Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
Announcer:
You're about to get lucky with the Barenaked Money Podcast, the show that gives you the naked truth about personal finance with your hosts, Josh Sheluk, portfolio manager with WLWP Wealth Planners, iA Private Wealth, and Colin White, portfolio manager with the Verecan Capital Management Inc.
Josh Sheluk:
Barenaked Money here coming at you, Colin and I having a casual conversation as we call it today. Now we're naked having this casual conversation. So it may not be that casual for a lot of folks, but it's casual for us.
Colin White:
The ultimate and casual.
Josh Sheluk:
Now, today, we're talking about the smart people whose job it is to make you fail. Colin, I don't know if you're stuck to the plot here, Colin, because you went down a ChatGPT wormhole, rabbit hole. That is what you're saying to me anyway. So I'm really curious to see where you ended up.
Colin White:
Well, you motivated me, Josh. I think you used ChatGPT for this as well, but you may have used it on other occasions, so you weren't like a complete rookie. I panicked. I thought we're just about ready to record. I said, "Well, I got to catch up with Josh." So I went on and set up my ChatGPT account. Let me just say it was interesting. So, the first chapter of my journey was that I paraphrased what Josh just let you in on what our title was today, but as is my way, I was a little more direct with it. So I went into ChatGPT and went through setting up and accepting everything. Then I said, "How do smart people take money from dumb people?"
Josh Sheluk:
Hold on. You're already implying that everybody who gets taken advantage of by the so-called smart people are stupid. Is that what you're saying?
Colin White:
No, no, no, no, no, no. It was like one of the hyperbole, exaggeration to make a point. I wanted to go as far to the extreme as I could, because that's where you tend to find the entertainment. So I said, "Okay, well, let's ask it a question that I think..." What we're afraid of, honestly, this is what we're afraid of that AI is going to be good at. So I just said, "Let's go right into the mouth of the monster." It immediately renamed my chat to Ethical Financial Practices and begin to lecture me on why people shouldn't be this way. So as [inaudible 00:02:25], I must emphasize that taking advantage of exploiting others is unethical and not something that should be encouraged or promoted. It went on for three or four more paragraphs and told me that it wasn't going to answer my question.
Josh Sheluk:
But this is interesting because you know why it says that, right?
Colin White:
I know.
Josh Sheluk:
Because there's people out there that might not be as naked as you and I that are actually using this to take advantage of these people.
Colin White:
Well, like I say, I have to do a course of money rendering every year. They're actually training me how to launder money once a year. I get an update on my course. So you're right. Whenever you ask these questions, it doesn't know your motivation and the information can be used for the forces of good or evil. So my education began right out of the gate. But also, this is the edge of the topic that we're having here, Josh. I mean, we're talking about things that it's one half step away from being something that shouldn't be talked about at all.
Josh Sheluk:
That's why we are talking about it because we think it's worth talking about, we think it's educational for people to identify some of these potential blind spots or biases that they have that others are seeking to take advantage of. So you tell me, Colin, what did you land on first with how smart people are taking advantage of dumb people?
Colin White:
Well, and yes, our motivation is pure as those who listen to our podcast well can probably attest or hopefully would attest to. So I changed my question a little bit and I said, "How can you protect yourself?" I went the other way with a little bit and I came up with the normal things of educate yourself, research, question marketing tactics, guard personal information, seek unbiased advice. It was a whole bunch of platitudes that are fairly obvious or relatively obvious, but extraordinarily hard to execute on. But that's where it took me next. Where did your journey take you, Josh? I'm not going to give up my whole journey at the start of this because you have stuff too.
Josh Sheluk:
Yeah. Well, I started more so from the specific topics or areas where I think people are actually... I'm trying to think of what the right term is because exploited might be a little bit aggressive, but taken advantage of might be a little bit too tame. So I don't know. It's somewhere between taking advantage of and exploited, I think.
Colin White:
Well, encouraged to have a suboptimal outcome.
