.

Key Points From This Episode:

• How covering the stories of prominent fund managers has affected Greg's investment philosophy. [0:03:27.1]
• Thoughts on the likelihood of fund managers outperforming the market. [0:05:54.1]
• Hear about John Paulson's big trade and why he has failed to outperform since. [0:07:24.1]
• Find out what made Renaissance Technologies' Medallion Fund so successful. [0:11:25.1]
• The role that capping the size of their fund has played in their ongoing success. [0:13:30.1]
• More about Jim Simons: the mathematician with outstanding people skills. [0:14:46.1]
• The influence that Simons personally had on the outcome of the Medallion Fund. [0:17:02.1]
• The unpredictability of luck and intuition Simon's relied upon in his early days of trading. [0:22:22.5]
• George's biggest surprise in writing the story and his general thoughts on market efficiency. [0:24:27.1]
• Advice about investors making decisions based on the opinions of people like Buffett and Dalio. [0:28:06:7]
• Algorithmic thinking and other lessons from working with Renaissance Technologies. [0:31:26.1]
• Why the so-called "smart money" sources like hedge funds are not so smart. [0:34:28.6]
• Learn how Greg became interested in Wall Street characters and how he gets access to their stories. [0:36:36.6]

The economic effects of the coronavirus pandemic have been unprecedented and the seismic shifts have caused numerous unforeseen challenges. While no-one could have predicted the enormity and speed of the current crash before it happened, several signs indicated that an economic contraction was on the horizon. Today's guest, Ben Rabidoux, President of North Cove Advisors, a boutique research firm, is here to share some macroeconomic trends and what they tell us about the state of the Canadian economy. His research expertise includes Canadian housing, macroeconomic trends, and household credit. We kick off the episode with some listener feedback as well as a listener question, where we discuss how to incorporate unvested stock options into your personal financial planning. There are several ways to go about this and numerous factors to consider, so it's important account for them all. Ben then dives straight in, giving us an overview of the economic landscape before the sudden upheaval. He sheds some light on population growth and its relationship to economic growth. As a great deal of the economic gains was coming from non-resident growth, the crisis is likely to change this. We also talk about personal debt and HELOC loans. Coming into the recession, the household debt service ratio was incredibly high, with interest rates at an all-time low. Ben walks us through how these vulnerabilities might pan out and what could happen with HELOC debt. Along with this, we also discuss the relationship between housing and economic growth, with some truly astonishing data from Canada, the changes that are likely to happen with rental supply, and Ben's take on some personal finance topics. This show was an incredible overview of some of the larger forces at play, and it went a long way to paint a clearer overall picture. Be sure to tune in today!

Key Points From This Episode:

• Useful listener feedback and personal updates from Cameron and Benjamin. [0:01:50.0]
• Data points about the increase in value of the top five S&P 500 stocks. [0:03:46.0]
• A listener question about factoring company stock options into financial planning. [0:06:04.0]
• Learn more about Ben, the work he does, his research focus, and his clients. [0:10:22.0]
• Find out Ben's take on active management vs index investing. [0:11:20.0]
• The state of the Canadian economy prior to the COVID-19 pandemic. [0:12:05.0]
• Canada's recent explosive population growth and where that's headed. [0:14:09.0]
• Consumer and corporate debt-level, the source, and important takeaways. [0:16:13.0]
• Why it's difficult to draw parallels between the situation today and Japan in 1990. [0:03:43.2]
• How different Canadian regions' employment has responded to the crisis. [0:22:59.0]
• Housing trends and the state of housing in Canada before coronavirus. [0:24:20]
• The direct and indirect way that housing affects economic growth. [0:27:48.0]
• Housing supply, construction activity, and rental market changes in Canada. [0:31:06.0]
• What the data is saying about real estate prices across all market segments. [0:36:57.0]
• Some of the economic shocks are temporary and will snap back quickly. [0:39:34.0]
• The economic conditions in Canada's previous housing downturns. [0:41:16.0]
• Ben's take on the Bank of Canada's QE programme and how he thinks it'll work. [0:44:07.0]
• Renting vs buying: Why Ben thinks there's no generic answer. [0:47:53.0]
• Why landlords are often willing to charge rent that makes them a loss. [0:51:29.0]
• Ben's advice for building resilience to economic shocks. [0:52:47.0]

