[00:03:01] Rebecca Hotsko: Thank you so much for taking the time to join me today. I’m so excited for today’s conversation. I’ve been reading your work for years and it’s truly been instrumental in helping me become a better investor.

[00:03:13] Rebecca Hotsko: It’s really interesting because you were among one of the first authors to write on passive investing. I’m just curious to know what led you to want to start educating investors in the passive investing space? 

[00:03:29] Larry Swedroe: I think the right way to think about this is unfortunately, despite the fact that money is probably one of the most important things in people’s lives. It’s not of course money itself, but what money can do for you, provide a secure retirement, allow you to achieve the things you’d like to do. I, I just came back from a trip to Israel and Jordan. Got to see amazing places like Petra. Provide a good education for your children. And yet despite that, I mean other than your family, your [00:04:00] health, for some people perhaps their religion, money’s the next most important thing.

[00:04:05] Larry Swedroe: And despite that, unless you get an MBA in finance, it’s a virtual certainty. You haven’t taken even a single course in capital markets theory and investing. So it’s a great failure of our education system to educate investments on what the most prudent way to invest, given what the academic literature says.

[00:04:27] Larry Swedroe: So where do investors get their information from? The enemy, which is mostly Wall Street, who wants to extract fees from investors and they try to tell people that the right way to invest is pick stocks and time the market. And you have people like the folks at CNBC or Bloomberg News that they need you to tune in and Money Magazine and Barons, they need you to tune in and read because that’s how they make money when you are far better off ignoring all that [00:05:00] noise.

[00:05:00] Larry Swedroe: Great example. Warren Buffet, who most people would say is maybe the greatest investor of time. He has said he hasn’t read an economic or market forecast in 25 years, so why should you be paying attention to those things? I thought it would try to contribute to people like John Bogle and William Bernstein in a few others who’ve made it their life’s mission to educate investors on what the research shows is the way to give you the best chance of achieving your life and financial goals .

[00:05:33] Rebecca Hotsko: And that’s why I love your book so much. You provide so much evidence behind each point, and so it just makes it so clear as to why this strategy is optimal for most people and why the rest is noise like you just described. So I want to talk about your first book on passive investing. It’s called “The Only Guide to a Winning Investment Strategy You’ll Ever Need”, and you refer to passive investing and diversification as the winning strategy.

[00:06:00] Rebecca Hotsko: Can you talk a little bit more about why you call this the winning strategy? 

[00:06:06] Larry Swedroe: Think about that. There are really two types of games that you can play. One is a game like you and I are playing chess. That’s a zero sum game. There’s one winner and one loser, and there are no expenses, right? If you and I try to pick a sports team and bet on them, you and I have no expenses.

[00:06:27] Larry Swedroe: That’s a zero sum game. When it comes to investing, however, it’s not a zero sum game because there are some expenses, and if I buy a sock, I’m betting it’s going to outperform the market, right? Because I could just very cheaply buy an ETF today that owns the entire market for three basis points. If I’m trading an individual stock and doing it frequently, I’ve got bid, offer spreads, maybe commissions, and I’m going to have higher costs and taxes inefficiency as well.

[00:06:59] Larry Swedroe: If you and I are both trying to pick stocks and time in the market, well collectively we’re going to lose because we have expenses that are more so if I outperform, because I’ve picked stocks that have outperformed the market and overweighted them. Somebody has to be on the other side and they have underweighted those stocks, so they’re the loser.

[00:07:23] Larry Swedroe: That’s the question is, which is the winners game in this zero sum game before expenses, but negative sum game after expenses. So even if you’re good at picking stocks and timing the market, you still have to be good enough to overcome your expenses. When I wrote that book in 1998, the evidence was that only about 20% of active managers, meaning professional, mutual fund institutional investors, were outperforming appropriate risk adjusted benchmarks that was before [00:08:00] taxes, but after expenses.

[00:08:02] Larry Swedroe: So I don’t like those odds of 80% against you. Even worse, if you’re a taxable investor, taxes are the largest expense for most taxable investors if you’re active, bigger than the expense ratio of the fund, bigger than the trading costs as well. If once you take taxes into account, the numbers will like 10%, 90% chance you’re a loser.

[00:08:28] Larry Swedroe: It’s kind of like the odds in a Las Vegas casino if you’re playing long enough. Some people win. Today now, and I wrote a book called The Incredible Shrinking Alpha with my friend Andy Burett showed why it’s actually getting harder and harder to outperform the market that those numbers are down to 2% and 1% after taxes or so, and that was as far back as 10 years ago, so it’s probably even less today.

[00:08:58] Larry Swedroe: Here’s the way to think about it. The people who are engaged in active investing certainly have the chance to win that game. Can’t rule it out, but the odds of doing so are so poor that obviously the prudent strategy is to choose not to play. So it’s not that the people are losers, it’s a loser’s game.

[00:09:19] Larry Swedroe: And just like the surest way to win in Las Vegas or the racetrack is don’t play, don’t be an active investor and you will, you have the best chance of achieving your financial goals if you diversify. And so let’s touch on that briefly. The stock market. If you just bought and owned the market and reinvested any dividends over time, you would’ve gotten about a 10% return.

[00:09:45] Larry Swedroe: Now, if you ask people, you know, if you bought an individual stock, what percent of them outperform? Most people would think, well, it’s probably 50 50, and it’s nowhere near that far. Fewer stocks beat the market than people think. In fact, here’s a number that’s probably going to shock you, Rebecca, even though you’ve read my books.

[00:10:08] Larry Swedroe: Which is this. If you look at the excess return of stocks over treasury bills, that’s called the risk premium for equities, right? So you should earn an excess return for taking that risk. Only 4% of all the stocks one in 25 account for 100% of all the excess return of. Now, what are the odds you are going to find those stocks and hold them for the entire time to make sure you capture those gains here?

[00:10:40] Larry Swedroe: Most stocks underperform the market and therefore as you add more stocks to your portfolio, you’re increasing the chances of getting the median return and the mean return for stocks if you own a few stocks, which is unfortunately what most people tend to do are individual. I. You have, do have a chance to hit that home run and find the next Google or Microsoft, but the odds are greatly against you.

[00:11:08] Larry Swedroe: And unfortunately, all the research on individual investors show that the vast majority of them underperform. In fact, the stocks that they buy on average go on to underperform after they buy them. And the stocks they sell go on to outperform after they sell them. Plus, since there’s zero sum game, someone’s on the other side.