Josh Sheluk:
Yeah, that's beautiful. That's beautiful because that's exactly what it is. It might not be catastrophic for you. We're not talking about Bernie Madoff type stuff here where your money is literally getting stolen, but it's not in your best interest perhaps.
Colin White:
Yeah. I think the credit card world is one that springs to mind as a fairly blatant example, nice, comfortable payments literally for the rest of your natural life. You could have all of the things you want today. Now, is that evil or is that just letting people lead a wonderful life and fulfilling all of their fantasies? I think it's evil, but that's just my perspective on things. So not in your long-term best interest from a financial perspective, I guess, is more where we're falling, where we're trying to encourage people to behave in a way that's in your long-term best financial interests. So to be more specific, but yeah, that's the road I think we're going down.
Josh Sheluk:
Yeah. Well, it's funny you mentioned credit cards first because that was literally first on my list as well. It's not that I think credit cards are bad. I have a credit card. I use credit cards for basically every purchase that I can possibly use it for, but some of the practices surrounding the use of credit cards and the credit limits and the minimum payments, this stuff is potentially very damaging for somebody. If you get in the spiral of not being able to make your credit card payments, it's a death spiral generally. You're not going to die, but you might die financially.
Colin White:
Well, long term, it's going to lead to worse financial outcomes for yourself. But on the face, a credit card gives you money you don't have and lets you spend it and people go, "Ooh, I have money now." No, you don't. You have money that you have to pay back at some point. But that's what people get excited about and that's for taking advantage of it. It's pandering to the base human need of immediacy and keeping up with the Joneses. So pure evil? Some would say so, but I think that that's a difficult argument to make. But does it take advantage of a negative tendency that people have? Yeah, I think that's probably a more reasoned and middle of the road approach to take with it. But it's not the only aspect of credit cards that is manipulative because you get into the credit cards that have points.
Josh Sheluk:
I like points.
Colin White:
The gamification. I know you do, the gamification of spending. So there's two levels that they encourage behavior that is not conducive to your long-term financial health. It's also another data source that they use because they can sell that data and make money from it. So the more active you are with the card, the more data they have to sell, therefore their business model gets better, which isn't obvious on the face of the credit card relationship you think you have. The funny thing was when you screw it up, you feel bad about yourself. It's like, "Oh, I'm an idiot. I didn't pay off my credit card. I can't believe I let myself get here."
Most people won't blame the credit card company that they spent too much money. They eventually will get at them down the road Initially, it's like, "I'm such a bad person." So you've been incentivized to do something that wasn't your best interest and then a lot of people will blame themselves as to how they got there.
Josh Sheluk:
For the record, again, if you use a credit card to make purchases that you would normally make and you collect the points and you use the points for good things and you pay off your credit card balance every month, then you're doing just fine. There's nothing wrong with that.
Colin White:
You don't change your habits based on points.
Josh Sheluk:
Exactly.
Colin White:
You don't fall prey to the very specific marketing you're going to receive because of all the data they have on you. Now, Josh, you're one of the smartest people I know. I always describe you that way, more disciplined than Robocop, but I think if we went digging deep enough, there may be one or two fringe decisions that were made that maybe were not entirely based just on the financial aspect of things.
Josh Sheluk:
I'm sure you could find those. I'm not infallible for sure. I would say for me personally, I would say strongly that the benefits that I've got from a credit card outweigh the potential fringe purchase that I made on a whim that I thought of, but that's just me. Everybody's a little bit different as you know.
Colin White:
But I think the proof is in the pudding. This is a very, very big business model that's proliferated everywhere. The only reason that things from a business model perspective are used as widely is that they're profitable for the firm that's proffering this particular way of doing things. So the proof is in the pudding. Why does everybody do it? It's not in your best interest. It's in their best interest.
Josh Sheluk:
Yeah. Well, I went down this path. You're often thinking about, "What's the business model? What's the business model? How are they making money off of me?" I went down this path of a lot of things that we're talking about here. With credit cards, it's not hard to figure out what the business model is. Okay, I'm getting points. I'm getting free stuff by spending money. Maybe that's not as good as it seems on its surface. Obviously, somewhere down the road, even if I'm not, somebody's paying for that on average. Somebody's paying for that benefit that I'm collecting. So it's one of those things where if you're at the poker table and you haven't figured out what's the name-
Colin White:
Who the fool is.
