When you see funds performing monumentally well, you may feel regretful for not investing in them earlier. There is, however, a long history of funds that skyrocketed only to have major falls from grace a brief period after. The bulk of today’s episode is spent exploring this idea in the portfolio topic section but before getting into that, we kick the show off with some updates. We begin by talking about the GameStop short and whether this casts any new light on the concept of market efficiency. From there, we take a look at some recent news, particularly one story about the meteoric growth of New York-based investment managers ARK Invest, who recently hit $50B in assets under management up from $3B this time last year. This story acts as a great segue into the portfolio topic where Ben traces a history of funds that performed colossally well for a brief period but then plummeted thereafter. These funds were under the direction of ‘star’ fund managers with a focus on investing in tech disruptors. The discussion acts as a cautionary tale about overpaying for growth leading to poor realized returns. For the planning topic, we continue to shine a light on the ‘Talking Cents’ card game, a financial literacy outreach strategy created by The University of Chicago Financial Education Initiative. We invite the director of the Financial Education Initiative, Rebecca Maxcy, onto the show to speak about some of the thinking around this project and then discuss a few of the questions posed by the cards ourselves. Tune in today!

Key Points From This Episode:

This week’s updates: Gerard O’Reilly on The Long View podcast and more. [0:00:25.3]
Exploring the theme of questioning our beliefs with this week’s book. [0:03:15.3]
News: What does the GameStop short mean for market efficiency? [0:06:10.3]
More news: The meteoric growth of the investment managers ARK Invest. [0:12:15.3]
Portfolio topic: Why funds with star managers have skyrocketed and subsequently plummeted. [0:15:13.3]
Why overpaying for growth leading to poor returns is relevant to indexes too. [0:31:31.3]
Do fund returns mean revert? Questions of luck and skill in fund management. [0:39:00.3]
Planning topic: Rebecca Maxcy speaks about the ‘Talking Cents’ initiative. [0:45:41.3]
Other financial education tools developed by the Financial Education Initiative. [0:52:51.3]
Discussing Talking Cents questions about outsourcing financial planning and more.[0:55:09.3]
Bad advice of the week: Michelle Schneider’s investing resources. [0:58:33.3]

Book From Today’s Episode:

Think Again: The Power of Knowing What You Don’t Know — https://amzn.to/3tVMh0u

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.

Rational Reminder Website — https://rationalreminder.ca/

Shop Merch — https://shop.rationalreminder.ca/

Join the Community — https://community.rationalreminder.ca/

Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

‘Disagreements, Tastes, and Asset Prices’ — https://www.sciencedirect.com/science/article/abs/pii/S0304405X06001954

‘The Story Behind The Market’s Hottest Funds’ — https://www.wsj.com/articles/the-story-behind-the-markets-hottest-funds-thematic-etfs-arkg-vegn-11610722419

‘Gerald Tsai, the playboy financier who seduced America’ — https://www.scmp.com/news/world/article/1503697/gerald-tsai-playboy-financier-who-seduced-america

‘The Selection and Termination of Investment Management Firms By Plan Sponsors’ — https://www.researchgate.net/publication/229023346_The_selection_and_termination_of_investment_management_firms_by_plan_sponsors

‘Does Past Performance Matter in Investment Manager Selection?’ — https://www.researchgate.net/publication/318716252_Does_Past_Performance_Matter_in_Investment_Manager_Selection

‘On Persistence in Mutual Fund Performance’ — https://www.jstor.org/stable/2329556?seq=1

‘Luck Versus Skill in The Cross Section Of Mutual Fund Returns’ — https://www.researchgate.net/publication/227505955_Luck_Versus_Skill_in_the_Cross_Section_of_Mutual_Fund_Returns

‘Does Scale Impact Skill?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385

‘Mutual Fund Flows and Performance in Rational Markets’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=383061

About The Author

Cameron Passmore

Cameron Passmore has been a leading advocate for evidence-based, systemic investing for over 20 years in the Ottawa area. Today, Cameron and his team serve a broad range of affluent clients across Canada.