[This article appears in our September 2019 issue of ETF Report.]
Investment folks love their technology. In business school, it was building models in MATLAB. In the late ’80s, it was program trading. In the ’90s, it was all about new data sources and stochastic modeling (and of course, flipping IPOs.) Since then, it’s been the explosion of factor models and risk parity.
And all of this is great. Each new innovation helps us understand our investments better, and hopefully helps us make better decisions. I’d go so far as to say that the combination of regulatory changes (Reg FD in particular), and the pervasive nature of information means huge swaths of investing can be considered a “solved problem.”
I don’t mean that everyone can just do the same thing, regardless of their goals or the markets themselves. I mean that the framework for analyzing how various securities fit into a portfolio, and what the expected outcomes of that portfolio will be in various scenarios, is pretty well-trod territory.
Sure, there will always be refinements and new data and new ideas, but the fundamentals of how to construct a decent portfolio to achieve common investor objectives don’t require a supercomputer or a Ph.D. They can be pretty well managed by a nearly free robo advice platform.
Info Changes Everything
That’s actually the least interesting part of how technology is impacting real-world investing. It turns out the killer app for investing isn’t about building models and picking stocks, it’s just communication—moving information from place to place. I’d argue there has been no greater impact on investor outcomes than the rise of Financial Twitter.
I certainly don’t believe everything I read. But the average investor or advisor, with maybe an hour’s work, can put together a list of some of the greatest current thinkers on investing, and have their insights pumped into their smartphone. That stream of insight can be filtered, collected, analyzed, ignored or embraced in a way that simply didn’t exist a decade ago.
Sure, there are problems with this. It’s easy to construct an echo chamber for yourself or spend too much time in the weeds on topics that have no real impact on your portfolio. But it’s also shockingly easy to pull up a chair at the best live debates in the world. Whether that’s hearing both sides of a bitcoin argument or a Brexit debate, there’s genuine knowledge out there for people willing to wade through the noise to curate their own, informal, often-unknowing advisory board.
This revolution in investment communications isn’t limited to Twitter. Whether you watch videos while you eat lunch, listen to podcasts on your way to work, or just browse custom apps like Robintrack (which shows you exactly what Robinhood traders are up to in real time), there’s more out there than you could ever possibly get through in a given day. There’s too much, honestly. It’s an embarrassment of riches.
In the age of infinite information at our fingertips and ubiquitous supercomputing power, the scarce resource is attention. How we spend our time has become the most critical resource-decision we make each day. Whether you’re at a conference meeting people from Twitter that you’ve only interacted with from a distance, or using a technology platform to cut hours out of your week that you used to spend on portfolio reviews, your time is incredibly important.
As I head to the new WealthStack conference this weekend in Arizona—an event designed to mash up the world of technology and financial advice—my goal isn’t to discover the next new tool or hear about the next new factor model. My goal is to shake more hands, put faces to names and get past the technology, to the people.