Josh Sheluk:
Who the fool is or the fish is within the first hour, it's you, right? So that's the same situation here. Then think of what the behavior is of the financial institutions. Have you ever got a call from your financial institution offering you a higher credit limit on a web? You haven't asked for one. They just called up and said, "Hey, I've noticed you've been spending a little bit of money. Do you want an extra $5,000 added to your credit limit?" It's like, "Oh, yeah, that seems like a good idea." Why do you think they do that?
Colin White:
You're a nice guy. You're looking out for me. I appreciate you.
Josh Sheluk:
Here's an extra $5,000. So that perceived higher credit limit makes you think that you have more money to spend. I guess technically, you do in the short term, but that is going to come back to bite you in the ass if you do maximize everything that they're giving you.
Colin White:
Well, you know when the drug dealers steal your business model that you're probably at the edge. I mean, that's the other place you can get free stuff or get an increased limit easily early on. There's a lot of similar letters there when you dig into it.
Josh Sheluk:
I'm going to leave that one.
Colin White:
Based on stories. Do I have to put a disclaimer in everything?
Josh Sheluk:
Yes, you do.
Colin White:
No, I've never done drugs. There you go. I've never done drugs. I did coach high school basketball for a lot of years, so I know people.
Josh Sheluk:
Okay, so I'm going to call it a cousin of the credit card. Buy now, pay later. That's proliferating right now and become, I'd say, just as insidious, maybe even more so as credit cards.
Colin White:
I think this is the realm of people who can't get a credit card. If you can't get a credit card and you can't use that system to buy now and pay later, don't worry about it. We got you. We're going to do that right here. It used to be an end of maybe your information, I think it would've more up-to-date information. It used to be actually even more expensive when you worked up the math than a credit card, because it was for people who couldn't get credit cards, therefore deemed to be a higher risk. Therefore, the various layaway plans and whatnot, when you annualized the fees that were charging you, they were astronomical and in violation of loan charging rules in many provinces.
Josh Sheluk:
So I've seen some of the more new age ones recently and I've done some of the math myself on some of them. There's one that Air Canada promotes when you're buying a ticket, which we buy tickets from Air Canada all the time based on our travel schedules. But that one, I did the math and I was like, "This is terrible for you. It's worse than a credit card." But I've also seen some or heard of some that are supposedly interest free. I'm not really sure how they make that work. I haven't seen those firsthand. I've just heard that some of them are. Have you seen those?
Colin White:
Well, you just built a bridge right into the car industry because the car industry's famous for that, interest free financing. If I want to pay cash, what's my discount? Oh, there's another price. So again, there's always follow up questions when you throw something. I have to be honest, I haven't seen that, Josh. My follow question is what's the price I'm paying? Because typically, if you're getting industry financing, you're not paying the lowest possible price.
Josh Sheluk:
I have heard that. I have heard, yes, it's interest free, but then you pay an extra whatever, 20% more on the purchase price. Okay. Well, that doesn't really-
Colin White:
Only the highest margin stuff is eligible under that program. You can't buy the real cheap stuff. Doesn't apply to sale items, doesn't apply to discounts.
Josh Sheluk:
Sure.
Colin White:
You don't get your normal 10% off and yada, yada, yada.
Josh Sheluk:
Yeah, whatever it is. So I went searching for some of the terms around this buy now, pay later stuff, just using Google. I didn't use ChatGPT for this one. I was going old-fashioned. I just used Google.
Colin White:
Kicked it old school.
Josh Sheluk:
Yeah, I kicked it old school. One of the first one anyway that came up was Stripe, which is a fairly prominent payment processor. So I have some claims from Stripe that supposedly help businesses and consumers. I'm going to read you a couple of these and you can respond to them in real time. So buy now, pay later removes a huge cost barrier for customers by letting them pay in installments over time. This allows customers the opportunity to purchase higher value goods such as furniture or luxury items. Buy now, pay later methods also help increase the average cart size by allowing customers to buy more lower value goods. This results in higher average order values and increased conversion.
