If the wealthiest families of the past century spent a reasonable amount of their wealth, invested in the stock market, and paid taxes, there would be thousands of billionaires today. But there aren’t. So, what happened? To answer this question, we are joined by authors and finance professionals, Victor Haghani and James White. Their recently released book, The Missing Billionaires: A Guide to Better Financial Decisions, uses the missing billionaires puzzle to explore how and why most investors fail to capture the returns offered by the market. Victor was a founding partner of Long-Term Capital Management (LTCM), the multi-billion-dollar hedge fund that famously collapsed in 1998 and nearly took the global financial markets down with it. His participation in the downfall of LTCM led him to reassess much of the way he thought about investing, and in this episode, he shares some simple but powerful frameworks and personal finance recommendations. We also receive accessible explanations of the Merton model and expected utility theory from James, take a deep dive into dynamic asset allocation, discuss optimal solutions for lifetime spending, and learn more about the certainty equivalent return and Sharpe ratios, plus so much more. Whether you’re an entrepreneur invested in your own business or simply focused on building long-term wealth, Victor and James’ book (and this conversation about it) will be a valuable resource for better financial decision-making, so be sure to tune in today! Timestamps: 0:00:00 Intro 0:06:31 What the puzzle of the missing billionaires is 0:10:16 What Victor thinks explains the puzzle of the missing billionaires 0:15:34 Describing the coin flipping experiment documented in a paper in the Journal of Portfolio Management 0:27:07 How the “Merton share” for sizing positions in risky assets works 0:36:21 What the Merton share tells us about asset allocation over time, if it is possible to estimate expected equity returns 0:38:00 How confident investors should be in estimating expected stock returns 0:46:38 How Victor and James forecast volatility for determining the optimal risky share 0:52:01 James describes the concept of expected utility 0:58:05 What the certainty-equivalent return is 1:02:06 How the certainty-equivalent return can be used to evaluate investments 1:16:24 Why the expected utility framework hasn’t caught on more widely 1:20:58 How Victor's experience with LTCM affected him professionally and personally 1:31:59 What the inputs to optimal lifetime spending are 1:34:23 How using the Merton-Samuelson formulation would actually look in practice 1:49:10 Advice for young people as they start their financial journey 1:52:06 The most important piece of wisdom that you can leave the audience with 1:55:44 Victor and James define success in their lives Participate in our Community Discussion about this Episode: https://community.rationalreminder.ca/t/episode-270-what-happened-to-all-the-billionaires-with-victor-haghani-and-james-white/25122 Books From Today’s Episode: The Missing Billionaires – https://www.amazon.com/Missing-Billionaires/dp/1119747910 Stumbling on Happiness — https://www.amazon.com/Stumbling-Happiness-Daniel-Gilbert/dp/1400077427 The Man Who Solved the Market – https://www.amazon.com/Man-Who-Solved-Market-Revolution/dp/B07P1NNTSD Links From Today’s Episode: Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Shop Merch — https://shop.rationalreminder.ca/ Join the Community — https://community.rationalreminder.ca/ Follow us on X — https://twitter.com/RationalRemind Follow us on Instagram — @rationalreminder Benjamin on X — https://twitter.com/benjaminwfelix Cameron on X — https://twitter.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/ Victor Haghani on LinkedIn — https://www.linkedin.com/in/victorhaghani/ James White on LinkedIn — https://www.linkedin.com/in/james-white-b4310a47/ Elm Wealth — https://elmwealth.com/ When Genius Failed — https://www.amazon.com/When-Genius-Failed/dp/0375758259/ Where are all the Billionaires?: Victor Haghani at TEDxSPS – https://youtu.be/1yJWABvUXiU ‘What's Past is Not Prologue’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3034686 ‘Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case’ – https://www.jstor.org/stable/1926560 ‘Stock Prices, Earnings, and Expected Dividends’ – https://www.jstor.org/stable/2328190 ‘No Place to Hide: Investing in a World With No Risk-Free Asset’ –https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3903372 ‘Sharpening Sharpe Ratios’ – https://papers.ssrn.com/sol3/papers.cfm?abstract_id=325942 ‘A Sharper Lens for Sizing Up Nickels and Steamrollers’ –https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2874602 ‘Do Options Belong in the Portfolios of Individual Investors?’ – https://elmwealth.com/do-options-belong-in-portfolios/