The Wealthy Barber Podcast - #74 — Ted Cadsby: Index Funds and Investors’ Blind Spots

Episode Date: October 6, 2026

Our guest this episode is Ted Cadsby — former President and CEO of CIBC Securities, bestselling author and one of Canada's earliest champions of index investing. Ted brought index funds to CIBC in the late 1990s, wrote "The Power of Index Funds" to make the case to everyday Canadians and has since turned his attention to how people think, with books including "Closing the Mind Gap" and "Hard to Be Human." In this episode, Dave and Ted dive into the case for index funds and the uphill battle Ted fought to bring them to the bank, including the clash with Wood Gundy brokers who saw indexing as a threat to their business. They break down why individual stocks are so hard to get right, how unknowable variables drive stock prices, whether "play money" accounts make sense and how Ted weights his own personal portfolio. The conversation also explores how to evaluate active money managers, how to separate luck from skill in investment performance and what to make of private equity pitches (plus Dave's due diligence approach from his Dragon's Den days). Along the way, Ted shares insights from his work on the psychology of decision making: the dangers of oversimplification and overconfidence, why active managers stay so sure of themselves and how financial biases can quietly affect our happiness. Whether you're a committed indexer or still wondering if you can beat the market, this episode offers a clear-eyed look at investing from someone who has seen both sides of the industry.    Show Notes (00:00) Intro & Disclaimer (00:55) Intro to Ted Cadsby (02:16) A Disastrous Wealthy Barber Date (03:22) Bringing Index Funds to CIBC (05:52) The Clash With Wood Gundy Brokers (09:15) Individual Stocks vs. Index Funds (11:55) "Play Money" Accounts (12:55) The Impact of Unknowable Variables on Individual Stocks (15:34) Ted's Personal Portfolio Weights (17:28) How to Evaluate Active Money Managers (20:00) Luck vs. Skill in Investment Performance (21:26) Private Equity Pitches (24:36) Dave's Due Diligence Strategy on Dragon's Den (27:23) The Psychology of Decision Making (30:13) The Dangers of Oversimplification & Overconfidence (35:03) Why Active Managers Stay Overconfident (39:33) How Financial Biases Affect Happiness (40:40) Money Should Be a Means to an End (43:42) Conclusion

Hey, it's Dave Chilthin, the wealthy barber and former Dragon on Dragon Stent. Welcome to the Wealthy Barber podcast. Well, we'll be hosting some of the top minds in the world of personal finance. Yes, that's to balance me out. The podcast is about making the subject not just easy to understand, but dare I say, even fun, honest. Whether you're trying to fund your retirement, figure out how to build a down payment, save for your kids' education, manage debts, whatever, will be here to help you.

you do it. Before we jump in, a quick but important note, nothing we discuss here should be taken as investment advice. We don't know you and your personal financial situation, so we're not here to tell you we're specifically to put your investment dollars. We're here to educate, get you thinking, and we hope entertain. But please do your own research and or consult with your financial advisor before taking any action. Hey, it's Dave Chilton, the wealthy barber with the Wealthy Barber podcast. As I say every single week, thank you so much for listening. The We've got to build momentum. And again, it's a full tribute to our guests.

And we have a wonderful one today, an old friend of mine, a great fit for the show, Ted Katzby. Let me give you a little background. This guy is exceptionally bright, exceptionally. He went to Queens, who is a medalist in philosophy. He has his MBA from Ivy. He is a CFA. He rose to the top ranks at CIBC. We'll talk more about that in a moment.

He's an outstanding communicator. I've seen Ted speak many times. He's written a number of books. He was one of the first proponents of index funds in Canada, way ahead of the curve, by the way. We're talking in the mid to late 90s when he first started bringing that messaging to the country 30 years ago. And remember in Canada, it still hasn't fully set in. So he was ahead of the curve there.

I know Ted well because he's always stood up for what he believed in. He very much has put the consumer first. That's been his approach. I've enjoyed his efforts over the years. He's now talking a lot about behavioral finance and cognitive challenges that people have to take on. He speaks in that area. He's written a book. It's hard to be human that came out relatively recently.

We'll talk about it later in the show. He can cover off a wide variety of subjects. Solid guy. Ted, welcome to the show. Well, thank you, Dana. That's very kind. And I do want to tell you, it's an anniversary of sorts because it was exactly 35 years ago when I was finishing my MBA, February, March of 1991, when I read. the wealthy barber and it just blew me away and I was so captivated.

I took copious notes. I was dating a woman in Toronto and I remember her coming up to visit me on the weekend. And I spent the whole weekend telling her all about it and reviewing my notes with her because I was so excited about this element of investing because we didn't get any of that in the NBA. That sounds like the worst date in history. Did she dump you after that? You know what? You're joking.

Two months after that, she dumped me. Yeah. I'm surprised it took that long to be perfectly honest. Four year relationship and it was two months after that. I never made the connection with my excitement for your book, but now you've revealed something to me. Yeah, relationships aren't my strength. Don't bring me into this.

