The Wealthy Barber Podcast - Ben Felix: A Deep Dive Into the World of Investing | TWB Podcast #5

Episode Date: December 3, 2024

Our guest this episode is Ben Felix—Chief Investment Officer at PWL Capital and co-host of “The Rational Reminder” podcast. You might also know him from his popular YouTube channel where he creates meticulously researched videos on investing, financial decision-making and living a good life (although you may not recognize his stunning new hairstyle!).   In this episode Dave and Ben dive deeply into the world of investing. They cover everything from active versus passive styles to why CPP is a one-of-a-kind asset to why people underperform so badly in mutual funds and much, much more.    This is a must-listen episode featuring two of Canada’s top financial educators.   Show Notes: 00:00:00 – Intro & Disclaimer 00:00:55 – Intro to Ben Felix 00:04:25 – Ben’s New Hair 00:05:50 – Why Is It So Difficult to Beat the Market? 00:08:02 – Why It's Hard for Active Managers to Consistently Outperform 00:11:42 – “Buy the Haystack” (Passive Investing) 00:13:55 – The Market is Forward Looking 00:17:45 – Why Dave & Ben Don't Listen to Market Forecasts 00:21:46 – Dave's Only Market-Timing Story (Gone Wrong) 00:25:22 – Performance Gaps for Individual vs. Fund Performance 00:29:55 – Lump Sum vs. Dollar-Cost Averaging 00:35:18 – Everyone's Risk Tolerance is Different 00:36:56 – Countries With High Economic Growth ≠ High Stock Returns 00:41:35 – Beware of High Growth Industries & Thematic ETFs 00:46:00 – The Difference Between Investment Planning & Financial Planning 00:51:20 – How Can Everyday Canadians Get Good Financial Advice? 00:55:44 – Trust is Key in Financial Planning 00:57:26 – Why a 2% Mutual Fund Fee Is So Costly 00:59:11 – Canadian Banks 01:01:19 – Keep it Simple! Complexity Underperforms 01:04:09 – Venture Capital 01:05:42 – Can the US Market Continue to Outperform? 01:13:36 – Robo-Advisors 01:17:44 – Would Ben Ever Be a Landlord? 01:20:00 – CPP – Four Reasons Why You Should Wait to Take It 01:26:11 – Conclusion

Hey, it's Dave Chilton, The Wealthy Barber and former Dragon on Dragon's Den. Welcome to The Wealthy Barber Podcast, where 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, we'll be here to help 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. Hi everybody, it's Dave Chilton, The Wealthy Barber. I'm here with The Wealthy Barber Podcast, episode five. Not going to lie to you, I'm beyond excited about this episode. I have one of my favorite people in the world of finance on as a guest. I say that with no exaggeration. Brilliant guy. Going to give him a bit of an introduction. Not even going to let him talk. I'm going to just talk about him for a little bit. It's Ben Felix from PWL Capital. Ben is the chief investment officer there. He was formerly the head of research. Lots of interesting factoids about him. He has four kids under the age of 10. Not good cost control, but yet he's an investment expert. That's fine. He does one of those two things well. He's 6'11". 6'11". Played basketball, Division I, Northeastern. Very, very impressive. Why am I having him on the podcast? That's what matters to you, the listener. I have a very good answer. He is one of the premier voices in North America

in the world of personal finance and investing. Why? He's articulate. He's caring. I don't know if I've ever met anybody more well-researched than this guy. He will tackle a subject from every angle. He is a finance geek to the nth degree, obsessive compulsive. I love the way he'll challenge conventional wisdom. When he reads one of the better papers in the industry on a subject, he doesn't take for granted it's right. He'll come at it from all angles. He'll look at other research, et cetera, loves to listen, loves to learn, and most importantly, loves to help people. He hosts the podcast along with two of the colleagues called Rational Reminder that's become one of the top investment podcasts, not just in Canada, but in the world. The content

on that podcast is rich. I highly recommend if you're interested in the world of investing, listening to that group. They're excellent. The guests they get on, I think Mike Green was on one of the most recent podcasts. He's a great thinker, just an outstanding job. So I'm thrilled to have you on. I should say you and I did this podcast. We taped it a couple of weeks ago. We had a technology problem, so we are now redoing it. And it's lucky for you because I said a lot of brilliant things in that first podcast. You struggled a bit. You stole some of my ideas, but today I'm sure it'll be more balanced. No doubt about it. Good to have you. That's quite an introduction. Thanks, Dave. And yes, you were great the last time we did this.

I agree. I told you to say that and you said it very well. Not too convincingly, frankly. Listen, I want to ask you one personal question, but a serious one before we start on the world of finance. You come across to me as remarkably calm. When I watch you deal with things, when you and I've gone back and forth on the phone about some heated areas, et cetera, you're always calm. Would your wife and kids agree with that assessment? Uh, yeah, I think they probably would. I think they probably would. I, uh, you know, I, I still raise my voice at my kids sometimes because kids are, man, they get on your nerves. That's what they're really good at. But, uh, yeah, I think, I think I'm pretty, pretty even keeled most of the time. You know, you remind me a little bit

of my father and that he was a rare type A personality, very driven, very much wanted to be good at what he did in his case, a high school principal, but remarkably calm. That's not a combination of qualities. You see that often driven people tend not to be school principal, but remarkably calm. That's not a combination of qualities you see that often. Driven people tend not to be as calm, but you are very much like that. That's a nice observation. I mean, I appreciate it. Sometimes you just have to take a deep breath and think about stuff. I probably think about stuff too much. Maybe that's why I'm calm. I've got delayed reactions. Now, the other thing I should mention is it's interesting. You've got this huge following YouTube with your podcast and with the videos you put out

over the years. You've helped a lot of people. You formerly had very, very short hair. And I think kidding aside, it really was cool to see the reaction when you grew your hair out because to me, it showed what's happening on the modern platforms. You're developing personal connections with your viewing audience. You can go back and forth in the comment section.

They get to know you very well. And so you've got this strong reaction, mostly positive about growing your hair out, very handsome guy, et cetera. But I thought it was cool that people got that excited. You actually had to quell the excitement and say, okay, let's move past that now and get back to the world of investing. Yeah. It's still going. Every time I make a video, I think I've made five videos since I had hair.

And yeah, like 50% of the comments at least still reference my hair. So yeah, it's a thing. I'll take the opportunity to say that this is my real hair. A lot of people keep saying that I went to Turkey to get hair transplants, but no, I just, I used to shave my head because it was convenient. And I decided recently that I was going to stop shaving my head. So it's just a coincidence that you told me you were in Turkey two months ago. That's a coincidence. Total coincidence. Total coincidence.

Well, I like it. You look great. Now, again, as a barber, the wealthy barber, I don't like when people let their hair grow. I want you cutting it on an ongoing basis, maybe every third or fourth day, but unlikely to happen. All right, let's get to the meat of the subject, the world of finance. Obviously, I've watched all your videos. I've listened to your podcast. I'm truly a huge fan, and I mean that sincerely. Thank you. Let me start with one of your big observations. You talk about how difficult it is to beat the market. And I couldn't agree more.

In fact, all the empirical evidence I've seen over the years supports that. Why though is it so difficult to beat the market? You're a brilliant young guy. You've gone through all of the courses. Why can't someone like you study the market eight hours a day and put up superior performance numbers? It's the paradox of skill. The more skilled people that there are, the harder it gets to beat the market because those skilled people are competing with each other. And that doesn't go away. And the level of skill I think has only increased over time. So you go back to the first paper that showed academically that fund managers were not beating the market. It was a 1968 paper by Michael Jensen. And this is like, it's kind of cool history. So Harry Markowitz comes up with

modern portfolio theory. Bill Sharp creates the capital asset pricing model, which takes Markowitz portfolio theory and turns it into a testable prediction about the relationship between risk and expected returns. And then Michael Jensen, 1968, takes the capital asset pricing model and says, okay, now that we have this model, we can look at how much risk mutual fund managers are taking and whether they're actually adding any value above that. And Jensen found that they really weren't. Now, if you took a mutual fund manager from today with the resources that they have available to them with AI and with chat GPT and the internet and all that kind of stuff, you put them in 1968, or I think they started in 1945 in their sample, I think. You put somebody in 1950, say, that has today's skills, knowledge, technology,

they're a CFA, all that kind of stuff. Put them in 1950, I bet you they beat the market because nobody else has that stuff. But today, that person is just, they're just one of everybody else. Everybody has the same information, same technology, same knowledge. So that's it. I mean, it's a competitive space. And when you have equally skilled competitors trying to do something like beat the market, the outcome ends up coming down to luck. And that's, I think, what we see in the data. I agree. Had they had it in 1950, they would have had an edge. And you hear that expression all the time, but it's a good expression. They would have had a point of difference in edge. Now everybody has those things. It's key for people to understand

that the market itself is not a sum zero game that people can all do well in the market over time. In fact, have, but outperforming the market is a sum zero game. And people don't tend to get that. If we can't all be above average performers, that doesn't make any mathematical sense. So if somebody is outperforming, others are underperforming, et cetera. And can anybody outperform on a consistent basis? That's the thing. And can we assess ahead of time who that person is going to be? All very

challenging. And of course it's proven not to be the case. Yeah. So it's a zero sum game before costs. And there are two things going on there. It's like, it's a negative sum game after costs because active management on average is going to cost more both in transaction costs and people costs, which comes out as fees. You've got negative some game out of the gate. That's one piece. That shifts the whole distribution. You're probably going to lose money trying to beat the market. You're probably going to do worse. So that's one piece. The other piece is skewness. There's this massive skewness in stock returns, where most of the market's returns come from a relatively small number of stocks. That shows

up in fund returns, which are also skewed. So you can have some funds that do end up doing quite well over one period of time because they held the right stocks, but most funds are more likely to miss that if they don't just own the market. So there's some really interesting research on that, skewness on stock returns and how it affects actively managed portfolio returns. And then the other really interesting piece that you just mentioned, which is very important, is persistence. If we could look at the funds that did well over the last 10 years and be confident that they'll do well over the next 10 years, that would be great. That would be evidence of skill and we could just pick those winning managers. But that's not what you see in the data at all. S&P does a persistent scorecard every year. And if you look at the top quartile funds at the

beginning of a five-year period, none of them typically, or very close to none of them, remain top quartile over the next five years. There's just no evidence of persistence. And that's a sort of more practitioner-oriented and relatively short-term way to look at that. But there have been a couple of academic papers as well that have asked the same question. And again, there's really no evidence of persistence in outperformance. Well, I would argue there's evidence of lack of persistence though, in that we often will see the hot fund over the previous five years underperform the markets in the next five to 10 year period. And we've talked about this before. It's because they happen to have the exact stocks you spoke about, the big outperformers in their portfolio, but duplicating that feed is a very big challenge.

