In this episode, we're joined by Victor Haghani, founder of Elm Wealth and co-author of The Missing Billionaires, for a wide-ranging conversation about how different types of investors shape financial markets. Victor explains the framework behind his forthcoming paper, Who Killed the Random Walk?, and how fundamental investors, static investors, and extrapolators interact to produce momentum, excess volatility, and other market anomalies.

We explore why return chasing is different from momentum investing, how investor flows and inelastic demand can move markets, and how the Merton share connects expected returns and risk to portfolio allocation. Victor also discusses long-short direct indexing and tax-loss harvesting, his experiment giving investors tomorrow's Wall Street Journal today, how AI performed in the same trading game, the role of leverage in financial markets, and when borrowing to invest might make sense. We finish with Victor's advice to his younger self: be intentional about financial planning, build financial literacy, and make a plan.

Key Points From This Episode:

(0:01:20) Lessons from The Missing Billionaires—practical insights on sizing and the Kelly criterion.

(0:03:13) Who Killed the Random Walk?—persistent puzzles in stock returns: excess volatility, momentum, fat tails, booms, and busts.

(0:05:06) Victor's three investor types: fundamental value investors, static investors, and extrapolators.

(0:07:54) How static investors amplify market movements through inelastic demand.

(0:11:11) How investor types interact to shape volatility, momentum, and equilibrium.

(0:14:02) Wealth flows between investor types and how they create instability in simulations.

(0:18:15) Distinguishing extrapolative return chasing from systematic momentum strategies.

(0:20:34) How extrapolators create price trends that momentum investors exploit.

(0:23:46) The Merton share—risk premiums, volatility, and risk aversion in determining equity exposure.

(0:26:39) Combining value and momentum for higher Sharpe ratios.

(0:32:34) Long‑short direct indexing and how leverage increases tax‑loss harvesting.

(0:34:00) Why fees, complexity, and risk of direct indexing may not be worthwhile without alpha.

(0:43:21) The "crystal ball" experiment—advance information, poor sizing, and excessive leverage.

(0:49:28) The role of leverage in markets—ETFs, options, embedded leverage, and nonlinear instability.

(0:52:50) Why leverage can create nonlinear interactions and amplify market instability.

(0:52:55) When borrowing to invest can make sense, particularly for younger investors with substantial human capital and limited financial capital.

(0:55:00) Why borrowing costs, expected equity returns, risk, and the possibility of losing a large portion of savings make leverage a difficult decision.

(0:57:29) Why the risk-adjusted return from additional equity exposure matters more than the headline expected return.

(0:58:42) The relationship between human capital and leverage—and why human capital is not necessarily bond-like.

(1:00:01) Victor's advice to his younger self: be proactive, become financially literate, and make a lifetime financial plan.

(1:02:18) Why dedicating time to financial education can meaningfully change how people approach financial decisions.

Sources From Today's Episode — https://zbib.org/62e42e55fae14cb0a1aa62941d6996a2

Links From Today's Episode:

Meet with PWL Capital: https://pwlcapital.com/
PWL Team — https://pwlcapital.com/our-team/

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder on Spotify —https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=fe7f60349b584026
Benjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Victor's website — www.elmwealth.com

Books From Today's Episode:

Get Rich Once: and Other Financial Wisdom for Our Younger Selves by Victor Haghani, James White — https://www.amazon.com/Get-Rich-Once-Financial-Younger/dp/1394479964

The Missing Billionaires by Victor Haghani, James White — https://www.amazon.com/Missing-Billionaires-Better-Financial-Decisions/dp/139430823X

Papers From Today's Episode:

Who Killed the Random Walk? How Extrapolators Create Booms, Busts, Trends, and Opportunity — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6062494

Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)

Who Causes Stock Market Anomalies? (w/ Victor Haghani) | #429

The Rational Reminder Podcast

Who Causes Stock Market Anomalies? (w/ Victor Haghani) | #429