The Crucial Art That’s Lost With Portfolios On Auto Pilot

August 02, 2016

Years ago, when studying for a degree in finance, I often pondered the idea of finance as an art and a science.

In one way, finance is scientific in nature. Without math, finance doesn’t exist as a discipline, and civilized society would arguably be nonexistent.

On the other hand, finance is undoubtedly an art. Without the ability to develop, interpret and use numbers, a student couldn’t pass Finance 101.

As professionals take knowledge of the discipline of finance and apply it to a career, the science hopefully becomes like second nature, and the marked value over time is added through the art.

The Game Is Faster Every Day

While certain rules of finance have existed for hundreds of years, the application of finance to the modern markets (in combination with unbelievable computing power) has supercharged finance and investing. As the rate of change compounds, we all have the benefit of living in the fastest period of development in history.

But despite the rapid evolution, we caution investors not to get too wrapped up in the science and skip the art.

Solutions such as oversimplified robo advisors, nonmonitored algorithms and generic portfolios are typically based nearly 100% on science, with little regard for the value of artistic human talent.

As the speed of the scientific aspect of investing has increased, we would argue the need for the artistic component has increased. Algorithms that made sense last month may not make sense this month. Therefore, it is important to be ready to exercise the artistic side of investing more frequently than in the past.

We use certain algorithms in some of our strategies; however, those algorithms are monitored, studied and adjusted (if necessary) regularly by highly skilled individuals.

Investing Is Similar To Constructing Buildings

Similar to finance, architecture can be described as an art and a science. Like an architect, a disciplined professional portfolio manager is trained in the science of investing and skilled in the art.

Some investors feel they can skip the architect or, worse yet, take out their pencil and redraw the plans. They often take well-thought-out plans and tweak them, like going to cash during a market pullback or buying the hot stock they heard about at breakfast.

Architects Are Essential

In architecture, it would not make sense for someone to mix four or five different classic architectural styles in one building. If investors are investing solely online through websites, they are likely to set up accounts with multiple different sites, especially with the low minimums many sites offer.

Therefore, even if the portfolio recommended by one fund family or robo advisor may make sense, the client’s total financial picture can make no sense, and potentially create overlap and additional risk.


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