I'll actually screw up your personal life too. So, no, listen, I'm really, I'm happy to have you on. And I meant what I said. You've always been a guy who's told it like it is. You're not afraid to do that. And I want to start going there because you had an fascinating, early experience in your career at the bank. You were there, you brought index funds to the forefront, and some people within the bank didn't love that push because they were selling our higher cost

mutual funds and your efforts could cannibalize the profitability of the different divisions, and that led to some conflict. Walk me through how all that played out. It was a bit of a roller coaster and what happened was when I took over CIBBC Securities, the mutual fund arm of the bank, at that time, we were captive to our internal investment management. because CIBEC had just bought it. They're institutional manager, TAL. Part of their deal was they had right of first refusal on any new fund to manage any new fund that we were going to create.

But the problem was they were institutional managers. The performance was mediocre at best. Yeah, you're being quite diplomatic. I mean, at one point didn't. All these years later, that's, yeah. Go ahead. You were going to say it. No, I remember at one point the performance was not good by any measure.

Awful, awful. And so just by coincidence, I've, was reading John Bogle's books and I was really taken with the logic of past investing. And I thought to myself, how am I going to break this company out so that it could turn around from being one of the worst performers in the country? And I went to the investment managers at DAL and I said, I want to do a whole bunch of index funds because I'm so convinced by the arguments around indexing. And I didn't tell them this. It's one way to get around the problem and I can't hire external managers because I'm captive to you. So they acquiesced. They weren't thrilled because it's very low margin business.

Right. The bank was acquiescing at that time as well because they just bought, they spent a lot of money for an active manager. But they were willing to go along with it. And everything just got aligned. I wrote a book. And as you say, because we were early on bringing indexing into Canada, I mean, obviously there's a growing trend in the U.S. but it hadn't really taken off in Canada. We generated a lot of publicity and a lot of interest. And the bank got very much behind me. They hired an external PR firm to work with me to get me into broadcasts and newspapers and do road shows across the country.

And everything was on fire. And then all of a sudden, as often happens in life, something very unexpected happened, which is that the person who was expected to be CEO of the bank taking over from Al Flood at the time ended up losing the job to John Hunkin, who was the investor. And so John Huckin cleared the decks and brought in all his people. And all of a sudden, my boss was the former head of the Wood Gundy brokerage arm. And if there was a contingent of people in the bank that were not happy about what Ted Catsby was doing around indexing, it was all the brokers.

And so all of a sudden, unexpectedly, I was reporting to a former head of the brokerage company. And they did not like indexing for obvious reasons. They didn't sell index funds, they didn't make any money on index funds. And he was chopping the bit to rein in this guy who had been out there promoting index funds so aggressively. So he brought me into the executive floor into his office and he said, do you want to be a media darling? Or do you want to be a bank executive with your eye on the top spot potentially someday? Because they're mutually exclusive.

You can't do both. So you'd let it pick. And I was pretty nimble. And I just said, I joined the bank to develop a financial services career. And that's what I want to do. And he said, okay, good. I don't want to ever see you any form of media ever again. In fact, we're going to take away your title of president.

And I said, oh, okay. I said, well, the subsidiary of the bank, who are you going to make precedent? Because for regulatory reasons, at least we have to have a president. And he said, I'll get back to you tomorrow on that. Next day, HR call and said, okay, you can stay and be president, but we don't ever want to see you use that title publicly. In fact, we don't ever want to see your name in any telemed show and any newsprint, nothing. Well, let me cut you off for a second because our listeners needed to know just how big Ted was at this point.

He had become the face of indexing in Canada because he was getting so much PR. And as you can hear, he's very articulate. He was able to command the audience and deal with the media very, very successfully and build a lot of momentum. So when you go back to the brokers, one of his big messages is you can't outperform the market. And you're not going to be able to pick individual stocks. They're going to beat the broad market averages. I mean, he is in direct conflict with the Wood Gundy broker. So you can see their perspective, too.

I wouldn't be too thrilled if I were them either. So complicated situation. Very complicated. And to be honest, at that point in time, they really wanted to squeeze me out. And I don't blame them. I probably would have had the same attitude. They thought I was a bit of a smart ally. And then very shortly after that, the Globe, Derek DeCoyt, who was a columnist of the Globe, wrote an

article, where did the WISC? Great columnist. So the title is, Where did the Wiz kid go? It was a whole article about, like, Hansby's disappeared, and not. nowhere to be found anymore because the bank has taken them under and hidden them away. So what they did was they'd really had two choices, get rid of me all together and they did fire a bunch of people or moved me. So they took me out of the mutual fund business and they put me into to head up the trust company, the prime investment council and the overseas retail businesses in Asia and the

Caribbean. And so they were good to me in that sense. They thought, okay, he seems committed to the bank and to growing a career. Let's really test him by pulling them out of this business and putting them on to others. And so I worked my way up and did a lot of interesting things of the course of the career. And then you got to a point where it's either up or out. And if you're not promoted to one of the top jobs, then you're asked to leave. And one of my colleagues was promotes the top job. And I was asked to leave. And that's how it kind of shakes out. But I had a great career there. And yeah, it's suffice to say they didn't put near the emphasis on indexing after I moved out of that part of the business, and then, of course, after when I moved out of the bank altogether.

