Meet with PWL Capital: https://pages.pwlcapital.com/en-ca/contact-us?utm_source=content&utm_medium=youtube&utm_campaign=rationalreminder_yt What are the critical factors driving investment success? How can investors balance profitability and risk? In this episode, we sit down with Dr. Sunil Wahal, the Jack D. Furst Professor of Finance and Director of the Center for Responsible Investing at the W.P Carey School of Business at Arizona State University, to delve into the intricacies of financial science. With over 25 years of academic and practical experience, Dr. Wahal shares his unique perspective on factor investing, profitability premiums, and how to approach value investing in today’s complex financial environment. He talks about the joint distribution of value and profitability, explains how profitability premiums work, and discusses the challenges faced when integrating academic research into practical investing strategies. Dr. Wahal also touches on common misconceptions in financial theory, the long-term benefits of maintaining a diversified investor base, and why understanding the nuances of financial risk is key to avoiding costly mistakes. Gain insights into building a successful investment portfolio grounded in the principles of financial science and how to avoid common pitfalls in factor investing. Join us to hear actionable strategies for balancing risk, understanding factors, and applying academic research to real-world scenarios with Dr. Sunil Wahal! Timestamps: 0:00:00 Intro 0:04:59 How robust the profitability premium is in the pre-1963 data 0:09:22 How impactful controlling for value to the profitability premium is 0:12:57 How large the premiums have been for portfolios formed on value and profitability relative to a cap weighted portfolio 0:17:24 The best way for unlevered long-only investors to use this information in constructing a portfolio 0:22:50 Sunil describes the differences in Dimensional's and Avantis's approaches to implementing value and profitability in portfolios 0:28:43 How important an investor’s time horizon to their ability to capture the benefits of a tilted portfolio is 0:35:53 How institutions decide which investment managers to hire 0:39:56 How institutions decide when to fire managers 0:44:21 How manager hiring and firing decisions affects institutional performance on average 0:49:18 How relationship-based hires affects performance 0:52:03 How institutions choose which private market firms to invest in 0:57:11 The main lessons that institutional investors should take from Sunil's research 1:01:17 The lessons from this research that applies to retail investors 1:11:10 How competitive the market is for mutual funds 1:19:25 How investors can look for funds with a more diversified investor base 1:23:05 What this suggests about the efficiency of markets outside of the US 1:27:51 Sunil defines success in his life Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on X — https://x.com/RationalRemind Rational Reminder on TikTok — www.tiktok.com/@rationalreminder Rational Reminder on YouTube — https://www.youtube.com/channel/ Rational Reminder Email — info@rationalreminder.ca Benjamin Felix — https://pwlcapital.com/our-team/ Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://pwlcapital.com/our-team/ Cameron on X — https://x.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/ Sunil Wahal on LinkedIn — https://www.linkedin.com/in/sunil-wahal/ W. P. Carey School of Business — https://wpcarey.asu.edu/ Avantis Investors — https://www.avantisinvestors.com/ Dimensional Fund Advisors — https://www.dimensional.com/ UpWork — https://www.upwork.com NVIDIA — https://www.nvidia.com Episode 316: Andrew Chen — https://rationalreminder.ca/podcast/316 Books From Today’s Episode: The Interpretation of Financial Statements — https://www.amazon.com/dp/0887309135 Papers From Today’s Episode: ‘Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks’ — https://doi.org/10.1080/0015198X.2023.2188870 ‘Long-Run Stock Market Returns: Probabilities of Big Gains and Post-Event Returns’ — https://dx.doi.org/10.2139/ssrn.3873010 ‘Prudential Uncertainty Causes Time-Varying Risk Premiums’ — https://dx.doi.org/10.2139/ssrn.2176896 ‘A Five-Factor Asset Pricing Model’ — https://dx.doi.org/10.2139/ssrn.2287202 ‘Do Institutional Investors Exacerbate Managerial Myopia?’ — https://doi.org/10.1016/S0929-1199(00)00005-5