[00:11:31] Larry Swedroe: Turns out it’s the smarter institutional investors who are exploiting dumb retail money, but they have expenses. And even that’s not sufficient to overcome that. And therefore even the institutional investors lose, even though they’re able to outperform the dumb naive retail. 

[00:11:52] Rebecca Hotsko: You said so much there that I want to unpack and that number is so mind blowing still, how it’s just such a small amount that actually is able to beat the market.

[00:12:02] Rebecca Hotsko: I have a couple follow up questions. Is that also true in the global context or is that, was that just done in the US?

[00:12:10] Larry Swedroe: No, that’s true around the globe and it’s, the thing is you have to remember with stocks, the distribution of returns are, is not like a bell curve. And the reason is the most you could lose is a hundred percent, but what’s the most you can gain could be 10000%, right?

[00:12:27] Larry Swedroe: So you have a few stocks that are called lottery stocks here, hit the lottery. If you’ve bought an own Microsoft or Apple and held it through a very long period of. Those stocks make up for the many stocks that disappear. In fact, a very small percentage of stocks even last 30, 40, 50 years. Every year, there’s a significant number of stocks disappear.

[00:12:52] Larry Swedroe: Unfortunately, most investors, the costs, I would just say simply because they’re human beings, they tend to be over. It doesn’t matter what the question is. You ask them, are you a better than average driver or a better than average lover? It doesn’t matter either way. 90% of people pretty much say they’re better than average, which of course cannot be.

[00:13:16] Larry Swedroe: So when it comes to picking stocks, course, they think they’re better than average. Makes ’em over confident. If you’re over confident, why do you need to diversify? Cause you can pick the stocks that’ll outperform. The evidence says not only it’s not true, but here’s a couple of interesting little stories.

[00:13:33] Larry Swedroe: One is study. You know, money, people believe that more heads are better than one. So you look at investment clubs and they actually do worse than individual investors. And the best story of all was about the Mensa Investment Club, which I wrote about. Now you have to be a genius, literally to be a member of men.

[00:13:54] Larry Swedroe: IQ is in the top, I think one or 2% and the Mesa Investment Club [00:14:00] dramatically underperform the market doing worse than the average investment club. And again, it could be due to overconfidence. 

[00:14:08] Rebecca Hotsko: It is pretty remarkable reading all of those examples that you give in the book, because on one hand I think people like active strategies and we’ll get into these.

[00:14:18] Rebecca Hotsko: I wanted to talk with you about that in a little bit. We like these strategies because we feel like we have more control in things like that. But I do want to touch on one thing because a lot of your book focused on why active managers can’t beat the market. And we talked about costs, fees, afters, but what about for the retail investor where we don’t have those same fees and costs and those hurdles?

[00:14:42] Rebecca Hotsko: Is it still the same in the evidence that we also can’t beat the market even though we’re not subject to all those costs? Or what? What does it say about 

[00:14:50] Larry Swedroe: that? Well first I’ll add active investing is exciting and that’s the pill, if you will, that causes people besides being over confident they want to play.

[00:15:00] Larry Swedroe: It is exciting. We all know that betting, for example, on sports is a loser’s game. The house just keeps taking some of those chips off the table, yet billions of dollars are be every day. Same thing people go to Las Vegas casinos knowing they’re taking the vigorous out of every bet, and people go because it’s exciting.

[00:15:22] Larry Swedroe: Active investing is exciting. People watch Jim Kramer on CNBC and they think it’s exciting trying to beat the market. So, and it does offer the hope of great returns. Unfortunately, you could take your IRA and buy a lottery ticket and you’d have about as much chance of winning as you do at that game if you’re actor.

[00:15:41] Larry Swedroe: So that’s it. So individual investors, here’s the thing that’s easy to understand, but virtually nobody thinks about it. The mistake that people make is that they confuse information with what’s called value added information or wisdom. Let’s use you as an example of Rebecca. Have you ever bought any individual stocks?

[00:16:06] Larry Swedroe: I have, yes. Give me the name of any one of them. 

[00:16:10] Rebecca Hotsko: So one of them was RBC Banks 

[00:16:13] Larry Swedroe: in Canada. Right. So you bought RBC and I’m sure because you’re an intelligent woman, you had probably 10 or 15 good reasons you did your research. You didn’t just get a tip on Reddit and said, here are the reasons why. You looked at management and said they’ve got a great management team, strong balance sheet, good culture.

[00:16:34] Larry Swedroe: You know, earnings A looks great, and you list all these things. Now what you failed to do, I’m willing to bet, is to ask the this very simple question and let’s agree. All the things you cited are true. Let’s say you’re investing in a drug company. You’ve done the research that they’ve got this great product that’s going to cure cancer, right?

[00:16:57] Larry Swedroe: Then you have to ask this question, [00:17:00] am I the only one who knows these things? What do you think? Were you the only one who knew all those good things about RBC or absolutely not. What do you think the smart people, Goldman Sachs and Morgan Stanley and other institutional investors, hedge funds, et cetera, did they know what you knew?

[00:17:19] Larry Swedroe: Now, since we know that beating the market is a zero sum game, if you are buying it, somebody has to sell you that stock, right? It doesn’t get created outta the thin air. So if you are buying the stock at 40 because you think it’s worth 50, they’re selling it at 40. Only one of you could be right. You think it’s undervalued.

[00:17:42] Larry Swedroe: They think it’s overvalued, so they’re selling it right? What are the odds that you are right versus them with the greater information? You know, just acknowledging they know more than you. And that’s what the research shows. Every time individuals buy a stock on average, it [00:18:00] goes on to underperform after they buy it.

[00:18:02] Larry Swedroe: And on average, when they sell, they underperform. Cause people never stopped to ask the question, what do I know that the rest of the world doesn’t know? If you bought TDC because you thought, let’s say it was trading at 40 and you thought it’s worth 50, if Morgan Stanley thought it was worth 50, where would it be?

[00:18:22] Larry Swedroe: They wouldn’t be sitting on their hands watching the ticker traded 40. They would be buying it. It would already be at 50. So the collective wisdom of the market thinks the stock is really only worth 40. You’re just over confident of your ability to analyze and make a judgment and you think it’s undervalued.

[00:18:43] Larry Swedroe: It’s possible that it’ll turn out to be right, but the evidence shows otherwise. Now you’re, the problem is this. The market is so efficient and it’s setting its prices that it’s difficult for the active investors to exploit you because they’re betting [00:19:00] against the collective wisdom of the market.