Colin White:
I'm sorry, I stopped listening after you said it removed the cost barrier. I thought all the rest of it was just gibberish, but the cost is supposed to be a barrier. If you don't have the money, don't buy it. But it's funny because I think that's the most instructive line of everything you just said. The whole interest of okay, we have to get rid of this cost problem, we have to give people an opportunity to be able to buy whatever they want because they deserve the lifestyle that they want to achieve. I was listening to the radio ads out west one time and the local financial institution was... I forget how exactly.
It was some egregious way they worded it. But basically just because you think you can't afford it doesn't mean you can't afford it. Come talk to us. It's like, "Well, maybe, you just can't afford it." Maybe it's okay not to afford it. Well, this goes back to preying on a weakness. I'm sitting there going, "Oh, the world's against me. I can't afford this. Oh, wait, these guys are telling me I can afford this? Hey, I like these guys. Whatever you guys want me to do, I'll do." Then you get ensnared in the program. Are you going to get to payday loans? Is that where you're going from this?
Josh Sheluk:
Well, that one, I didn't even touch because it's like that's a criminal organization basically, some of those payday loan places. But I was hung up on this buy now, pay later stuff. So RBC Capital Markets actually, they went through and did the research on it as they do. So they estimated that it increases... So just to continue on this, people buying more shit idea increases retail conversion rates by 20 to 30%, an average ticket size between 30 to 50%. So what does that mean? You're buying 30 to 50% more shit. People already buy too much shit that they don't need. I don't see how this is a positive thing. All I heard there was benefits to the business and no benefits to the customer.
Colin White:
Well, I actually haven't seen the stat recently, but for a while there in the US, the self-storage business was with the fastest growing businesses in the US because people didn't have room to store their shit. They had to go out and rent places to store shit. So I don't know. I haven't seen any recent numbers on that, but it wouldn't surprise me, but that's just absolutely it. I mean this whole thing is judged to success based on its ability to get people to buy more. There's nowhere in that equation is it serves the client better. Nowhere in that conversation was there one guy in the room going, "What's the right thing to do for our clients?" That guy isn't in the room.
Josh Sheluk:
Hold on. You haven't heard this claim yet.
Colin White:
Oh, okay.
Josh Sheluk:
Buy now, pay later makes it easier for customers to strategically time their purchases around promotions even if they aren't able to pay for the entire purchase upfront.
Colin White:
Yeah. Yeah. Come on. Really?
Josh Sheluk:
Word for word, verbatim.
Colin White:
This is a Saturday Night Life skit. Is this a Saturday Night Life skit that you printed off and are trying to feed me? Am I being pumped? Strategically plan the purchases of something I don't need. You don't need to strategically plan the purchases of something you don't... It's not like they're selling me a cheap bag of potatoes. No, I don't buy it. But those are the kinds of things... You know what? There's going to be people that that's good, but the people looking for the immediate gratification will accept any description that's put before them is okay. That's certainly people being convinced that you should cash out your RSP because you're just going to pay tax on it later. Well, I guess I should cash out my RSP because I might have to pay tax on it later.
You were looking for a reason to do it. You wanted someone to tell you to make you feel good about spending it right now. That's the same kind of mentality. Because there are people out there who are saving against their will, who are financially responsible against their will for some form of pressure. If they can come up to a smart looking thing that makes it sound like it's okay to overspend, well, thank God you're here. Yes, let's go. Because again, that immediate gratification, that keeping up with the Joneses and wanting the latest thing, that's a powerful, powerful motivator. I mean, their honest tagline should be for people who can't get credit cards. We have buy now, pay later, only a slightly higher interest rate.
Josh Sheluk:
Only slightly worse for you.
Colin White:
Oh, now see, this is the risk. I'm going to start getting too wound up. Let me go back to the list of things you can do to protect yourself. How about this, Josh? Be mindful of emotional manipulation. Companies often use emotional appeals in marketing to influence consumer behavior. Take a step back and evaluate the rational aspects of your decision making rather than solely relying on emotions. See, that's all you have to do.
