Actionable insights from one of Canada’s leading quant PM’s
Actionable insights from one of Canada’s leading quant PM’s
@Ben Felix shares some of Passmore & Felix Team’s recipes for success including the rationale for scientific investing, how to build powerful relationships and the benefits of advice.
4:10 Mutual fund sales
9:30 The quant tipping point
16:25 Building relationships
24:30 Canada’s quant landscape
28:35 How to create content
31:40 Managing wealth: Purpose, priorities & tactics
37:00 Gold & Crypto
44:45 Behavioural vs. Efficiency\
Benjamin grew up on Vancouver Island, BC, before moving to Boston to complete a BSc in mechanical engineering at Northeastern University. During his stay in Boston he played NCAA division I basketball for the Northeastern Huskies. Benjamin went on to complete an MBA with a finance concentration from Carleton University’s Sprott School of Business in 2013. He joined PWL Capital in 2013 after searching for a way to offer fiduciary advice and index fund portfolios to clients.
About our hosts
Rod Heard, Co-founder & CEO of SmartBe Wealth. Art Johnson, Co-founder, CIM & Portfolio Manager, SmartBe Wealth. Rod and Art investigate the journey from traditional investing to the evolution of the modern investor, exploring the bumps, bruises and victories with each of our guests.
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Rod: Welcome to this episode of Modern Investment Journey. My name's Rod Heard and I'm co-founder of SmartBe Wealth Inc. And I'm here today with my co-founder, Art Johnson. We've got a really great podcast set up for you today. We're really about quantitative investing space, but this podcast is kind of aimed at trying to humanize how to invest with a factor investing and quantitative investing as a real person.
Today's guest is Ben Felix he's portfolio manager at PWL. He's also a co-host of a very popular podcast, The Rational Reminder. Ben, it's really nice to have you here and welcome to the show.
Ben: Hey guys. Thanks. Thanks for inviting me on. I, uh, I appreciate it. And I'm looking forward to the conversation.
Art: It was funny before this, Rod had sent some notes and, uh, he did a bit of a faux pas. He called the podcast The Rational Investor. And I said, both of us agreed, that's an oxymoron. There is no such thing. So I'm glad you guys called your podcast The Rational Reminder. How did you get to that name?
What, uh, what are you trying to say with that? Because yeah, it just seems. So easy when you think of this stuff, it seems rational, but boy oh boy in practice it sure isn't. So maybe we can start there and just tell us a little bit about your podcast and what you guys are trying to accomplish and what you're trying to do for Canadians.
Ben: So the actual name of the podcast, that was just a lot of back back and forth actually with, uh, with a friend of mine, trying to figure out a name. The meaning behind it. I mean, what we try and do with the podcast is provide the information that a rational investor would use, recognizing that most people aren't going to behave rationally.
But if you have that as a starting point, if I were rational, what would I do? I think that puts people in a really good position to make better decisions.
Rod: And the reminder is all the nudges required to keep people on the guard rails. Give us a bit about your backstory. I thought it was pretty fascinating how your journey from engineering into the world of finance, as you said, stalking Cameron for several weeks to, uh, to end up where you are as a portfolio manager.
Ben: I've kind of fallen into everything that I've done so far in my life. I started playing basketball late in life, relative to a lot of people that have success playing sports.
I think I was 16 when I started playing basketball. And that eventually led me to get a scholarship, to play at a university in the States at Northeastern University. I'd been so focused on basketball. I didn't really know what I wanted to study. So I just kind of picked the hardest program. Or what I was told was it was the hardest program, which was mechanical engineering.
Rod: Oh no geophysics engineering's much harder than mechanical.
Ben: Maybe it was just engineering was the hardest. And I had always enjoyed building things that moved. So I thought mechanical engineering would maybe be, uh, an enjoyable program. When I finished my engineering degree, I had also only played three years of my eligibility in the NCAA. So I red shirted my first year, which means I completed a four year degree, but only used three years of eligibility.
And there's this funny little loophole between the NCAA and what was then CIS, the university sports in Canada. Where, if you finish your four years of eligibility in the States, you can't come back and play a fifth year in Canada, but I hadn't used for years. I'd only use three. So technically I could come back and play two more years in Canada.
So I was again in the city where basketball was driving my, my educational institution choice. And so I chose Carleton University in Ottawa because it is by far and still is the best basketball program in Canada. But then I had to choose a program and I thought a little bit more about it this time, as opposed to just picking the hardest program, which maybe would have been a master's in engineering.
I dunno. Uh, but I didn't want to do that. So I figured I did, if I did an MBA, uh, that would give me a broader opportunity set within the MBA. I just picked the hardest one. I didn't know a thing about finance or, or investing or anything like that, but finance looked pretty quantitative, which seemed to fit with my engineering background that I picked that.
And that's what eventually led me to actually an internship selling actively managed mutual funds, which was sort of the foot in the door to the financial services industry. And eventually I learned about the idea of index investing and quantitative investing and all of the data around how bad the products that I was running commissions--
Rod: I was going to ask you were the first products terrible or were they they good products?
Art: Hey, Ben, I just wanted to stop a bit cause one thing I do know is that our industry has made it very hard for young people to get into it now. And that's because of automation. Um, there used to be, you know, tons of jobs where you could work in a cage or do various things and get your way in.
Um, you had obviously checked off the education, but how'd you even get your first job, like I'm kind of interested. Did you fall into that as well? Cause that's, that's one thing maybe listeners are wondering about to even get into the financial industry. Cause it's a tough one to break into.
Ben: It's tricky, right?
It's it's, it's tough to break into with a real job. And at that I don't mean to disparage people who sell mutual funds because I'm sure there are good people doing that. If you want to sell actively managed mutual funds for commissions, you can do that. I don't think that job is very hard to get. I think you can probably walk into a lot of places with an undergraduate degree and sign up and give them the list of the a hundred people that you're going to sell to.
And they'll, they'll give you a job.
Art: That's a really good point.