And of course, regression of the mean sets in. Often those stocks underperform the market the next five to 10 years. So if there's any correlation, it's a negative correlation, which of course has bitten investors in North America so many times. They buy the hot fund. And then they not only don't get market returns, they not only don't get market returns less to fee, they get an even

lower return than that. Yeah. Yeah. So there's a pair of 2018 papers that from different co-authors, one's from Brad Cornell and some co-authors and one's from Rob Arnott and some co-authors. And the Cornell paper looks at a strategy of buying funds that have beaten the market over the last three years and finds that that strategy underperforms if have beaten the market over the last three years and finds that that strategy underperforms if you bought the losing funds over the last three years and just kept repeating that cycle. So buying losing funds beats buying winning funds over three-year periods. And then Rob Arnot's paper looks at how valuations are related to that. And he basically finds what you just said, which is that the funds that have done well recently tend to be invested in a style that has had recent positive

performance and therefore has high valuations. And that shows up as lower future returns. So yeah, that is a well-documented phenomenon. Yeah. Rob's got some great stuff. There's no doubt about it. I love looking at all of it. And you mentioned something earlier though, that I don't think gets nearly enough attention and that's the skewness of returns. So when you hear all of the experts out there saying, and I think wisely so, people should be using index funds as their core holdings and maybe even as their exclusive holdings for their equity exposure, they almost always talk about the fees or they talk about how difficult it is to pick the professional money manager. But one of the reasons it's so difficult to outperform is that the outperformance or the strong performance of the index is usually made up of very few stocks doing

exceptionally well and pulling the numbers up and finding those needle in a haystack to use an oft-used expression is extremely difficult by the haystack. And I think that's the best way to get reasonably good performance over the years, own everything, and then you're going to have NVIDIA and you're going to have those stocks that go on those great runs and you're going to fold them the entirety of that run. Now, sooner or later, they'll regress to the mean and have their difficult times, but then others will be having their role and that's how the index keeps going. But I don't think a lot of people understand that. In fact, most people think that stocks move in tandem and that they kind of all average the same return.

Of course, that's not the case at all. In fact, in many years when the markets have been strong, more stocks have gone down than have gone up. Yeah, the skewness in returns is extreme. And we had really good data on that starting in, I think it was 2018, that Hendrik Bessembinder came out with his first paper on this. He's done two papers on it now, one on US stocks, one on global stocks. Yeah. I mean, if you miss those best performers, you're not going to beat the market. And most actively managed funds, I don't remember the specific number. It's in one of Bessem Binder's paper. But on average, actively managed funds hold relatively few stocks. I wish I had the number in my head, but it's whatever. Call it 30 stocks or something like

that. And just because of that, there are thousands of stocks in the market. If you just hold a small subset of them, there's a really good chance you're going to miss those top performers. And there's a really good chance you're going to underperform the market even before fees, keeping in mind that fees are shifting the whole distribution a little bit more negative. So yeah, it's really those two factors. Costs and skewness are really death blows to active management in my opinion.

They are. I've actually started talking about the skewness issue more and more on stage because again, I just think it gets very little attention compared to the other points we've brought up. You and I've talked about the market being forward-looking and how that is not well understood by the general investing public. So not only explain what it means for the market to be forward-looking, but what does that mean to the investors?

Why do they have to understand that? The market is a prediction engine. It's incorporating information that is available today, which everybody has, like financial statements or something that happened in the news or whatever. So it's taking that type of information, but it's also taking expectations about the future into account when assets are priced.

So anything that could happen in the future into account when assets are priced. So anything that could happen in the future should be in an efficient market reflected in prices. And there are different ways that you can look at that and study that. But in general, it's accepted that the market contains expectations about the future. Now that matters to investors because if you think you have information that will let you beat the market, so if you think NVIDIA is going to have really strong future earnings, for example, the market agrees with you. So you can't just think it's going to have really strong future earnings and therefore you should buy the stock. You have to have a more optimistic expectation than the market. And then you have to be right for it to work out. But for you to make that bet, you have to say, okay, the market's pricing really high future earnings in for NVIDIA. I think it's actually

going to be better than what the market's pricing. Now, if the market's expectations for NVIDIA's earnings end up being what the actual earnings are in the future, NVIDIA stock is going to return something in line with the amount of risk that you're taking by owning the stock. If it has an earning surprise, if it does better than expected, that's where you get a positive return. But I mean, it's all about expectation error. And that's really hard to get right. Really is. And it's interesting to me how many of my friends, these are sharp, sharp friends, people who've been investing for a long, long time still struggle with this. And so one of the companies they own will come out with quite positive news and the stock will go down and they'll phone me and say, I don't understand that.

Well, it's because the market expected even better news than that. In fact, NVIDIA is a stock that could be prone to that. It could have a very good quarter, but not to the level that people are anticipating. And the stock would take a hit and often a very big hit because the growth rate is so baked in to the valuation that if the growth rate disappoints at all in terms of future forecasts, it can really hit the stock price. But my friends, again, grapple with that tremendously. It's, I guess, a tough concept for a lot of people without experience to get a hold of. Yeah, I think it is a tough concept, and I think it causes a lot of the behavioral mistakes that we see investors make.

Now, look, we talk about the market being forward-looking, but it doesn't have 20-20 vision as it looks out into the future. It's made a lot of mistakes. I mean, NVIDIA wouldn't have had this tremendous run if it was perfectly accurate because it would have priced NVIDIA much more highly five and 10 years ago, for example. But again, you've made the point on your podcast that it's only if the market is making chronic mistakes

of a similar fashion in terms of its vision, that we're able to harness it and outperform the market. If the mistakes to some extent are random and completely therefore unpredictable, it doesn't help us. Yeah, yeah. That's a big thing. With market efficiency, people think that efficient markets means that prices are always perfect, that they always perfectly reflect what's actually going to happen in the future. But that's not the case. I mean, market prices in an efficient market can actually be wrong. But the key is what you said. The key is that they're not wrong in a way that you can predict. They're wrong randomly. And if that's true, you still can't beat the market. But I think that's a really important point. Market efficiency,

which is what the whole idea of index investing is really based on, doesn't say prices are perfectly right all the time. It just says that they're wrong in a way that is random and they cannot be traded profitably. Yeah. We go back to the random walk down wall street, which I think has stood the test of time quite well. And it talks about a lot of those types of things. Again, unless the errors are predictable through heavy research and clever thinking, they don't really help us. And they haven't proven to be for all the reasons we spoke up earlier. You know, you talk about market forecasts. And again, people love to see what the economist thinks is going to happen or what is the lead person at Citibank.

I pay no attention to them whatsoever. Literally none. I haven't read a market forecast, I'll bet you, in 15 to 20 years. I'd rather grab an eight ball. I think it's going to be more accurate, more interesting, and more fun. What are your thoughts on market forecasts? Yeah. I mean, I think that they going to be more accurate, more interesting, and more fun. What are your thoughts on market forecasts? Yeah. I mean, I think that they're not accurate.

I mean, this has been studied. They don't help you predict what's going to happen in the market for the reasons we just talked about. But I do think that they cause behavioral errors. For sure. I mean, I remember I did a talk for FP Canada's Financial Planning week conference last week, and I had a slide on this on market forecasts. And I gave the example of, I gave two examples. There was one 2016 headline from the economist at the Royal bank of Scotland. And the headline was something along the

lines of sell everything. Yeah. Get out. Yeah. Yeah. And since then, of course, markets have been really, really positive. And then there's the famous Businessweek magazine cover from the 1970s, I think. Yeah, I had that framed at one point. Okay, yeah, the death of equities. Yeah, exactly. So I mean, people read that. And if they don't know better, which a lot of people don't, they'll take action on it. They'll reduce their equity allocation. They'll get out of stocks. They'll hold off investing the cash that they've been sitting on, all that kind of stuff. And that costs investors in the long run. So I mean, market forecasts are what they are, but people have to understand that when it's coming from a source like that, like a media source, they have a bias

to publish stuff that's interesting and that's going to grab eyeballs, not to publish stuff that's going to help you manage your portfolio better. So people really have to understand why that type of information makes it into headlines and makes it into the media. It's not because people want to help you. It's because it's fear-inducing, which gets your attention. You know, not market forecasts in general. I haven't seen studies on the entire industry, but magazine covers have been a fantastic