[00:19:02] Larry Swedroe: Remember this today, about 90% of all trading is done by institutions. When you buy a stock, say tdc. The odds are nine to one, that it’s another, it’s an institution. On the other side, you’re not trading likely against another naive retail investor who you might be smarter than you’re trading against Warren Buffet, Peter Lynches of the world, and hedge fund managers, et cetera.

[00:19:29] Larry Swedroe: But here’s the problem for the act of institutional vessels, when Goldman Sachs is buying a stock, who’s likely on the other side? Well, it’s 90%. It’s likely to be someone like Morgan Stanley or Ray Dalio at Bridgewater, and who’s to say, who’s smarter there? Who’s the dummy in that game that’s being exploited?

[00:19:51] Larry Swedroe: And the problem is when you own one stock, you have the opportunity to hit that home run, but you also have much greater odds. It [00:20:00] will underperform the market because most stocks underperform. And therefore you’re under diversified and therefore you’re likely to lose. You reduce your odds of underperforming the more the number of stocks you buy.

[00:20:15] Larry Swedroe: And if you follow the research, there are certain types of stocks that gets us into a whole other territory here that have outperformed the market over the long term. And they’re the kinds of stocks that Warren Buffet had been telling people for 50 years to buy. But you don’t have to pick individual stocks to do that today.

[00:20:34] Larry Swedroe: There are mutual funds that buy all of the types of stocks that have certain traits and characteristics that Buffet told you about. And all the mutual funds or ETFs that we recommend at our firm, Buckingham, actually follow those strategies. They don’t just buy, say, five stocks that Warren Buffet might buy.

[00:20:55] Larry Swedroe: My portfolio probably has 20,000 stocks in. But they  all have those same characteristics of being cheap and profitable, and we also tend to avoid what’s called negative momentum stocks, stocks that are recently underperforming. 

[00:21:12] Rebecca Hotsko: I do have a question on that because, okay, so if it is the case where we buy a stock and it’s fairly valued, then let’s just say it is fairly valued, we would still expect to get the discount rate, the cost of capital.

[00:21:26] Rebecca Hotsko: I guess if we buy the stock, even knowing that, okay, it might be the right price, it might not, but I want the discount rate, I want that cost of capital. How does that factor into, because it’s not like you don’t get a return, then you expect to get the cost of capital. So how do you think about that? 

[00:21:46] Larry Swedroe: The right way to think about this is if you, it’d be easier if I, you know, we had a graph and a board here, but if you think about a bell curve, the cost of capital, which is your expected return, would be  a line that you would draw vertically down the middle of that bell curve.

[00:22:05] Larry Swedroe: So when you, and let’s say just using the historical data, that’s 10%. So the average stock has gotten 10%. T-bills were about three. You earned the compound return of about 7% as a risk premium. Okay. The problem is in theory, most people think half the stocks are to the right of that 10 and half the stocks are the left of the 10.

[00:22:29] Larry Swedroe: But as I told you earlier, it’s not true. Maybe it’s 60% of the stocks are to the left and only 40 or to the right, and the distribution is really skewed because there’s a very thin, far tail to the right, the Microsofts and the Googles, and there’s a lot of stocks to the left that eventually go bankrupt and disappear.

[00:22:50] Larry Swedroe: So it’s like a lottery ticket. When you buy it, the average expected return is 50%, but 99% of people get minus a hundred percent and a very few get some high returns. So when you’re buying one stock, the odds are you’re going to get below the mean because the average stock more, less than 50% get the market return.

[00:23:16] Larry Swedroe: And as you add more stocks, you move towards the right until you eventually own the market, and now you’re right at that mean return. So the problem there is, yes, you have an expected return there, but you have to think about it as a potential dispersion of returns. Think about spinning a wheel. Let’s say there were a hundred stocks in the market and you had a wheel with a hundred different stocks on it.

[00:23:43] Larry Swedroe: They all don’t get 10% right? But if you spun the wheel a hundred times randomly, you would expect to get 10%. But if you spun it once, you might lose a hundred percent or make a thousand percent, and that’s what you’re doing. You’re spinning that wheel. Not [00:24:00] enough times. 

[00:24:01] Rebecca Hotsko: So you wrote a great chapter on your book just talking about does the market value stocks correctly?

[00:24:09] Rebecca Hotsko: Because I think often market efficiency is confused with stock valuation. Can you explain to our listeners these two things and kind of reconcile how investors are able to beat the market then with active approaches? 

[00:24:24] Larry Swedroe: Market efficiency doesn’t mean that the market price is the right price. We don’t know that until after the fact.

[00:24:32] Larry Swedroe: Clearly, for example, Enron, before it went bankrupt, was trading at much higher prices. Turned out that wasn’t the right price. And we do have occasional bubbles like we had in the.com era and recently, not long ago, we’ve seen same thing with a lot of these mem stocks. What market efficiency means is the market’s price is the best estimate we have of the right price, [00:25:00] and it’s very difficult to outperform the market by trying to pick stocks and time the market and overcome your expenses.

[00:25:09] Larry Swedroe: In other words, the market there are actually well-documented inefficiencies. These are called anomalies in finance, so I’ll give a few of them to you so it’ll help your readers. Actually, there’s a whole group of stocks that I’ve called lottery stocks because their distribution looks like the lottery ticket gives you the chance to hit the home run.

[00:25:32] Larry Swedroe: But the other side of the coin is the average expecter return is very poor. IPOs have had very poor returns. I just wrote a piece on that that was published by Advisor Perspectives, stocks and Bankruptcy. You know, they trade, they’re in indexes. Even and index funds buy them and yet 99% of them never pay out one penny to the shareholders.

[00:25:57] Larry Swedroe: Most of them lose money. People [00:26:00] like them because, hey, it’s Hertz is only trading at 70 cents. If they get outta bankruptcy and turn around, it’ll be $10. You, I’ll make up, you know, many times my money well, but the odds of you getting there are close to zero. It’s much more likely we’ll go to zero. And here’s maybe the most interesting thing or two more interesting.

[00:26:22] Larry Swedroe: One of his penny stocks. The same kind of thing. You know, they trade at very low prices and their returns are god awful. And small cap growth stocks with high investment and low profitability. So think about that. These are the.com. You know, stocks, these are the more recent, we just went through the same thing.

[00:26:45] Larry Swedroe: Recently with a whole group of story companies, right? They have returned the less than treasury bills over the last hundred years, and yet people continue to buy them in the hope or it’s the hope. It’s the triumph of hope [00:27:00] over wisdom and experience. Actually, the funds that we use, while they believe markets are highly efficient, they don’t want to fight the evidence and they screen out these lottery stocks and won’t buy them.