Ben: My path was marginally different where instead of walking up and saying, I want to sell mutual funds, I landed an internship through my MBA program that the school had set up with this mutual fund dealership. So I, I worked for, uh, four months, I think.
With an established advisor working in their practice, uh, helping them do financial planning and things like that. Different kinds of analysis. So that, that, that was okay. But then afterwards there's an opportunity to continue to work with a real job as opposed to an internship. And when I started doing that, that's when I kind of learned that the job pure sales, yeah.
Maybe backed up by some planning and some analysis, but at the end of the day, you're selling mutual fund products and insurance. But, but at that again, that's not a hard job to get, but what it did get me. Was a year of experience and all of my licenses and things like that, as much as it's, uh, it's not the greatest job selling mutual funds, ethically there are even some problems once you understand what you're actually doing, but it, but it is a pretty good way to break into the financial services industry.
Art: Well, and I think the internship probably gave you a broader scope on what I would consider an old, probably maybe inferior approach to investing. Didn't provide the outcomes either. Cause if you were doing planning and if you were trying to actually get a goal with someone, you probably got a real quick insight into the fact these tools actually weren't meeting a lot of the goals and they were expensive and, and all of the flaws that they have, like they're were a tool for their time, I believe.
But, uh, Yeah. And it's, that helped a lot, probably.
Rod: Actually as a young man, did you even understand that? Or was it just around, I've got the corporate message. This is what normal is. Obviously now looking back, you can understand the delta, but was there a delta at the time? What was that journey from that space into the clarity around understanding what real quantitative investing was with the academic discipline and rigor was.
Ben: So you, you nailed it Rod. When I was there so I, I I'd chosen the finance specialization, but for the first portion of the MBA program, I don't think I took a finance course. I'd just come from an engineering background. So when I started this internship, I still really didn't have a clue. I was just starting to learn about finance concepts and accounting and all that kind of stuff.
Like I have to read iterate from an engineering background where this stuff was completely off my radar. Like I didn't have a clue when I started taking my first MBA classes. So I show up to this internship at a mutual fund dealership. And at this firm, they would regularly have lunch and learns with fund companies, as I'm sure many mutual fund dealerships do.
And these guys would come in, they had their CFA, they seem pretty smart. And they'd be talking about what their fund managers are seeing and what they're doing and how their fund returns have been. And it all, it sounded pretty, pretty good. Yeah. Like if you don't have, if you don't have the knowledge background, all of that sounds really smart and really, and really good.
And it's trailing from what seems like a qualified source.
Art: Yeah. And we're at such a deference to authority and it has all the, it has all the behavioral pieces in there. Doesn't it? It's just, it's, it's a perfect layout.
Ben: And the first time that I started to see cracks in, in all of that, well, actually I think I had a, a buddy had a much stronger finance background than, than I did. Him and I would talk about what I was doing at work and what I was seeing. And he sent me the SPIVA report. So that was the first time where I Oh, okay. There's actually some data showing that this is not good. It doesn't make sense.
Art: But we're not that.
Ben: So I started digging into that more and finding, obviously once you start looking, there's tons of information and you know, like academic information, but also tons of blog posts and things like that saying, you know, index funds are good and actively managed mutual mutual funds are, are terrible.
The, the, the biggest tipping point for me, though, in terms of. Oh, am I doing the right thing for clients was I started to kind of get a feel for the data, and the idea that that low cost as a starting point makes a lot of sense, as opposed to the high fee active, actively managed mutual funds. But the big tipping point was that I landed a, a fairly sizable client for us for a mutual fund dealership.
And I went to my effectively superior at the time and said, okay, like I've got these people there. They're really wanting, wanting our advice and wanting to work with us. How do I pick which investments are gonna make sense for this person? And it kind of looked at me and said, you know, what, what do you mean?
You just, just pick a fund that you like. And I was, like, what?
Art: Who bought the best lunch?
Ben: That, that was effectively, it. It was like just, just, just pick a fun company that you like and, you know, get, get to know the wholesaler so that you know how to speak to the products and, and just use, use that. No, and I was expecting, you know, well, here's our, here's our database of funds and here's how we sort through them and whatever, that kind of stuff.
And there was none of that. Um, so that, that, that's when I was able to put together pretty clearly. Okay. There there's data suggesting this stuff doesn't make sense. And there's really no, there's really no way that we're even trying to sort through that data to say, well, no, here's what the data say, but here's why we're an outlier.
There wasn't even that. So at that point I was like, okay, I need to get out of here.
Art: Well, and I guess what's fascinating about that comment too, is a couple of things. Rod said "ouch" but that's not uncommon in the industry. I guess the biggest tragedy that I learned when I started to look at the scientific evidence, is that throughout my journey, um, in the investment businesses, even school didn't do a good job.
No one had taught me really how markets work. And if you don't understand how markets work, you do exactly what Ben or I did is you rely on these experts and then you start to see that, you know, it's, it's kind of the Wizard of Oz. When you look behind the curtain. Um, no, just pulling leavers and doing stuff in there and they're not magic, man.
So it's, it's a, it's a very common experience that you had. And, uh, and it's interesting. So why did that tweak something in you? Cause it wouldn't tweak and others cause others would just whatever. Right?
Rod: Other than for the commission check and say, yeah, I get it. I just have to be on message. And a good salesperson.
Art: Is Ben Felix a right fighter. What's what's part of Ben Felix's makeup that he doesn't, he doesn't want to ... he doesn't want to play that game?
Ben: I don't know if I've, I've reflected on that a ton. My expectation of some sort of quantitative approach to picking the best fund like what, what, where I said that was my tipping point. Coming from having just finished an engineering degree, like, you know, eight months before I'm in this position, I just finished my engineering degree.
And all of the quantitative methods and quantitative, uh, decision making frameworks were fresh in my mind. And the idea that there wasn't a way to do that in finance just didn't make sense. So when I realized that there was a quantitative framework to start making the decisions that really clicked with me, so it could have been, you know, my, my, recent engineering degree that made that make sense for me.
