Episode 384: Mamdouh Medhat - A Profitability Retrospective, and Private Fund Performance

This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision making from two Canadians. We are hosted by me, Benjamin Felix, chief investment officer, and Cameron Passmore, chief executive officer at PWL Capital. Welcome to episode three eighty four. And, Ben, I was taking down notes during this conversation which was an incredible conversation. It's kind of like, I got called it the great trilogy of listeners, right? It might be even more than three factors going on here. But to talk about factors, global diversification, private investments from a great super nerdy, super technical academic who is a great communicator. It's like this is the happy place, I think, for so many of our listeners. This was a phenomenal conversation. Yeah, nice to do an early episode. It feels like it's been a while. It's been a while and it was such because it's talked about questions that we get all the time and our team gets all the time from clients, especially when we got into the part at the back end around private investments and the research that he's done. So our guest this week is Mamdu Medhat, who is a researcher, investment manager, and VP, and senior researcher at Dimensional Fund Advisors in London. People know that we do a lot of work with Dimensional here. So with that, Ben, why don't you kinda tell a background story and go from there? Oh, I mean, the background story is that Mamdou wrote a very interesting paper with Robert Novy Marks, who, of course, we've had on this podcast about profitability. So they wrote what they call the profitability retrospective. So professor Novy Marx wrote his paper on profitability, I believe, in 2013. And it had, as talks about during the podcast, it had a huge impact on academia. It was added to the Fama and French five factor model, which was like that's a huge thing. That's the the main workhorse model in academic finance, like the benchmark model. And it influenced Dimensionals investment strategies. They incorporated profitability into their portfolios the way that they sort and wait stocks. So have other asset managers all around the world. And so they wrote this paper looking back since that original paper was published. What have we learned about profitability since its initial publication? And so they look at a whole bunch of interesting questions. They look at quality metrics. They look at defensive or low beta stocks. They look at the performance of value, and they ask how profitability relates to all of those things. So we talked about that in the first part of the episode. That was coauthored with Mamdou and Robert Novy Marks. Mamdou has other awesome research. We also asked them about that. We talked about industry and country tilts, like, whether it makes sense to tilt toward or away from a country based on its aggregate characteristics. That was an interesting discussion. And then we also …