[00:27:13] Larry Swedroe: And the reason the market is inefficient is it’s very costly and expensive and risky to bet against them in order, let’s say, let’s use Game Stop as an example, which went through the roof with the Reddit crowd, you know, recognizing they could create a short. Let’s say a stock is trading at 10 and you think it’s worth one, right?

[00:27:38] Larry Swedroe: You’re a hedge fund, so in order for you to short it, you have to go in and borrow the stock, and you have to pay a fee. If I’m going to lend you that stock, I’m going to charge you a fee. That fee can be very high, so you’re going to pay a big expense. Number two, you’re going to take, borrow the stock and then sell it at 10, and you hope to buy it back later at one.

[00:27:59] Larry Swedroe: So [00:28:00] now you have trading costs. Okay? You’ve gotta. The problem is the gain potential is $10. That’s all you could gain. What’s the maximum loss? It’s infinite as the red crowd showed. And if you get caught in a short squeeze, it could go up those high costs. And fear of, you know, unlimited losses means that the big, smart institutional investors take great risks, and those are called limits to arbitrage that prevent them from taking those bets.

[00:28:35] Larry Swedroe: Now, the evidence that shows that short sellers are really smart investors, on average, they, the stocks that they short go on to significantly underperform, but it’s very risky. As, for example, one hedge fund lost, I think some like 4 billion betting against the crack. So those inefficiencies can exist and they tend to be always [00:29:00] overvaluations.

[00:29:01] Larry Swedroe: Because that’s where you can have those unlimited loss. Undervaluation are very rare because it’s easy to correct them. You just buy the stock and it goes up and you’re limited in your losses. Unlike on the short selling market, inefficiency is much greater in overvaluation than it is in undervaluation.

[00:29:22] Larry Swedroe: It’s another key tip about thinking you’re going to buy a stock that’s going to outperform. The odds are great. It’s not undervalued. 

[00:29:31] Rebecca Hotsko: You gave a great quote in your book. It said, academic studies show that 90% of returns are determined by asset allocation decisions, not security selection, or stock picking. I thought that was such a high number, and it just speaks to what you’re just talking about, how there are more important things that determine return above stock picking.

[00:29:54] Rebecca Hotsko: Can you talk a little bit about asset allocation for our listeners and kind of just [00:30:00] expand on this 

[00:30:00] Larry Swedroe: point. Asset allocation refers to how you divide up your portfolio across different assets that have unique risk characteristics. So you have stocks and bonds. Within bonds. You can have treasuries, corporate investment, grade bonds, and junk bonds.

[00:30:18] Larry Swedroe: Within stocks, you can have large and small and value in growth. You can have stocks also that are more profitable and stocks that are less profitable. You could have US and international. The research and I wrote a book called Your Complete Guide to Factor Based Investing, and that really showed that there are certain traits or characteristics.

[00:30:40] Larry Swedroe: That’s what a factor means. It’s a trait or a characteristics. Large stocks are companies that have high market capitalizations like the stocks and the s and p 500, and then you could have small stocks that may have evaluation in the hundred million dollar range. You have value stocks, which are cheap [00:31:00] stocks.

[00:31:00] Larry Swedroe: They trade at low PEs or growth stocks, which are defined as high PE stocks. Warren Buffet had been telling investors for decades that he beat the market because he bought cheap stocks that were more profitable and they were higher quality. They didn’t have a lot of volatility in their earnings. Not a lot of leverage on their balance.

[00:31:23] Larry Swedroe: So the academics went in and reverse engineered that cause it took ’em 50 years to figure out what Buffet had been telling people for decades. But eventually they found this. Let’s see if we can identify what the stocks are that Buffet says you should buy. And if we can identify that there are are common traits, then we can just buy an index of those stocks or create an index of them and we don’t have to do any research into that.

[00:31:52] Larry Swedroe: Or is it that Buffet’s a great stock picker now most people would say Buffet was a great stock picker. Research says [00:32:00] that’s not true. Buffet’s genius was he identified these traits well before others, and in that first book at the time, academics had identified two factors or traits that allowed you over time to outperform the market.

[00:32:16] Larry Swedroe: And they were valued. So by cheap and by smaller stocks. So the highest expected and historically highest returning stocks were small. But that only explained about two thirds of buffet’s success or his outperformance. So the academics kept trying to drill down and eventually they found that there were two other characteristics.

[00:32:39] Larry Swedroe: One, profitable stocks. So if you bought stocks with high return on assets, high return on equity, gross margins that were high and quality. So they had these other traits of more stable earnings. If you just bought an index of those stocks, you basically match buffet’s performance. [00:33:00] And his alpha, all his outperformance virtually disappears.

[00:33:05] Larry Swedroe: So his genius not taking anything away from it because he figured this out five decades before the academics. Was it identifying these traits and buffet has not outperformed the these types of indices for the last 13 years or so. And the market has become much more efficient because active managers, for example, used to be able to say, for example, when I wrote my first book in 98, if you bought small value stocks that were more profitable and higher quality, you could claim you’re outperforming even on a risk adjusted basis.

[00:33:41] Larry Swedroe: But since 2013, you can’t do that anymore because all the funds that I own and others own and their ETFs incorporate that and they buy all these stocks. So you have to make, we are able to benchmark it against a better measure. And you could do it very cheaply, [00:34:00] and you don’t have to spend any time watching cnbc, reading Barrons.

[00:34:04] Larry Swedroe: And you get to spend far more time on things that are far more important in your life. Like I got to read, get to read stories to my grandkids, take my wife on walks to parks and travel around the world. And I never spend one minute, listen to stock picking or reading market timing episodes. You’ll have a much better quality of life, and the odds are you’ll be wealthier as.

[00:34:29] Rebecca Hotsko: I love that you related that back to Warren Buffet’s success because we talk about Warren Buffet’s strategy a lot on our show. That’s actually what our flagship show was founded on, was studying Warren Buffet’s investment principles and his success. And it’s so cool to see that it can be explained by these factors.

[00:34:45] Rebecca Hotsko: And so I’ve been talking, I’ve introduced Factor investing on the show a little bit already, so our listeners are kind of familiar with factors and how it works. I introduced the Fama five factor model and in  your book you talk about what makes a factor a true factor, not because academics have been coming up with so many factors now over the years to try and explain the differences in returns.

[00:35:12] Rebecca Hotsko: But you cover five rules that a factor needs to meet for you to invest in it. So can you talk a little bit about those and then which factors actually meet those rules? 

