Fave read of the week … Much wisdom and things to think about if you like investing https://t.co/BauTgcJp18
— howardlindzon (@howardlindzon) April 4, 2016
As you can see last week’s “blogger wisdom” series garnered some great feedback. I want to thank everyone who participated and those of you who stopped by to read their thoughts. By definition the questions I asked are things I have been thinking (and writing) about. So without any further ado here are answers to my own questions. (Click on the question to read the original post.)
Question: Venture capital has likely dried up for stand-alone robo-advisors. If so, where does the business of rob-advising go? Or said another way is robo-advising simply going to be the way advisors manage client accounts going forward?
Four years ago, or so, I was writing in my book about the potential for algorithmic investment solutions. The surprising part isn’t that they have become table stakes for investment firms, the surprising thing is how quickly it went from being a VC-funded niche to becoming a standard offering of Vanguard, Schwab and Fidelity. A couple of the VC-backed robo-advisors will likely remain independent but in this case the establishment quickly caught onto the opportunity.
Question: The ‘smart beta’ or factor-investing bubble seems to be in full bloom. Is ‘smart beta’ simply the new active investing? If so, what happens to the entire fund industry which was built on the high fees associated with active management?
I do think that smart beta, in its many forms, will eventually displace high fee, low tracking error ‘active’ funds. This will obviously take some time. In the mean time investors are going to be horribly confused by the various flavors of alternative indexing and many will be end up being confused and disappointed along the way. So, in short, not much changes.
Question: Like just about every other blogger I have been writing on the rise on index investing. Should we care that the percentage of assets in indexes is on the rise, or should we just sit back and enjoy the (low cost) ride?
I believe the answer is both. As an investor you can happily take advantage of nearly free index funds. While at the same time we need to think about the implications of an investment world that is increasingly concentrated and run at the behest of various index funds.
Question: It does not escape me that the entire distribution list on this “Blogger Wisdom” e-mail chain is entirely male. I have written extensively on why this is an issue for the investment industry. What, if anything, can be done to make the investment industry more inclusive?
This was definitely the most controversial question and the in which many bloggers declined to answer. I don’t know if I have a lot more to add than what I have written about previously so I will simply quote myself:
I have been writing for some time now about gender disparity in money management. The situation can be described this as a true market failure. Whether the problem is one of explicit or implicit bias it remains a problem. As with the female coders, it is likely the case that women who reach the level of portfolio manager are highly motivated. This motivation helps create the market failure we discussed and remains an opportunity for institutional funds doing manager hiring. It is unlikely these managers will go with a truly “bias-free” hiring approach but maybe they should.
Question: Think back to the last edition of this series a couple of years ago. Have you changed your mind about something (big or small) over that time period? If so, what and why?
The recent work by Cam Harvey convinced me that much of what we see in published research is likely the result of some form of data mining, whether it be conscious or unconscious. Therefore I am much more skeptical about the results presented in academia and especially in the financial media
Question: What are you jazzed about that no one else is talking about? That could include a book, blog, Twitter feed, song, movie, app, online series, etc…
As you all probably know I am a big fan of podcasts. It is such a new (and vital) medium. It is interesting to see what people do with it. For example the Song Exploder podcast talks with artists about how a certain song came into being. On the viewing front I am looking forward to the second season of Catastrophe on Amazon and looking for some time to binge the rest of Billions.