But then I went on and did other things, joined a bunch of boards, and got very heavily still involved in the investment industry by sitting on investment committees, chairing investment committees for wealth management companies, for a hospital, and advising some clients on my own. Now I just run a single-family office. I found it challenging advising clients because of the human nature against wanting to index. And I found it difficult to find people I could work with that really bought into that philosophy. So at the end of the day, I decided to focus on one client who bought in, one big client who bought into my philosophy investing. But it's interesting. I had one client prior to that who had made a lot of money on Apple.

Right. His son worked at Apple. And his son was telling him constantly, the sky is the limit that this stock is going to go newer but up and up. And I would tell him and his wife, I'm not telling you to sell your Apple, but you've got to diversify and you've got to have more in your portfolio. You can't be captive to just one company. And he was very stubborn about that and just felt that Apple was a great, that had been very good to him and a great way to continue to build as well. The problem is every six months or so, he said, boy, were you wrong? Because Apple would keep going up and up. Sure. And I would try to explain to him. And this was so typical I found, and still

to this day, I would try and explain, if I tell you there's a 30% chance of rain and maybe you should take your umbrella out, you take your umbrella and you come back a couple hours later, you say, boy, were you wrong? It didn't rain. I had to let this dumb umbrella around all day. It's nuanced, but I wasn't wrong. I was talking about probabilities. And it's right. Probabilistic thinking is very tough for people. Very difficult. Very difficult. And I found it frustrating because you either click in and get it and buy into it or you don't. And if you're going to struggle with me and say, oh, you were wrong. I had the same situation exactly with a different client with Navidia,

exactly the same situation. And I keep trying to impress upon them and other people. I'm not saying that Navidia is going to take a dive. I'm not saying Apple's best days are behind it. I'm just saying you've got to be shrewd about investing and you can't put all your eggs in one basket. But when people become very attached and emotionally attached to something that's made them a lot of money, then they can't help but perceive you as giving them faulty advice or bad advice. And it's hard for the human brain to understand. I'm not commenting in those situations. I'm not commenting on the company or the stock.

I have a broader philosophy I'm trying to convince you of. And if you're not buying in, then we just, we can't work together. Yeah, they're caught up in that specific case and you're thinking more about the base rate and probabilistic thinking flowing from there, etc. When you were dealing with the client you're referring to and you say they've bought into the index fund approach. Fully, do they do anything beyond index funds? Do they have any individual stocks?

Do they play the alt market at all? Anything? So what we agreed is he would have his own accounts of what I call play money, gambling money, and does whatever he wants and has a broker and all kinds of stuff goes on in there that makes my stomach churn. And then I manage the other 90% of his wealth. And that works for the most part very well. You'll still shoot me ideas because he'll get ideas for his brokers that he thinks to be implemented in the 90% that I'm managing.

So there's still a lot of back and forth, but at least it gives him an outlet to put it to play what he has strong convictions about. And have a little fun, something a little more dramatic and exciting for sure. Absolutely. People can have very strong convictions, but they don't appreciate how superficial some of that understanding is. You know, it's the illusion of explanatory depth that they read one article or they read, one bit of analysis on such and such a company. And they think they've got it all figured out when, in fact, it's an illusion. You can't account for all the unknowns that are literally unknowable and have a huge impact

on any company and any stock. TD is a good example. One of the strongest banks in Canada, probably the strongest brand mixed maybe to RBC, and it got torpedoed, what, 18 months ago for all the anti-laundering problems that had in the U.S. no analysts were writing about short TD because we're worried about the anti-laundering issues that they're having until it all became exposed. And in fact, I could tell you, as a one-time insider, even insiders don't know all the information about what's happening in a large complex company. And so if insiders are caught off guard, and I guarantee you, TD was caught off guard about the extent of their problem, If insiders don't know, how are analysts or mutual fund managers or investment managers going to ever know?

Or especially individual investors, who, as you point out, often read a few articles, et cetera. Exactly. You might think you've got it all covered because you've read a few articles and you heard someone interviewed on Bloomberg. But it's the unknowns that are that you have to protect yourself against, whether it's Apple or Navidia. And that's why you can't be too heavily weighted on any particular company. Actually, I think it's Wally Barber, where you say, you have one of the characters say there are thousands of factors that affect the markets and then the industries and the companies and then the individual company. I think it must be Roy who says it, that you can't ever possibly know enough to make a good, strong, well, well-determined bet on a particular company. Am I right? Yeah, that was the updated version of the wealthy barber.