The recent film, Playing with FIRE details the particulars of the FIRE Movement in a way that is accessible, informative, and impactful. Both Cameron and Ben were hugely impressed with the film and the argument it makes for the framework of FIRE. Today we are joined by the producer and star of the film, Scott Rieckens, to discuss the movie and his own journey to reach financial independence. In much the same way that the film does, Scott makes a compelling and inspiring argument for the central philosophy of the movement, emphasizing what many of us will agree are the most important part of our lives and the way we can think about these to maximize our health and happiness. We discuss values and decision making, and how the FIRE perspective accounts for psychological and emotional changes to what is meaningful in your life. Scott explains the reframing that occurs with the system and the important aspects of it, especially those that matter in an introductory setting. We talk about communication and upkeep, the 4% rule, and the individual nature of your own financial strategy. Ultimately the ideas of FIRE are just ways to think about what is really important to you and your family and they provide a way to focus and enhance these. For this truly inspiring and potentially life-changing discussion, be sure to listen in with on the Rational Reminder!

Key Points From This Episode:

• Scott's own understanding of FIRE and what it comes to mean in his life. [0:04:25.4]
• The initial connection that Scott had with the FIRE movement before making the film. [0:05:23.2]
• Shared values and finding common financial ground in a life-partnership. [0:08:50.8]
• Mental changes that Scott and his wife, Taylor, made in response to the ideas of FIRE. [0:11:57.5]
• Reframing your decisions and the necessary information to do this. [0:18:01.9]
• Social changes and the impacts of the philosophical alterations Scott made. [0:22:48.1]
• How Scott has communicated these ideas to his daughter as she has grown older. [0:29:51.4]
• Scott's complete gratefulness for his new relationship with money. [0:33:23.8]
• First steps to take in the process toward financial independence. [0:37:27.4]
• Getting a grip on the '4% Rule and how it can guide your decisions. [0:41:39.6]
• Increasing income versus decreasing spending and adjusting accordingly. [0:46:41.2]
• Applying these ideas to something beyond our selfish needs. [0:51:05.4]
• The multitude of things we can all do with more time in retirement! [0:56:05.4]
• Comparing the changing definition of success for Scott. [0:58:11.4]
• The information that is now available for a framework for happiness. [1:01:55.4]

When it comes to the question of whether the economy affects the stock market, it's not about whether the former is in a good or bad state, but how that relates to what the market was expecting. In today's episode we get into predictions about labour economics during COVID-19, the relationship between the market and the economy, and how to make decisions that suit your risk tolerance. We kick things off by reviewing insights Edward Lazear and Gerard O'Reilly gave in a recent webinar. They spoke about how the current crisis relates to past events from the perspective of labour economics, and what empirical data is saying about stock returns and the economy. A talking point here is the idea that recessions are defined by committees, and always long after they have either begun or ended. This leads to the topic of whether there is a relationship between economic data and stock market performance. We find many examples of cases in the short and long term where no correlation can be found between the two, and cases where the market starts to recover before the economy. We discuss how this speaks of a fundamental difference in the analytical methods of economists versus investors, not a rigged market. The first group assesses past information while the second invests based on where they think things will go. We talk about what happens when GDP is good but not as high as expectations were, and how per-share earnings growth can only keep up with GDP if no new shares were issued. We then switch to the concept of risk aversion and discuss the differences between system one and system two thinking, before moving into a comparison between two methods of analyzing risk. Tune in for your weekly reality check!

Key Points From This Episode:

• Having a baby and getting a drone license; updates from Ben and Cameron. [0:00:18.2]
• Great new Netflix shows and books Cameron has been getting into. [0:03:44.6]
• Predictions about labour economics during COVID in Lazear's webinar. [0:06:28.3]
• Implications around recessions being defined by committees after the fact. [0:10:35.2]
• Predicting future growth based on great performance in financial markets recently. [0:13:45.8]
• Pent up demand post-crisis; why the government should keep businesses afloat. [0:16:25.0]
• Gerard O'Reilly's observations about financial markets in recessions. [0:21:51.2]
• Lazear's stabilization predictions, and why inflation isn't a threat in slack markets. [0:26:09.1]
• State Street's ETF rebalance and failed hedge fund rebalancing bets. [0:28:40.6]
• Is the market rigged? Forward-thinking markets vs backward thinking economies. [0:33:30.7]
• Market expectations and the effect economic news has on future stock prices. [0:38:21.8]
• Lead vs lag in when recessions get defined compared to when they begin. [0:38:46.2]
• How component-based vs automatically rebalanced portfolios are faring. [0:43:44.1]
• Why yield curve inversions forecast economic activity but not equity premiums. [0:44:25.7]
• Research that compares GDP growth and stock returns long term. [0:48:01.9]
• Slippage: per-share earnings growth can only keep up with GDP if no new shares get re-issued [0:54:00.0]
• How efficient the market is in pricing new information, not the other way round. [1:01:50.3]
• Determining risk tolerance; unintended consequences to risk avoidance. [1:02:41.2]
• Why using a GMO point is more effective than psychometric risk profiling. [1:06:18.5]
• The dollar terms and percentage terms shown on the Riskalyze risk slider. [1:09:15.7]
• Five methods of appraising one's risk tolerance. [1:13:02.2]
• Bad advice of the week! Rebalancing your portfolios. [1:15:36.2]

