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- Опубліковано 29 чер 2024
- Who better to have on the Rational Reminder Podcast than Professor Ken French? Ken has been a massive inspiration to us and has remained a guiding light for sensible, evidence-based investors over the last few decades! His work with Eugene Fama stands as the seminal work on the subject of passive investment portfolios and we are so delighted to have him on the show today as we talk through some of his thoughts on a variety of subjects. This conversation was recorded near the beginning of the coronavirus outbreak on this side of the world and although Ken does mention the crisis, the situation has developed considerably since then. We start with the basics, with Ken giving us some helpful definitions and perspectives on asset pricing models and active management before we dive into the current market volatility and familiar topics such as risk tolerance and equity premiums. We also get the chance to hear Ken's reflections on a number of his papers, home-country bias, and the value of a good advisor. Some listeners may be surprised to learn that Ken still relies heavily on a financial advisor of his own and he explains exactly what functions this person performs for him and why he values their help so highly! We also discuss better strategies for long-term portfolio allocation, sustainable investing options and more, so be sure to join us for this very special episode, it is not to be missed!
Key Points From This Episode:
0:00 Introduction; Ken’s description of asset pricing models and their importance to invest; Reasons why most people should ignore and avoid actively managed options.
8:36 Why the same rules that apply to mutual funds apply to hedge funds to; Reasonable approaches to the market volatility we are currently experiencing.
18:22 The potential impacts of the move away from active into passive investments.
21:12 Realistic expectations for collecting a positive equity premium; The probability of negative premiums and the most helpful time horizons; Findings from the Fama and French paper, Value Premium.
34:06 Better and worse ways of measuring value and Ken’s personal preference.
37:36 Factoring in the ‘momentum effect’ and keeping it in perspective.
41:06 Defining and evaluating home-country bias.
43:50 Ken’s view of buybacks and the possible penalization of companies administering them.
46:02 Environmental and sustainable investing and how this can play into a strategy; Who should business management work for? Shareholders or corporate stakeholders?
52:41 Ken’s valuable relationship with his own financial advisor!; The most important factor that Ken considers in his investments: the unexpected.
Links From Today’s Episode:
Rational Reminder on iTunes - itunes.apple.com/ca/podcast/t....
Rational Reminder Website - rationalreminder.ca/podcast/100
Renaissance Medallion Fund - www.bloomberg.com/news/articl...
Volatility Lessons - papers.ssrn.com/sol3/papers.c...
Value Premium paper - papers.ssrn.com/sol3/papers.c...
Market Timing: Sin a Little - www.aqr.com/Insights/Research...
Disagreements, Taste, and Asset Prices - papers.ssrn.com/sol3/papers.c...
The Rational Reminder is presented as an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. The funds and portfolios discussed are examples only and may not be appropriate for your individual circumstances. - Навчання та стиль
Key Points From This Episode:
Ken's description of asset pricing models and their importance to investments. [02:37]
Reasons why most people should ignore and avoid actively managed options. [04:50]
Why the same rules that apply to mutual funds apply to hedge funds too. [08:36]
Reasonable approaches to the market volatility we are currently experiencing. [11:01]
The potential impacts of the move away from active into passive investments. [18:22]
Realistic expectations for collecting a positive equity premium. [21:12]
The probability of negative premiums and the most helpful time horizons. [25:25]
Findings from the Fama and French paper, Value Premium. [28:47]
Better and worse ways of measuring value and Ken's personal preference. [34:06]
Factoring in the 'momentum effect' and keeping it in perspective. [37:36]
Defining and evaluating home-country bias. [41:06]
Ken's view of buybacks and the possible penalization of companies administering them. [43:50]
Environmental and sustainable investing and how this can play into a strategy. [46:02]
Who should business management work for? Shareholders or corporate stakeholders? [49:25]
Ken's valuable relationship with his own financial advisor! [52:41]
The most important factor that Ken considers in his investments: the unexpected. [54:27]
I love the humility of Mr French being like "I work with a guy named Gene Fama." Like he's just some guy out there and not the other leg of incredible academic discoveries that literally effect how we invest, today.
Such humility. That's like Paul being like "I played with this guy named John Lennon".
Wow! You got Ken French!!! Hope Fama will be before 200th ep.
Not before, at 200!
RR came thru!
This is the first podcast episode I ever listened to in full in 33 years. I'd recommend anyone who wants to understand investing on a fundamental level to listen to this. Absolutely loved it.
This is a masterpiece guys! 👌
Thank you for this great interview with Ken French!
Congratulations! Thank you for the great advice throughout the past 100 episodes
Thank you for interviewing Professor French! I know he's one of your heroes. Must have been an amazing experience to speak with him.