negative indicator that they tend to be something you should be paying attention to. They've been so amazingly wrong so consistently. And so the death of equities, if you see that again, buy, because that has been one of the better things to grab a hold of. No, I don't pay any attention to any of it. Now, what do you think though, the Jeremy Grantham's of the world guy, I really like listening to, a very, very sharp guy, and the way he tackles it, which he bases it more on valuations than on anything else. And he's not trying to say where the market's going the next year or two. He's saying over the next 10 to 15 years, here's where we think the various asset classes are going based on historical valuations on a relative basis. That makes some sense to me. And his overall track record to me is quite

impressive. I think it's really hard to get market timing right, even using valuation ratios. There've been studies on this. Some studies show that it works. Some studies show that it's maybe works, but it's not statistically reliable and you probably can't count on it in the future. And there's always going to be a range of outcomes. And I think the US market is a great example over the last 10 or so years where you could have said 10 years ago, the valuations were rich and you should reduce your allocation to US stocks. And that would have been a really big mistake. So we create market expectations for financial planning and we have lower expectations for US stocks than for international stocks. And we have for quite a while now, but that doesn't inform our asset allocation. It doesn't form our

financial planning advice where we say, okay, we think US stocks are going to have lower returns in the future. We're not going to tell you to change your portfolio based on that, but we might tell you to spend a little bit less or to save a little bit more in your financial plan. That's interesting. Yeah, that's very, very interesting. And you're thinking that for a very simple reason, the valuations in the US are so rich now that it'll be tough for them to keep putting up these types of numbers indefinitely. Yeah. Well, that's exactly it. Now, again, I could have said that five years ago and I did say that five years ago in various videos and valuations have just gotten richer and earnings have been great and US stock returns have been incredible. Yeah. We've got the clips of you being wrong. I'm just going to put those up right

now. I'll get Aiden doing it. No, again, that's why I stay away from all that. I mean, I've only made one market timing call in my life and you'll find this story interesting. I went down to the States a lot in 2007, 2008. I was speaking down there a lot and I'm not that sharp, didn't even know what a default swap was, et cetera, but I could see that the real estate market was nutty. Everywhere I went, people were buying five and 10 condos and doing all these things. And the story I often tell on stage is we met a dentist from Cleveland and he'd purchased 21 different condos and wasn't even bothering to rent them out. Thought that was a hassle factor, was just taking on all the costs, so confident the market was

going to keep rising. And so I came back and I said, this is going to blow up. And when it does, it's going to drag other asset classes with it. And for the only time in my life, I went against all of my own advice. I made a market timing call and I got out of equities for the most part. Brilliant. Here's the problem. I waited years and years and years to get back in. And when I finally got back in, the markets were higher than what I had gotten out. You have to get two calls right. I proved that I should be listening to Dave Chilton. Instead of being Dave Chilton, I should be listening to him. No, that's such an important story. We did a podcast episode. It's not out yet

when we're recording this, but it was on the election, on the US election. And Mark, my co-host told a story about a client who got out of the market when Trump was elected the first time and markets went up going up in that case. But we talked about this exact problem that even if you get the call right getting out of the market and markets do crash, you have to be right twice. You have to get back in at the right time. And people never will. Because when markets are still down, that doesn't feel like the right time to get back in. People wait for it to recover. And it's like, well, you should have just stayed invested. I know. And again, I understand all

this stuff. I preach it and teach it. And I still waited to have a better internal feeling. And of course I should have been coming back in when I felt my worst, when I thought there's no way I should go back in. Now I must say a friend of mine, Simon Lewis, some listeners will know him. He used to be Royal bank, Royal trust. He got out more or less on my advice and he got back in at the right time. So he did a wonderful well, and I have not spoken to him since. I'm very annoyed with how well he handled that and how poorly I handled it. This whole market timing discussion is fascinating because of course, both of us have seen so many people try to do it.

Nobody has any success. One of the corniest lines in the investment business is it's not about timing. It's about time in, but it's also one of the most accurate lines. Everybody should be listening to it. Yeah. Yeah, no, totally. I mean, there's studies on this too. People tend to underperform the asset classes they invest in because they get the timing wrong. Yeah, exactly. You just get in and you stay the course and you don't pay much attention. I've talked a lot in videos about my father's approach. He's completely detached. In fact, I'd say he's oblivious. The guy has no clue what the markets are doing. He never reads the business section. He follows the Detroit sports teams. That's it. He just leaves his money alone. Well, you can't get emotionally involved if you don't know what's going on. He's not going to panic during the crash of 2008. He doesn't know the market's crashing. he's not going to panic during the crash of 2008.

He doesn't know the market's crashing. But if you look at his 30 and 40 year numbers, he's put up better performance numbers than almost anybody because he's been in low cost index funds, never letting emotions guide his purchasing decisions, his sell decisions, and therefore done very, very well. Clever guy. Yeah, yeah. One of the innovations that we have in Canada

that is a little bit unique are these asset allocation ETFs that have developed. And when you look at the data on the performance gaps and the difference between investor returns and fund returns in different asset classes, the gap in asset allocation funds tends to be quite low. So I do think that products like that, that automatically rebalance and take a lot of the decisions out of managing the portfolio, I think that does help with behavior. You mentioned how poorly people perform in certain investments. So let's go the mutual fund route relative to the mutual fund performance itself.

And I would argue this is shocking stuff. I never get tired of looking at this data. Morningstar does a lot on this. There's been a lot of papers done. I actually did it myself a lot. I mentioned that to you once before. Jim Murdoch, a Kitchener Waterloo guy, coincidentally, best track software. And it was the first software of its type. This is 20, 30 years ago where you could put people's portfolio purchases in there and figure out what the rate

of returns was. And when I first discovered just how bad it was relative to the mutual funds they're buying, I thought the software was wrong. I really did. I said, this software is not right. And so I took the software to University of Waterloo and I had them test and they said, oh, it's giving you perfect answers. People were underperforming by three and four and 500 basis points, often over four and five and seven year periods. It was crazy. Again, walk us through why it's just people buying high, people buying the hot fund, people

buying at the wrong time and therefore setting themselves up for failure. Yeah. Yeah. I mean, I'm always a little cautious with this because there are other potential explanations. Like there are people's risk aversion could change when the market's bad. And so there could be like a rational model where it actually makes sense to reduce your exposure to stocks when stocks are riskier. So I'm a little careful to say it's just because people are making errors. But I mean, if we just kind of generalize, yeah, I think people get in at the wrong times. They get in when expected returns are low, when valuations are high after stuff has done well, and they get out after it's done poorly. And that shows up worst in more specialized funds. So if you look at like sector funds, for example, that's where those performance gaps are the largest. And as I mentioned earlier, if you look at asset allocation funds that are more diversified

and automatically rebalanced, the performance gaps tend to be smaller. But it does, I think, in general, and again, I'm a little cautious with this. In general, I think we can say that, yeah, behavior probably leads people to make bad market timing decisions. I don't think you should be so cautious because I think you're right. You've come up with an example of where it could be a risk tolerance change, but for the most part, it's behavioral issues. And I would argue it's more prevalent on the buy side. In fact, if you go back to the work I did using Bestrack, a lot of those people were still in the fund. So they hadn't gotten out at the wrong time. They hadn't gotten out, period.

It was all on the buy side. They kept buying high and setting themselves up again for regression to the mean and poor performing markets and funds. But you couldn't be more right when you talk about the more severe this is with specialty funds. In fact, there's nothing that makes me shake my head more than the performance figures of people that trade in and out of ETFs, sector ETFs, et cetera. These are some of the worst performing investors I ever crossed paths with. And the interesting thing is a lot of them are very sharp people. They're people who study the markets hours a day, read everything they possibly can, but they're horrible at what they do because it's almost impossible to be good at what they're trying to do. Yeah. It's the paradox of skill that we talked about earlier. People can be really, really smart, but they're competing against

people who are probably smarter or have better resources than they do. So this stuff is, it's beyond difficult. I think you're probably right on it being on the buy side, because I mean, just anecdotally, you look at ARK, the ARK funds, for example. A lot of people piled into those at the worst possible time. And I've talked to so many people who are still holding onto their ARK position, waiting for it to get back to what they paid for it before they sell. I think that's probably pretty common. I would love to see the total investor return, not the fund return of the ARK funds. I think it could be negative. It is. Hold on. Yeah, that makes sense.

I'm going to try and find this real quick. Morningstar has looked at that exact thing and they do find what you're talking about. It makes sense. So much money came in right at the top and they're still down. Yeah. I don't know if I'm going to be able to find it here, but they looked at the performance going up to, I think it was like sometime in 2023. And over that period, ARK, the total return of the fund was around the same as the US market. So that caught the big run up and back down, but overall it was about the same as the US market.

But the average investor return, if I remember correctly, was in the negative double digits. Yeah, it's crazy. Again, such a huge percentage of their assets under administration poured in at the very top just before the big fall came. No, it's crazy. Now you're embarrassing me by being able to go to your laptop and draw these things up in real time. I have my BlackBerry sitting here, and I'm not able to do that same type of thing with quite your speed. Okay, next thing.

We talked a little bit about this on the phone one day. You get a lump sum. You get a lump sum because you sell a business or you come into an inheritance or in the case of some of your clients, you get a great windfall because you worked for a tech company and it was taken out. And so this money comes into your hands. You're looking to invest it. One of the most common questions I get is, do I ease it into the market over an extended period, dollar cost average, or do I put it in a lump sum?