Rod: Yeah, that certainly for me was the connecting point. My background in discipline in engineering, big data and numbers show me some proof, show me some evidence that scientific method can be used to markets. And my introduction to Art was really that tipping point for me, that I'd never was really interested in the whole investment process, but knew that I had to put money away.
And it just made so much sense that if you look at the data and you use scientific methods, statistics that you can have a better opportunity or you stack the odds in your favor of having the outcomes you need.
Ben: It's fascinating, you know, and one of the reasons that it, throughout my internship, I didn't really see any of these cracks.
And I think it was because the, the work that I was doing prior to actually selling products, it was analytical. And it's like, how do we help this person make a good financial planning decision? How do we help this person minimize tax? And we're doing modeling and all that kind of stuff that I was expecting.
And all of that made sense. So I think that the financial planning business and the mutual fund sales business, even on the financial planning side, I don't think it's that bad. It's just when it comes to the product recommendation, like let's, let's do really, really good financial planning. Great. But when it comes to the, the, the product recommendation, I think that's where the cracks really start to show.
And that's, that's what, uh, what caused me to start looking for a place that does all of that great financial planning work that's so important in helping people make good decisions. But then on the investment side, let's just execute in a way that's evidenced based. So, and that's ultimately how I found Cameron and, and PWL.
Rod: Was Cameron and PWL the first stop after the mutual fund eye-opener?
Ben: I called Dimensional Fund Advisors when I was still at the mutual fund dealership because they have mutual funds. And I thought, Hey, I can, I can maybe use these things. They seem pretty good. And that there was an article in the Globe and Mail that I'd found about Dimensional.
There was this another sort of serendipitous moment where I had recently learned in my, one of my MBA courses about the Fama French three factor model. In an asset, in a risk premium context.
Rod: Going home to the altar.
Ben: Right. But I didn't know that at the time I'd learned it conceptually as, um, you know, how do we figure out what, what risk premium do use more corporate finance perspective.
And our professor had taught us about this, this three factor model, as opposed to just using market beta and, but that's, that's pretty cool. And so when I heard about Dimensional and saw that they were using this, this model to help inform portfolio decisions, as opposed to just using index funds, which by that time I was somewhat familiar with, I thought that was pretty cool.
And I saw they had low fees relative to the other stuff that I was recommending to clients. And I saw their mutual funds, which meant that I could sell them from at least a registration perspective. So I called dimensional. And it turned out I actually couldn't use their products because as we all know now they're pretty restrictive about who they let, uh, use their, their stuff.
So I, when I called Dimensional, I mentioned the three factor model and I really liked that they were using that. And the person that I spoke to, it just happened to happen to register that as unusual. That this guy from a mutual fund dealership is commenting on the three factor model and how it makes sense that they're using that in their investment process.
And that stuck with him, which was lucky for me because not long after that, Cameron was looking to hire somebody and he put the feelers out to all of his contacts, including people at Dimensional. And they said, well, actually, Hey, there was this crazy weird call we had with this guy. There's this crazy guy in Ottawa.
Um, why don't we connect you with him? And they did. And Cameron and I hit it off pretty quickly. And the rest is kinda history.
Art: Cameron and myself. Um, I guess a tiny claim to fame in our lives was bringing Dimensional Fund Advisors to Canada. And, um, there were five of us at the time that kind of would trump down to the States and then help those guys set up shop here.
But, uh, actually to run into someone, Cameron who has such a passion and a deep understanding has lived with this stuff for a long time, you probably couldn't have found a better home.
Ben: It was lucky. It was, it was, uh, you know, what if I hadn't brought up the three factor model and I just left it at that.
And who knows?
Rod: In your journey at PWL, it's clear that you're, uh, you guys have an absolute terrific business and that you're really motivated around a number of the same philosophies that we are at SmartBe like transparency and evidence-based and, um, win, win for the client most importantly. Uh, we're really interested in your journey towards creating content and migrating towards being a content company.
And, you know, I think even in our last conversation, you had indicated that through this COVID period, you guys are even ramping that up more and you're getting more focused on that. Help us understand that part of your journey.
Ben: Yeah. It's an interesting one. PWL has always had, well, as long as I've been around, uh, has had this content focus. People who are intended to have sort of a public profile, always been big on writing papers and writing blog posts.
Um, well, not long after I joined PWL the Canadian Couch Potato, which is a very popular Canadian index investing blog, the author, Dan Bertalotty, he joined PWL and that even sort of elevated our content focus even more. And then it was a few, not, not, not that long ago, maybe four, three, three years ago. We decided to make this venture into video.
Uh, and we we'd met with a consultant who had just started up this video video production consulting company. And she came in with this pitch about how video's the next big thing and showed us the data on, on how much video consumption is increasing. And so her recommendation was that we use her services to start video content. As a firm we decided like, let let's do it.
Let's make this investment. And what that looked like for the teams at PWL was really that the firm is going to sponsor, uh, the cost of this thing, but you have to come forward and say, I want to do video content. I didn't at first, I think it was not until a year after we had this opportunity that I started doing video and it wasn't like, you know, I didn't have some grand plan about being a successful content creator.
It was really just like PWL's presented us with this opportunity. Content seems to work well for us as a firm. So let's give it a try. I, again, it took me a long time or not that long, I guess, a year. To, to really think through what do I actually have to say? Uh, that's that's relevant and what do I want the concept of my channel to be?
So eventually I figured that out, I started making videos and they were pretty successful from the beginning. And they've gotten more successful over time, but we learned a lot from doing that. We learned a lot about how impactful good content can be for our existing client relationships. It's very hard to sit down with somebody and explain a complex topic to them, especially if they're not looking for the answer at that time.
Rod: That's a key, that's a key insight.
Yeah. People have to be open and receptive to want to make the time and energy to learn. And make that content they're own.
Ben: And there's even data on that. Like if you sit down with someone and start telling them stuff, in a lot of cases that that can actually induce stress in the person that you're talking to, which makes me even less receptive to what you're you're saying.
