This Year’s Blogger Wisdom

For the last few years, Tadas Viskanta has asked a number of financial bloggers their opinions of important questions facing the industry. I was fortunate enough to be included in this year’s edition.

Here’s a list of the questions, along with my answers and the answers from some of my fellow finance bloggers.

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?

I skipped that one because I felt I don’t have anything profound to add but here’s Ben Carlson:

The competition for robo-advisors will continue to heat up because almost every wealth management or fund firm is going to have their own version of robo-advisor software at some point. I think the best way for robo-advisors to continue their growth will be to make a huge push into the workplace retirement business (something Betterment is already doing). The 401(k) and 403(b) markets are ripe for disruption by a low-cost provider as most of these plans are filled with terrible fund choices and high costs to plan users. Plus, the 401(k) market is much stickier in terms of clients because you have money automatically going into client accounts out of every pay check. Most companies don’t have the expertise to understand these plans on their own so offering a simple, low-cost solution would seem like an obvious way for robo-advisors to gain market share. This is especially true among small businesses who are the most over-charged group in need of a better solution.

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?

Here’s me: I’m honestly not terribly impressed with Smart Beta. It’s mostly driven by marketing pitches. To my mind, it’s another form of chasing return. To the extent that any of these strategies work, it tends to be small and fleeting. (Make no mistake, I believe some are real.) The bottom line is that straight vanilla indexing is probably better for most investors, and simply buying and holding great stocks is even better than that.

Here’s David Merkel: Smart beta is a form of enhanced indexing. It is not active management. As in the quant quake in August 2007, “smart beta” will have its own episode of failure when too much money pursues it. It will be uglier due to the lack of human intervention. Active management will continue to shrink, but those who do it will have better opportunities. Fees will be under pressure, but less so than most imagine.

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?

Here’s me: No, I’m not worried about the rise of indexing. The investment world loves to find things to be “concerned” about. Indexing is a great benefit for investors. I find the efficient versus inefficient debate to be pretty tedious. If you’re willing to accept what the market does, then indexing is a fine strategy. Still, with a little work, you can do better.

Here’s Josh Brown: Enjoy the ride. And know that the cure for “too much indexing” is already in progress in the form of a flat, choppy market that rises and falls but ultimately goes nowhere, which is the story of the MSCI All Country World Index heading into its third year of nothing. A few more and you’ll see a lot of the enthusiasm for low cost, passive dim.

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?

I didn’t have an answer but here’s Cullen Roche: If the men on this planet don’t exterminate each other in the future I am certain that the women will come to their senses one day and do it for us. A perfectly efficient stock market will be the result.

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?

Here’s me: This may be an odd response, but I’ve recently changed my mind about volatility. Specifically, I think it’s incorrect to see volatility as some kind of gnome that stands above and apart from the market. To put it bluntly, the market doesn’t fall on volatility. Instead, volatility is up because the market is down. It falls when the market rises. The correlation between the VIX and the distance the market is from its six-month high is about 70%. I was surprised to see that it’s true.

Here’s Michael Batnick: I can’t think of anything that I’ve done an about face on, but one thing I am sticking with is my conviction to minimize the home country bias. I do not believe that investing in companies that generate a majority of their sales overseas is the same thing as investing in international stock markets. These giant multinationals are highly correlated with their domestic index and do not provide the same diversification benefits.

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….

Here’s me: A few things. It looks like an ETF based on the Buy List will become a reality. We’re still in the planning stages, but it looks promising so far.

Another idea that’s bouncing around my head is the relationship of different market groups to each other. For example, why do bonds follow stocks for a while then break apart?

There’s been some quant work here (multi-dimensional scaling, etc). I think this is an unexplored vein, and it could reveal some important insights on the market.

Here’s Conor Sen: As I believe with rate hikes underway we’re in the late cycle in the US, I’m trying to think ahead to what the next cycle’s boom will be. At the moment from a tops-down perspective in the cycle from…I don’t know…2018-25? — I’d love to be in companies that are using some combination of data/analytics/information/automation/robotics, sensors, solar energy, and transportation to solve problems for consumers. More capex-heavy, less trivial app-conomy stuff.

Lastly, here are Tadas’ answers.

Posted by on April 18th, 2016 at 1:13 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.