Josh Sheluk:
Yeah. This sounds like one of the first concepts I was taught in economics about the rational economic actor.
Colin White:
Oh, here we go. The rational man theory.
Josh Sheluk:
Yeah, exactly. It's like, yeah, if you had no emotions and you were never influenced by any outside force ever in your life, you could make perfect rational decisions when it comes to your money. Okay, go find me the person that can do that.
Colin White:
Yeah. Well, their retort is always well in aggregate, people behave rationally, which again, I call BS on because we've got the aggregation data from the stock market trading on a minute by minute basis. I'm sorry, that does not reveal anything close to a netting out to rational behavior.
Josh Sheluk:
Yeah. Well, and aggregate rational behavior in this situation doesn't exist because it's marketed at you and you need to be the one that has no emotions and rational thought with all this stuff. Again, that doesn't exist. It's so funny when you see them actually present this to them. So Daniel Kahneman is one of the preeminent names in behavioral economics, writes about this stuff a lot. There was an interview where Kahneman was asked one time, he's basically been studying this for decades of his life. Again, he won a Nobel Prize for it. So he's done something right along the way.
Somebody asked him, "Knowing everything that you do about behavioral economics, can you now identify your blind spots and make better decisions because of it?" He said, "No, I don't think so." So here's maybe the most educated person on the entire planet or pretty close on this stuff and he's saying that "Even though I know all this stuff, I still have the same biases and issues and emotional reactions to money that all of us do." So great. ChatGPT, thank you very much. Now show me how to do it. Maybe that'll be ChatGPT 5 or whatever it's called.
Colin White:
Ooh, it's going to keep going. This is going to be great.
Josh Sheluk:
Well, so one of the things that feeds into this whole emotional aspect of things that I think is just smart people looking to prey on us is with the media as well. We bash the media a lot and being, I guess, a form of media ourselves, maybe we shouldn't. But the primary goal of most media outlets unfortunately is not to inform and educate.
Colin White:
It's not even the secondary.
Josh Sheluk:
So where is it in the list?
Colin White:
Not even sure it's on the list.
Josh Sheluk:
Okay. So what is the goal then?
Colin White:
Well, to get eyeballs by entertaining us in such a way that we will watch, right?
Josh Sheluk:
Yeah.
Colin White:
Oh, Josh, maybe this is the point for me to introduce my little story, because Catherine had given us that information on influencers and TikTok and how the best way to get an audience. Basically, the conclusion of the study was the more outrageous your claim, the more likely you are to gain a following. So you had to be counterculture, you had to be saying something pretty out there in order to gain a following. These people were being the most successful, therefore were getting paid the best and getting more viewers, which is disseminating... If you take it as information and not entertainment, it's disseminating bad information. I found myself shortly after that conversation with Catherine just scrolling my newsfeed and there was an article on impending deflation and I said, "What?"
Click, shit, they got me. So I go on and it was a nonsense article and I had enough critical thinking I could read through. It was like, "But hey, in my world, that's what's going to get me. I'm going to be scrolling through my newsfeed in a time when we're always discussing inflation. The one person that's going to go out there and write about deflation and tangentially tried to make it any make sense, yeah, he's going to get an audience." He was going to get an audience because I scrolled past 15 other articles on inflation. I said, "Yeah, yeah, yeah, okay, whatever." That was the one I clicked on. That was the one that got my attention. So I'm part of the herd as much as I try to set myself away from...
All of us are going to be influenced by these things. I think the challenges, if you're aware, as soon as I did it, I noticed, "Oh, okay, I get the pattern. I'm on here. I get the game I'm playing." I'm still playing it, but I understand it. Maybe I'm not going to come to our next PM meeting, pitching the dangers of deflation this quarter, Josh. I mean, they didn't take me in.