So we started to realize that these videos that we are creating, where we were doing exactly that breaking down a complex topic in a way that was relatively easy to understand. But available to consume when whoever was ready to consume it, we started to realize that was pretty powerful, uh, which made me continue to invest the time to create videos.
And then eventually Cameron and I, I think I walked into his office one day and I was just like, Hey, we should do a podcast. I'd listened to another financial podcast. And I was like, this doesn't seem hard. It's just people talking. Uh, so Cameron, I kind of put together the concept of a, of the podcast and generally what we're going to talk about.
And, uh, we just started recording. And as much as I said, the video content is useful in communicating with clients, the podcast it was the same experience, but orders of magnitude more powerful. Not as wide of a reach. Like the, I think our YouTube channel has almost 150,000 subscribers. The podcast is downloaded about 80,000 times per month, which is much less than the, than the YouTube channel.
But the people that we're communicating with through the podcast, um, they, they just end up with this sort of deep, deep understanding of the way that we think about everything. And so that's powerful for our clients because the ones that listen religiously, which a lot do really understand why we're thinking about things a certain way.
And then likewise people who may eventually be interested in working with us when they come from the podcast or when they've listened to the podcast extensively the relationships are just so powerful because it's like, we're, we're, we're, we're completely on the same page about the way that things should be thought about from a business perspective, in terms of communicating with our clients, the YouTube videos and the podcast have been exceptionally powerful.
Rod: So you, so you started with, uh, a hypothesis from this consultant woman at the PWL level that said video was king. Your real life experience has been, that the podcast has, um, been more relevant to the actual, to your actual business. I know people like we're hopeful that this podcast is helpful to advisors and clients alike.
And, uh, that nuance is really important. As people are trying to figure out how to engage with social media, with, you know, the whole content creation, what channels, uh, is there anything that you've been able to tease out of the data?
Ben: YouTube videos are, you know, 10 to 15 minutes long. They're designed to be more accessible, to a broader, a broader level of interest
I guess. The podcasts are an hour or an hour and 15 minutes long. So somebody who's sitting down to listen to a podcast episode or multiple podcast episodes, they're much more invested in term of that in terms of the time. And then I need the other piece of it is that in, in the videos, it's, it's me standing there delivering a prepared topic, reading from notes, but the podcast kind of like our, our chat at the beginning of this episode today.
The podcast, Cameron and I chat a bit and you hear different inflection in the voice and you hear you see in the video versions anyway, you see how, uh, Cameron and I react to different things that, that the other one says. And I think those little bits and pieces of sort of a, a personal touch that show up through the long form podcast content results in more of a connection with the with the listeners. So it's both of those things.
Art: Yeah. And that's something that we're, I mean, we're just starting our podcast journey, but I think where I've seen a change in myself is in my initial stages, we were focused on insights and I was so excited by these insights. Like, it's like if you're trying to lose weight, if you didn't have the insight that you needed to exercise more and eat less, that's a very valuable insight.
But once you get that insight it doesn't change people's behavior. And I think what I find from the two mediums that you're in, how do we take these ideas and get them into Canadian hands on a much broader sense than they are? That's the whole purpose of why we're all trying to do this, but we talked about this internally it's and we talked about with Wes Gray and Meb Faber is the people that once those insights are out, we have to figure out a way to make them principles for people and actually own them themselves.
And I think every successful kind of longterm thing does that. I believe in your podcast, what, what I hear is that it's back to you see how people have you get an in depth view into how you and Cameron lived these principles. Once people get more access to that, they can actually get ownership of ownership of these ideas themselves, which I think are really passionate, valuable ideas.
And so can you speak about Canada a bit? Like I've called Canada the North Korea finance. And it, it, we're far behind in a lot of these ideas and that's why one of the passions I had on it lap, having you in Cameron and talking about you and elevating you in the discourse and wanting to be part of that is that I want these ideas to really take hold in Canada.
But there is a struggle with quant in Canada. It just is taking a long time to get people to adopt it. And I just want your thoughts there. And we know the usual there's conflicts of interest in that, but where do you think we are in Canada, in the, the adoption of these ideas and where should we be?
Ben: But we're, we're without question behind the United States, but I think that's probably normal for a lot of things where Canada tends to trail. I think it's getting better. I think at the most basic level, uh, the awareness of index investing, or even just the awareness of costs that's been elevated. I mean, we even have like the, the Quest Trade commercials that just hammer on, on not even anything specific, like they talk about costs, but they talk about this sort of traditional, you know, you're not still, it's still dealing with dad's guy kind of concept. And journalists too. Like the Canadian Couch Potato Blog, but also people like Rob Kerrick, who just hammer on, on fees. So the awareness is getting better. But when you look at the assets, the assets are not reflecting.
Like if I'm saying that there's increasing awareness, it's not showing up in the assets. Actively managed mutual funds still dominate the Canadian landscape and that, that probably has something to do with the dominance of our, our banks, or even just beyond the banks a relatively small number of very large fund companies.
I don't know if I have a solution or an explanation for why that is. Um, other than the fact that they've got these very powerful sales forces and a marketing footprint.
Art: I mean, there's two different channels. There's the advisor channel. And I think in the advisor channel there's 1.4. billion dollars in the bank channel.
There's 1.3 and Dalbert did a study when people went in to talk to the bank representative and only 6% of the time would they be offered in an ETF. You know, so right there, even if a client was pursuing it, they're not even offered it. So that's, that's a big barrier in Canada. And I think, I still think we're in the early stages of the transition to portfolio managers, fee based advisors, actually guys doing 100% of that and, uh, and becoming true fiduciaries.
And, uh, can you talk about your role as a fiduciary? What does that mean to you?
Ben: As a portfolio managers in Canada, we have this requirement to act in the best interest of our clients. I guess it's a nice byproduct in my mind of being registered as a, as a portfolio manager, one of the reasons that I left my original job selling mutual funds was because I realized that it was structurally stacked against me to act in the best interest of clients.
