What Happens after Bonds Crash? (plus Reading with Aydin Mirzaee) (EP.199)

Episode Summary

Executive Summary: Episode 199 mixes show updates, a deep dive into bonds and diversification, a review of Danny Meyer’s hospitality philosophy, and an interview with entrepreneur Aiden Merzet on reading habits. The core investing message: bond drawdowns can be severe, but in a portfolio context they still help reduce risk and improve outcomes, while hospitality and learning both depend on empathy, habits, and repeatable systems.

Main Topics: Podcast updates and community initiatives (Priority: 4/5): The hosts preview major upcoming guests (Eugene Fama, Antti Ilmanen, Ralph Koijen), announce a financial-goals survey to build a community-generated master list, and update the 22 in 22 reading challenge and merchandise incentives. Book review: Danny Meyer’s hospitality framework (Priority: 5/5): Benjamin reviews Setting the Table, emphasizing the distinction between service and hospitality, Meyer’s hiring philosophy, the 51% emotional-skills rule, and how service businesses can create shared ownership and better experiences. Revisiting bonds, returns, and portfolio construction (Priority: 5/5): Benjamin expands on prior bond discussion with historical Canadian/U.S. long-bond data, showing that while bond bear markets can be brutal, bond returns normalize over time and diversification with stocks materially improves outcomes. Simulation evidence on long-run portfolio outcomes (Priority: 5/5): The episode compares rolling historical, bootstrap, and Monte Carlo outcomes for stocks and 60/40 portfolios, highlighting how bonds compress downside outcomes and reduce left-tail risk relative to equities alone. Aiden Merzet on reading as a productivity and learning system (Priority: 4/5): Aiden describes a highly structured reading habit built around audiobooks, voice notes, multiple concurrent books, biographies, and reading aligned to current business needs, with retention reinforced by discussion and repetition. Practical life and money reflections (Priority: 3/5): The talking-sense segment touches on spending for sleep, time, control over work, and the subjective value of money, showing a recurring theme of optimizing for time, autonomy, and wellbeing.

Key Arguments: Hospitality is not the same as service: service is technical execution, while hospitality is the feeling a client has that you are on their side. Great service businesses collect and use customer information to create shared ownership and repeat, personalized experiences. The “51% score” means emotional and interpersonal traits matter more than technical skill when hiring for hospitality roles. Long-term government bonds can experience very large and very long real drawdowns, especially in the 1947–1981 Canadian sample. Bad bond years do not imply permanently bad future returns; on average, post-drawdown decades reverted near long-run norms. Diversification matters within bonds as well as across stocks and bonds; corporates performed better than long governments in the worst government-bond periods. A 60/40 portfolio materially reduces downside severity and left-tail risk versus stocks alone, even if total return may be lower than 100% equities. Aiden’s reading process is less about finishing books and more about generating usable ideas, timing content to current needs, and reinforcing retention through notes and conversation. Biographies are especially valuable because they provide motivation, operational lessons, and a realistic view of struggle from experienced founders and leaders. Money is most valuable when it buys time, flexibility, and experiences rather than status or accumulation for its own sake.

Data Points: Upcoming guests: Eugene Fama in episode 200; Antti Ilmanen two weeks later; Ralph Koijen in five weeks - Podcast schedule announced at the top of the episode Goals survey responses: ~50 internal responses so far; hoped for hundreds to 1,000 - Community project to build a financial-goals master list 22 in 22 participants: 478 participants - Reading challenge update Books read in 22 in 22: 1,411 books total - Reading challenge progress Halfway-mark reward: 11 books read - Participants who read 11 books receive a token for 50% off merchandise iTunes reviews: 777 reviews - Show review milestone mentioned by hosts Total downloads: approaching 3 million - Podcast overall download count Top downloaded audio episode: John Cochrane episode at ~26,000 downloads - Audio-only download count Top downloaded episode including YouTube: over 40,000 downloads - Audio plus YouTube combined Bond drawdown years in Canada: 13 calendar years since 1900 with real long-government-bond returns of -10% or worse - Long-term Canadian government bond history Bond drawdown average: -14% real - Average return across 11 negative bond years excluding 2021 and 2013 Worst bond year: -26% real in 1915 - Largest calendar-year real loss for Canadian long-term government bonds Average recovery time for long bonds: 12.5 years - Time needed on average to recover real value after a -10% or worse year Worst recovery periods: 42 years and 38 years - 1947 and 1948 Canadian long-bond drawdowns took decades to recover Long-bond cumulative loss: -53% real from 1947 to 1981 - Canadian long-term government bonds over the high-rate era AAA corporates cumulative loss: -45% or -34% real - U.S. long-term AAA corporate bonds in two cited series over the same 1947–1981 period BAA corporates cumulative loss: -18% real - U.S. long-term BAA corporate bonds over the same period 60/40 return after bad bond years: 6.0% real per year - Average decade return for a 60/40 Canadian stock/long-government-bond portfolio following bad bond years 60/40 return in 1947–1981: 3.2% real annualized - 60/40 portfolio during the long period when bonds were weak 60/40 return from 1947 to 1989: 4.4% real annualized - Portfolio return through the long-bond recovery period Bootstrap stock return median: 4.63% - 50th percentile 40-year global stock return in simulation Historical stock return median: 5.62% - 50th percentile 40-year global stock return in rolling historical periods Bootstrap stock return range: 0.95% to 8.0% - 10th to 90th percentile 40-year stock return distribution Bootstrap 60/40 return range: 1.12% to 6.1% - 10th to 90th percentile 40-year 60/40 return distribution Stock CVaR: -1.30% - Average outcome in the 5th percentile of simulated stock returns 60/40 CVaR: +0.46% - Average outcome in the 5th percentile of simulated 60/40 returns Average bond return when stocks were negative: +1.5% real - Across all years since 1900 when stocks had negative returns Average bond return when stocks were negative in first half of sample: -1.86% real - When stock/bond correlations were more positive historically Average stock loss in those negative-stock years: -13.35% real - First-half-sample comparison when bonds were also weak 5-year rolling average stock-bond correlation (US): -0.27 - Long-run historical correlation cited from Credit Suisse Yearbook/Dimson et al. 5-year rolling average stock-bond correlation (UK): -0.09 - Long-run historical correlation cited from Credit Suisse Yearbook/Dimson et al. Real estate market cap estimate: $300 trillion - Global residential and commercial real estate estimate discussed in relation to the market portfolio

Pivotal Quotes: "“business-like life is all about how you make people feel. It’s that simple and it’s that hard.”" — Benjamin Felix (quoting Danny Meyer): Core takeaway from the review of Setting the Table "“There is no single optimal portfolio”" — Benjamin Felix: Explaining investor heterogeneity and why bond ownership can differ across investors without either being ‘wrong’ "“The best spend of money is anything that you can do to save you time or increase your time.”" — Aiden Merzet: Aiden’s view on the highest-value use of money during the talking-sense segment

Implications: Listeners should think about portfolios and service businesses in context: asset allocation is personal, bonds still add diversification value, and hospitality or learning systems work best when they optimize for human experience, time, and repeatable habits.