Josh Sheluk:
That was a rage click though almost. Colin, have you ever been scrolling through and you see something and you're like, "That's the stupidest thing I've ever heard"? You click on it and you're like, "Oh, that's not even close to what the headline suggested," or it is close to it and then it is the stupidest thing you've ever heard. So evoking motion again is a lot of what's going on here, the idea of being controversial or bringing conflict to the forefront. That's what a lot of this stuff focuses on, and it's less of the things that are helping us make good decisions.
Colin White:
Well, for the record, I'm less into rage clicking now.
Josh Sheluk:
Maybe I should be.
Colin White:
Well, no, I recognize the emotion and I once had the vim and vigor of a younger man and I was young bull. So yes, I rage clicked a lot. As I get older, I've only got so many hills that I can die on. So I'm a little less ragey. I can get there. I have that gear when I need it, but yeah, that's one way to get a response from people. Fear and greed, fear of missing out, these are all ways that you can get people's attention. I mean, back in my insurance trading days is like, "Do you love your family?" What? Well, you should have more insurance if you love your family. I mean, there's all kinds of emotional ways that marketers will tap into. Sometimes you notice it and sometimes you don't.
Josh Sheluk:
Yeah. So when you're reading through a news site, for example, generally, you'd hope that it's a little bit more informative and educational. If you had to ballpark what percentage, what do you think is that percentage for articles that are actually useful in helping you make decisions from an investment perspective? Let's go to our profession here.
Colin White:
Well, if I'm generally just scrolling around, it's probably 2 or 3% would introduce something that is timely and interesting. But if I focus on going to the sites that I know that have information I'm looking for, that might get as high as 10 or 15% as actually providing information that's worth making decisions on. But the other thing is, if you're going to talk about our world is like, I made fun of it on a LinkedIn post here recently about the five key things investors need to know today. Nothing. There's nothing that you need to know today. If you're approaching your finance every morning, you got to wake up and read this list and make decisions on this list, you're playing soccer the wrong way. That's not how the game gets played. So that's also a true thing.
Josh Sheluk:
So speaking of pieces of information and how useful or useless they're for decision making with this whole Titanic sub story that was out there last week. Now you weren't at our investment call last week, so I'll say this to you because you haven't heard before. But when you're reading through in the first couple days of this story, which is all over the media, one of the first things that came up early on was we've detected some noises. It's like, "Okay, what do I do with that? You've detected noises in 4,000 meter depth ocean, 10,000 thousands of square kilometers. Oh, what am I going to do with that?"
That's what I feel like a lot of this information is. For example, I pulled this one on Friday, Friday's analysts upgrades and downgrades. What do I do with that? What does that tell me about anything practical that is actually going to be useful for me in the future? I'll give you a hint. It's pretty much nothing. Just like the noises that they supposedly picked up on some sonograph somewhere. It's like totally frigging useless for you.
Colin White:
So you're going to make me tell the Anchorman 2 story again, because again, it's what will catch people's eyes. There's a scene in Anchorman 2 where they've got nothing to go on air with. He goes, "Give me that." What is it? It's a car chase. What's going on in the car? I don't know, make something up. So he starts concocting this whole story about the man driving the car is very tall, perhaps 6'10", just randomly going up. But it's this compelling story that makes people want to watch it. That is what those things are. So look, again, if you can keep it in a spot as entertainment, can you gather information from time to time? Yes, you can. If you're critically thinking and absorbing information, you can become a little bit better informed, but it's definitely an uphill struggle.
Those analyst reports, Josh, that builds a bridge into something I was going to bring up about gamification, because I was at the PMAC conference there a couple weeks back, Portfolio Managers Association of Canada. They had somebody from the OSC on presenting, because the OSC has, believe it or not, gone out and studied the effects of gamification in trading. So you have all these different places and well simple. So you sign on. It's the top 10 most traded stocks and there's all these different things. Now let's just stipulate this, that when it's the business model of businesses who are making money off of this, I'm pretty sure it's dissenting behavior that's not in the client's best interest. It's in the company's best interest.