That's exactly right. And it was Roy saying that. And that's my exact point. It's not just that it's whole complex. It's out there. There's random events that will arise that you could never have anticipated. And on top of that, it's the valuation of the earnings. You have all those complex factor that determine the earnings.

And then there's the valuation of the earnings. There's no way you can possibly consistently keep on top of that so you outperform the market as a whole. It's just, it's virtually. You have to be predicting future market sentiment to some extent too. And all of that is so, so difficult. Listen, Ted, we like when people come on the show and quote the wealthy bar, you will be invited back. Now, one more question before I move to topic number two.

Sure. Are you using the asset allocation funds that are all in one? No. Is that one of the, or are you doing it on your own to keep the fees as low as possible? Well, do it on my own, in part to keep the low fees as low as possible. But I'd like a greater level of granularity than those acid allocation ones can offer. They're great for a lot of people. If you have a little bit more money, I like to be able to,

determine exactly how much in Canada, exactly how much in Asia. So for instance, my own personal portfolio right now is about 20. Here's another thing. People often say what percentage of Canada should I hold? And I always correct them and say it's what percentage of your equities in Canada should you hold? You have to be very careful because sometimes people, like I was just about to tell you, I have 20% holding in Canada. But that's 20% of my equities.

Right. So, but I like right now about 20, Canada, 55 or so in U.S., 10 Europe, 8, Asia, whatever the leftover is seven, I guess, in emerging markets. That's my equity portfolio. But they also like to hold a bit of gold and not a gold bug, but in this day and age, with everything that's going on, it's a great form of insurance, maybe even a better form of insurance than fixed income. So my holding right now about 80 equities are pretty aggressive, five in gold, and then the balance, which is 15, I guess, 15 in fixed income. You can't get that level of granularity necessarily with just an all-in-one acid allocation. And then they don't have gold. And as I say, it doesn't have to be a lot of gold, but I do a little bit in gold these days, given all the turbulence we're experiencing.

Well, in the U.S. debt. I mean, the U.S. debt is so ginormous relative to the country's income. Absolutely. no doubt that having a little bit makes some sense. And I think for some people, it gives them great peace of mind. They just like the comfort of having and they view it as an insurance policy. All right, let's move on to topic number two. For years, you were a great writer, by the way. I used to really enjoy your globe columns and just over the years, I've embraced all of your material. Also, a very good speaker. You interviewed some of the top money managers throughout

the world. And talk a little bit about what learnings came through as you sit back now, looking back in those decades, what conclusions have you drawn? I'm doing it to this day. In fact, it would be a week ago, exactly a week ago today, that I was sitting as part of Investment Committee for Hospital with one of America's biggest asset managers. And what I've learned is that you really have to go deep and asking questions on measures and their philosophy, their style, their decision-making. If you want to separate noise from signal, all the data that you've got to the U.

gather the performance, the risk measures, the consistency of their style over time, et cetera, et cetera, their sharp ratios, all of it. It's so subject to noise that you have to take it with the large grain of salt. It's a good starting point, but it's just a starting point. What I learned is you really have to go deep in your questioning to get a sense of whether there is more luck involved or more skill involved if there's half decent performance to begin with. And often we're talking about areas or pockets of a mandate from investment manager where they're underperforming.

And that's what I find more interesting to dig into because then you can see, are they doubling down? And do they have a good explanation of why they made a decision and even though it hasn't panned out yet why they think it's going to pan out? Or are they going to do a bit of a mea culpa and say, we miss that, we miss this, that, the other thing. And we've changing gears as a result. there's really no other alternative. And when you get an opportunity then to probe them on areas of their management that are not working well, that really starts to break up to the surface how skilled or not they are. So one of the things I've learned is in interviewing investment managers.

And that would apply to a stockbroker, an investment advisor, anyone who's making kind of decisions, to explain where they've been weak and where they've had some problems. because that is what reveals what the depth of expertise is that the numbers alone can't reveal. I like that. It makes them do self-analysis and puts them off-kilter a little bit too, which may be healthy to make them feel a little bit awkward. I mean, again, by nature, our audience should be realizing we're dealing with all smart people. All of them are very intelligent.

They wouldn't be in this field if they weren't. They also are articulate for the most part because they've chosen the person who can communicate well to represent the firm. Because of that, it's so easy to get fooled. You leave almost all of these meetings with your first feeling being, oh my gosh, those people are super smart. I want them managing my money. But at the end of the day, can they open from the broad market averages and can they do it consistently? Again, in 95% of cases, the answer is no. I'm going to throw my conclusion after watching for 40 years and you tell me if I'm wrong. I don't believe any of us can judge what is the luck and what is the skill of the outperformers of the last 10 and 20 years. I just think it's impossible.