So I think that the model of using fee-based funds or ETFs and charging clients a fee directly. I think that setting up the incentives like that in a way, uh, where the conflict of interest or a lot of them anyway are minimized. I think that's extremely important. It's a bit of a tricky topic to address because we can talk about evidence all we want, but even within our little trio here where we're all pretty up on, on what the evidence says, you can interpret it very differently.
Um, you know, we, we all, we would all generally agree on a lot of things, but we would still disagree on some nuances in a broader sense across the industry. There are lots of people who think that they are making good evidence based decisions. We would say that they're not, how do you, how do you exactly define what is in the client's best interest?
Rod: Well, anytime we are, we're, we're in a sales situation, we're in a conflict of sorts, for sure.
Ben: Yeah. So I think that's, I think that's tricky. And as much as I, I think it's easy to say, well, yeah, index funds are, are the best investment for most people, even that is a, is a loaded statement because which, which index is which type of index.
Uh, which, which index provider, all that kind of stuff. I, I, I think the concept of a fiduciary is good. And I think that people should definitely be thinking about doing things in the best interest of their client. I don't think that it solves a lot of the problems that we're talking about. I've seen lots of portfolio managers since I've been with, PWL not, not PWL portfolio managers, in a lot of cases with the banks,
who are recommending as portfolio managers who are recommending all sorts of actively managed mutual funds and hedge funds and principal protected notes, all the stuff that we would say makes no sense and is not in the best interest of the client. But if you want to ask them, I don't think that they're doing it maliciously.
Rod: Yeah, yeah.
Art: Or, or they're ignorant. They're not ignorant either. They believe that it has value.
Rod: It's a shame.
Ben: It's tricky.
Rod: Totally. I want to bridge back to where it was. I'm talking about. This whole concept of, of ownership of ideas. And you'd mentioned it, uh, the, this whole concept of endowment and, um, the lag of the Canadian environment and understanding the quantitative investment piece.
You were saying that in your podcast, people who are, um, to have listeners when they engage with you on a commercial basis for the first time they actually own the concepts themselves. They understand your philosophy. They understand what you're trying to accomplish in a very concrete way. How much do you guys think about that endowment as you're creating the concepts and creating the narrative to, uh, impart, um, the knowledge to the average Canadian investor?
Ben: So the thing that we're always thinking about when we're creating content is how is this relevant to our listeners, which requires us to know, or at least think we know who our listeners are.
So the primary audience, and this has been true since we started the podcast, the primary audience is our own clients. We're we're, we're doing things a certain way, for our clients and any time we're creating content, it's a, it's a reiteration of why we are or are not doing something. But we also know there's a big cohort of our audience that is a do it yourself people. So people who are not our clients and are managing their own investments. So we also want to make, make sure that the content is relevant to them, but it's pretty similar, whether they're our clients or not a good financial decision making is, is pretty universal. Now Art, you mentioned earlier, the idea of, of insights and sort of the, the interesting to us academic research that's out there.
We often talk about that type of stuff in the podcast, but to make it relevant to the audience, we always try to tie it back to something actionable. Here's this really interesting piece of research. What does it actually mean to you? What should you do? Or should you not do based on this concept that we just talk about?
We've given them the framework to understand why we've said the actionable piece. But I think it's always going to tie back to something actionable. Otherwise the content isn't really that useful.
Rod: And typically are your actionables in the realm of understanding investment excellence, or are they typically in the realm of human behavior?
These are the things that we need to be, uh, nudging, you know, the rational, uh, nudges. Rational reminders.
Ben: I mean, it's, it's, it's a combination of both. It's really... so the whole episode is focused on, uh, or the, the topic pieces focused on all of the relevant information about, I think about you, whatever, uh, the value premium.
We, we dig into the value premium, talk about, uh, why it may exist or why it may not exist and for what reasons and all that kind of stuff. But then at the end, you've got to tie it back to why does that matter? Um, that's, that's kind of it, we, we, we try to give people that the relevant information to think about something, but then we've got to tie it back to based on everything that we just talked about.
And now that you understand the trade offs, here's what we think
Art: when, uh, I guess one of the joys of my career and where I've grown is I used to be an advisor now I think I'm actually a trusted advisor because you're actually bringing both of those things to the table. You're bringing some of the best insights, but my role as an advisor is not to be the Wizard of Oz. It really is to do what you're talking about Ben. Is that yeah, we can find all this stuff is out there. It's out for free. You can give Wes Gray a call today, if you want. He'll probably answer the phone. Putting these things into practice I'm very skeptical and I'm biased, but I I'd like your opinion on this too, is that I don't know if people can really do this as a DIY project. I mean, there are, I should say there's a, that's an overgeneralization. There is a subgroup of people, but for the vast amount of people, they should be looking at their advisor as a coach around these ideas and really someone, almost like a therapist to help them through these ideas.
Someone who can curate these ideas in a faster way. And I'm really excited in Canada, that role of the advisor is becoming that versus the guy that's supposed to be at the market for you, which we all know doesn't work. Number one. But what do you think the role of the advisor is changing into? What have you learned after your eight years?
And, uh, and some just insight into that.
Ben: I used to say, if you can manage your own investments, you should, you should do it. And I still think that's true, but that's, I mean, it's true with anything. If you can build your own house, you should do it cause you're gonna save on costs. I think that's a loaded statement though.
I think that it's, it is very hard for people to do this stuff on their own. No, it's not to say that in index funds buying an index funds through Quest Trade doesn't make sense. I think we have to define what is this thing that we're talking about that we're saying we're trying to decide if people can do it on their own or not. Buying index funds is easy.
Anybody can do that. I think when we think about the process of wealth management and just the concept of managing money more broadly, uh, there's a book called The Geometry of Wealth by Brian Portnoy, who we've had on our, on our podcast. And he, he explains this as this being the process of, of having wealth and growing wealth and managing wealth.