There's no perfect answer. None of us knows what the future holds. What's your general advice in that kind of circumstance? So the way we always explain this to clients is here's what makes sense statistically in the data. If you were a robot optimizing based on expected outcome, here's what you'd do. And I'll explain that in a second. But then we're also very careful to say that's not necessarily what you should actually do because this could be very stressful if you invest a big lump sum and the market crashes. And I've got a story about that that I'll tell. So statistically, we have a paper on this. Vanguard had a paper on this. It seems to have been taken off the internet. They a while ago did a paper on this. Ours is still up. But

basically what you see is around two thirds of the time, if you've run a whole bunch of different cases throughout history, around two thirds of the time, investing the lump sum outperforms dollar cost averaging. We looked at it over a 12-month period of dollar cost averaging into the market. I think Vanguard did the same thing. But I mean, it makes sense. Markets are going up most of the time. Investing the lump sum should make sense most of the time, and that's exactly what we see. But there are those that one-third of times where, hey, dollar cost averaging made you better off. I think the most interesting thing that I took away from the study that I did on this a few years ago was that the worst lump sum outcomes, if you had dollar cost averaged instead,

you didn't necessarily get a better outcome. It was surprising to me too. It was about 50-50 if I remember correctly. If I took the worst lump sum outcomes and just said, how did dollar cost averaging do in those cases? It was around 50-50 that you actually did better dollar cost averaging. Yeah, that's counterintuitive, isn't it? It sure is. Yeah. It was more like the dollar cost averaging. Sometimes you just get really lucky timing where you just happen to invest at a good time, but it's not like dollar cost averaging is giving you some guaranteed downside hedge against investing at the worst possible time. I love the start of your answer when you talked about here's the math, but the psychology of it may say something different to different people, because that's what I found helping people

is that many of them, if they've fallen into, let's say, to a lot of money, $2.5 million, the thought of going from being an inexperienced investor to suddenly it's all in the market, and what if the market pulled back? They may hit the panic button, wish they hadn't done it, get out at the wrong time, etc. So they just feel better moving it in over a one, two, or three-year period. But here's the crazy thing. I see this over and over again. When people want to put it all in a lump sum, it's because the markets have been roaring along and they've seen what all their friends have been doing. They're buoyed by that and they see all of the great forecasts out there for extension of that rally. They're very optimistic. That's when they

want to put it all in. But of course, that's when it may correct. On the other hand, if the markets have been scuffling for a long time, they go, no, no, I don't want to jump all in. Markets have been really tough. Let's dollar cost average. They have it almost exactly wrong in terms of their thinking. Yeah, I think that's probably true. And that's one of the behavioral challenges that is always going to be there with investing. It's the same kind of market timing issues that we were talking about earlier. I don't think this stuff goes away. I don't think the media or market forecasts like we talked about earlier help with this at all. I do have one story though about someone who we had this exact conversation with. They had had an exit, they had millions of dollars, and we had this exact question, how should we enter the market?

And we did what I said. We explained the statistics, we explained the psychology, here's why you might not want to do this. And they were like, all right, I want to do the statistics. Like I'm, that's a very rational person. Let's do a lump sum. So we did a lump sum and this was right before COVID market crashed steeply, quickly. And we called them because obviously, and I mean, they were fine there. I mean, we knew this was a risk. It's it's I feel fine. And that's not how I thought the story was was a risk. I feel fine. That's not how I thought the story was going to end. I thought you were going to be something more dramatic.

No, not dramatic at all. And then, of course, after the initial drop, the market recovered like crazy and has been nuts since then. So we actually did the analysis. We said, would they have been better off if we had dollar cost averaged? And they would have been worse off. Interesting. Now, what period did you use the dollar cost averaging? One year, two year, three year? Typically, we do one year. We have another paper on this too. We have another paper that's related where we looked at buy the dip as a

different strategy. So instead of having a fixed time or a systematic entry point, like with dollar cost averaging. You did 10 or 20% or 30%? Exactly. We did 10 and 20% as the drops. So the person is sitting in cash until the market drops 10 or 20%, and then they enter the market. And similar to dollar cost averaging, most of the time buying the dip makes you worse off. It's very interesting. Yeah. I mean, again, the markets have been so strong for so long that the number one performing asset class, you want to be in them. And yeah, you may try to do some tricky things, but for the most part, again, just follow the basic math and get in and it will lead to some challenging times, but it's the right long-term move in most cases. Now, the people I tend to be helping

are just saving on a monthly basis. They have the dollar cost average and they're not dealing with lump sums of millions of dollars. From the point you made earlier, everybody's different. You have to know your psychology a little, which is challenging, by the way, on the risk tolerant front, because you really don't know how you're going to react to a market decline until you live one. Yeah. One of the most insightful things that I've taken away from a podcast guest was from Ken French, who's a very famous economist.

Of course. He's a co-author with Eugene Fama, but he's one of the top financial economists in the world at the moment. And we were having the conversation with him. I don't remember which market crash it was. It was quite a while ago. It was episode 100 of our podcast and we're on episode 330 or something. But the market had been going through some turmoil. And we asked him about market timing and about how people should respond to market crashes. And we were expecting him to say, you shouldn't time the market, you should stay invested and whatever. But he said something much more insightful, which is that if you find it

unbearable to live through what's happening to your portfolio, you have just learned something very valuable about yourself that you can't learn through a questionnaire or anything else like that. So he was like, if it's that unbearable for you that you feel like you need to change your portfolio, maybe you should change it. You should stick with whatever you do. Don't try and get more aggressive later when the market recovers. But I thought that was really insightful. You learn something about yourself when you live through an experience that you can't learn by just thinking about it or imagining it. No, it's true.

Now, French and Fama, how old are those guys now? I was reading their stuff 30 and 40 years ago. Yeah, they're quite old. Fama has been publishing papers since the 1960s. Yeah, I thought so. I don't know how old he is. He's even older than I am. He's quite old, yeah.

I didn't know there's people older than I am in the world of finance. That's good to hear. Okay, we talked about this again on the phone, and it's a big, big hot subject for me. Expected country growth rates relative to what happens with returns. The general feeling out there is if I can find a hot country that everybody agrees is about to go on a major run for the next five to 10 years, I should be buying equities in that country. The data doesn't support that argument at all. In fact, in many cases, it says the opposite is true. Give me your thoughts on it. Yeah. I mean, you said it right in the question. If everybody agrees that a market's going to do well, like we talked about

earlier, it's already in the price. I mean, right now, I think a really interesting example, and I want to do a video on this. I haven't written it yet, but China, I mean, China has had incredible economic growth. And 20 years ago, everyone was saying, or even 10 years ago, everyone was saying we should invest in China. It's going to be the highest growth market. It's going to have great investment returns. But those things, as you said, are not related. Economic growth and stock returns are somewhere between unrelated and maybe negatively related. Statistically, when you look at the studies on this, there is a negative correlation, but it's not statistically significant. So do we call that

negative or uncorrelated? Depends how much respect you want to give to statistics. But say it's uncorrelated. And that this is true at the country level. There's studies going back to 1900, looking at 21 countries that we have continuous data for. And what you see is no relationship between per capita GDP growth and stock market returns. It's also true at the industry level. You can't say, I think this industry is going to do really well. I mean, we talked about NVIDIA earlier. You have to think that an industry is going to grow more than the market currently expects it to. And typically the industry that everybody agrees on, like AI right now or dot-com companies in the 2000s, everybody agreed that there was going to be growth there. And in a lot of cases, the growth doesn't actually

materialize as expected and prices eventually come down. So yeah, economic growth and stock returns, not a whole lot of relationship there. Have you ever studied the opposite? I've never heard of somebody looking at this. You've got countries that are forecast to do very poorly, to have flat economies for an extended timeframe. Do their stocks value so low because of that, that they can provide some opportunity and in fact, set somebody up for outperformance?

Have you ever looked at that? Yeah. So Dimson, Marsh and Staunton, who- Do you make a lot of these names up? Dimson, Marsh and Staunton, they're real people. They're professors in the UK. Because you know I'm not checking on any of this. So I think you're just firing out names. I like it. So they wrote this book, Triumph of the Optimists, and they were the first people to document returns for a bunch of different countries going back to 1900. We didn't really have data on this beforehand. And their main innovation was hand collecting all this data for countries other than the US, which is what everybody else had studied.

And they showed a couple of things. They showed that the equity risk premium has been positive typically around the world, which is pretty cool. They also showed that US stock returns had been an anomaly, which is interesting. But anyway, so they continue to update their data every year. I subscribe to it. I know them on an email basis anyway. And they do this study every year for, it used to be for Credit Suisse, now it's for UBS because Credit Suisse, I think collapsed and UBS bought them. But anyway, so they do this report every year. I have one copy of it behind me where they do this annual returns yearbook. It's an incredible study where they just document the

historical returns for all these countries going back to 1900, but they always have a few essays in there on some topic. They'll pick a couple of interesting topics and they'll write essays about them using this long-term historical data. And so they have looked at country rotation strategies. I don't know if they've looked at it based on expected GDP growth, but for sure, based on valuations. And yeah, I mean, you can make stuff like that work. Is it tradable? I think that's an interesting question. Like in their sample going back to 1900, financial markets weren't always as open as they are today. So if you can backtest that strategy, cool, but maybe it wouldn't have actually been implementable

today when it actually is implementable. Would it work out? Maybe not, but I mean, yeah, you could probably play with it. I wouldn't because I think market timing's really hard to get right, especially after costs. Especially after costs. I couldn't agree. And the costs there are not just your commissions, et cetera. The time involvement has to be factored into play. And some of these aren't very liquid securities if you're buying them that way. All right, let's go back to your point about not just countries with high projected growth

rates, but industries. I mean, we're still in a capitalist market. You're going to have competition come in if growth rates are forecast to be very good. And so the pie may be growing, but there's more and more people grabbing pieces of it. And the earnings per share of the individual companies, therefore, may not grow along with the size of the pie. In fact, I would say that's been a mistake I've seen people make. They've accurately forecasted the growth industries and ended up putting up subpar performance relative to the broad market. Yeah. I think this is such an important point. It's a 2000 paper, I think, or 2002 maybe from Rob Arnott and William Bernstein, I believe. That's a good pairing.

