"I Sold 50% of My Portfolio. What Now?" | #418 (AMA)

Episode Summary

Executive Summary: The episode centered on practical investing questions: why market timing after selling stocks for “bubble” fears is usually a mistake, how lump-sum investing compares with dollar-cost averaging, how PWL’s investment committee conducts due diligence, and which new ETFs are truly useful versus product “slop.” The hosts also discussed retirement income ETFs, active management opportunities in a gamified-retail market, and why stock gains are not simply from currency debasement.

Main Topics: Re-entering the market after selling in fear of a bubble (Priority: 5/5): A listener sold VEQT to cash and asked whether to re-enter via lump sum or staged investing. The hosts argued that timing the market requires being right twice and that lump sum investing usually wins, even when valuations are high. Dollar-cost averaging vs lump sum investing (Priority: 5/5): They reviewed their research showing lump sum outperforms DCA most of the time, with only modest regret-reduction benefits from DCA. They emphasized that behavioral comfort may justify DCA for some investors, but the cost is real. Investment committee and ongoing due diligence at PWL (Priority: 4/5): The hosts described the committee structure, approved-security reviews, annual fund provider questionnaires, and benchmarking of holdings and factor exposures. The process is designed to manage growth, acquisitions, and product oversight. ETF innovation vs ETF slop (Priority: 5/5): They assessed whether there are any Canadian-listed ETFs worth recommending beyond standard index funds. They highlighted BMO’s discount-bond tax-efficient asset allocation ETFs, CIBC/Avantis ETFs, and criticized thematic, single-stock, and covered-call products. BMO T-Series asset-allocation ETFs (Priority: 4/5): The hosts explained the ZEQT-T / ZBAL-T / ZGRO-T structure: same underlying portfolios as the regular ETFs, but with a targeted 6% annual distribution. They see them as useful for some DIY retirees, but blunt and highly variable. Retail gamification, meme stocks, and active management (Priority: 3/5): They debated whether gamified trading and noisy retail participation create more opportunities for active managers. Their view: markets remain competitive, any edge is hard to capture, and any opportunity may be short-lived. Currency debasement as a driver of stock returns (Priority: 3/5): They pushed back on the claim that stocks rise mainly because governments print money. They argued that stocks outperform because they are productive businesses that grow profits, not because all assets move uniformly with inflation.

Key Arguments: Market timing is doubly difficult: you must correctly exit and correctly re-enter, and investors who sell because they fear a crash often struggle to buy back after prices fall. All-time highs are normal in equity markets; seeing new highs should not be treated as a warning signal by itself. Valuations and future returns are related, but the relationship is noisy enough that they are poor timing tools; at most, investors should temper return expectations. Lump-sum investing outperforms dollar-cost averaging more often than not, even in historically bad entry points and even when markets are expensive. DCA can reduce regret because it spreads decisions over time, but it also creates multiple decision points and can lead to paralysis or missed re-entry. If an investor is so anxious about market drops that they want to avoid lump-sum investing, the real problem may be that their asset allocation is too aggressive. PWL’s investment committee is a formal governance mechanism for approving securities, reviewing fund providers, and monitoring holdings and exposures as the firm grows and acquires other practices. Most new ETFs are designed to exploit investor behavior and headlines; only a few, such as discount-bond asset allocation ETFs or Avantis/CIBC products, materially improve implementation for some investors. BMO’s T-Series ETFs are not “slop” if used with understanding: they provide a managed-income version of a broad asset allocation ETF, but the 6% payout is mechanically set and can include a large return-of-capital component. Gamified retail trading may create pockets of inefficiency, but active managers cannot count on systematically exploiting them because markets are competitive and such opportunities may vanish quickly. The idea that stock returns are primarily caused by currency debasement is incomplete; stocks outperform because they are claims on growing productive businesses, unlike many alternative assets.

Data Points: All-time high frequency: ~30% of months - Monthly U.S. market data referenced in prior research/video showing all-time highs are common rather than exceptional. Lump sum vs DCA win rate: ~65% - Across six stock markets and 10-year periods, lump-sum investing beat dollar-cost averaging about 65% of the time. Estimated annualized cost of DCA: ~38 basis points - Approximate 10-year annualized cost in their lump-sum vs DCA analysis when cash sat in Treasury bills while waiting to be invested. Worst-lump-sum-case DCA advantage: 51% - Even in the historically worst lump-sum cases, dollar-cost averaging only won slightly more often (described as a coin flip). U.S. valuation subset, backward-looking percentile: 64% behind - When the U.S. market was in the 95th percentile of expensiveness using only backward-looking CAPE data, DCA underperformed lump sum 64% of the time. U.S. valuation subset, full-sample percentile: 71% behind - Using the full U.S. sample to classify expensive markets, DCA trailed lump sum 71% of the time. DCA with perfect foresight valuation ranking: 54% ahead for lump sum - Even with perfect knowledge of future valuation percentile ranks, lump sum still won 54% of the time. New ETFs in Canada so far in 2026: 189 - Used to illustrate the volume of ETF product launches and the prevalence of theme-driven products. ETF launch pace: On pace to exceed 2025 - The hosts said 2026 is tracking to surpass the record issuance year of 2025. PWL investment committee size: 5 members - Described the committee structure overseeing approved securities and due diligence. CFA charterholders on committee: Minimum 3; currently 4 - A governance rule for the investment committee composition. Committee term length: 2-year renewable term - Membership is appointed for renewable two-year terms. Annual due diligence coverage: ~99% of holdings - They said nearly all holdings are benchmarked annually. Aggregate firm asset allocation: ~70/30 - The annual firm-wide holdings review showed approximately 70% stocks and 30% bonds. T-Series distribution rate: 6% annually - BMO T-Series ETFs target a 6% annual distribution, paid monthly. Cash-flow frequency: Monthly - The T-Series payout is split into 12 equal monthly payments. VRIF reference payout: 4% - Discussed as an earlier Vanguard target-distribution product and compared with BMO’s more aggressive payout design. Small-cap growth active fund underperformance: 34% and 38% trailing the benchmark - From the 2025 SPIVA U.S. report, active small-cap growth managers had relatively strong short-term results, with only 34% and 38% trailing over one- and three-year periods. ETF issuance example: 189 new ETFs - Illustrates product proliferation and the prevalence of slop-like offerings.

Pivotal Quotes: "you have to be right twice: you've got to be right once on the way out, and you're going to be right again on the way back in" — Benjamin Felix: Explaining why market timing is difficult for the listener who sold stocks to cash over bubble fears. "If you're this worried about it, if this is such an agonizing decision for you, maybe your portfolio is too aggressive." — Benjamin Felix: Advice that emotional distress around re-entry may signal an asset allocation that exceeds the investor’s risk tolerance. "even when you statistically pick the worst time, you're a coin flip away from being better off or not" — Ben Wilson: Discussing the strength of lump-sum investing, even under unfavorable historical entry points.

Implications: Listeners should treat market timing skeptically, prioritize a portfolio they can actually hold through volatility, and focus on implementation quality over product novelty. The episode also reinforces that most ETF launches are marketing-driven, while a few innovations can help with taxes, income, or diversification.