Am I wrong? 100% agree. A hundred percent agree. The best thing you can do is try and put probabilities in your favor by getting a sense of whether you think this person really knows what they're doing. It's a probability determination. It's not a definitive, yes, this person is lucky or yes, this person is skilled. I'm 100% to agree with what you just said. And I have to tell you, 90% of the interviews that I do with active managers, I leave scratching my head. I really do. And it's often under examination of things that aren't panning out and why have they not panned out the way they anticipated. And is it just a matter of time before they will or are they changing course? And that's where the rubber really hits the road, I find. I think it's interesting when you look at the middle people who've gone in and represented themselves to some of the large institutions and said, look, we do this for living. Let us pick your managers for you. So now you've introduced another thin layer of cost, but at least you've gotten into the hands of an expert. They're no better at this than almost a random choice either.

And almost always you've had underperformance. But now again, you've added another layer of cost. Yeah. Yeah. No, that's very well put. That's very well put. I was just a short while ago, I was invited to a fancy luncheon with about 20 other people for a pitch from a private equity firm, a big one, one of the bigger ones of the U.S.

And it's only a slight exaggeration to say one third of their presentation. It was about one huge 20-bagger, one huge investment they made. And I never even heard of them. It was a Jersey boy subs or something. I never heard of them. I guess it's a big franchise that took off on the East Coast. Yeah, they have funny ads. Oh, you know them.

Okay. Yeah, they have funny ads, yeah. But I was listening and I was thinking, wow, talk about cherry-picking. Like, one-third of this whole presentation is this one anecdote. Obviously, no mention of all the stinkers that they invested and that didn't pan out. And so when it came kind of for a Q&A, I started probing on their valuations. You know, there's an issue around transparency of private equity. So I was asking, how do you value the funds quarterly and how do you validate that's reasonable?

And they were, they said, oh, we have outside people that validate our numbers. And I pressed them a little bit. And I could tell they were getting agitated and some of the folks in the room were getting a little impatient with me. So I backed off. But I was thinking, if you just have this nice fancy line. and listen to their pitch and throw a few easy lob questions to them, you'd be convinced, I've got to get into this action. It's only by probing, really probing and asking some tough questions and digging where

you think there's discomfort, that you get a sense of what's really happening. No, you're right. Make them a little uncomfortable and then good things start happening conversationally. When you go to the transparency or lack of it on the private equity valuations, I think about SaaS models in the last couple of years, the publicly traded SaaS. companies, for the most part, haven't done particularly well. Get a lot of the private equity held SaaS companies. They've kept the same valuation even in the face of rising interest rates.

Come on. That makes no, yeah, that makes no sense. That's why I ask the question. You're absolutely right. There's a lot of what they call volatility smoothing going on there. But lack of transparency, hide these rewards that I don't think are commensate with the risks you're getting. And at the end of the day, I don't think you're really adding to your diversification.

You know, if you're investing in the, total U.S. market, for example, you've got, whatever you've got, 1,200 stocks that represent the whole market, if you're in the Russell or 2,000 stocks. Adding another handful of great opportunities that aren't public, I don't think really broadens your diversification. And on top of that, there's so much money now chasing after fewer, fewer high-quality deals. I'm very cautious about private equity, especially as it progresses to become more retailized to get everyone and their brother a chance to invest in it. I think we have to be very careful about it.

I agree. And the two and 20 makes it so tough. Oh, yeah. It really does. When you apply the actual fees to it, it makes it so, so difficult. And you're right about the money chasing the deals now. There's so much committed capital that you've had valuations go up in some instances. They've softened in some areas.

But all of this, with the lack of transparency and, of course, the lack of liquidity, I'm skeptical of a lot of this. The funny thing is, I've invested a lot in private equity, but it's on my own. There's no fees. I haven't done two and 20. I've gone direct into the company. And my background lets me do the due diligence. And in fact, I for years enjoyed doing it less so now. That's a very different matter.

I don't have somebody in there taking the high fees. I'm dealing directly with the management and so on and so forth. But I wouldn't recommend what I do to 99.99% of our listeners. No. They're not going to have the patience to wait those out. They can't get directly involved in helping the companies, et cetera. So that's not something I want any of our listeners trying to duplicate. That's very well-putting.

You've had a lot of experience. And that's why the Dragon's Den stent was so successful. But you told me at one point, you won't remember this. We chat in the contents of Dragons' Den, but more specifically with respect to private equity investments, it's exhausting. Because the amount of due buildings you have to do is enormous. And that's one of the things that you had mentioned to me a few years ago, that even the Dragon Den stuff is you have to put a lot of time in it.

A lot of time into it. It's crazy. It really is. And I do remember that conversation. And I got overwhelmed with it. Remember, I said I left Dragonsden because I felt all the due diligence, plus helping the companies was more than a full-time job. So it is exhausting.