Yeah. Yeah, yeah. That's a good pairing. Yeah. So they have this paper where they document this thing they call the earnings dilution, which is exactly what you said. They look at it with countries and their recoveries after World War II, I believe. Right. And they found that some countries that had their economies just decimated through the war had massive economic recoveries and growth, but stock returns that lagged. And the reason that they give is that there's this massive recapitalization where everyone, there's a lot of new capital, there's a lot of new companies

being formed. And so while there is this massive growth, it's being spread across so much new capital. And I think the same thing happens in electric vehicles, just as an example. Sure, it's going to grow a lot. Fine. We all agree on that. But a lot of new companies are going to come to market. They're going to raise capital. And so the earnings per share growth is not going to track the aggregate earnings growth of that industry. And for the highest growth industry, that gap should be larger. And I think that's probably one of the reasons that we see the lack of relationship or even negative relationship between economic growth and stock returns.

Taking it to its extreme is theme investing. Now I've had friends who've made some great calls on theme investing. One got involved in cell towers very early, but when you get the ones that get hot with the retail investor and hot with the media, like the pot stocks a few years ago, this is wacky what happens in some instances. I did an exercise with my son once when I took all the Canadian pot stocks and added them up in terms of their valuation and then showed him how much is estimated to be spent on pot every year. And said a grade two student can tell you this isn't going to work. You don't have to have a CFA. You don't have to have any skills in the area. The valuation made no sense.

And I said to him, I don't know which stocks are going to go down, but collectively they're going to go down 60, 70 and 80% because they have to. That's where I see it being at its most extreme. And I see a lot of young men still buying in these hot themes. They just can't seem to resist them. Yeah. I've got a couple of comments there. So we talked about earnings dilution.

We talked about valuations. Those are two problems that, that plague this type of thinking. Another one is something called the big market delusion. There's a paper by Brad Cornell and I think Aswath Damodaran on this, where they talk about just the tendency of people to look at the potential size of a market and say, my company that I picked is going to capture all of that. And that ends up getting reflected in valuation. But of course, that's not what happens. There's competition. So that's the big market delusion. And yeah, I think that's a real problem. The other problem though, is that ETF companies, and there's a paper on this by Zahi Ben-David, who was a guest on our podcast a while ago. I think it's a paper in the Review of

Financial Studies, but they look at thematic ETFs specifically. And what they find is that companies will backtest indexes based on a theme. For sure. And they will issue a product when that backtest looks really, really good, when valuations for that theme also tend to be really high. The product launches, and what they find systematically is that once the product launches, the stocks in the portfolio tend to tank. And there's these massive negative alphas for thematic funds if you buy them when they launch. Well, do you remember I said to you on the phone one day, one of the great indicators, one of the only ones that works over and over again is if the financial institution in Canada, the States, a bank comes out with a thematic ETF, get out or buy the market and short the ETF because that seems to be one of the few things

that works over and over and over again. And it's because it's just easy to attract capital and that's what their business is. Their business isn't as much managing capital as it is attracting it. And that's the right way to do it. Again, to back test it and come out when something's hot and getting a lot of attention.

Okay, next subject. You know, I find this is much more well understood stateside than in Canada. The difference between investment planning and financial planning. And so when you pay your fee to the investment planner, that's okay. As long as you're getting back well-rounded financial planning advice too. The person is helping you with your estate planning, your insurance planning, etc. Especially for the wealthy, where their situations can be quite complex. The potential for tax savings is

significant. They have holding companies, they have foreign holdings, they have blended families, all of these types of things. Walk our listeners through again, the difference between investment planning and financial planning. Yeah. So not paying high investment fees is a good thing. That is true. People paying 2.5% to own a mutual fund and not getting any financial planning advice, that is bad. But I think that the pendulum on this topic of fees has probably swung too far in the direction of fees being bad, full stop. I think there are firms like PWL, and I acknowledge my own biases here, but I don't think that what I'm saying is biased.

There are firms that are providing financial planning advice, which is valuable in its own right. In some cases, people will pay for that directly separate from investment management. There are firms that are doing financial planning and doing low cost investment management, which is exactly what PWL does. But a portfolio is not a financial plan. You can buy an asset allocation ETF. I mean, one of the things I like to say somewhat tongue in cheek, but not even that much really, is that investing has been solved. It's a solved problem. You can buy a Vanguard or iShares asset allocation ETF in Canada, and that's going to be a better portfolio than 99% of investment professionals could build for you.

So investing has been solved. But that doesn't mean that financial planning has been solved. Financial planning is retirement planning. It's tax planning. It's insurance planning. It's estate planning, as you mentioned earlier. And those are all things that are very complex, especially for people who have more complex situations. They're time-consuming to learn. They're time consuming to learn.

They're time consuming to execute. And so paying for a firm to take that stuff off of your plate, I personally don't think is a bad decision. One of the mental litmus tests that I have, because I worry about like, are we providing value? Right. I talk about the importance of fees. I know we charge fees.

So I think I have to think about this. Are we providing a valuable service? So one of the mental litmus tests that I have is if I take a cross section of our clients and told them that PWL is gone, we're no longer providing the service, you're on your own, would they be okay? And in a lot of cases, they wouldn't not be okay in the sense that they couldn't figure it out, but they wouldn't want to do it. That's right. Because they have their own job. They have their own profession.

They have their own family. I mean, I look at myself, I don't have time to do anything other than my, my work and spending time with my, with my kids. If someone all of a sudden said, you have to do this thing, that's going to take hours a month. I wouldn't want to do it. So I think there is value in that type of service. And the big piece there is that investment management is not a financial plan. It's one component of a financial plan. It's an important component, but it's something that you can get

basically for free. So if that's all you're getting from a financial services provider, I don't think that you are getting value. You have to be getting financial planning advice and financial planning execution, which are two distinct but important and both time-consuming activities. I agree with all that. I'm going to get back to that in a moment. But before I do, why do you think the model that you guys are using is so prevalent in the US. Like, I mean, most of my colleagues in the US in the business are in that model. And most of my fairly well-to-do friends use somebody who's offering that model, but we don't see it nearly as much in Canada. Why is it because the dominance of our banks? What is it? You know, the banks are the, are the easy answer and it's that the banks probably have something

to do with it. But I think about this a lot and I don't know. One of the things that's really interesting about ETF issuance in Canada is that a huge portion of new ETFs are actively managed. There's demand for this, whether it's from the banks or not. I use the ETF example because that's an example where it's not because it's coming from the bank sales channel. I don't know if it's cultural. I really don't know. But I agree, if you look at the states, the RIA model, the Registered Investment Advisor model, that's a model where they are fiduciaries. PWL is set up as a CERO dealer member where our advisors are registered typically as portfolio managers.

So it's a more complicated way to get there, but we end up in a similar place where we have to act in the best interest of our clients. But I think the RAA model has really forced a lot of US advisors to choose investments that have really low fees because they have this fiduciary standard and to have to find other ways to add value. And so they've arrived at financial planning. Yeah. The growth of that model in the US and the lack of growth of that model in Canada is very interesting. I think PWL in many ways is kind of at the forefront of that. We're a fairly large firm that looks very much like an RIA. Why aren't more firms doing what we're doing? I can't answer that question. Now, you're dealing with a different type of client

than I tend to try to help. You're dealing with the operational on the well-to-do. I'm dealing with the Canadian masses, middle income, even lower than middle income, et cetera. It's tough to figure out how to serve that group in a cost-efficient way. It doesn't scale particularly well. So people love to scream at the banks, oh my gosh, I can't believe you're putting those people in a high cost mutual fund. Fair point. The problem is if you put them in index funds, even if you charge them 1%, you don't make enough to justify the time involved if you're providing them with a comprehensive financial plan. So what that's leading to is the worst of all possible worlds. We're getting a lot of these Canadians put into the high-cost mutual fund that sabotages their returns, but they don't get the financial planning advice either as they go on.

Not good. And I think we're going to have to turn more of these younger people with less complex situations or even middle-aged, middle-income people into DIYers by providing them with great resources and trying to explain to them it's not that complicated in their case and the Dave Chiltons of the world getting out there, but also software, AI driven software, especially may step in and fill the void here and make a very positive difference in the next five to 10 years. Your thoughts? Yeah, I think that's possible. I think the other thing that we've seen emerge in Canada and in the United States is fee only financial planners. And they don't, in my opinion, replace what a firm like PWL does because

someone with millions of dollars that wants to offload all of this stuff to somebody else, they're not going to go to a fee-only financial planner who's going to tell them what to go and do themselves. Those type of people don't want that. But some people do. And people who don't have enough assets to qualify to work with a firm like PWL, they can invest in index funds in a discount brokerage account or through a robo-advisor. And then they can go and pay somebody $2,000 or $5,000 or depending on the complexity, I've seen costs go up to around $25,000 for a complex situation. But they can go and pay for a financial plan. And that financial planner will tell them, this is how much you should save, this is how much insurance you should have, this is what your asset allocation should be.

And then that person can go and implement their financial plan themselves. So that model has emerged. And I mean- It has, but it's still not very impactful in Canada. I mean, it really isn't. It's there, but it's not there in a huge way. Very few people use those as a percentage of the population. And they don't want to write the check for $2,500 or $5,000.