You ought to pin down your purpose, which is huge. Like why, why are you existing? Why are you doing everything that you're doing? Why are you even saving money? From your purpose you define your priorities, which is maybe how much you're saving or how much you want to earn, how much you're spending on vacations, all that kind of stuff.
Uh, so you've got to define your purpose. You've got to define your priorities. And the last piece is your tactics. Once you've defined what your priorities are, you defined your purpose, you know what you want to get out of life. You define what your priorities are in order to achieve that purpose. The last piece is the tactics, tactics are buying index funds.
That's easy, but that is the very last step. And it's only one piece of the last step of the process of managing wealth. Can people do this on their own? That, that piece? Yeah, for sure.
Rod: Yeah. If you put that at the top of the triangle, it's the wrong way to think about things.
Ben: That's exactly it. That's a great analogy.
Art: I find we're getting to a better place in Canada in the financial advisory business, but I still find there are two camps and it's funny where you start. If you kind of started in the brokerage business, you'll find that those teams are very investment centric. Uh, if you started in the financial planning or mutual fund, then you're very planning centric.
And these two kind of groups fought, fought against each other for a long time. And we're, we're slowly merging. But I do think that if I was going to ask you a question of advisor, I'd ask them, you know, what is your experience? And I'd want to not know that it's experience in asset gathering, client placating and corporate maneuvering.
I'd actually want to know that they actually have money management experience. Like they actually could understand it if it was a scientific model or if it was an active model that they're actually really deep in the weeds on that. What I like about a firm like PWL and I think what we do as well is that both of those are bridged in an excellent way.
You do get excellent planning, but you also get excellent money management. And I think that's where the Canadian market has to go to. It's not, we're still in these two camps. And, uh, and like you say, and I, I do think if you're going to go to one side, maybe go to the planning side, even because the investment center is I can get you a lot more trouble. But the problem with the planning side is
they seed money management to third parties, and back to our original paradox. They're ceding money, they're ceding third parties to basically closet index actively manager. And I don't want to say active management mutual funds are bad. What I'm saying is they're, they're a wrapper, just like anything else. But in Canada, they're predominantly used as closet indexes and they charge people way too much money to do something fairly pedantic in wealth management that has been automated and costs have come down so significantly, like for, to run our ETF it's a penny to trade now. You know, when I first started on the trading floor, we used to trade in eights.
Um, you know, and so it's, it's the, the technological advances that have allowed our industry to profit have not filtered down to the retail clients. If people still use these approaches, I guess is the argument I'm trying to make. And so this bridge in Canada, I think with firms like yours is really empowering.
And that's why I'm glad you're such a loud voice in the universe because, uh, I think Canadians do need to, I think we're in a seminal change in the whole industry. This is a really important change that people have to get to. And what do you think about that change? Like what, where, like, what is your passion to drive that?
Ben: My, my personal passion is I, yeah, I don't know. I I've never felt a passion for finance. Uh, I like doing research and talking about research publicly. Not even, I mean, I'm not the one doing the real research, right? I'm the one taking the research and figuring out what the actionable pieces are. But when you do that and you put it out into the universe, that's been one of the best ways for me to learn about anything.
Um, when I go and research a topic and then say what I think about it to an audience of, you know, hundreds of thousands of people, I get the most critical feedback that you could possibly imagine. And you hear every different possible side of whatever argument you've just made. Uh, so yeah, I, I find that process to be very powerful.
So maybe it just, uh, satisfies my, my enjoyment of learning. I don't, I don't feel like I have a, a passion to change the world or anything. Maybe that's a nice by-product if, uh, if I can help a lot of Canadians understand all of this stuff.
Rod: What's your curiosity now? If, uh, learning and investigation and research is driving your activity, what's peaking your interest right now?
Ben: I've, I've been spending a lot of time thinking about gold recently. I mean, you know, the price, the price shoots up. So everyone becomes interested in and I start getting lots of questions about it. And it's a topic that I've looked at before that there's a book by a guy named Roy Jastram. He published the original version in 1976, but he, he, he was the first guy to pull together from all the historical records in England, the time series for gold going back to 1560.
And he wrote a, wrote his first book in '76, second edition in 2009. So I that's, it's been fascinating to go through the time series of gold and read this, uh, economists commentary, uh, about what the world looked like when the, the, the purchasing power of gold was at various levels throughout history. Uh, and stuff like that's fascinating.
I came across a paper recently. Uh, the title of it, I don't know if I can remember, but it was the concept was ... Oh it's called Basian Solutions For the Factor Zoo: We Just Ran Two Quadrillion Models. Yeah. I don't know if you guys have seen that paper yet, but it is cool. The premise is basically--
Art: It's a sad comment on how we spend our nights, Ben.
Ben: I don't think it's sad. Yeah. I don't know that those are, those are two things I've been curious about. They're both good questions like does it, does gold make sense in a portfolio?
Rod: Does the gold question drive you? So obviously you got gold standard. The change to fee at currency. Has that morphed over into trying to understand the crypto universe as a, this whole aspect of money management?
There's now a third vector in the whole, uh, where are things going? Has that been peaking your curiosity at all?
Ben: Well, it's, it's hard not to think about cryptocurrency when you're going down the path of thinking about gold because you're right.
Art: It's a store of, uh, uncertainty wealth. And that's, that's basically what moves the price.
And, uh, that's why we love why we have a momentum portfolio. Cause I don't have to think about those things and evaluation metrics, uh, kind of Bayesian way, like I can think about them purely as this is the going up because people want it right now. Trying to define gold as a, as an investment is a really tough thing.
Like, you know, you go back to Buffet and all of these guys, and it just doesn't make sense, but it does make sense. Store of value back to cryptocurrency. Like you were talking about Rod, all of these things and it's interesting. Bitcoin probably will be the next generation of gold. I would believe I, I could see the narrative on that being very strong.
Ben: Maybe I guess is the only answer I can give. The, the, the big difference there is that with, with gold, like I mentioned, the time series going back to 1560, and I think we have some anecdotes going back even further where it's like, okay, Gold's been this thing for this long.
