My full interview with Randy Cass of Nest Wealth originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

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Randy Cass’s booming voice fills a room. Randy likens himself to Jim Cramer, the host of CNBC’s Mad Money. I disagree with that comparison — Cramer is obnoxious on Mad Money, whereas Randy Cass is dynamic but well spoken. Randy became a household name, at least among Canadian business watchers, when he co-anchored the show Market Sense on BNN with Catherine Murray. The show was a success. While both anchors were highly adept in the financial markets, their personalities were almost complete opposites, with an effect like the dynamic between Kevin O’Leary and Amanda Lang from the long-running CBC show The Lang & O’Leary Exchange. Randy Cass’s tenure on Market Sense wasn’t as long-running as Catherine’s, though, as he departed the show after three years, in 2012, to focus his energy on Nest Wealth, a robo-advisor company. Nest Wealth provides investors access to low-cost, high-quality managed investment accounts at the click of a mouse.

This is how Nest Wealth works: first they get to know you and your financial goals, second they invest your money in low-cost ETFs, and then third, they monitor and rebalance your portfolios. The philosophy that drives their investment accounts is based on the Efficient Market Theory (EMT) and the idea that passive investing beats active investing. With the exception of Som Seif, who actually develops ETFs that track the market, Randy is the only other individual featured in this book who actually stands by EMT, which was popularized by Burton Malkiel in his book A Random Walk Down Wall Street. This is what Randy has to say on the topic: “Studies demonstrate that over the long term, passive investing — building a portfolio to perform like the market instead of trying to beat it — does better than active management.

Over the last five years in Canada, nearly 80% of actively managed Canadian Equity Funds failed to perform as well as the S&P/ TSX Composite.” Compelling data like this makes Nest Wealth’s mandate to “be the market” instead of “beat the market” a viable option for investors. The active managers in this book have for the most part beaten the market, but the evidence is clear: the majority of managers won’t grow your money faster than the market. All portfolios in Nest Wealth are built on three rules by David Swensen,
the chief investment officer of Yale University, as available on the Nest Wealth website:

1. The investor should maintain a portfolio allocated to six core asset classes and be diversified. (These include domestic equities, emerging market equities, international equities, government fixed income, real-return bonds, and real estate.)

2. The investor should rebalance the portfolio on a regular basis.

3. The investor should, in the absence of a confident marketbeating strategy, invest in low-cost index funds and ETFs.

During the interview, Randy explained that he had suffered a bout of disillusionment,
as we all do in some form, upon first entering the workforce. He started as an articling intern at a law firm, but saw that the career path to becoming a partner was fraught with stress and that the long days wouldn’t magically vanish once he “made it.” One Sunday morning, he was working across from a senior partner, and he realized that he would
still be working Sundays at a law firm no matter how much success he had. The difference between Randy and the average person is that Randy actually made a crucial change in his life to redirect his path. He actually wrote to Jim Cramer, got his surprisingly astute advice, and then from then on, blazed a path through the investment industry.

Prior to founding Nest Wealth, Randy managed quantitative portfolios at the Ontario Teachers’ Pension Plan and institutional assets at Orchard Asset Management. Randy’s last startup, First Coverage, developed a proprietary technology-based system that measures the effectiveness of information given by the sell side to institutional investing clients. It won multiple awards as a top startup, including a financial services Morningstar award for best use of technology in Canada. First Coverage expanded into the United States and the U.K. and was ultimately sold to a U.K. company in 2011.

The interview with Randy is informative, though I’ve removed parts of some responses in which Randy sounded too much like a salesman for Nest Wealth to keep the information balanced. What you’ll glean, instead, is the effectiveness of Randy’s entrepreneurial drive and a strong foundation in the markets, as well as the merits of the Efficient Market Theory. As a bonus, Randy shares his experiences with FX trading — a job that he can laugh about now.

Randy Cass’ 16 Investing Lessons:

1) “We would leave stop-losses on [FX trades] because we couldn’t let a currency trade run without any risk management because we would lever, and so you could get your head handed to you otherwise.”

2) “Currency trading was all about picking up nickels and nickels and nickels and nickels on every transaction.”

3) “If you were right, the odds of getting stopped out before you were right three months down the road were high. So FX didn’t seem to have the mental stimulation that I was looking for.”

4) “The most successful fund at Orchard Asset Management was a closed-end fund that employed an arbitrage strategy. We built an entire system that captured the differences in value between closed-end funds and the underlying assets the closed-end funds had within it.”

5) “If you know a lot about a particular area, at some point you can’t keep doubting yourself.”

6) “[Stocks don’t] always have to come back. We see that in Canada’s many tech companies over the last decade.”

7) “Markets can materially shift for a variety of reasons and the lesson there was that if you’re going to play that game, if you’re going to try to fundamentally out-think everybody, you can’t be captive to whatever your old thought process was.”

8) “It’s incredibly hard, next to impossible, to actually beat the market on a consistent basis.”

9) “We believe that with ETFs it’s not about performance, but whether it does what it says it’s going to do. Does it mimic what it says it’s going to mimic? Does it have good liquidity? Does it have low fees? Does it have minimized tracking error?”

10) “Trading in and of itself right now is a technology arms race. It’s about who can get their hold in the market the fastest. It’s about who can co-locate their server the closest to the exchange. It’s about who can build something that can do billions upon billions of procedures faster than the other guy’s computers.”

11) “Passive beats active. It’s hard to come out ahead when you trade.”

12) “There are very smart people who do exceptional things on a semifrequent basis.”

13) “Benjamin Graham would probably still be Benjamin Graham, but the odds of becoming that person as a retail investor are stacked against you today.”

14) “Over five years 90%-plus of funds will underperform the benchmark. If you stretch it out to 10 years it becomes an almost certainty that you underperform the benchmark.”

15) “When you look at all the studies, there’s a reason that every legal document has to say, ‘Past performance not indicative of future performance.’ It’s a fact.”

16) “If we had a thousand people sitting with us right now, I could have them stand up and flip coins and guarantee that one of them is going to get 10 heads in a row. If you’re going to try and do this [i.e., invest in the markets], you need to understand that the odds of you being the guy who can consistently outperform the market doesn’t compensate you for the risk that you’re going to take to actually try it.”

Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.