I think our listeners will find this interesting before we jump back to a broader topic. One of the ways I approached due diligence was a little different is that I did, certainly the math analysis, the legal due diligence, et cetera. But I also tried to approach each deal as a journalist. And so I would call competitors, former employing. all of those types of things trying to learn as much as I could about the company, that was the difference maker. The information I garnered from the outside world, for lack of a better expression, I think,

was what really helped me to make better decisions. And I enjoyed a lot of that, but as I got older, much less so. And again, it became overwhelming. That's very interesting and a clever approach on your part, why you had success at it. But I was very sympathetic at the time, and I certainly had now, that the time demand, the energy demand is just very significant. And you either love doing it and you're willing, everything in life is an opportunity cost, right?

There's something else you could be doing at that time. And so you have to love it enough that you don't feel you're sacrificing other elements of your life that you'd rather prioritize, which I presume is one of the reasons you've decided to hang up the wealthy barber brand, right? That's exactly right. No, you said all that extremely well. Okay. Let's move on to an area that I was really excited to explore with you. You got into studying a lot about the human mind and where we have biases. and natural weaknesses and how that leaks into our investment manage it. And we'll even talk later about how it leaks into our happiness. Talk a little bit about what drew you into that area and how much you've enjoyed it and how you're spending your time in it now. Well, I think I could go way back into what I, grade seven, so I would have been 11 turning 12.

I was moved to a new school by my parents out of the neighborhood. And there was this guy that every time the national anthem came on, he would leave the class. And I guess I'm an obsessively curious guy. I chased after him one day after gym class, I remember. And I said to him, why do you leave a class every time the anthem comes on? And he said, because of my religion, we don't idolize nations. We idolize God. He's our one or only.

So he was Jehovah Witness. And it was the beginning of a two-year friendship with him where I was constantly peppering him with questions. He was constantly trying to get me to see the light and convert to being a Jehovah Witness. And it was my first foray to, really being baffled, but also in a certain degree of wonderment at how unusual we all are, how different we all are, how we think very differently. And I couldn't quite understand how someone could have such a different world vision than I did at that age, at that fairly young age,

when I was still developing a vision of the world and life and so on, because I grew up in a secular home. And so I've carried that forward all the way through. All that learning from way back in grade seven and on human nature, right into indexing and behavioral economics. Why do people, why are they so goofy when it comes to money, or for that matter, love or religion? But money obviously became my focus. And the indexing thing was a great example of that, because I saw so many behaviors in investing that didn't match with what the right answers were. And that's what kind of got me into behavioral economics and Daniel Coleman and all of that kind of work.

And so my second book was all in the mistakes that Canadians made that was all based on behavioral finance. And that kind of morphed over time into why humans struggle with making good decisions when they're confronted with complexity in general. Never mind just investing, which is an interesting segue or entree into that whole topic. Why is it that in our lives in general when it comes to complexity, we screw up so badly? And then, of course, that led to what is it about the human condition and being human that can be a real struggle for us?

because we've got these almost overdeveloped complex brains that are in many ways not well suited to the modern world that we've created. And so where do we get into trouble? Can we at least get some understanding of what the basic elements of human vulnerabilities are when it comes to living a life in a complex world like today? Yeah. And so much choice out there can be overwhelming. What are the big mistakes that you see people make? So when you look at behavioral finance, you mentioned the end of Connie. And like, where are we going wrong in the two or three areas?

What biases are hitting us hardest? Well, I think one of our all-time biggest mistakes, I think, is oversimplifying. The philosopher Daniel Zennert came up with this description of us being greedy reductionists. And he was talking about in terms of scientists and philosophers, but I think it applies to all of us. We are greedy because we want simple answers to complex phenomena. We're greedy because we want things to be very straightforward. We want to know who the bad guys are, who the good guys are. We want to know what stock is going to make us rich.

And so I would say the number one human foible is oversimplifying. And especially as I say in this day and age, when you're a caveman, you can pretty much rely on clear signals and clear feedback. And life doesn't get too complicated. So you can make some pretty snap decisions. In this day and age, those shortcuts don't work as well. And that's why the second big mistake is overconfidence. We're addicted to certainty. We're literally biologically programmed to lock into the first satisfied conclusion or answer that we can come up with.

And again, if you're on the savannah or an agriculture farmer, as we were for thousands of our ancestors were for thousands of years before this, you could be pretty confident in the decisions you made because they're pretty straightforward. But in this age, investing is a great example. you tend to be overconfident. The biggest error I would say, now that you're asking me, with respect to investing, is it's a classic type one error, what scientists or psychologists call type one error, which is a false positive, meaning you are interpreting noise as signal. You're pulling out something that you think is important information when it's not. It's just noise.

And not to go too far a path here, but that applies to our personal relationships. We often make big deals about small things that are really just noise and not signals in how people are communicating with us or how they're treating us. So we tend to overinterpret. We tend to overreact to data that is random and noisy and not really generating a strong signal for us, type 1 error. And that applies to investing and across all of our issues as human beings that we struggle through our life. I remember fooled by randomness. which, you know, the first of his books was so good. Absolutely.