No one credible ever said that investing was a simple endeavour. It might have some simple guidelines, that if followed are more likely to yield positive results, but the ins and outs of the markets, decisions and their impacts, movements and crashes are never straightforward one-dimensional cases. Our guest today, Cliff Asness, really brings this point to bear, showing the nuance and multiplicity of all the topics we discuss. As the experienced owner of AQR and a wealth of knowledge and insight, Cliff shares a host of ideas and thoughts on as many topics as we have time for. We start off the chat talking about market efficiency before moving into the murky waters of value. We hold value investing to be sound, as does Cliff, yet the last few years have stretched even our commitment to this philosophy a little. The perspective that Cliff is able to share, drawing from his formative years in the investing world in the '90s is invaluable and a lot of what we talk about gets contrasted to the tech bubble of that period. The conversation also covers the size of stocks and portfolio allocation. Although Cliff has strong opinions on most of these issues he does a great job of showing the lack of definitive answers to any one of them, allowing space for new knowledge and outlying evidence to make its mark. We also get into finding the right kind of investor for your own style and goals, the role of good communication in finance and the influential article that Cliff wrote about 'pulling the goalie'. In it, Cliff lays out what the data tells us about certain late-stage situations in which it is statistically wise to make more risky choices. For all of this and a fabulously entertaining conversation, listen in with us today!

Key Points From This Episode:

• Cliff's perspective on market efficiency and the impact on his portfolios. [0:03:48.5]
• Value investing in today's climate where value has taken such a knock. [0:08:30.8]
• Stories and behavioural effects on value; how we understand ups and downs. [0:13:36.2]
• Conversations Cliff has had with clients in the tougher times. [0:21:04.5]
• Comparing the companies driving growth now with those in the '90s. [0:23:46.2]
• The size effect and why Cliff does not subscribe to this philosophy. [0:25:17.1]
• 60/40 portfolios; are they still alive? Why Cliff thinks you can do better! [0:33:07.7]
• Cliff's experiences with institutions and advisors and contrasting the two. [0:36:31.5]
• Informed decisions on who to invest with; thoughts on finding the right advisor. [0:38:28.7]
• Pulling the goalie and why risky behaviour can work in certain circumstances. [0:40:42.5]
• The value of communication skills in the game of financial advising. [0:47:29.7]
• How Cliff defines success for his own life! [0:50:07.9]

In today's episode, we take a less analytical position on the current situation to focus more on the behavioral side of things. Joining us are two returning guests, Dr. Moira Somers and Dave Goetsch, who share their unique perspectives in a very real and at times refreshingly comical conversation about how people could most beneficially respond to this moment in time. Dave speaks of his personal experience going from panicky investor to getting a feel for the broad concept of index investing, and the idea that learning not to worry about the market on a day to day basis can be applied to life more generally. Dr. Somers provides some psychological background to these different strategies for tolerating stress. She shares her insights about a typical response to crises called amygdala hijack and how two main personality types called 'the monitor' and 'the blunter' deal with stress. We speak about some more healthy strategies for coping, with banding together and communicating featuring as strong solutions that allow us to clear our heads and problem solve more creatively. The conversation also covers the idea that this moment can be taken as a time to reflect, and even to double down on skills that aren't necessarily investment-related but which can help ensure financial stability in the future. Toward the end of the episode, we look at how financial advisors could be the most useful to their clients right now and hear a strong argument for a strategy that combines experience-based advice with a more important trait: a high EQ. Tune into today's episode to find out how you can gain more of a bird's eye view of your version of the current situation.

