Episode 84: Mawer, The Value Premium, and Investing Costs plus ESG Follow-up with Tim Nash

On today’s episode of The Rational Reminder, we once again cover a host of topics. We begin with Cameron sharing his thoughts on a book he recently finished, The Ride of a Lifetime, and some of the lessons he took away from it. We then tackle three listener questions, where we cover Mawer and index funds hypothetically driving prices. Then, in the portfolio portion of the show, we turn our attention to value premiums. Fama and French recently released a paper on the topic, and Ben is naturally very excited to share his assessment on it. We unpack how value has performed in the US, unexpected big value findings, and other takeaways from the paper. After that, we explore the total cost of ownership in our planning section. These are expenses that you incur when you begin investing. We shed light on some of them and the effect they have on your investments. Finally, we end the show with Tim Nash’s take on our assessment of sustainable investing in episode 82. His insights offer an interesting perspective on the topic. While we can’t say we’re fully on board with his active position, it’s certainly a fascinating viewpoint. Don’t miss out on today’s jam-packed show!  

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Key Points From This Episode:

• Takeaways from the audience’s reception to episode 83 on cryptocurrency. [0:00:52.0]
• Insights and lessons from The Ride of a Lifetime, which Cameron recently finished. [0:04:13.0]
• More about Mawer: Data about and insights on how the company has fared.  [0:08:48.0]
• What would happen if index funds could hypothetically drive prices? [0:22:34.0]
• What’s interesting about the timing of Fama and French’s new paper, The Value Premium. [0:25:46.0]
• The thesis of Fama and French’s paper and what they found over measured periods. [0:26:49.0]
• Why Fama and French used how value did relative to the market. [0:29:17.0]
• How value performed between 1992-2019 and a surprising finding about big value. [0:31:04.0]
• Ben’s takeaways from the Fama and French study. [0:33:18.0]
• Conclusions from Fama and French’s 2019 paper, Volatility Lessons. [0:36:37.0]
• How other countries performed on market-wide value versus the market. [0:38:30.0]
• Clarifying the confusion around the management expense ratio and some empirical data. [0:40:00.0]
• The conflict of interest inherent in commission-based products. [0:42:39.0]
• What the trading expense ratio is and how it works. [0:43:47.0]
• Things similar to fees: Cash drags, large cap against distribution, and withholding tax. [0:47:50.0]
• ‘Bad advice of the week’: Globe and Mail article. [0:48:48.0]
• An overview of Tim Nash’s services and his take on Ben’s ESG presentation. [0:54:00.0]
• Tim’s critique of the assumption of lower returns when it comes to equity. [0:57:07.0]
• Why externalities are so important with ESG even though they are glossed over. [0:58:12.0]
• There is so much that we don’t know about ESG because it’s all so new. [1:01:45.0]
• Why Tim believes we should invest in the green companies even with the current market structure. [1:06:08.0]
• Ben and Cameron’s take on Tim’s insights. [1:09:32.0]

Tweetables:

“Index funds are a large part of the total value of the market but it’s a much smaller part of the total trading of the market.” — @CameronPassmore [0:22:04]

“There’s always a chance that value factor does not show up.” — @CameronPassmore [0:28:18]

“You can’t definitively say there’s no more value premium.” — @CameronPassmore [0:30:05]

“The cheapness of value is much cheaper than it has been historically.” — @benjaminwfelix [0:36:17]

“If you’re paying for advice, make sure you’re getting it or stop paying for it.” — @benjaminwfelix [0:43:38]

“By screening out companies, you’re going to be less diversified.” — @Tim_Nash1 [0:54:33]

“We can’t predict the future by looking in the rear-view mirror.” — @Tim_Nash1 [1:01:29]

Links From Today’s Episode:

Bob Iger on The Tim Ferriss Show —  https://tim.blog/2020/01/16/bob-iger/

The Ride of a Lifetime on Amazon —  https://www.amazon.com/Ride-Lifetime-Lessons-Learned-Company/dp/0399592091

Steve Jobs —  https://www.biography.com/business-figure/steve-jobs

Sam Zell —  https://www.forbes.com/profile/sam-zell/#4997b6f019df

Sam Zell on The Tim Ferriss Show —  https://tim.blog/2020/01/23/sam-zell/

Mawer —  https://www.mawer.com/

Ken French Data — https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

Buffet’s Alpha on AQR —  https://www.aqr.com/Insights/Research/Journal-Article/Buffetts-Alpha

The Value Premium — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3525096

Volatility Lessons — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3081101

Cliff Asness —  https://www.aqr.com/About-Us/OurFirm/Cliff-Asness-Bio

Market Timing: Sin a Little — https://www.aqr.com/Insights/Research/White-Papers/Market-Timing-Sin-a-Little

The Time for Venial Value-Timing Sin — https://www.aqr.com/Insights/Perspectives/Its-Time-for-a-Venial-Value-Timing-Sin

Advisors must become more familiar with liquid alternative funds as interest grows — https://www.theglobeandmail.com/investing/globe-advisor/advisor-funds/article-advisors-must-become-more-familiar-with-liquid-alternative-funds-as/

AIMA —  https://www.aima.org/ 

Tim Nash —  https://www.sustainableeconomist.com/

Rational Reminder Episode 63 with Tim Nash —  https://rationalreminder.ca/podcast/63

Tim Nash on Twitter —  https://twitter.com/TimNash_1

Rational Reminder Episode 82 — https://rationalreminder.ca/podcast/82

Toronto Star —  https://www.thestar.com/

Green Swan Report —  https://www.bis.org/publ/othp31.pdf

Henry Fernandez —  https://www.linkedin.com/in/henryafernandez/