September 24, 2020 Advanced Investing Personal Wealth The Rational Reminder Podcast Episode 117: A Message from the Bank of Canada, and Safe Withdrawal Rates with Factor Tilts For the first part of today’s discussion, we are joined by Don Coletti from The Central Bank of Canada. He is here to talk about their upcoming recommendation for a monetary policy framework for the next five years which is incorporating public feedback into its development through the survey, Lets Talk Inflation. From there, we touch on some favourite books, Starbucks’s stored value card liabilities, the benefits of keeping inheritance in a separate account, new standards for financial planners and advisors proposed by the FSRA, and why SoftBank did not pile into call options and cause the rally in tech as the previous headlines suggested. Heading into the meat of the episode next, Ben shares some findings from a model he built inspired by a program written by one of this show’s listeners that tests historical safe withdrawal rates for factor loaded portfolios. Ben gets into a series of papers that speak to the diversification benefit of adding factors in this section too. He wraps up the discussion with a spanner in the works though, which looks at this question through the lens of time-series momentum rather than cross-sectional momentum. Here, he considers trend following as another type of diversification that has shown favourable impacts on portfolio returns in the data that exists. As usual, we wrap up with our bad advice of the week, hearing Cameron relate the bizarre ‘findings’ of a Forbes article claiming that active management beats passive investing in the face of piles of data to the contrary! The Let’s Talk Inflation Survey — https://www.bankofcanada.ca/toward-2021-renewing-the-monetary-policy-framework/toward-2021-outreach/lets-talk-inflation/ Watch this conversation on the Rational Reminder YouTube channel Subscribe to the Rational Reminder podcast Key Points From This Episode: Updates: An upcoming guest, great reviews of this show, and the brilliant discussions thread. [0:00:23.0] Introducing Don Coletti to talk about The Bank of Canada’s outreach programme. [0:04:52.0] Alternative approaches to monetary policy the Bank of Canada is considering. [0:07:19.0] Thoughts on the US Federal Reserve’s change to average inflation targeting. [0:11:43.0] How open the Bank of Canada is to making a change. [0:13:14.0] Why the Bank of Canada is placing more emphasis on engaging with the public as part of their renewal. [0:14:35.0] Why questions about large scale asset purchases and forward guidance were included in the survey. [0:17:00.0] The response rate so far to the Bank of Canada’s Let’s Talk Inflation survey. [0:18:59.0] Favourite books and series, and Starbucks’s stored value card liabilities. [0:21:50.0] The benefits of keeping inheritance in a separate account. [0:26:24.0] Standards for financial planners and advisors the FSRA is proposing. [0:28:20.0] Why SoftBank was not piling into call options and responsible for the rally in tech. [0:31:43.0] Ben’s remodelling of a listener’s code that tests historical safe withdrawal rates for factor loaded portfolios. [0:34:40.0] Safe withdrawal rates for different stock indexes according to Ben’s model. [0:37:15.0] A paper looking at the interaction between factors historically and the results this produced. [0:47:52.0] Findings of a paper looking at the five factors through business cycles. [0:56:57.0] Papers exploring whether a factor can be cheap and therefore have a higher extended premium. [1:00:41.0] The shadow time-series momentum casts on this; the impact of trend following on safe withdrawal rates. [1:02:46.0] Bad advice of the week: Active management beats the stock market. [1:15:51.0] Books In Today’s Episode: Thinking in Bets — https://www.amazon.com/Thinking-Bets-Making-Smarter-Decisions/dp/0735216355 How to Decide — https://www.amazon.com/How-Decide-Simple-Making-Choices-ebook/dp/B07TRJB3S3#:~:text=Making%20good%20decisions%20doesn’t,use%20to%20make%20better%20decisions Who Is Michael Ovitz? — https://www.amazon.com/Who-Michael-Ovitz/dp/1591845548 The Master Switch — https://www.amazon.com/Master-Switch-Rise-Information-Empires/dp/0307390993 Links From Today’s Episode: Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Don Coletti — https://www.bankofcanada.ca/profile/donald-coletti/ Ted Seides Interview with Annie Duke — https://podcasts.apple.com/us/podcast/annie-duke-how-to-decide/id1223764016 ‘The Economy, Plain and Simple’ — https://www.bankofcanada.ca/publications/the-economy-plain-and-simple/ ‘The BIG list of behavioural nudges’ — https://blog.brinkercapital.com/the-big-list-of-behavioral-nudges/ ‘Will Ontario’s new law protect financial planning in name only or in substance too?’ — https://www.theglobeandmail.com/investing/article-will-ontarios-new-law-protect-financial-planning-in-name-only-or-in/ ‘A Wealth Management Perspective on Factor Premia and the Value of Downside Protection’ — https://www.researchgate.net/publication/316481345_A_Wealth_Management_Perspective_on_Factor_Premia_and_the_Value_of_Downside_Protection Rational Reminder Ep 93 with Cliff Asness — https://rationalreminder.ca/podcast/93 ‘Fama-French Factors in Business Cycles’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3082577 ‘The Death of Diversification Has Been Greatly Exaggerated’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2998754 Michael Kitces — https://www.kitces.com/\ ‘Stock Market: Goodbye Passive Indexing, Hello Active Stock Picking’ — https://www.forbes.com/sites/johntobey/2020/08/02/stock-market-goodbye-passive-indexing-hello-active-stock-picking/#6f656b6824de Share: Facebook Twitter LinkedIn Email CIRO Advisor Report
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