And he had to bang on saying what you're saying right now. And it's because there's so much more information now in every subject. Oh, God. That it's hard not to kind of think that's a signal and get it wrong. I don't care if you're in a fantasy football pool, fantasy hockey. In the old days, you had to scramble for information. Now you could read 12 hours a day. And you put too much weight on certain opinions and all of this.

It is tricky. And then in the world of investing, multiply that by 50. And it gives you a false sense of confidence. that you know what's going on. It comes back to a beginning of our conversation. You feel like because you've read one article or listened to two podcasts, you've got whether it is a war in the Middle East or how to make your love relationship better or the best workout exercise or nutrition is also a big issue where all this complexity comes to play and you can gravitate to just simple quick solutions that belie the actual intricacy of what's underneath.

No, I couldn't agree more. And I'm guilty of doing that because I'm curious. I love to read. I love to learn. I love to take all this in. But you're right. You can fool yourself into thinking that knowledge is going to help you make better decisions. But in the most cases, it gets in the way of it, if anything. I look at my dad. I bring him up a lot on this. He's just bought index funds and left the money alone for 40 years and paid no attention to anything. And he's outperformed almost everybody I know. Yeah. And I mean, you know, and I think that is the way to go for most of us because for a lot of us, this is all noise, even frankly, if it's signal because we don't know how to interpret it and weight it properly. And therefore it doesn't really matter. That's a good point, Dave. It's not, yeah, I'm glad you're tweaking what I said earlier. There could be signal there. So if they were just reading signal into noise, it's just that we don't know how to interpret

or really understand the signal and what the signal means. That's very well put. And I'm like your dad. I check my portfolio twice a year. I'm not like your dad. He checks out. I think you said joke once a lifetime or something. But I check it twice a year.

And the only reason for this, I do it at the end of the year, the only reason I do it mid-year is just to check. my thinking back in December. It's not to make changes. It's just to take another look at my thoughts that I had in December on what tweaks I want to make on what my thinking was. But really, there's no reason to look at your portfolio or that once a year, assuming you're a long-term investor and you're not having to budget on a monthly basis and constantly kind of revisit that. You know what fascinates me most about overconfidence bias is the fact that people can be wrong so often. And that doesn't affect their confidence in the next decision. And

And even a lot of my friends in the investment world, people you know well, really their track records haven't been very good. They've received a lot of profile. They're interviewed a lot. But if you go back and assess what they've said over the last 20 and 30 years, you're thankfully, you haven't listened to the advice. So even though they have a track record that's not impressive, their confidence in their next decision is very high. And they're not faking it. It really is very high. That blows me away.

It's amazing because there's no other profession that I can think of. If a lawyer loses every case, if a doctor misdive, diagnoses everyone who comes into his or her office. What a profession can you go to and to say, yeah, well, we didn't quite see this coming or that happening, but you did pretty well overall. And an active manager can post facto make up a story for anything that happened that they didn't quite see or that they thought was a low probability of. And because it's a very, they're working in a domain that is very messy.

We talked a second ago about clear signals and clear feedback. it's very hard to develop expertise in adaptive management because you're working in a very dirty domain that does not give you very clear usable feedback and that is so complex and murky and messy and so much noise being thrown at you, you can't learn and develop the kind of intuitive expertise that you would for virtually every other profession.

So it's a very odd profession. And I agree with you, by the way, they're not lying. They most of the time really believe in their ability and because they put so much work and effort and thought into it. And it's hard just to accept that it's beyond your control most of it and beyond your ability to predict most of it. And people are paying you to do exactly that, predict and control and manage. And psychologically, I think it's a road too far for many people to say, this just doesn't make any sense. I'm just telling my clients to index and charge them a straight advice fee instead, which is the right way to go.

That's what I charge a retainer. I don't charge on assets. I don't charge on performance. It's just a retainer. And if I'm not generating the kind of returns, you think I should be generating for you, then that's fine. The relationship doesn't work. Yeah. And you're providing advice beyond the investment advice and all likelihood too.

Are you helping them with state planning and so on and so forth? Just tying back to what we talked about earlier, not everybody is overconfident. One of my colleagues once sold a money management firm for tens and tens and tens of millions of dollars. And he said to me, I just got very, very wealthy by managing. money poorly. And he had just never, ever put up good performance numbers, but they're very good at drawing capital in. And therefore, though, they had a big number, AUM, and off you go, and they were able to sell it. But remember, the vast majority of these firms have underperformed the broad market averages dramatically. Amazing. And he's just saying and being honest about the reality of 90%

of brokers, 90% of advisors, 90% of active managers, even the billion dollar was, like the one I sat down with last week and the one that was pitching private equity a month before that, it's a very peculiar industry. And if you're going to be more gullible, you have a choice. We talked about tradeoffs. There's a tradeoff between being gullible and being skeptical. And I always tell people when it comes to investing, the air on the side of being a little more skeptical because there's a whole industry out there trying to convince you that they've got the latest, greatest secret. And that's why private equity is getting so popular than out, because so many advisors are using it as this is the next greatest thing. And it differentiates me from the

guy or the woman next door to me, but you really have to be a shrewd, skeptical purchaser of information when you're in the investment arena because skepticism will go a long way a lot further than just being gullible or assuming the store you're being told is legit or has any depth to it. By the way, I want to add something we've never said on the podcast, but interestingly, private equity over here, venture capital, a subset in essence of private equity, there have been a number of funds overcome the two and 20 and do well and even do consistently well. The problem is you and I can't invest in them. For the most part, we can't get at them.