I could probably draw that conclusion without a study. But being the OSC, they actually went in and studied the effect of very, very simple gamification methods. For example, producing a list of the top 10 traded companies. Automatically, the trading and those dropped a very material amount even with no information. This was complete all made up data with no information whatsoever. Just by the fact that they had a top 10 list on the screen incented people to partake in those companies because they were the most traded companies, not specific to buying or selling. It was just a top 10 list. It actually moved the needle in a material way. The other one was they assigned basically garbage points that you could redeem for free balloons and stuff.
It increased trading activity. There was no monetary value, but there was just a badge of honor system. It's sort like when I play Call of Duty and they're trying to unlock another gun. They gave me something to chase. Call of Duty, fair ball. I'm not putting any more money in the game. It's entertaining. If it's in my trading account, I'm trading something because I want to unlock another avatar so that I can walk around trading looking at something different that they're incenting you to do stuff that's probably not in your best interest.
Josh Sheluk:
Well, I'm glad you segued into the investment industry because there's probably dozens and dozens and dozens of examples from the investment industry. We covered some of the finance stuff, but the investment industry is particularly predatory with some of this stuff. I just started thinking about all the investment products that get pitched out there. So now, what's the hot investment product of the day? Probably AI stuff. Probably AI stuff. There's AI ETFs, you can buy all kinds of stuff. Investing in all kinds of esoteric areas of the AI business.
Year and a half, two years ago, we had crypto. Couple years before that, we had marijuana. A couple years before that, we had something else. We've had arc. We got all kinds of stuff. So if you want it, they will build it. You probably shouldn't want it and they probably should have built it, but you're going to buy it. So they're going to build it anyway.
Colin White:
Well, you've been in the meetings, Josh, where they talk about how successful a product has been and there's only one way they're measuring success. How many assets together? That's all. I mean, one of my favorite absurd examples was when they had the... This is right up your alley. It was an ETF product or what it was, but it was trading based on the VIX. So they tried to turn the VIX into an investible thing. It's a pretty abstract measurement of... You know better than I, Josh. On its face, does it make sense that one could invest in the VIX or how would you back it up? Yeah, see, Josh's eyes are going from the right to the left to the right to left. He's trying to get from what that actually is to how you would invest in it.
Josh Sheluk:
So your average human being I don't think should even ever think about investing in the VIX. Is there somebody somewhere that should invest? It would probably be an institution somewhere, institutional investor perhaps hedging some of their exposure, maybe. But if you are sitting there at home on your Questrade account and buying ETFs, you should not be investing in the VIX. I feel pretty strongly about it.
Colin White:
Yeah, and that came at the time when volatility was hot topic and everybody was talking about this and it was moving. It was going one direction and the other. Ooh, it's moving. It's going one direction. I want to bet on this was the reaction. It's like, "You want to bet on this? Have I got a deal for you?" Here comes the product.
Josh Sheluk:
Yeah. Well, I think it was the short VIX ETFs that blew up, that was in 2020. People look at it. This is what it was. It was a straight line-up, pretty much a straight line-up. It did incredibly well for a few years there. Then volatility spiked and it went to zero basically overnight. People didn't understand what they were investing in. They didn't understand the risks of some of this stuff. It takes one COVID to basically wipe out all of your earnings throughout your entire life in that type of product.
Colin White:
That's the sad part. I mean, well, people know enough to get in and get involved, but they don't know enough to be there. If you don't understand backwardation and contango to get into these products that are based on any options or future strategy, I mean, again, going short on something, that's got a time horizon to it. That's not just going short. Oh, yeah, I'm going to make money if the market goes down. No, not quite. No, just stop playing but people will do it. Therefore, there's no barrier to letting people do it. It's like we disclaim, we told them that it might go to zero. The Apple Care agreement probably told me that my phone could actually cause brain cancer. I don't know, but there's so many things that it's beyond everybody's ability to read and comprehend.
Josh Sheluk:
Yeah, well, like 100 pages legal agreements for everything that you do now is definitely not help in things for sure. Yeah, it comes back to the idea, if you dream up with a concept, a company's going to build it. The business model for them is they might attract assets, they might not. If they do attract assets, that's awesome for them. If they don't attract assets, it's a little bit of a sunk cost and they move on to the next thing. If they do attract assets and it blows up longer term, they still might not care, because they attracted assets until it went to the blow up stage. They got paid. When it blows up, they maybe take a little bit of negative brand value, the better.