[00:35:23] Larry Swedroe: First I want to mention that I did write a book called Playing the Winners Game, think, act, and Invest like Warren Buffet. And it explains everything we’ve been going through.

[00:35:34] Larry Swedroe: So for your listeners that book is available. So I’m really proud of that book. You’re a complete guide to factor based investing because Andy Burke and I did create these rules here and now you see that quoted often in academic papers. Unfortunately, no one credits Andy and I for coming up with those, those rules, but that’s okay.

[00:35:57] Larry Swedroe: Again, a factor is a trait [00:36:00] characteristic, and academics are, the problem today for academics is 50 years ago, you had to have a theory and then you could test it by looking at the data, but you didn’t have high speed computers. When I was doing my MBA program, you had punch cards and you had to program them and turn ’em in overnight, and maybe the next day or two days later, you’d get the answers.

[00:36:23] Larry Swedroe: It was difficult and expensive to test theories. Today, you can tell any high speed computer, find me a correlation and it will spit it out. But it doesn’t mean there’s any reason for you to believe that correlation has any value. You need correlation at that. There’s a tide, meaning there’s causation for that correlation.

[00:36:44] Larry Swedroe: So to prevent the risk of this data mining, tell a, you know, torturing the data until a computer confesses right. Is the joke when Andy and I came up with these rules to minimize the risk of a data [00:37:00] mining outcome purely random, like the when the NFL wins the Super Bowl, stocks go on to do well or vice versa.

[00:37:08] Larry Swedroe: Makes no sense, so you shouldn’t believe it. Persist. John Cochran, who was head of the American Finance Association in a keynote speech, complained about the problem that there’s this zoo factors like 600 of them, although many of them are very similar. There are dozens of value strategies you can use, low pe, low price to book, low price to cash flow, to dividends to sales, and they’re all the same.

[00:37:36] Larry Swedroe: There are dozens of momentum strategy, so you, it’s not quite as bad as it seems, but you do have the zoo and Andy and I said, how do you know which exhibits in the zoo you should visit or investment? So we came up with these roles. One, the factor had to show a premium and it had to add explanatory power to the existing model.

[00:38:00] Larry Swedroe: So in other words, the factor had to have some uniqueness or independence to the other factors. Value. You know, you’ve got all these similar ones. They’re all pretty much the same. So, but that’s not enough because we worry about data mining outcome. So we said we want to make sure the factor exhibits persistence, not over a 10 or even 20 year period, but much longer periods.

[00:38:26] Larry Swedroe: That’s important. It has to be across economic cycles, so you get a premium over, including bear markets and recessions and depressions and good markets. It has to be pervasive, meaning it works across industry sectors, countries around the globe to make sure we are not getting a data mining outcome or a lucky outcome.

[00:38:50] Larry Swedroe: It should also work even across asset classes. Value, meaning buying what’s cheap, outperforms in stock bonds, [00:39:00] commodities, and curr. Momentum works in each of these areas. What are the odds that that is now going to be a data mining outcome? You shrunk it dramatically. It also has to be implementable, meaning it survives transactions costs.

[00:39:16] Larry Swedroe: Say microcap stocks, you know, have a 5% premium, but of costs you 10% to trade. It’s not an implementable strategy, right? It has to be robust to various definitions. So value, the original definition from and French use was priced to book, but maybe that’s a fluke. If that works, why wouldn’t price to earnings or price to cash flow?

[00:39:41] Larry Swedroe: Other metrics also work. So we said it should be robust. It turns out, no matter what metric you use for value, you get a value premium. And it’s better actually if you run a fund that uses three or four metrics. I could explain why if we, we have time. But you’re better off using what’s called an [00:40:00] ensemble approach because you get a diversification benefit.

[00:40:03] Larry Swedroe: because sometimes PE works better. Different cycles, price to book works better. So you’re better off getting some diversification. Momentum works almost regardless of whatever the formation and holding period is. And last, and maybe most importantly, there has to be either a risk based explanation. Or a behavioral one for why we think that premium is going to persist.

[00:40:29] Larry Swedroe: Otherwise, it could be a data mining outcome. Now, we prefer our risk based explanation because risk cannot be arbitrage away. It doesn’t mean the premium can’t shrink or grow. It depends on, you know, something gets popular, more money will flow into it. If everyone discovers what Buffet discovered, his premium is going to shrink because you’re driving up the prices.

[00:40:53] Larry Swedroe: But it shouldn’t disappear if there’s a risk story, meaning these companies are riskier. On the other [00:41:00] hand, behavioral ones can be arbitrage away, and many of them have, lots of papers have been published. For example, there was something called the accrual Anomaly Companies that put on their balance sheet accruals taking in earnings too soon.

[00:41:16] Larry Swedroe: Well, it turns out, on average, they do take them in too soon. Some of them don’t actually appear, and those stocks turn out to be overvalued. Well, shortly after that publication of that finding was made, the accrual anomaly disappeared, at least for large cap stocks. But as I mentioned, there are these limits to arbitrage that can prevent anomalies from being corrected, especially in small stocks.

[00:41:43] Larry Swedroe: Not so much in large stocks, very hard to engineer or squeeze in Microsoft on a short screen. Easier to do it on game stock because there’s not that many shares available. So we said you ought to have the premium and it has to meet all these five criteria. For [00:42:00] bonds, it’s simple. It’s just maturity, risk, and credit Risk and credit risk has not been well rewarded, so probably better off not taking it by only safer bonds in general, at least when it comes to public.

[00:42:13] Larry Swedroe: At arms and stocks, the key ones are just five size, value, momentum, profitability, and quality. You could ignore all the others that are out there. And so a simple way to do it is by very simple, small value stocks that are highly profitable and higher quality. And you could do that with a whole range of funds that are fund families like Dimensional, Avantis, Bridgeway, BlackRock, all have relatively low cost, tax efficient, highly diversified vehicles that people can use to access.

[00:42:52] Rebecca Hotsko: I loved reading all the explanations of the behavior versus risk based argument for each factors. I found that so, [00:43:00] so interesting in your book. I honestly think that could be a whole episode just kind of going through some of them with you, because when I was reading it, I had so many questions came up honestly about those, but I couldn’t get into them all today.

[00:43:12] Rebecca Hotsko: I do want to point out though, because so even though you say passive investing is the winning strategy, it doesn’t mean investors can’t beat the market or get great returns. And so you write in your book that beating the market is actually easy and it’s through this strategy that you just explained. So wonderfully factor investing.