We don't have really any data on, on Bitcoin yet. So conceptually could it replace it? Sure. Uh, but the basis of gold being the golden constant, uh, and continue to maintain its purchasing power over time. The basis of that comes from its historical track record because there's no real theoretical reason to say you expect a positive return.
You expect purchasing power to make a it, to maintain its purchasing power over time. It's all empirical and Bitcoin does not have the same empircal backing. I also think it's really interesting to look at gold throughout history because currencies have been related to gold. Gold's effectively been money up until 1971 in some form.
And since then it hasn't been, and the volatility of gold since then, the volatility of Gold's purchasing power since 1971 has been much greater than it was prior in the past. I haven't decided what that means yet, but it's, it is interesting. You look at the chart of, of gold's purchasing power from 1560 until 1971.
And it was, you know, pretty flat around, around a line. Volatile, not, not flat enough that you can say it was a, a good store of value is highly volatile, but it was highly volatile around a relatively flat horizontal line. But since 1971, it's, it's taken a whole different path. So I, I still don't know exactly what that, what that means in terms of gold as an asset class.
But it is, it is something that I'm looking at right now.
Art: If I was going to take a stab at that narrative, I'd suggest it because when it was a store of value, there was a consistent search for it because it actually represented something. And then when it didn't, it, it just, uh, it's like any other commodity it's kind of like oil. Um, you know, we run into these periods, uh, as Albertans where the need for it. Uh, you get a ton of money and then there doesn't seem to be, uh, an investment in the capital to get it on a consistent basis. So you have these inconsistent runs on the need and demand, and I I'm pretty sure you know, that that would be my stab at that narrative.
Ben: You know, it's interesting with gold because the demand primarily comes from its use in jewelry and the demand for gold in jewelry has been inversely related to gold's price where when the price increases, the demand for jewelry decreases, uh, the demand as an investment, when the price goes up, actually increases.
I guess a bit of a momentum effect or a rallying effect.
Art: A hundred percent a momenum effect.
Ben: And then as a commodity, as an actual use in, in productive, uh, in production, the demand for gold has been completely irresponsive to the price, which is also interesting. So it seems like, I mean, what do we draw?
What insight can we maybe draw from what I just said? And from the increased volatility, post 1971, I I'm inclined to think that gold's become an increasingly speculative asset. Where the price is driven by speculation, more so than any fundamental notion of, you know, a fair value or something like that.
Art: I'm very similar to you. I, I scour through SSRN research papers all the time in the evening in between trying to, you know, look after 16 year old twins, uh, and my beautiful wife. But, uh, I think we're at a period of time in Canada ... I mean, our company was set up. We believe that there's a seminal change happening into these lower costs, using ETFs, using better products, using these better approaches.
They're not the bee's knees and the be all and end all, but they sure are consistently good for, for the, the goals and solutions that we want. But, uh, you know, I, I'm very glad that you're out in the ether and I'm very glad that Cameron's out there and I'm glad that PWLs halts out there singing these praises for Canadians.
Cause I think, uh, it's a voice that definitely needs a louder voice.
Rod: I had a question for you, Ben. Uh, where do you sit on this whole behavioral economics versus efficient marke debate that goes on in academia. I know, uh, our partner Wes is, uh, embracing both sides of things and that sort of our philosophy that we are believers that the evidence is showing that both camps can be, uh, co-existent. Uh, where are you on that journey?
Ben: There, there is no way to reasonably deny that both sides are contributing to the explanation of asset pricing anomalies. You can't, you can't make the argument that it's just risk based now, by the way we have in the past made that argument on our podcast. Um, but more recently, in an episode, we actually had a listener question who basically asked this, um, although they weren't asking the, in the nice, the way that you did rod, they were asking us, uh don't you guys think you're a little biased toward the risk based approach.
And so the way we answered the question actually was to go and pull from, I think it was three different podcast guests that we'd have we had had recently. Wes actually didn't come up in that. Uh, but it was Marlina Lee from Dimensional, uh, Ken French and Cliff Asness. And we'd asked them the similar question, uh, when they were guests on our podcast, you know, is, is it a risk based or a behavioral explanation now, how do you think about that?
And in all three cases, they said that it's gotta be both. There's no way to say that it's not. And there is no way to say what if it's one or the other, but because of the evidence is very strong on both sides. I mean, the behavioral finance explanations are impossible to disagree with. The risk based explanations are sensible.
It's probably somewhere in between. I don't think we can say if it's one or the other. And yeah. So I, I think that our, uh, thinking on that has shifted a little bit over time where the Dimensional view, the way that they teach it to advisors anyway, is that it's this risk based explanation. And I think that a lot of advisors get indoctrinated with that.
And believe it as truth as I did for a period of time. Uh, but the more you read about the research and understand how much in empirical evidence there is on both sides and how strong the theory is on both sides. You can't say it's one or the other.
Art: Yeah. And I think it's a paradox of just going down the scientific route.
I think the risk story lend itself to a model. And then just like any model that comes up against facts. And that's where the nuance of understanding these things kind of over time, talking to different people like you and Cameron have done, I think really that's the engagement we should be in, not a fight over risk or behavioral finance.
Ben: I think it's, it's exactly what we were saying before, which is that it's, it's gotta be both and it's, it's sensible to think about it as both. And there are different implications, slightly different implications. Like Cliff asked us on our podcast, talked about how, even though Dimensional takes this risk based approach, they still use momentum and portfolios.
The difference is they use it slightly differently from the way that AQR uses it. AQR has a momentum focus strategy, whereas Dimensional uses it as part of their trading process, but it's not like it's being ignored. So I think at this level, when we're debating what is driving the the differences in expected returns.
I think the differences in implementation are going to be pretty small. And w we, we, us three here in debate, those implementation nuances for hours, but to the average investor as long as you're in something that's operating along these lines, I think you're in a much better position than if you're in a traditional, actively managed stock stock-picking scenario.