Even by the way, if it makes sense. In a lot of cases, it makes sense to write the check. They don't want to do it. Can we get that group of people? And there's a lot of fee-only financial planners who are quite competent. They've taken all the courses. They know what they're doing. They're on the front line, helping people. They learn. Can we get them over time dropping their fees because they're able to use chat GPT and AI to augment their efforts to become more efficient and therefore pass some of those savings on to their clients and maybe make this more of a mass appeal type approach. It's possible, but when I talk to fee-only financial planners, a lot of their time is not spent doing the

financial planning analysis because we can do that with software already. It's maybe not- It's what, learning the intake? It's about learning about the client, but also teaching the client, explaining things to the client and spending time with them and building rapport and trust with them so that they trust your advice. That's the time-consuming part of financial advice. I'm skeptical that we can automate that. And we see the same thing at PWL. People want a relationship with someone that they can trust and they want that person to tell them that everything's going to be okay. Literally. Right.

That's what people want. And you need to be able to back that up as the financial planner. You need to be able to show the analysis and show why things are going to be okay and show why their money's invested the way it is and all that kind of stuff. But ultimately, people want someone that they trust to tell them that everything's going to be okay. And I think that's the business that we're ultimately in. And I don't think that AI solves that or helps that scale. a little bit. It can scale a lot of the tasks, but that big piece, the trust piece, I don't know how well that scales, which is why it's been hard to serve the part of the market that you're talking about. I think over time that AI will be able to develop some of that trust. I do. I think you'll get

certain applications, certain software programs that the public has bought into, that the media is supporting, that again, are being used as augmentation tools. And they'll actually establish a bit of a relationship with the clients or they'll be backed by the wealthy barber, somebody who has the trust of people. And it's not going to be perfect. It's certainly not going to be next year, but I think over time, we'll see some of that work out well. But you hit on the key word there. This entire industry is built around trust. Whom can people really believe in? Who has their best interest at heart? And that's what the client wants more than anything. They want to know this person is steering me in the right direction. They're not selling me a product for their own purposes. That's one of the things you've done well. I think getting out there in the social media world and getting out there with your YouTube videos, people have come

to know you and they can see how passionate you are about this and how you are trustworthy. That is a key word. Do you not agree? I mean, it's everything. There are studies on this as well that ask people, what do they get from a relationship with a financial advisor? And the focus is never on investment returns. It's rarely even on hard financial topics. It's trust. People want to know that they're going to be okay. I have one incredible story about a client who was very financially well off and we were just chatting and they said that it was absolutely transformational for them when they started working with us to have a budget and to have a financial planning projection that

showed them with a high degree of certainty that they're going to be okay. They said it was completely transformational for their entire life because they were anxious about money all the time before that. And so these two simple things, a budget and a financial planning projection, in their words, completely changed their outlook on life. I believe it though. I mean, money stress is the most prevalent stress. It compounds all other stresses. So for the help of a good planner, you can give them tools. You can give the maids that can take that stress down. It is transformational. It sounds dramatic, but I actually believe that totally. Yeah. And that only works if there's, if there's trust. Agreed. Okay. Let's go back to the fees for a second. I know you don't want to dwell on it too much, but I see so many Canadians paying 2.5%, 2%. Let's just use 2% for easy math on a professionally

managed mutual fund. And I'm frustrated with how a lot of people say, well, 2% doesn't sound like much. You know, if you get 83 in school instead of 85 or 81, what's the big deal? But it's not 2%. It's 2% of the projected return of 8%, let's say for Canadian Equity Fund. In other words, it's 25% of the projected return. And so now all of a sudden, the active money manager has to get 10 less than 2 to equal the market. But if they just equal the market at 8, you're only getting 6. And again, you've lost 25% of that projected return over extended timeframes on a compounding basis. What that does is absolutely crazy. There's a math prof who called me a little while ago, and he said he has done so much studying on all this. And the high fees and actively managed

mutual funds are the single in his mind, single biggest problem in the world of Canadian finance, bigger than poor savings rates, bigger than anything else, because they need to weigh 30 and 40 and 45%, depending on the fee level of somebody's retirement pool of capital. Agree with all of that. And do you think we have to do a better job of teaching what I just said about how 2% is actually way more than it seems on the surface? I do agree. And we do need to do a better job teaching it. I think the other issue that gets missed there, though, is that it assumes that the average actively managed fund or the median actively managed fund is going to get the market return. So those active fund investors are getting the market return less than 2% fee.

But if you look at before fee returns, the median active manager is already underperforming the market because of the skewness issue that we talked about earlier. So that cost of active management is actually quite a bit higher than just the fees on their own. Now, I will say that if we take the banks as an example, I don't know, I'm hard on the banks. I don't want to be a bank sympathizer right now, although I am going to be a little bit. I don't know the exact service level that people are getting from the banks. If they are getting some financial planning advice, maybe the fee is not as bad. There is one paper that looks at the performance gap, like we talked about earlier, the behavior gap in bank mutual fund returns and non-bank mutual

fund returns. And it actually finds that bank funds tend to have better performance gaps. It's a paper from somebody at a Canadian university. Smaller, you mean, smaller performance gaps. Smaller performance gaps, yeah. So they suggest in the paper that banks might be good money doctors, which again, it comes back to trust. If people trust that the bank is going to do a good job, they're more likely to stay invested in the bank mutual fund. Is that worth something? I mean, it could be. It is. Listen, I'm in a unique position, I think, to talk about this because I see so many plans. And I'll tell you something that's fascinating that doesn't get any attention in the media at

all. It doesn't come down to the bank. It comes down to the individual at the bank. And so when I see the plans developed, I see some plans from bank employees that are fantastic. Even for someone with low income and low assets, I don't know how the person possibly justified putting all that time in. They did a wonderful job. Then I see some horrible ones with no follow-up. They don't stay in touch. They had $20,000 in credit card. They didn't tell them to pay off.

Instead, they put in a high cost mutual fund. It's all over the map, but it's not all over the map bank to bank to bank. It's individual within the bank to individual within the bank, over the map bank to bank to bank. It's individual within the bank to individual within the bank, which makes it even trickier to find the right help. Yeah. No, that's tough. And I hope that firms like PWL are much more consistent. I mean, I know we've got a super high bar for advisors and when they get put in front of clients and what the deliverables are and all that kind of stuff. But yeah, the bank is a different environment where people are paid less. There's more turnover. Their incentives are to sell,

not to do good planning work. So it's a very different environment. No, for sure. And again, I want to repeat, some people rise above that. I see some outstanding financial plans from some people in the bank. In fact, I saw one recently. You've talked in videos about the costs of complexity and you've gone a step further in a point that I absolutely love and I've made on stage for years, that this has got to be one of the only businesses ever where a lot of rich people do worse than normal income people in terms of returns. And it's because they're always buying these funky products that make no sense to get involved. And they pay fees that are even higher than the ones we're complaining about now on, for example, some of their hedge funds

with two and 20. I just shake my head. My dad outperforms all of my ultra rich friends who have all these fancy advisors and all these newfangled products. Yeah. I mean, it, yeah. No matter how you measure complexity, I mean, structured products are a fun example where those are very, very complex products that are hard for anybody to understand. And they have really high embedded costs, but they get sold to wealthy people and wealthy people often want to buy them because they're sold as having upside participation with limited downside and stuff like that. And people want that. So that's one. But then there's also alternative products like private equity, private credit. Again, they can be very complex products. It's really hard to evaluate the fees

that you're paying and they don't tend to outperform. So you do see this where people that try to have market beating asset allocations that include things like the products that I just mentioned, they do tend to underperform the market. I think a really interesting example, because people are told you're wealthy, you should do something fancy, basically. You should be beating the market because you have access. You have exclusive access to these different things. You look at the Canada pension plan, the CPP investments that's managing $675 billion, I think, the last time I updated the numbers, which is a huge amount of money, obviously. Crazy. Right. And talk about access. They have access to anything that they want, just based on the amount of capital and who they are and everyone knows they're patient investors and all that kind of stuff.

In their last annual report, they have underperformed their index reference portfolio since the inception of their active management strategy. Now, I want to be careful here. Canada Pension Plan is not an asset only investor. They're investing to match liabilities, real inflation adjusted liabilities. For that reason, they shouldn't be evaluated against a simple index reference portfolio. My understanding of their strategy is it is specifically designed to hedge real long-term liabilities. So we can say that they're doing a good job. Let's assume they're doing a good job for the purpose that they're trying to serve. For an average household though, who they care more about their returns because they could just invest in index funds. I think it's pretty incredible that Canada Pension

Plan with who they are, the access they have, the amount of risk they take in private assets has been unable to outperform their reference portfolio benchmark, which is just an index fund portfolio. No, it's a great example. And again, I see it among wealthy friends all the time. Now, I do see an exception. Some of my friends have gotten involved with some venture capital funds that have consistently put up outstanding returns. Why? Because they have access. Their deal flow is so good in the early stages from the best and the brightest that they're able to keep it going. The challenge is, can you get an allocation? Can you get into those? And that's very difficult indeed for the vast majority of us. So venture capital is fascinating because it has two really

key characteristics. One is massive dispersion. The difference in returns between the best fund and the worst fund is huge. It is. And massive skewness. So most funds do poorly, the ones that do well do really, really well. And the problem is adverse selection where those best funds, one of their key feature of the data, sorry, is persistence. The best venture capital funds tend to be persistently good, which you mentioned. So we have massive dispersion, massive skewness and persistence. If you can get into the best venture capital funds, which very few people can, but if you can, you should do it. I agree. Most other investors, you're going to lose because there's adverse selection. Any venture capital fund that will take your money is probably going to underperform. The ones,

and we have clients who have access because of who they are or because of past deals that they've done who can get into the best venture capital funds. But even then, it's a bit of a fight to get any meaningful allocation. And so if you're not someone like that, and you'll know if you are someone like that, if you're not someone like that, you shouldn't be going for that type of investment. You talked earlier about the U.S. stock market. It's obviously on a valuation front quite high right now. Maybe there'll be subdued returns going forward, maybe not. It's consistently outperformed the vast majority of the world markets. You know, in the last 20 years, as their interest rates obviously have come down, they have throughout the world, but also tax rates

have come down there. That's two very, very strong tailwinds. But why can it do this for such a long period of time, for a hundred years, throwing out a number? Why isn't that baked into the price? Maybe it finally is, and that's why valuations are high. Why is it so persistent, to use your word, in its excess returns? If you go back to 1920, it was not as obvious as it is today that the US market was going to do what it has done. If you go back to 1920, Argentina looked like also a very attractive country to invest in at the time. And things didn't work out so well for people who invested in- Many times. Many times they haven't worked out so well there. That's right. But the US, it wasn't obvious back then that it was going to be such an outlier

as it had been. And I think there have been continuous surprises on the US, it wasn't obvious back then that it was going to be such an outlier as it had been. And I think there have been continuous surprises on the upside where it's like, wow, the US market is that much more diversified now. Wow, the earnings are that much stronger. The innovation is that much better. And those have all been surprises which have led to high past returns. And I mean, the US market is an incredible place to invest.