Colin White:
But the people working for the company may have moved on to the next company, right? Because again, they're not going to be there long term to be accountable for it. So you're not dealing with a human who made you a promise and it lets you down and deals with the emotion of that. I worked there for six months, man. I was really successful on phone, but then they fired me. I got a better job and I went somewhere else. That's that climate that you're playing in. I think I'll throw out a book here to people and it's probably less interesting than it used to, but Dan Ariely had a book out, Predictably Irrational. It basically went down and talked about how predictably irrational we are.
It's when we get predictably irrational, that's when you're most prone to being taken advantage of. Now he had some problems later on with some of his research and stuff, but I don't think it impinges the value of that book because he really does approach it from a very common sense approach as to why we decide what we're going to do, how we make our decisions. Then there's something called decision architecture. Again, dealing with a cancer patient, it's 50% chance of survival, 50% chance of dying. Those are dramatically different answers. If you're smart enough, you know what the one is more likely, but in the moment, you're going to be you.
So decision architecture is a big thing. If you're playing the game with an institution that is driven by their shareholder and by somebody who's been in the job for six months and only plans to be there another 12, then you really have to keep your card up. For me, my biggest defense is what's your business model? It's maybe to an extreme. Anytime I'm having a conversation with anybody, it's like, "What's your business model? How are you making money off this conversation?" Not to say that's going to cause me to dismiss anything that they say, but I think it's going to put it in context way better if I understand that piece than just sitting there going, "Oh, this just seems to be a nice person," because that's going to get me in trouble.
Josh Sheluk:
So you mentioned business model and you mentioned before... I don't know if I should make this comparison, but drug dealers.
Colin White:
Yeah, they're businesspeople.
Josh Sheluk:
Well, but no, hold on. I'm taking it one step further. I'm stepping outside of my finance shoes for the moment and talking about the diet industry, health, food, whatever it is. This is really one of those times where it seems like it's smart people's objective to get you hooked on stuff that is not good for you and is going to be detrimental to you in the long term. When I started doing a bit of research on this, I heard about these things called bliss points. You ever heard of this?
Colin White:
I'm afraid. All right, but keep talking, John.
Josh Sheluk:
Bliss point, the precise combination of sugar, salt, and fat in a food product that maximizes its sensory appeal. This is a real thing. This is a real thing. These are some genius out there came up with this. This is not only being used to construct the food that we're eating, but also to market the food that we're eating. That's terrifying.
Colin White:
Yeah, no, there's no doubt. So listen, I could wipe out a few trillion dollars' worth of GDP in all the industrialized world with three simple statements. I could wipe out the financial industry with a simple statement. If you don't have the money, don't buy it. If people buy it into that, then we've just wiped out a good chunk of the financial industry. The diet industry, eat less, move more. That's going to accomplish 90% of your goals. That's all you need to do. The fitness industry, yeah, just move more.
If you could boil all three of those industries down to those three simple statements and would accomplish 90% of what could be accomplishable for the vast majority of the population, how many trillions of dollars we spend trying to get skinny the right way or thin the right way or get buffed the right way or try to get rich the right way... How much money we spend chasing those phantoms that's absolutely ridiculous and is largely, I would say, almost completely driven by exactly what we're talking about here? It's driven by us being willing to suspension of disbelief. It's almost like we're watching Star Wars for the first time. It's like, "Oh, I just need to suspend my disbelief and I can enjoy this movie." Well, if I suspend my disbelief, I can enjoy this investment product.
Josh Sheluk:
Anything else on your list?
Colin White:
I think that should just be the quote they put at the start of the podcast. Nobody even has to listen to it.
Josh Sheluk:
Stop listening now. Have a great day.
Colin White:
Thanks, everybody.
Josh Sheluk:
Cheers, guys.
Colin White:
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