Key Points From This Episode:

• Amygdala hijack: Moira's thoughts on psychological responses to COVID-19. [0:03:33.8]
• Dave's thoughts on mitigating valid worry using his understanding of markets. [0:05:54.4]
• Learning not to be emotionally connected to the minutiae of the crisis. [0:13:25.0]
• Non-investment related skills that can strengthen our financial lives. [0:14:56.1]
• Adjusting models and using them to gain insights rather than predict the future. [0:17:04.9]
• Tools Dave has acquired to deal with market fluctuation since 2008. [0:20:40.2]
• Beating myopic loss aversion by planning your response to situations ahead. [0:24:00.3]
• Ways of toggling between contrasting feelings about the present and future. [0:29:30.5]
• Being reflective about one's current experience rather than reactive. [0:33:07.1]
• The best predictor of getting through stress: social support. [0:33:59.2]
• A four-step process to effective decision-making defined by the Heath brothers. [0:37:07.2]
• Banding together and speaking about our difficulties to find creative solutions. [0:41:04.2]
• Buffering emotions through shopping and how shoppers are coping now. [0:43:30.2]
• Changes in workplace customs and industry trajectories sped up by the crisis. [0:44:32.2]
• The contours of a healthy response to inner and outer turbulence. [0:48:24.2]
• What financial advisors can do to help their clients right now: listen to them. [0:53:45.2]
• High EQs and which Big Bang Theory character would be good to talk to now. [0:58:33.2]
• Where folks who have no financial advisor might turn for help. [1:02:45.2]
• How spouses in charge of finances could communicate with their partner. [1:04:10.2]
• Financial advisors as punching bags or mediators between couples. [1:07:09.2]
• How to deal with communicating realites to kids as a single parent. [1:08:40.2]

The Smith Maneuver was developed by Fraser Smith as a smart way for Canadians to convert a traditional, non-deductible mortgage into a deductible mortgage by systematically re-borrowing to invest. Today we are joined by Fraser's son, Robinson, to talk about the maneuver, his father's legacy and explain how you can use it to your financial advantage. In his book, The Smith Maneuver, Fraser laid out a plan for working the mortgage and debt system to your advantage, by deducting the interest on a mortgage, while still being able to claim exemptions on the sale of a house. Robinson does a great job of explaining the procedure for implementing the strategy and all the possible ways to use it. He talks about risk, different kinds of debt and investor diligence, giving everything you need on the subject! Robinson believes in his father's vision of bringing the practices of the wealthy to the average Canadian and allowing wealth creation through leveraging possibilities instead of the inertia and fear that most people choose. For the last part of our conversation, Robinson gives us some examples from the Smithman Calculator, illustrating just how effective the system can be! Join us on the Rational Reminder Podcast today, to get it all!

Key Points From This Episode:

• An explanation of the Smith Maneuver and its usefulness to Canadians. [0:03:40.6]
• A step by step walk-through of the implementation of the Smith Maneuver. [0:07:15.1]
• The possibility of refinancing a credit line for lower mortgage rates. [0:10:18.0]
• How to think about maintaining more leverage with mortgage payments. [0:13:04.9]
• The risks of debt, minimizing withdrawal amounts and reversing the maneuver. [0:16:48.6]
• Robinson and his father's investor experiences around the 2008 market crash. [0:18:35.3]
• Why leveraging smart debt is so much better than gambling on a startup! [0:20:24.2]
• The regulatory risk that is present when performing a Smith Maneuver. [0:22:04.1]
• Risks that accompany not applying these strategies that Robinson is espousing. [0:24:47.6]
• The influence of your tax rate on the efficacy of the Smith Maneuver. [0:27:23.2]
• The diligence that is needed in the implementation of the Smith Maneuver. [0:29:15.0]
• How the Smith Maneuver can address poverty issues that plague Canada. [0:33:39.8]
• Running through the input process and rewards on the Smithman Calculator! [0:34:51.8]
• Net-worth improvements and cash-flow dams from re-borrowing. [0:38:41.7]
• How Robinson defines success in his mission to help Canadians. [0:41:26.3]

In our second special release episode during the 2020 COVID-19 bear market we discussed a broad history of US bear markets from 1900 to 2020, the recent volatility in the bond market, bond ETF NAV spreads, a nuance in the legislation on tax-loss harvesting, and some of the tax-related changes that Canada has rolled out in light of the current situation.