It's a relatively safe market because it's so well diversified. It has revenues derived from all over the world because the companies are so significant, such important players in the economy. All of those things are true. But you mentioned this, the problem is everybody knows that. And that's why we see such high US valuations. Everyone agrees that it's a relatively safe place to invest, which should drive valuations up, which is exactly what we see. Everyone knows future expected earnings are high for US companies, which is reflected in high valuations. So I mean, are the past returns repeatable? Should you expect to get 10% a year nominal from US stocks forever as you have

throughout history? I don't think so. I think valuations where they are now are, I have been saying this for a few years though, but they're high enough now where it's like, you know, US companies are going to have to do really, really well for these valuations to make sense and for returns to continue being as high as they have been. It could happen, but I wouldn't count on 10% a year. Okay. I agree with a lot of that, but I think you can make an argument that the U.S. is very well positioned right now to continue to do exceptionally well. You mentioned that it's a safe place to invest relatively. Access to capital, of course, second to none. The international exposure, people say, I don't want to be in one country, but the companies there are so big, they're all

over the world. You're gaining international exposure that way. But so many of their tech companies and their upstarts have cumulative advantage. They have great balance sheets. They have tremendous patents. They have tremendous knowledge. They have access to talent, not just access to capital. As we move into more and more of a tech-driven world with AI, with quantum computing coming, all nanotechnology, maybe they're the country that's best suited to find not just the big companies that already have continue to be successful, but the new companies, the ones that come from early beginnings to go on, become the next NVIDIAs, the next Apples, the next Microsofts, and drive the index over the next 10 to 20 years. You think that argument holds water?

I mean, it holds water in the sense that the US economy is going to continue to be very strong. I think that's probably true. I think they are very well positioned. But again, we come back to that difference between economic success and stock returns. I think stock returns really comes down to valuation, how much are you paying for the expected future earnings of the assets that you're buying. And in the US market, things are expensive. And it's not only expensive in public markets, private markets are expensive too. Very. I've heard this argument where people say, well, you have to diversify into private markets now because companies are going public later. I don't know if that's true because you're paying,

in some cases, higher valuations in private markets than you are in public markets. Never seen anything like it in my career is the private market costs now, even for small companies, the private market costs in many instances have gotten to levels I didn't think we'd see. So I agree with that. But what about the argument again, that a lot of these companies aren't richly valued, they haven't been invented yet. So a lot of these companies that we're talking about that are going to drive the markets higher over time, again, are going to be the upstarts of the next five and 10 years that are going to come. They're going to find the capital. They're going to find the expertise. They're going to find the talent and they're going to become this next group. And they're

going to rise from relatively modest beginnings to be worth a trillion, 2 trillion, 4 trillion. The skewing you talked about earlier, there'll be more of those to come. And therefore the index can stay relatively strong. And by the way, I'm just making a counter argument. I tend to agree with you that counting on 10% annually indefinitely, that's a stretch from these valuations. So we're on the same page. I think it still comes down to valuation, but it's also a lot of those companies that start that you mentioned are going to fail. Some of them will succeed. On average, like what we see in venture capital, there's a massive skewness. Some companies do really... The skewness in venture capital is more extreme than in public

markets where a few companies do exceptionally well. Most don't do very well. On average, venture capital does okay. But valuations are still going to be a problem because that company that doesn't exist yet, when they raise capital, if it's obvious that they're going to be so successful, they will raise capital at a high valuation, which is going to make them a very successful company because they have low cost access to capital, but it's not necessarily going to translate into incredible returns for investors. Okay. So go back to something you said earlier. You're not a hundred percent confident you can forecast this going forward, but you tell your clients from a financial planning perspective, maybe we don't count on the 10% returns the US markets have offered. We go to

a more modest seven to eight, and that helps us figure out what our spending patterns could be down the road, how much capital we're likely to end up for retirement. Is that the kind of thinking you advance? Let's be on the safe side and use a little bit lower projection number? Yeah, that's exactly it. So I think for US stocks, and I just know this because I mentioned it in a video that I recorded recently, I think we're at 6.54% for our expected US stock return. Nominal. Nominal, yeah. And that's over what kind of timeframe? Over a 20 to 30 year timeframe? Yeah, our projections are based on 20 year timeframe.

Yeah, that's interesting. Well, that's very conservative. What do you use for the Canadian markets out of interest? It's a bit higher. I think our average return is around 7%, but don't quote me on that. I have this specific US number in my head, but not the other ones. So that's a great example of, and I think our listeners are going to find it fascinating that you're projecting the Canadian markets to outperform the American markets. And again, it's all about valuations because Canada obviously has some pretty strong headwinds as we move more towards solar and wind and away from oil and gas. We have more regulation here. We're having a talent drain problem for sure, as a lot of young talented people are going stateside to gain access to

cheaper housing and lower taxes. So there's a lot of things against us. But your argument, again, reflected in valuations. The marketplace knows all of those things, and therefore we still think it could outperform the US market. Yeah. And we have a very simple approach to estimating expected returns. We take the historical average return for global stocks, not for any specific country, but for global stocks going back to 1900. We give that a 75% weight in our model for equities. And then we give a 25% weight to the current implied expected return based on the cyclically adjusted, basically, yeah, valuations. And so all of our expected returns are pretty close because they've got such a large weighting

to that one global average number. But there's a bit of a difference depending on valuations in each individual country. And the more extreme valuations get, the bigger the difference is going to be. That actually makes sense to me. I think it makes sense. The way you're doing it. I mean, there's no perfect way to do it, obviously, or we'd be getting it right all the time. And of course, you can't get it right all the time.

If anybody ever came up with a forecasting model that was 100% accurate all the time, it would sabotage itself. I mean, that wouldn't make any sense. So no, that's interesting thinking. Okay, we've been here a long time. I'm going to wrap up with three quickies. What are your thoughts on robo-advisors? I think that like many things, like discount brokerages, they were supposed to

radically disrupt the financial services industry. I think their effect has been a lot more muted than people maybe expected when they were launched. I think if you look at Wealthsimple as an example of the largest robo-advisor in Canada, they have diversified into doing stuff that is maybe not what they initially intended. I think when Mike Cashin started Wealthsimple, he wanted to give people easy access to low cost index funds. And while they kind of still do that, they've gotten into a lot of other lines of business that are maybe not so great for the average Canadian. And the crazy thing is when you talk to people who are Wealthsimple customers, to be in their index fund

portfolio, which, I mean, this is a whole other topic, but their index fund portfolio in quotation marks has had a lot of changes to it over time since they launched the product. And those changes, I've done analysis on this, those changes have been detrimental overall. So they've- Right. So they've been actively managing that portfolio of what we perceive to be passive investments and it's led to an underperformance of the benchmarks. Yeah, not insignificant underperformance. I did a podcast episode on this. I'm going to do a video eventually, but I want to update the numbers because it's been a while since I ran them. I think I have them as of year end 2023 maybe. Anyway, so they've underperformed,

but then they've also launched all these other products like crypto and individual stock trading. I think they've got options trading now. They do have options trading now actually. And so it's like, and private credit, private equity. And the interesting thing is that, and of course they would do this as a business, but they market all of those products to their clients. So you sign up to Wealthsymbol because you heard that they've got easy access, low cost index funds. And all of a sudden you're being bombarded by ads telling you you should be trading options and you should be buying crypto.

And it's like for the average Canadian who has low financial literacy, I think that's really challenging. Now, there are other robo advisors in Canada and in the United States that are doing a really good job. They are implementing super low cost index fund portfolios. Some of them are giving some financial advice. Some of them are setting themselves up to pair with fee-only financial planners. So if you're a fee-only financial planner, you can send your plans- Yeah, see more of that stateside. Don't see

much of that in Canada, but see more of that stateside. There are some in Canada. I heard from somebody yesterday who's a fee-only financial planner who has a relationship with a robo-advisor. I mean, that's interesting. So I think there's something there. I think the way that they're using technology is interesting, but I don't think that they, when they first launched, some people, I don't think that we were, but some people were worried that they were going to completely disrupt the financial advice model because they're going to use algorithms to replace financial advisors. But it comes back to the thing we talked about earlier, which is that investing is a solved problem. And that continues to be true. Robo-advisors have solved investing, which is already a solved problem because you can

buy an asset allocation ETF. They've maybe made it a little bit more user-friendly, which is useful, but they have not solved financial advice. They have not solved trust in a person. And I don't think that they will be able to. What's interesting is that when they started out, the number in Canada, they were talking about the index fund says, don't be foolish. Don't try to outperform the market and so on and so forth. And then since then, they put all these new products out that are trying to help people to outperform the market. Yeah. You know, flying right in the face of the original message.

