Nadig: The Battle Is Never Over

Education is an ongoing issue.

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Reviewed by: Dave Nadig
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Edited by: Dave Nadig

The first time I explained what an ETF was to someone was in 1995. My employer at the time, Barclays Global Investors, had just started negotiations to build a new suite of ETFs with Morgan Stanley called “WEBS.” I was working on marketing materials and tried to explain the structure and its uses to a group of advertising folks.

I’m 100% sure I explained it incorrectly.

In the intervening 20 or so years, I’ve gotten a little better at explaining the basics: creation and redemption, premiums and discounts, tracking error versus tracking difference, and so on. But I’m not going to claim mastery just yet.

One of the great truths of investing is that nothing is ever actually simple. I suspect that’s one of the reasons so many smart people are attracted to the market—not because they can master it, but because finance and investing contain enough complexity to keep the brain engaged for a lifetime.

Ongoing Education
Here’s a short list of the things about ETFs and investing I learned—or relearned—just in the last 12 months:

  • How blockchain actually works
  • Why negative interest rates aren’t only possible, but a logical conclusion of some investment policies
  • Fractional basis point pricing is now a legitimate fee-war strategy
  • The nuances of how options-based protection strategies work in a packaged product like an ETF wrapper
  • How Iceland managed to engineer economic growth out of its banking crisis

And that’s just off the top of my head. Every week, someone in the ETF world launches a new product, cracking open a new area of the market or a new technique with some promise to investors. The learning process never stops.

Avoid Complacency
Every week, new investors and advisors stumble across ETFs for the first time. They have the same questions about the basics I was mis-answering in 1995. It’s easy to grow complacent and assume the market should have learned about ETFs by now, and that we, as ETF folks, have it all figured out. Neither will ever be true.

So here’s my challenge to you: If you think you’ve got ETFs pretty much figured out, go volunteer to do a half-hour talk on investing at a nearby high school. Offer to speak at your local rotary club or even hold forth at a cocktail party. There’s nothing to shine a light on the gaps in your knowledge like having to teach something.

You’ll get asked hard questions, and you may have to do a bit of digging for the answers. But in the process, I guarantee you’ll walk away having learned something.

 

Prior to becoming chief investment officer and director of research at ETF Trends, Dave Nadig was managing director of etf.com. Previously, he was director of ETFs at FactSet Research Systems. Before that, as managing director at BGI, Nadig helped design some of the first ETFs. As co-founder of Cerulli Associates, he conducted some of the earliest research on fee-only financial advisors and the rise of indexing.