Episode 291 - The Quant Winter, and is Canada Pension Plan a Scam?

02/08/24 • 82 min

1 Listener

Are you ready for a deep dive into quantitative investing, the private credit trend, and the Canada Pension Plan (CPP)? Then this episode is for you! Joining us today is Robin Wigglesworth, The Financial Times’ global finance correspondent, and author of Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever, a groundbreaking book about the past, present, and future of passive investing. We talk with Robin about quantitative investing and the ideas he lays out in his article ‘A Quant Winter’s Tale’, before hearing his insights on the private credit trend and his intriguing new book titled Bonds, all about the history of the bond market. Today’s episode also features our Mark to Market segment, where Mark McGrath joins us to talk about the Canada Pension Plan (CPP), providing a comprehensive overview of its inner workings, his response to the criticisms levelled against it, and why he believes it’s of huge benefit to a great many Canadians. Next, we take a look back at our conversation with Alexandra Macqueen on annuities before sharing our thoughts on its relevance to today’s discussion and why it’s worth revisiting. Be sure to stay tuned for our after-show segment where we share our book, blog, and viewing recommendations, plus our favourite reviews, followed by a sneak peek of some of the exciting guests we have coming up. Press play now for a deep dive into quant investing, the hype around private credit, saving for retirement, and a whole lot more!

Key Points From This Episode:

An introduction to today’s guest, Robin Wigglesworth, followed by his breakdown of quantitative investing. (0:04:05)
Theories on what happened to factor investing between 2018 and 2020; what is meant by the quant winter and why we are now in a quant summer. (0:09:59)
How investor sentiment regarding factor investing changed after the quant winter and how the algorithm aversion phenomenon impacted it. (0:15:13)
The collapse of value; the impact of the COVID-19 pandemic (plus its role in the quant winter), and where we are right now. (0:20:14)
An overview of quant investing products, and why many of them are too expensive. (0:23:24)
Breaking down the noisy-ness in factor data and Robin’s predictions for where factor investing will go from here. (0:25:51)
Unpacking the hype around private credit: indications that it’s in a bubble, how it could impact broader trends, and who stands to benefit most. (0:36:36)
We hear about the fascinating book that Robin is currently working on about the history of the bond market. (0:40:22)
Our Mark to Market segment on the complicated (and divisive) Canada Pension Plan (CPP); how it works, its profound benefits, and responding to the criticism it has received. (0:41:50)
A look back at our conversation with Alexandra Macqueen on annuities and how it links in with today’s discussion. (01:01:31)
Our after-show section: an update on the Money Scope Podcast, reading recommendations, reviews from our listeners, and some of the incredible guests we have coming up! (01:04:33)

Links From Today’s Episode:

Robin Wigglesworth — https://robinwigglesworth.com/

Robin Wigglesworth on LinkedIn — https://www.linkedin.com/in/robin-wigglesworth-17101722

Financial Times — https://www.ft.com/

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever — https://www.amazon.com/Trillions-Renegades-Invented-Changed-Finance/dp/0593087682

‘Quant Winter's Tale’ — https://www.ft.com/content/e0f98278-432e-4ece-b170-2c40e40d2835

Episode 184: Robin Wigglesworth — https://rationalreminder.ca/podcast/184

Episode 93: Cliff Asness from AQR — https://rationalreminder.ca/podcast/93

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

AQR — https://www.aqr.com/

Two Sigma — https://www.twosigma.com/

D.E Shaw — https://www.deshaw.com/

CPP Investments — https://www.cppinvestments.com/

StatsCan — https://www.statcan.gc.ca/en/start

Financial Planning for Canadian Business Owners Episode 116: True Co...

Key Points From This Episode:

An introduction to today’s guest, Robin Wigglesworth, followed by his breakdown of quantitative investing. (0:04:05)
Theories on what happened to factor investing between 2018 and 2020; what is meant by the quant winter and why we are now in a quant summer. (0:09:59)
How investor sentiment regarding factor investing changed after the quant winter and how the algorithm aversion phenomenon impacted it. (0:15:13)
The collapse of value; the impact of the COVID-19 pandemic (plus its role in the quant winter), and where we are right now. (0:20:14)
An overview of quant investing products, and why many of them are too expensive. (0:23:24)
Breaking down the noisy-ness in factor data and Robin’s predictions for where factor investing will go from here. (0:25:51)
Unpacking the hype around private credit: indications that it’s in a bubble, how it could impact broader trends, and who stands to benefit most. (0:36:36)
We hear about the fascinating book that Robin is currently working on about the history of the bond market. (0:40:22)
Our Mark to Market segment on the complicated (and divisive) Canada Pension Plan (CPP); how it works, its profound benefits, and responding to the criticism it has received. (0:41:50)
A look back at our conversation with Alexandra Macqueen on annuities and how it links in with today’s discussion. (01:01:31)
Our after-show section: an update on the Money Scope Podcast, reading recommendations, reviews from our listeners, and some of the incredible guests we have coming up! (01:04:33)

Links From Today’s Episode:

Robin Wigglesworth — https://robinwigglesworth.com/

Robin Wigglesworth on LinkedIn — https://www.linkedin.com/in/robin-wigglesworth-17101722

Financial Times — https://www.ft.com/

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever — https://www.amazon.com/Trillions-Renegades-Invented-Changed-Finance/dp/0593087682

‘Quant Winter's Tale’ — https://www.ft.com/content/e0f98278-432e-4ece-b170-2c40e40d2835

Episode 184: Robin Wigglesworth — https://rationalreminder.ca/podcast/184

Episode 93: Cliff Asness from AQR — https://rationalreminder.ca/podcast/93

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

AQR — https://www.aqr.com/

Two Sigma — https://www.twosigma.com/

D.E Shaw — https://www.deshaw.com/

CPP Investments — https://www.cppinvestments.com/

StatsCan — https://www.statcan.gc.ca/en/start

Financial Planning for Canadian Business Owners Episode 116: True Co...

