My wife is a good cook. She claims it is all about following directions and has little to do with inspiration or special talents. While I doubt her modesty I do see her following closely the step by step recipes for dishes from Ina Garten, Giada DeLaurentiis, Mario Batali and James Beard that run from the mundane (roast chicken) to the exotic (Merguez). It is a miracle to me that these recipes produce superb food every time.
It made me wonder why there is not a definitive cookbook for investing like the “Good Housekeeping Guide To Asset Classes”? Maybe it is because investing is not like cooking? Maybe it is because the common ingredients are not available to all? Or, possibly, it is because the investment world is all about fee for service and there is little sharing of investment secrets?
Who Will Publish “Joy of Investing”
There are great investment books and articles. There are also letters to shareholders and investors. You occasionally get a glimpse of the mindset of the most successful hedge fund managers like Ray Dalio (Bridgewater Pure Alpha) and George Soros (Quantum Endowment Fund), Peter Lynch (One Up On Wall Street), Graham Dodd (Security Analysis), Seth Klarman (Margin of Safety) Lawrence Cunningham (The Essays of Warren Buffet), Robert Kiyosaki and Sharon Lechter (Rich Dad, Poor Dad), and Robert-J-Shiller (Irrational Exuberance). However, there are no cookbooks for how to invest in high yield securities or when to use mutual funds or ETFs to buy into a sector of the economy. I am still searching for the “Joy of Investing” which would be the investment equivalent to the only cookbook my mother owned (The Joy of Cooking). If you can prepare complex sauces and intricate desserts with step by step direction, why can’t you buy stocks, bonds, investment real estate, mutual funds and ETFs from a Cookbook?
Possibly the intersection of Artificial Intelligence (“AI”) and Supercomputing will provide my answer. If computing power can decode the human genome and beat chess champions consistently, it surely can help me decide what kind of corporate bond to buy? While the vocabulary of the bond world is off-putting to even the most sophisticated investor (duration, yield to worst, and inverted yield curve), I am sure there is a computer somewhere that can tell a 65-year-old with a net worth of $1.0 million comprised of a 401K plan of $250,000, a home worth $300,000, social security monthly benefits of $525 and dividends and interest of $25,000 per year what to do. AI makes it even easier because a computer can interact by voice in the customer interview. I think you may find many fewer high commission products like variable annuities and load mutual funds and more lower fee alternatives like the Vanguard family when “HAL” is doing the investing?
Shovel Ready Project
This would be a perfect public works project. It makes tons of sense rather than making stock brokers fiduciaries. It will actually liberate the retirement generation from the world of high fees for common investment advice. You also see some robo advisers emerging now from companies like Wealthfront and Betterment, but, in general, the world of investments is not like cooking. A hamburger from Wall Street is just going to be much more expensive than one from Michael Symon’s cookbook.
How About a Robo Advisor?
I was curious about the early days of the Robo Advising Business and defaulted to a source of unbiased financial news, and found it with Arrielle O’Shea from the NerdWallets. In an article published in January 2017, Ms. O’Shea looked at the leaders. She likes Betterment and Wealthfront. As expected there is a group of financial all-stars behind these products. Here is a summary of her product comparison:
“Wealthfront is a key force in the online advisor industry, and offers competitive fees, free management of balances under $15,000 (with NerdWallet’s reader promotion) and one of the strongest tax-optimization services available from a robo-advisor. It’s also one of the only online advisors that have remained strictly a robo-advisor, with no human advice offering. The comparison to Betterment — which recently launched two plans that include interaction with human advisors, both with higher management fees and higher account balance requirements — hinges on what kind of advice you’re looking for and which type of account you have. Wealthfront is likely the best choice for taxable accounts and clients who don’t need or want human advisors.”
Since I always follow my own investment recipe which includes the proscription for “playing with live ammo” I am going to sign up for Wealthfront. I want to see how the computer does against some of my high touch, high fee account managers and whether it can beat my own approach. I will report at a later date, but in a persistent low return environment where fees matter I am betting on the computers to be competitive.
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