[00:43:30] Rebecca Hotsko: So could you just expand on that for our listeners, 

[00:43:35] Larry Swedroe: Rebecca, if I want to correct this? Beating the market is simple. It’s not easy, and the reason it’s not easy is every single investment strategy that involves risks will go through long periods of underperformance. I tell you there are three periods.

[00:43:52] Larry Swedroe: Example of at least 13 years. This is going to shock investors where the s and p underperformed [00:44:00] totally riskless. One month treasury bills 1929 to 43. That’s 15 years. 66 to 82. That’s 17 years. And just recently 2000 through 12 that’s 13 years. That’s 45 of the last 93 years, or almost half now. It’s people.

[00:44:20] Larry Swedroe: One of the biggest problems investors have is they think when it comes to judging an investment strategy, three years is a long time. Five years is a very long time, and 10 years is an eter. And if you believe that, well, you wait 10 years, you didn’t get the results, you panic, you sell. Now whether you’re talking about the market, as I just gave an example, or value strategies.

[00:44:44] Larry Swedroe: Value strategies have much higher persistence of performance than the market. But they too go through long periods. The late nineties, they dramatically underperformed you. This time it is different cause we had a bubble in growth stocks, it eventually blew up. [00:45:00] And from 2000 to oh eight, we had the largest value premium.

[00:45:04] Larry Swedroe: From 2017 through 2020, again, we had a bubble in growth stocks. It eventually blew up like it was virtually inevitable. And growth has underperformed dramatically since around October of 2020, so now about two years. But if you can’t stick it out and you may value stocks and they have three or four years of bad underperformance, your stomach grinds, you panic and sell, and now you’ve missed that.

[00:45:33] Larry Swedroe: It’s simple, but it’s not easy because of our stomachs often take control and I’ve yet to meet a stomach that makes good decisions. 

[00:45:43] Rebecca Hotsko: Thank you for correcting me on that because you write in your book, I wanted to get you to touch on that with the time horizon because like you just talked about, it’s simple but not easy because they go through long periods of underperformance and you highlight this in your book.

[00:45:59] Rebecca Hotsko: [00:46:00] So great. The odds outperformance of each factor in different time horizons, and we don’t need to go over each, but it’s in general, it was pretty interesting to see how factors performed over different time horizons and I was really interested to see that momentum had the highest odds of out performance out of all of them.

[00:46:21] Rebecca Hotsko: Because to me momentum is still the hardest strategy for me to wrap my head around how to implement effectively in a factor strategy and find the best fund that can do 

[00:46:30] Larry Swedroe: so. A couple of things here. So very important because every risk strategy, every factor, every asset class. Will virtually certainly undergo a long period of underperformance.

[00:46:47] Larry Swedroe: How do you deal with that? The best way to deal with that is one, don’t take more risks than you can handle or have the ability or need to take. So that means don’t take more equity risks. Don’t have more equity [00:47:00] exposure than your stomach can handle. You need to take, and my book, I give examples about how to help you figure that out.

[00:47:07] Larry Swedroe: But within equities, you want to diversify that US stocks have outperformed dramatically for the last 10 years. The prior 10 years, they dramatically underperformed. The prior 10 years they outperformed. The prior 10 years they underperformed. You, you could be unlucky and you think you’re putting all your eggs in one basket if that’s the right basket.

[00:47:28] Larry Swedroe: People said way to invest is you don’t need a basket, just buy one in stock or a small group and watch it carefully. That’s nonsense because watching it doesn’t change its risk, right? And so what you want to do is diversify across these factors and diversify. So your own US international, develop own small value, others around the globe own momentum.

[00:47:55] Larry Swedroe: Now as to momentum, I it probably helpful, without getting too [00:48:00] technical here, there are actually two types of momentum, so we’ll explain that briefly to your audience. There’s what’s called time series momentum, which is basically trend following. You buy what’s going up and you sell what’s going. Okay.

[00:48:15] Larry Swedroe: That’s simple to, there are funds that do that. The problem there is that there are many definitions of momentum and I wrote a paper, oh, sorry. My friend Mar Molly Boger wrote a paper on this and he showed that momentum works, but the best strategy is to own multiple strategies of momentum. Cause some work on short signal.

[00:48:40] Larry Swedroe: So the market moves in very quickly. It’ll go from short to long if it turns down. Others work on intermediate signals and other work on longer signals. So you might think of it as one working on a maybe a 30 day moving average, another on a 60 and another on 180. Well, they over various [00:49:00] decades, different ones work better.

[00:49:02] Larry Swedroe: So you want to diversify that, and he found you got the best results by owning multiple managers. He used different. Then there’s something called cross-sectional momentum, which is relative momentum, not absolute momentum. So that means if you look at stocks, say you’re a small value fund, okay? So you’ve got maybe a thousand stocks in your universe, it will buy the top 30% that’s performing the best and short, the 30% that’s performing the worst or avoid buying them, it doesn’t matter.

[00:49:39] Larry Swedroe: They could all be going up, but you’re still going to short the ones that are going up the least or they’re all going down and you still buy the ones that are going down the least and short. The ones going down the most. All of the funds that we use incorporate some form of momentum. So a small value fund [00:50:00] run by Dimensional Avantis, Bridgeway.

[00:50:03] Larry Swedroe: For example, if a grow a large growth stock is going down in price, now it becomes a small value stock and enters their eligible universe. Vanguard’s Fund will buy it because it’s now in their index. The funds that I mentioned would not buy it until that negative momentum ceased. So you don’t have to worry about momentum or anything else.

[00:50:27] Larry Swedroe: You just buy these funds that incorporate the strategy. Now there are funds like I think mtm, which is a time series momentum type of fund trend following aqr, runs a trend following that uses multiple signals. So they’re trying to capture or blend that ensemble, which I think is the better way to go based on the research.

[00:50:50] Larry Swedroe: So you can buy funds, but momentum goes through long periods of poor performance. It had a great period and it helped you escape [00:51:00] the really bad ravages of the great financial crisis because you got short and it stayed short and then it did poorly for a decade and then the 2020 covid came and now it turned and you had great results.

[00:51:14] Larry Swedroe: Again, it’s been very positive, but if are you going to hold on for a decade of poor performance? If you can’t, then don’t own. That’s where I get back to own size, value, momentum, and all kinds of other assets, not just stocks and bonds. I own reinsurance fund. For example, I own a fund that makes consumer small business loans and a fund that owns middle market loans.

[00:51:41] Larry Swedroe: These all have unique characteristics that diversify that risk of the stocks and bonds in my portfolio. 