I think they saw what Robinhood was doing in the States and the incredible amount of profits they were generating initially from all this trading. And so they couldn't resist the temptation. And now they've gone towards crypto, they've gone toward options, but all we've really done is make it easier for people to lose money. That's the fact, by the way. And people say, that's your opinion. That is not my opinion. All the data supports what I just said. All the anecdotal evidence supports what I just said. We've just made it easier for people to lose money. The people primarily being young men, by the way. That's the dominant user of those types of products. The option trading, the meme stock trading, all of it.

Now, crypto has been a little bit of a role lately, et cetera. So some people are going to say, ah, Dave, I've made good money in Bitcoin. Fine. But at the end of the day, we've moved off the central message that was their core when they came out. Okay. So let's move on. Second one. We're going to talk in a, in a future interview about owning versus renting when it comes to your house, but I'm going to go a different direction now. Would you,

Ben Felix ever be a landlord? Oh, I don't like being my own landlord. Like you're a bad tenant. You are a bad, you're too tall. You're always hitting your head. I love being a tenant. I rented for many years. I've owned a house for three and a half years now. And you know, there are nice things about owning a house. It's nice knowing that we're probably not going to move unless we, we decide that we really want to.

Right. But it's not like we're going to end a lease and then the landlord's going to ask us to move or whatever. Not that we ever had problems with that as renters, but it was something that you thought about that you don't have to think about as an owner. That's nice. We are in the process of starting to plan out some renovations to parts of our house that are going to be really, really nice. And that's nice to look forward to, but it's also really expensive. So is that a good thing or a bad thing about owning? I'm not really sure. Hopefully we really enjoy all the money we spend doing those.

They will be cool. We can talk about that at a different time. So that's great. The downside, one of the big downsides for me is being a landlord in my house. When something goes wrong, I have to fix it. And I absolutely detest that. I have a very full life, uh, between work and doing stuff like this and taking my kids to their activities and hanging out with my kids. And I

play basketball three times a week. Like my life is full. And when I have to do other stuff, it really, really bugs me stuff that I don't want to do. Um, like even last night we're, we're, we're getting a new garage door because we, this house was built in 2003. The garage door is it's a disaster. I mean, it's old and it was never properly installed. Anyway, so we're getting a new garage door. And I had to clean the garage out for them to install it. And it's like, that was my night last night.

And I hated it. And I hate it. So would I be a landlord for somebody else? Absolutely not. Yeah, I'm with you, especially with all the tenant problems we're seeing now. You know, the system is being gamed so much. Now, follow Chilton's rule, by the way, and make sure you, especially with all the tenant problems we're seeing now. You know, the system is being gamed so much. Now, follow Chilton's rule, by the way, and make sure you share this with your wife. Whatever you've estimated your renovation cost to be, multiply that by 2.2 and add $10,000 for divorce counseling.

Okay, and that'll give you the budget that will actually be right. Okay, last question. You and I are very like-minded on almost everything, but especially on CPP. And you're coming on with another guest the next couple of months to talk more in depth about that. But give me the three things that you love about CPP that you think the public doesn't fully grasp. And if they did, it would make it more likely they would defer taking it in most instances. Yeah. So I've actually got a fourth one that I just added yesterday, and I'll talk about that.

I haven't heard it yet. It's got to pass by me. Oh, it's brand new. You can edit it out if you don't like it. Okay. CPP hedges three risks that you cannot hedge as an individual. You just can't. There's no reasonable way to do it. Sequence of returns risk, which is the risk that you get a really bad sequence of returns early on in your retirement. Yes. CPP though hedges that. If you get really bad market returns for the first five years of your retirement, CPP is going to continue to deliver the inflation adjusted pension amount that you're

supposed to get. And CPP is set up to do that because it is diversified across many age cohorts. That's right. So their pool of assets is supporting, first of all, they have flows coming in to CPP because people are still making contributions always. They also have this base of assets that supports payments. And that base of assets is there to serve this permanent cohort of people that are always cycling through. And so its time horizon is effectively infinite, which allows it to absorb those five years of returns, which you as an individual could not do. Absolutely agree. Very important point. So sequence of returns. The other big one is inflation risk. Inflation is brutal. Inflation tends to be persistent, which means if you have high inflation one year, you tend to have it

in the next couple of years. But inflation is really bad for bonds, but it's also bad for stocks. It is. And there's really no asset that you can say, even gold people think is a good inflation hedge, it's not. There's no asset that you can hold that will do well when inflation is high. That's what a hedge is. When inflation is high, an asset that does well. You can find assets that might do well sometimes or that have done well in some cases historically, but a perfect hedge doesn't exist. CPP is a perfect hedge. It is if you believe CPI is inflation, which I know some people don't, but I think it's pretty close. It's better than nothing. Your payments, once you start receiving CPP, are indexed to the consumer price index. That is an inflation hedge. You can't get that anywhere else. Super valuable. So that's two, sequence of returns, inflation. The last one is longevity. If you live to be 105,

which I think for people who are alive today is becoming increasingly realistic, that's really hard to fund financially from a portfolio of stocks and bonds. But CPP continues to pay until you die, which makes it increasingly valuable the longer that you live. That's a hedge against longevity risk. So those three things are really valuable. I think that's the one that people are underestimating. The average person I'm speaking to, my age group, I'm 63, so 63 to 70, does not understand how long the last quartile is living. They don't get it. And I mean, it's actually wacky. And I think it may go up dramatically because of breakthroughs in medicine and in treatment that are coming with AI and they don't get it and i mean it's it's actually wacky and i think it may go up dramatically because of breakthroughs in medicine and in treatment that are coming with ai and quantum

computing especially so i think that risk has to be weighed very heavily and of course taking your cpp later and getting that bigger amount for that longer period of time therefore makes tremendous sense you end up being a big winner i mentioned to you in the phone that a friend of mine had kind of a funny call but i thought there was some merit to it. He said, well, I'm waiting until 70. I'm taking as much as I can for longer after that. And I said, well, you worry about anything. He said, well, he said, my friends are all saying, yeah, but what if you die? He said, what if you don't take it and you die? You didn't get anything back. He goes, what do I care? I'm dead. And I laugh, but then I thought there is some truth to that. Like, what does he care? He's dead. He's gone. He's not going

to be mad. And I think that he's hedging, which is, you know, to use your expression, against the longevity risk. And it's one of the few ways you can do it. And you're doing it with something that's also inflation adjusted. To go back to point two, more people should be waiting to take their CPP. We don't want to give definitive advice here without talking about all the subtle nuances. We'll do that later. But that observation is bang on.

More people should be waiting longer to take their CPP. And when you look at the data on this, they don't. Most people take it early, which I would argue is generally, I agree with you, we don't want to generalize, but generally people should be taking it as late as possible to get the deferral benefits. What's your fourth one, your new one? Yeah, yeah. So the other one, Braden, who I do a lot of, he's my, he works with me in the research team at PWL. He's got a PhD in mechanical engineering with a focus on aircraft. So he's like literally a rocket scientist.

He's a very smart guy. So we were doing some work. We actually just launched a calculator. I sent you a link. I like the way you just launched there. You tied launch right into the rocket thing. Very clever. Didn't mean to do that, but that did work out.

So we did just launch this CPP calculator. You had a link before we publicly launched it, but it is publicly launched now. And so we've been playing with that and just looking at different scenarios. But he did a Twitter thread. I don't know if he's posted it yet. He did a Twitter thread that he sent me yesterday where he looked at the certainty equivalent returns of stock and bond portfolios and compared that at the certainty equivalent returns of stock and bond portfolios and compared that to the certainty equivalent returns of CPP. It's basically a

fancy way of risk adjusting the returns. Right. And if you take the certainty equivalence, one of the inputs to that is risk aversion, which is that's a very academic concept, but it would take a very risk seeking investor- To get those returns. but it would take a very risk-seeking investor to have a better certainty equivalent return by investing in a portfolio than taking CPP. So for anyone with reasonable levels of risk aversion, which I think most people do have, CPP is a really, really nice asset. Yeah. I mean, that came out sounding fairly complicated, but what you're essentially saying there is if you take it early and you're going to invest it, you'd have to take a very big risk to try to keep up with what you would have had had you delayed.

And of course, that's not a time in your life that you're seeing a lot of people want to take on extreme risk with their investment portfolio. Now, there are, we talked about exceptions. If someone has a problem with health personally or a family history, they may want to take it earlier. They need the money desperately. They may want to take it earlier, but that's interesting. I'll look forward to seeing that Twitter thread. Okay.

This is the last question to wrap up, but I know it's the one that our listeners are going to want answered. How tall is your wife? My wife is about 5'6". 5'6". Well, that's fairly tall, but I mean, obviously compared to 6'11", you think of that as being nothing. Do you even notice her sometimes as she walks around the house? You're a real pleasure, man. You really are. You're one of the most well-informed people

I've crossed paths with in my entire career, 40 years out there. It's amazing how much you love this stuff. Your passion comes through. I think that the way people are drawn to you and the way they trust you is because they can see that you're so passionate about the subject. You're willing to do all of this research. So thank you so much for having, uh, you know, having the time to come on with us. I look forward to doing more interviews in the future. Thanks, Dave. And I really appreciate the kind words like you, you are, you're a legend and I'm sure you know that, but you are a legend. So hearing that stuff from you is from you, it's really meaningful. Wow.

That's nice of you to say. I'll talk to you soon. Thanks again. Thanks, Dave. Bye-bye.