What a guest! Really pulled it out of the bag for this one
My god! This thing is dope! Thank you so much for this interview!
This podcast reminds me of Freakonomics Radio. I love the vibe.
Great way to mark your 100th episode! Nice symmetry having Ken French. Fantastic interview, the best yet. Really enjoyed it. Thanks!
Good to see you here, Dr. Maxted, I enjoy reading your comments on the FB group.
Mr. French is quite the stoic!
Such an awesome content! Thanking you!
Great episode! Loved it! For next week I hope we can hear you guys talk about the increasing moves towards value stocks in the markets right now and if this is the time where they would outperform??
Amazing Interview! Thank you so much for your content!
This was a great podcast. You guys keep up the good work.
The rose tinted glasses when economists wax poetic on how management reflects shareholder values are quite something to behold. Big picture, maybe, in a roundabout incredibly inefficient way. It seems like it is only highly egregious before that triggers a response, and shareholder representation is capital skewed... so it's more of a representation of shareholder values for a few major shareholders and most others are screwed in most corporate governance schemes.
Can you talk about rebalancing frequency and expected stock returns for factor strategies ?
GREAT episode! I would have loved to see ken french take a look at the rational reminder model portfolios,
He mentioned in this episode that a 7% home equity bias was reasonable for canada (3% of market weight).
The model portfolios however suggest a 33% home bias
should we reallocate to a more sensible home bias like he mentioned?
yashen taher I don’t think he was saying that 7% Canadian is the optimal home bias. Just that that is a home bias. He did say that 83% was too much. Most people advise somewhere between 20-40%, so 1/3 seems about right.
Very interesting episode!
Nice interview!
Quick question: Ken says that the world would be a better place if prices were more accurate. (Not exactly, but I think it's one of the implication of his explanation at about 20:30). My question is: Why? For an active investor, mispricing is a great opportunity. For a passive investor, it does not seem to change much since some will be overvalued and others undervalued. So is there an economic incentive to have accurate prices?
It's not all about active and passive investors looking to optimize their portfolios. At a more fundamental level, capital markets exist to allocate capital. Firms use capital to make investment decisions, and the market is what sets their cost of capital. If a company wants to issue stock or bonds to finance a project, the cost of capital will dictate which projects they choose. Ideally the information in prices helps market participants make more informed decisions. If there is no information in prices then the allocation of capital will not be efficient.
@@BenFelixCSI Hey! Thanks for the response! But I didn't mean "How does that optimize investors portfolio?". I really meant : "Is there an economic incentive to have accurate prices?" So since all type of investors can gain from mispricing, what is there to gain for the companies?
Price of financing seems to be determined by a small group of firms at the bonds or stock issue or by the company itself. At some point these issues enter the public market and their price tends to vary greatly from what was determined. Let's say a company issues shares on an IPO at 30$. On first day, it hits 45$, (or inversely 20$, the variation is more important than the actual number). What is the real price? If that was 30$, then clearly the price did not inform market participants well enough since their offers and demands drove it to 45$. If that is 45$, then the company did not get the right allocation of capital.
Might be me that is missing something, but it does not seem as if companies are getting the real value of their issues most of the time and prices set afterward on markets does not seem to influence price at issuance much either. So how market pricing actually help allocation of capital? I understand this is a very broad question but, there is probably something obvious I'm missing here.
As always, thanks for your time and take care!
Grat! Enjoyed episode. But a bit dissapointed by questions - you were mostly asking questions, you have already known answers to. So did we as listeners of your podcast. Notning new. Just sum of Rational Remainder podcast in one episode. Nevertheless, you guys rock! :)
There is not a whole lot of "new" information out there that would be useful to most people. Ken explains the old stuff better than anyone!
In what ways is IJS better than VIOV? Vanguard tracks the same index but for 10 basis points cheaper.
You seem to be unfamiliar with the various shades of meaning in the word 'bias'.
'home-country bias' is very emotive language. I must be an idiot to be 'biased' right? And biased to my home country... so tacky and parochial..
To some degree, I understand the risks of Australian shares. This is not just a sentimental 'familiarity' as some writers suggest, patronisingly. I understand the risks of International shares less. This is the same for your context too.
Why should I take the higher risk of international shares (due to unknowns and less understanding of associated risks) just to address an 'isolated single country risk' that that is more conceptual than real, because economies and companies are increasingly globalised, regardless of where they are domiciled?
I would have to be 'internationally biased' to invest in an unknown which I wouldn't domestically - no?
It is much easier for me to compare the asset class of domestic shares with other domestic asset classes, rather than international shares too.
It's not so much 'bias' as common sense, methinks. But good luck trading one risk for another, guys. I just prefer risks I better understand. Call me what you will...