[00:51:51] Rebecca Hotsko: I want to touch on the diversification piece with you just a little bit because I have two kind of things I want to disentangle with you. A lot of our listeners [00:52:00] are in the US and so you talked about how diversification is key to a winning strategy in terms of diversifying your factor exposure because they all kind of outperform and underperform at different times.

[00:52:12] Rebecca Hotsko: But then also regionally, because we also talked about how asset allocation is responsible for a lot of performance. How should US investors think about properly allocating their capital between US markets compared to internationally compared to emerging markets? because I think that part, people might have a lot of questions on that.

[00:52:33] Larry Swedroe: A starting point should always be that the market price is the best estimate of the right price. And therefore you should allocate your capital the way the world allocates your capital. So for simplicity purposes, let’s think about half of the world is us, about three eighths. The rest is the developed world and one eighth emerging markets.

[00:52:56] Larry Swedroe: Okay, now, so you, that could be your starting [00:53:00] point. Now, for a US investor, US investing is a bit cheaper. The trading costs are less, and it’s a bit more tax efficient, has to do with foreign tax credit issues that would argue for a slight home country bias. So instead of 50 50, maybe you’re 60 40. I would make a counter argument to that in that if you’re a US citizen, you’re, and you’re employed, you also have your labor capital and tied to the US economy, almost certainly, and therefore, if the US economy is doing poorly, you could lose your job and, and now your US stocks are getting hit at the same time.

[00:53:39] Larry Swedroe: So you have to balance that. But other than that, those are the two issues to think about. I personally allocate my capital the way the world does today, and so I’m roughly that. I’m 50, 35, 15 Canada. Same should hold for pretty much every cut. The problem [00:54:00] is, listen to this, this is what the research.

[00:54:03] Larry Swedroe: Shouldn’t surprise anybody really? Every investor in the world overweights on average, every country, those investors overweight their home country, surely because of home country bias, they confuse something with familiar with safety. And so if the US is half the typical US investor is 90% doesn’t matter.

[00:54:25] Larry Swedroe: You go to France, which might be 3% of the world capital, 80% of French investor capital is in French stocks. Same thing in Canada, same thing in Japan. And that’s true. And I’ll give you one great example of the foolishness of that idea. Rebecca. Let’s assume you lived in Atlanta. What stock do you think you might overweight?

[00:54:48] Larry Swedroe: Coca-Cola. That’s the headquarter, right? Seattle most people would know. That’s the headquarter of Boeing. Is it any safer to own Coca-Cola? If you live in Atlanta or if you [00:55:00] live in Ottawa? Yeah, so why do people in Atlanta, you know, over own Coke and investors in Houston over owned Enron and investors in New York over own and Polaroid and Kodak, both of which went bankrupt.

[00:55:15] Larry Swedroe: You know, they confused the familiar with the safety and Canadian investors think Canadian stocks are cheaper. You should get that out of your head and invest with the principles I put at considering that it is cheaper generally to invest in your country stocks. So that could have lead you to a little bit of that bias because of that.

[00:55:38] Larry Swedroe: But again, I’d recommend you at least consider if you’re working your labor capital exposure to the markets as. 

[00:55:45] Rebecca Hotsko: Right. Okay. That is so interesting because I was going to ask you, I’m based in Canada and we have some listeners here as well as abroad, and I was wondering if it stayed the same depending on where you live, because I actually have the opposite problem.

[00:55:58] Rebecca Hotsko: I invest, I thought [00:56:00] way too much in us. I think my exposure is about 60% right now, which is too high. And so I was wondering if I’m in Canada, should that be higher than, because I’m in Canada and it’s my domestic country and there’s perhaps some small tax benefits, but maybe that’s getting too nuanced. A general rule is invest, like you said, the world market cap.

[00:56:21] Larry Swedroe: Yeah, well I, 60% for you certainly seems to me to be too high. 50 would be my starting point. And then maybe you, if Canadian investments are cheaper for you, you might have a bit of home country buyers, but again, your young, maybe the largest asset on your balance sheet is your expected labor income over the rest of your life.

[00:56:43] Larry Swedroe: You should consider that. And if that’s tied to Canada, maybe it’s not, but if it is, you should consider that. I’ll add one other thing, and I hesitate almost to include this because people will jump on it and say, as a market timing thing, [00:57:00] valuations do matter. And today US stocks, so trading, I would say getting close to about what might be historically the average PE ratios.

[00:57:10] Larry Swedroe: So we’re about 17 on the s and p 500. But value stocks are trading as if the world’s coming to an end. Small value in particular, if you look around the globe, US small value, international, small value emerging markets, small value are trading at PEs in the six s and sevens. Europe is trading and develop.

[00:57:34] Larry Swedroe: World is trading in single digits. Emerging markets are in single digits. That best estimate we have of future expected returns is PE ratios. You would invert them. 17 PE would get you a six earnings yield, and that’s a reasonable estimate of the future expected real return. But a eight PE would get you 12 and a half.

[00:57:59] Larry Swedroe: Now that [00:58:00] doesn’t mean they’re better investments. It means the market thinks they’re riskier, but since you mentioned your overweight us, I’ll point out your overweighting stocks that have much lower expected returns than the stocks you could. You are underweighting, and I think that should push you back to that starting point.

[00:58:20] Larry Swedroe: I don’t recommend timing based on valuations, except at very extreme levels like PEs of forties and stuff like that. 

[00:58:29] Rebecca Hotsko: I kind of use it as a rule where I usually don’t let my US go over 50, but just the way it went over the past year, it went up there and I honestly haven’t re or rebalanced. But I do want to talk to you about how to best get exposure to these factory ETFs because there’s been a lot of new factor ETF products come out.

[00:58:51] Rebecca Hotsko: And in your book you provide your kind of approved list of ETFs that you approve for each factor, but that was [00:59:00] written a little bit ago. So I’m wondering if you have any updated thoughts on which are the best to expose ourselves to each factor. because as a personal example, I’ve been investing in Vanguards, but now Dimensional is available in Canada as well as the US and Avantis has come out with quite interesting factor exposures.

[00:59:18] Rebecca Hotsko: So do you have a kind of a priority list?

[00:59:20] Larry Swedroe: One of the worst mistakes that investors make is they think that say all small value ETFs are created equal and therefore I’m just going to buy the cheapest one. Say Vanguard. That’s a huge error. It’s like thinking, you know, I should take my wife out on our anniversary to Subway for dinner.