Previous Episode

Episode 290 - Morgan Housel: Same as Ever

In this episode, we are joined, for the third time, by renowned author and commentator Morgan Housel. Many of you are familiar with Morgan's bestseller, The Psychology of Money, and he is back to discuss his latest book, Same as Ever: A Guide to What Never Changes. He is also the partner at The Collaboration Fund, a network of fund managers investing across asset classes while identifying and supporting companies at the intersection of for-profit and for-good. In our conversation, we delve into the timeless principles that shape our perspectives of the world and why things are the Same as Ever. We discuss the importance of holding cash, challenging traditional analytical approaches and encouraging a broader reflection on life beyond numbers. Discover the recurrent nature of once-in-a-lifetime events, the pitfalls associated with the insatiable desire for certainty, the value and power of storytelling, and the complex interplay between incentives and expectations. Gain insights into the value of forecasting behaviours instead of market dynamics, why pessimism is more common and more captivating than optimism, embracing slight inefficiencies on the path to success, and much more! Don't miss this engaging discussion with a master storyteller and gain new perspectives on finance, human behaviour, and the principles that remain the Same as Ever with Morgan Housel. Tune in now!

Key Points From This Episode:

(0:03:28) Why it is important to understand the aspects that never change, with examples.

(0:05:58) Morgan explains the value of random and seemingly inconsequential events.

(0:07:43) Discover the most persistent characteristic of risk and the ways expectations impact behaviour and decision-making.

(0:13:04) How he has been dealing with the success of his book, Psychology of Money.

(0:15:11) What makes once-in-a-lifetime events more common than expected and the problems that a desire for certainty brings with it.

(0:19:16) Leveraging storytelling to understand the world and how to filter out the good information from the bad information.

(0:25:41) Explore the role of incentives in influencing expectations and how calm can turn into crazy.

(0:31:06) Learn how success can develop into failure and the problems that stem from investors trying to squeeze too much too soon from their investments.

(0:37:13) Advice for understanding the normal ‘growth rate’ and what motivates innovation.

(0:42:29) Balancing stress and adversity and why being slightly inefficient is a good thing.

(0:46:46) Navigating hassle and nonsense on the path to success.

(0:48:30) The time scale differences in materializing good news and bad news.

(0:50:31) Strategies for combining optimism and pessimism to make informed and effective long-term decisions.

(0:53:03) Examine the challenges of predicting the impact of future innovations.

(0:55:43) The tendency for people to perceive others or businesses as better.

(0:58:38) Hear about the difference between permanent and expiring information.

(1:00:36) Reasons why complexity and length are appealing and how personal experiences shape perspectives.

(1:05:00) Morgan shares the biggest takeaways from his books.

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/

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://twitter.com/RationalRemind

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — [email protected] Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/

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

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/

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

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Morgan Housel —

Next Episode

Episode 292 - Rob Copeland: Ray Dalio and Bridgewater

In this episode, we welcome Rob Copeland, author of the recently released book The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend. Rob, a finance reporter for The New York Times, provides a gripping account of the rise and unravelling of Ray Dalio and Bridgewater Associates. Bridgewater Associates, one of the prominent hedge funds on the planet, is synonymous with the legendary investor Ray Dalio. In our conversation, we delve into the intricacies of the company's investment portfolio, shedding light on the details that contribute to its success, and dissect Ray's supposedly revolutionary model of economic cycles. Discover the unconventional principles that shape Bridgewater's culture, from believability to radical transparency, and get a sneak peek into the bizarre Dot Collector app that fuels the company's operations. Gain insights into employee experiences at the company, the secret sauce to Ray’s success, the company’s track record in predicting market crashes, undisclosed aspects of Ray’s success story, and much more! Tune in now!

Key Points From This Episode:

Details about the company’s investment management portfolio. (0:06:38)
Dalio's model of economic cycles’ influence on the company’s investment approach. (0:09:13)
Exploring the criticism toward Dalio's model of economic cycles. (0:10:13)
How successful Dalio has been at predicting market crashes. (0:12:21)
Bridgewater’s investment success track record. (0:14:40)
Unpacking Dalio's principles and how he developed them. (0:16:16)
Uncovering how Dalio's principles are perceived within Bridgewater and how they made the company successful. (0:18:56)
Learn how believability and radical transparency work within Bridgewater. (0:20:58)
The bizarre Dot Collector app and how the company leverages it. (0:24:57)
Employees’ experiences of working at Bridgewater. (0:28:02)
Rob’s opinion about Ray and how he compares to other hedge fund managers. (0:29:38)
Hear about undisclosed aspects of Ray's success story. (0:34:52)
Dalio and readers’ reactions since publishing the book. (0:37:17)
Delving into the nuance factors explaining Bridgewater's success as a business. (0:40:18)
How the company will continue to function post-Ray Dalio. (0:43:06)
What Rob hopes readers will take away after reading the book. (0:44:55)