September 11

Coffee With Mike- Computer Investing



Over the last few months we've had some rough times in the market. The highs, and the lows, and then back to the highs, we've got a lot of inquiries from people who want us to take a look at the way they invest for others. They want us to consider their services, and so we are learners, and we want to see what they have to offer. We're always interested in seeing something different, just to make sure that we're doing things that we think the way we need to do them. So, we started to take a look at these things. 

Most of these offers are about using computers to build portfolios, and then to use algorithms on how to make changes to those portfolios. In the end, I think that what the computers are trying to do is guess what human beings- what behavior human beings are going to engage in, and I think that's really tough. So, I'm not really impressed with that method. 

There was some time ago- Steve Kroft on 60 minutes, he did a series on computer investing, and if I was you I would Google that. I think that's a really good series. It was in 2014, there’s one in March, and one in August, and it maybe two in August, but anyway, that would be really good for you to see if you're interested in stuff like that. But they did an extensive research into how people are using computers for investing. 

One of the things that Michael Lewis’ wrote about, this was based on Steve Croft’s work was based on Michael Lewis's book called, Flash Boys, got it right here, and basically what they're trying to say is that, “Hey look, investing is just guessing, and if it's just guessing, maybe we ought to guess a lot and we can get a computer to guess more often than we can do it ourselves. Then if we start guessing maybe other people will start guessing, and all these transactions will occur, and more transactions the better off we are. That's the conclusion that Wall Street made. 
So, really what a lot of this is about is just generating interest. What to make people watch, what the market is doing, and then to react to that market is what they're really after, and how do we make that applicable to what we're doing? Well, we're just going to try and stay away from all the traffic. There's a lot of traffic being created in the market right now, and we're trying to stay out of traffic. I don't know about you, but I don't like to drive on highways that all of a sudden have this huge traffic jam.

So, we're avoiding that, and how we're avoiding that is we're continuing to say that the methodology that we use, that we apply to portfolio building, is about diversification. It's using all the asset classes that academic research says we should use, and then it's assigning the right percentages to each one of those assets, based on our relationship with you, based on what we know about you, based on what we continue to learn about you, and as time goes on, the market is going to make those adjustments for us.
The assigned percentage is going to float up 2, 3, 4 percentage points. It might float down 2, 3, 4 percentage points, and we're going to slowly make the adjustments that we believe are necessary for us to continue on the road that we, that you and I have decided to embark on. We just want to make sure that we're still continuing to do everything we can to help you reach your goals, and to do that in such a way that you're most comfortable. That doesn't mean you're always completely comfortable. It just means that we're as comfortable as we possibly can be, and when the market gets rocky, we're in the best place we can be to ride it out. 

"...what the computers are trying to do is guess what human beings- what behavior human beings are going to engage in, and I think that's really tough."

So, the process that we're using in our methodology is, Let's not guess. Let's not guess about which assets to use. Let's not guess about what human beings are going to do, what people are going to do. Instead, let's try to figure each other out. Let's make sure that we understand what your goals are. Let's make sure we know what your concerns are, make a best application of the portfolio that's most likely to get you what you want, in a way that you will appreciate it most.
So that's what we've decided to do. I just want you to know that we take it seriously about how we build portfolios, and why we use them, and we review it. We consider other things. Then if there's something that we need to do different, we do it different. But if there's not, then we're confident that we've done everything we need to do, and we're just going to sit tight and let the storm pass, and let good times come. That's what we've done with your portfolio. 

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