[00:59:42] Larry Swedroe: You buy value, you don’t buy cheap as, except if it’s a pure commodity. So if I’m looking to buy an s and p 500 index fund, I should buy the cheapest one because they’re all identical before expenses. Let me give you an example and your listeners can go check this themselves. I [01:00:00] haven’t checked recently, but, so if you look at, say, Vanguard Small Value Fund, its average market cap is last I look, was like 6 billion, and its average PE might have been 17.

[01:00:13] Larry Swedroe: If you looked at dimensionals, their average market cap was about half of that, and their average PE might have been 10. And then if you look at Bridgeway, which is a mutual fund, not an etf, its average market cap was like a billion and the PE was even lower. So the expected returns are much higher for DFA than Vanguard, and they’re much higher for Bridgeway and dfa.

[01:00:41] Larry Swedroe: So what you want to look at are three key characteristics. I would look at the expense ratio and then look at the average market cap and then look at the average PE ratio or price to book or some combination, and you should be willing to pay a bit more to [01:01:00] get deeper exposure. Vanguard’s small value fund isn’t very small.

[01:01:05] Larry Swedroe: 6 billion Market cap is not very small, and whatever the PE is now, it’s much higher than it is for Dimensional or Bridgeway or Avantis. I think the three funds families that I currently use are, I’ll use two because there’s only two that have ETFs. I think Avantis and Dimensional are the two leading players.

[01:01:28] Larry Swedroe: They’re very similar. I use them for tax loss harvesting, so I’ll swap one for the other. In fact, the research team for Avantis came out of the research team at Dimensional. They’re both filled with world class academics and you can certainly trust them. They’re highly diversified, stay disciplined, and Avantis funds run in the for factor funds in the roughly 25 to 30 basis points.

[01:01:56] Larry Swedroe: Dimensionals are similar, and I would use those funds and you could build a very simple, globally diversified portfolio using as little as just a few funds doing it. That was 

[01:02:10] Rebecca Hotsko: super, super helpful. That’s something that, yeah, I’ve been wanting to ask you for a while now, because we think that low cost is more important.

[01:02:18] Rebecca Hotsko: When I was looking at Dimensional and Avantis, it is way higher than Vanguard’s, but like you mentioned, there’s more to consider because this is an active approach at the end of the day, and so there’s more to consider with this than just the lowest cost. It’s are you actually getting the premium. 

[01:02:33] Larry Swedroe: Yeah, let me say this.

[01:02:34] Larry Swedroe: People throw around these words active and passive, and there’s no real definition. So what I try to do is this, certainly every fund is active in how it defines its universe. For example, Vanguard is active in small value because it happens to choose, I think it’s now that Chris in small value index, well, it used to use the Russell 2000 and then I think it switched to the [01:03:00] msci and now, well that’s an act of this and there are differences.

[01:03:04] Larry Swedroe: DFA creates its own universe and defines it based on the academic research like we talked about. So we’ll screen out certain stocks with bear cap, but once they define their universe, they implement it systematically in a transparent and replicable way. But one difference is it will trade patiently when an index fund can’t, something leaves the index, it’s gotta get out.

[01:03:30] Larry Swedroe: So that’s an advantage of a systematic quant fund over a pure index fund. But as a good example, Vanguard’s fund versus dimensional dimensional fund, I think today is about 40 basis points for small value. Vanguard, I think is eight. And yet since inception, van Dimensional fund has outperformed Vanguard’s fund despite the higher expenses, because it has deeper exposure to these factors.

[01:03:58] Larry Swedroe: And that’s ultimately what’s important. Yes, costs are important and they’re certain, and returns are uncertain, but so you want to make sure you have a big enough expected difference. I thought Vanguard would underperform DFA by say, 10 basis points, but I was saving 30 in expenses. I’d say, okay, I’ll take the 30 basis points, certainty over expected 10, but if I think Dimensional is going to outperform by 60, now I can make a better choice.

[01:04:29] Rebecca Hotsko: That was super helpful. I actually have upcoming guests coming on from Dimensional, so I’m super excited about that. To ask him to kind of compare these more in detail. because I do find that fascinating how even when you’re paying more, it’s one of the things that, it’s, like you said, quality over just lowest cost.

[01:04:46] Rebecca Hotsko: I didn’t even get through half of my questions with you, . This was so great. I’m so happy that I got to have you on and I hope we can do this again because I still have so many things that I wanted to talk to you about, about the incredible Shrinking Alpha and your other book, your Complete Guide to Successful Retirement.

[01:05:04] Rebecca Hotsko: Everyone can kind of read your stuff also on Seeking Alpha. I love reading your articles on there, but before I let you go today, where can the listeners go to connect with you, read your books, learn more about you, and then all the work you put out. 

[01:05:19] Larry Swedroe: Well first my latest book which we can also talk about the hottest trend in finance now is towards sustainable investing, ESG type investing.

[01:05:28] Larry Swedroe: So I recruited Sam Adams to help me write your Essential Guide to Sustainable Investing. And I write Now, in addition to Seeking Alpha, I write mostly for Alpha Architect, which I think is the premier website for those investors who are really into the science of investing. Little more technical stuff.

[01:05:50] Larry Swedroe: So novices might find it a little above them but I also write for advisor perspectives every week in article as well. You can find me there. The best thing [01:06:00] and simplest thing to do is I’m on Twitter and LinkedIn and whenever any of my articles are posted anywhere, I will put an alert out, provide the link.

[01:06:10] Larry Swedroe: So just follow me on Twitter and or LinkedIn and you’ll be able to follow all of my research. And of course, Rebecca, I’d be more than happy to come back again. It’s been a pleasure and like I said, my life’s mission is really to help investors by educating on them on what the academic research says. Not my opinion, but what the research says is the strategy most likely to enable them to achieve their life and financial goals.

[01:06:38] Rebecca Hotsko: Thank you so much, Larry. I really, really appreciate that and I cannot wait for another conversation. 

[01:06:44] Larry Swedroe: My pleasure. 

[01:06:46] Rebecca Hotsko: All right. I hope you enjoy today’s episode. Make sure to subscribe to the show on your favorite podcast app so that you never miss a new episode. And if you’ve been enjoying the podcast, I’d really appreciate it if you left us a rating or review.

[01:07:01] Rebecca Hotsko: This really helps support us and it’s the best way to help new people discover the show. And if you haven’t already, be sure to check out our website, theinvestorspodcast.com. There’s a ton of useful educational resources on there, as well as our TIP Finance tool, which is a great tool to help you manage your own stock portfolio. And with that, I will see you again next time. 

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