Art: And I think the key message is, is that should be taken from that and what the message, I think all of us want to get out to investors, is that we actually have a pretty good framework and a bedrock of ideas of where returns come from. So back to the original thesis that Ben was talking about, okay, I do all this really cool planning where it's sophisticated, it's intelligent.
Um, you know, it's empathetic to the people. We finally get them to do all this great work on clarifying their goals. And if I don't have a bedrock and how to attain those sayings, uh, it just seems like Fugazi it's it's, it's a big waste of time. And so the message, uh, you know, that that is in all of this talk around factors and quantitative investing is that there is a bedrock of ideas that actually can help you significantly.
If you embrace them to achieve those goals.
Rod: This has been terrific you guys. If I think back to what we've been talking about, you know, Ben what impresses me so much about you, you talked about in your podcast, you think a lot about how to make things actionable. And even in our free flow conversation that we had only a little bit of prep time from you actually put that to practice every time you're giving us something, you actually always move your mind towards the actionability side of things.
So I think that's a super strong takeaway for anybody who's listening to this podcast. The other thing that I took away was this whole concept of advice. You know, for me, we started off prior to the show, talking about our histories in basketball and rugby and sports, being a big thing. And I was always a DIY guy. I could never fathom going to the gym and paying atrainer to work me out and to do stuff that was just, I'd been doing it so long for so many years that it didn't make any sense until a couple of years ago when, and, uh, my wife Nicole was doing this Tough Mudder event and we wanted to work on strength like we had never before.
And since that time in getting the trainer, my fitness has changed. Foundationally. And, uh, it, it, really reminds me of this whole investment piece that there's a discipline that the, my trainer is. On all the latest research is understanding what my body's going through is bringing new science and new activities to, uh, to what we're trying to accomplish.
And I think back and go, man, if I'd only have that sort of coaching when I was younger, I would have been a very different athlete growing up. So, uh, I think the analogy to, uh, the DIY folks and to people seeking advice, it is really relevant that you, you want someone that is transparent. And you want someone that is on the latest science, and there's no question in my mind that the, the academic community and the, the negative debates that they have about these concepts is, is a really great solidifying ground to bring the best ideas to light.
So, Ben, anything that you want to say to end?
Ben: I mean, just to comment on what you were just saying there, I think one of the, one of the fascinating things about the academic community is that except for maybe a few papers anywhere you look the way that most people invest in Canada anyway, in the actively managed mutual funds is going to be denounced in the academic literature.
No one's saying that is a good idea. So all of the debates in academia, if someone's giving evidence based advice, that advice is never going to be invest in a high fee, actively managed mutual fund. So I, I totally agree with you about that. And the, the trainer example is great. I mean, I spent five, six, six years as a, as a fairly elite basketball playing athlete with, with the trainer given to us by the program.
And I was the same way as you in the gym for a long time, uh, where I couldn't justify hiring a trainer because I had so much knowledge and so much experience doing it myself. Um, I've got nothing to train for right now, but if I were to go and train, I wouldn't know where to start. I wouldn't know where to start.
And I wouldn't know what the evidence says.
Rod: It's the greatest use of money that I've been spending. I know Art's just recently picked up in the CrossFit world too.
Art: Yeah, it's the same. I mean, I'll probably get killed for this, but I'm well known basic ideas, but they've, you know, dressed them up in a way that I get
involved in them and be pumped, become part of a community and to go back to not just like, yeah, it's, here's the insight. You should probably do Olympic squats to actually build your cores and hold man.
Rod: Exactly. You know, it's fascinating.
Art: But they've got me. I go there and there's a trainer and he yells at me and I just do all of these repetitions.
And I don't have to think about it and I go, wow, that's fantastic. And it's actually working in a way that I've never, you know, been fitter in my life. It's actually wonderful. So I think those are kind of seminal things that, that matter to every successful program too.
Rod: Terrific Art. Well, you've been listening to Modern Investment Journey.
My name's Rod Heard, co-founder of SmartBe Wealth, and I'm here with my partner Art Johnson. And we've had the pleasure of then in the last little bit of time with Ben Felix who's portfolio manager at PWL and a is a great guy and podcast hosts oh, God.
Art: Rational Reminder!
Rod: Rational Reminder.
Art: For rational investors.
Rod: Not rational investor because we know that's an oxymoron, but The Rational Reminder.
Thanks so much, Ben.
Art: Thanks a lot, Ben.
Ben: Thanks a lot for having me on guys.
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Ben: Oh, whereabouts?
Rod: Uh, Shawnigan.
Ben: Uh, which school?
Rod: Shawnigan Lake,
Ben: You went Shawnigan Lake School?
Ben: Are you kidding me?
Rod: No. Did you?
Ben: That's wild, man. I grew up there.
Rod: Oh, too fun, too fun. Yeah. I was--
Ben: When did you graduate?
Rod: '82. So, uh, David Hidley was my basketball coach and...
Ben: Oh, I know David Hidley very well. David Hidley he's one of my dad's best friends. First of all, they played rugby together.
Rod: Yeah. I played rugby for him for years and I was probably eight years younger than... he was my mentor idol. Like he was by absolute quintessential coach. This is a guy who was on Canada's national rugby team. He--
Ben: You know who my dad is?
Ben: Marius Felix. He played rugby for Canada.
Rod: Oh my God. I totally know who he is. Absolutely. So I played at Queens for, for four years. I played for the Hornets here in Calgary for 20, but I figured ... so where did you go to school? You must've been just a bit behind Steve Nash, obviously.
You're not that old.
Ben: Yeah. Well, I, I, so I grew up living on the campus of Shawnigan Lake School because my dad taught there.
Ben: He ran Lonsdale's for many years. And then for the last two years that we were there, I know, I know it's crazy.
Rod: That's hilarious. So I was a Lake's guy. And, uh, yeah, I was, I was there with, um, Oh, who were the, who were the big rugby guys? Eddie Edwards.
And, uh, he played for Canada. Uh, he was a prop. Uh, so it a bit of a bit before your time, but--
Art: This is all rich kid talk.