My Evidence-Based Observations

We had our first ever Evidence-Based Investing Conference with IMN in New York City yesterday. It was a packed house, we had an unbelievable line-up of speakers and it looked like everyone had a good time.

Josh provided a nice recap of the event this morning so no need for me to go into detail on everything that went down, but here are some other random observations from a fun day with friends, colleagues and peers:

  • Charley Ellis is the man. The day before the conference the inimitable Charley Ellis sent us over a copy of the slide deck he was using for his presentation. It contained the most basic Powerpoint slides I’ve ever seen. They were all black and white. There were no logos or fancy designs and formatting. None of the graphs contained any color. There was no fluff or wasted space. Yet Ellis still blew everyone away with his talk. It was standing room only and he didn’t disappoint as people hung on his every word. There’s a good lesson here for investors — you don’t need to be flashy to get good results. Simple and basic can work just fine assuming there’s some substance involved in your message.
  • I’m proposing a merger in the financial blogosphere between Wes Gray and Meb Faber. CambriAlpha Architect? Their panel with CNBC’s Michael Santoli and Morningstar’s John Rekenthaler was one of my personal favorites. Wes and Meb are the epitome of evidence-based investors and they’re not afraid to speak their minds when it comes to what works and what doesn’t. While many people these days seem intent on putting the nail in the coffin of active investment management, these guys and their respective firms are at the forefront of everything that’s right about the direction it should be heading. We need more people like them at many of the fund firms who seem to have lost their way over the years.
  • Evidence-based investing does not mean only invest in index funds. While the evidence clearly shows that index funds have outperformed the majority of actively managed funds over the years, that doesn’t mean index funds are the only route to success in the markets. More than one person discussed the fact that the active vs. passive debate misses the point. There are only different degrees of active as everyone is making a bet one way or another with their portfolio choices. Investors should be less worried about labels and more worried about having legitimate reasons for their actions and portfolio decisions. No one person, firm or strategy has a monopoly on good investment ideas.
  • Cyber security is a risk not enough people pay attention to in the investment world. Vanguard’s Bill McNabb said that while most people are worried about systemic risk and too big to fail financial firms, as everything gets more and more digitized, cyber attacks are becoming a huge potential risk no one talks about. He said Vanguard fights off roughly 1,000 attacks from hackers per day. This is the type of thing that could really hurt people’s trust in the financial system should a large-scale hack ever happen in the future. Something worth thinking about.
  • The biggest risk at a conference itself, however, is a lack of plugs for cell phone chargers. This event was held at The Union League Club, which was a gorgeous old building. But there were very few outlets so people were scouring the walls for places to plug in. Cell phone companies should be sponsoring conferences all across the country with charging stations. Luckily, one of the reps from State Street was handing out sponsored back-up cell phone batteries, which was genius.
  • One of the secrets of investing is that there are no secrets. There’s no such thing as the perfect fund, portfolio, strategy or plan. There were speakers and attendees at the conference from a wide range of backgrounds and firms and everyone does things their own way (the panel with fundamental short-seller Jim Chanos and quant investor Patrick O’Shaughnessy was a perfect example of this). But the one theme that came up again and again in almost every speech or panel was that you have to get used to being uncomfortable with your investments. Over and over again we heard about investments, strategies or funds that have “worked” brilliantly historically but all have invariably run into trouble for long stretches of time. You have to think in terms of your overall portfolio, but even then there are going to be performance numbers that you’re not going to be happy with on occasion. Setting realistic expectations and having an understanding about what is a normal period of poor performance and what is a poor investment strategy is key. Even then, the bottom line is that successful investing is hard.
  • This was the first investment conference I’ve ever been to where there wasn’t at least one BS macro forecast. There was talk of behavior, context, perspective, communication, education and discipline, but no one was predicting what’s going to happen in the next 15 minutes. It was refreshing.
  • It’s always great to hear people speak live, but the best part about going to conferences is always interacting with other attendees. We had people come in from all over the country and around the globe as there were people from Canada, South Africa, London and Milan in attendance. It was amazing to finally meet people in real life that I’ve only ever interacted with online. The list of names is too long to mention here, but I was blown away by the high quality people who were in attendance. Finance people have gotten a bad rap since the financial crisis, but there are so many people and firms out there who actually have good intentions and are doing things the right way for themselves and their clients. Many of these people are still relatively young. I’m bullish on the future of finance.

If you were unable to attend the event, we just announced this week that we’ll be putting on another conference this June with IMN in Dana Point, CA. Details here:

Just announced – the Evidence-Based Investing Conference is Coming to California!

 

 

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