And they've got such great pipelines to these deals that they're able to often get involved early and they can play off each other and they know the right people and they're very bright. All of those things combined together and create outperformance. But again, for most of us to gain access to those funds is near impossible. Okay, I want to wrap up. This has gone incredibly quickly, by the way. It's been a lot of fun. For me as well. How does all of this tie in to happiness?

Because I know you've spoken about that in the past and how a lot of what we're seeing right now, again, overwhelmed with information and the mistakes we make mentally. How does it all tie into happiness? What can we do better to find more happiness? Yeah. I think that it's very personal to each individual. I think that happiness is a guarantee. The universe doesn't have a contract with us that guarantees us happiness or meaningfulness in our lives. So we really have to be attentive to what elements of our life give us meaning and joy and make sure that they're not crowded out.

And often, I'll be honest, when I was a younger man, I used to think of money almost as an end in itself. I used to love seeing my bank count, my investment count going up and up. And I kind of learn, I've come to learn as I matured that money is a means to an end. And while it's crucial to be saving as much as you can for all the obvious reasons that you outlined way back in 89. and when I wrote the book in 91. You also have to learn how to spend money judiciously so that you don't get too focused on the numbers that you're putting away for another day.

And one of the latter I'll share with you quickly is I have a friend who's very wealthy. He's got a cottage, Muscoca, and boats, all the toys. And we went up to visit him, and he refuses to get gas at the marinas because it's too expensive. So he has these big red jugs that he takes to the, he drives to the gas station,

fills them up, brings him back. So he wanted me to help him. And I did. I put all the jugs in the back. He said, why did you put all the junks in the back? And I said, I thought we're filling up the gas to put me in the boat. He said, yeah, but you never do all the the jugs at once because the price of gas might go down. So, so let's just do half the jugs and come out. We're talking about somebody. He's hedging. He's hedging. You know, tens of millions of dollars. The reason I, the reason I, the reason I said, though popped in my mind, as per your question is, or apapapapos of your question is, how much inconvenience are you willing to put yourself out to see a couple extra dollars in your bank account. And I guess this relates in part

to happiness as relating it to money, Dave. For me, the penny dropped a few years ago and I realized I was going to way out of my way to get, I eat a lot of almonds. And I would drive way out of my way to go to bulk bar and wait for there until they're on sale and buy a whole bunch. I'd probably save $3 here, $4 there. The inconvenience of doing it, it was very hard habit to break. One day I said to myself, you know what, every dollar or two I'm saving. is going straight into my daughter's pockets. Because at the end of the day, they're benefiting from this

inconvenience putting myself through. As much as I love my daughters, and as much as I know I will leave them be very comfortable when I'm no longer here, does it really make sense for me to spend half an hour to get elements to save five bucks when I'm really doing it for them? Because that five bucks is ultimately going to end up

in their pockets, not mine. And that's when I started to realize at conjunction with a friend and the gas situation, that money is a means to an end. It's there to be enjoyed when you're judicious and you spend it in ways that bring you satisfaction that are long-lasting, memories in the form of trips and that sort of thing. But it doesn't have any pleasure. It shouldn't. There's something psychologically wrong if you are getting pleasure just out of seeing your bank account

grow and grow. It's a good thing because it's future-oriented when you're younger. But you don't want to get so parried away, but you don't know how to spend money. You only know how to save it. Yeah, I think seeing it grow as you're building for your retirement, your normal income Canadian, that's fine. That does give you joy, pride, peace of mind. But once you've achieved a certain level, you know you have enough. The fact that a lot of people can't part with it then either.

Some of that's understandable because flipping a switch to go from being a saver to a spender is a tough move. But your story is a great one because a lot of people who have more money than they could ever spend are still hoarding it to something. extent. They've made it the end and they're sacrificing joy, which makes no sense. Now, by the way, your colleague may argue, I get great joy out of saving that little bit of money and out of going. And so everybody's different. All of that stuff is tough. Fair enough. The big, the big message from this podcast for all our listeners is do never, ever, if you're involved in a romantic relationship, read your notes from the wealthy barber to your partner. Okay. That is going to lead to a sudden break up for understandable reasons. Ted, really enjoyable having you back on. You're a great guy.

I've enjoyed you of measureably over the years and really a benefitter from reading your material, listening to you, et cetera. So thank you again. Appreciate it. Love being here. Thank you, Dave.