SOMETHING FOR THE WEEKEND
Twitter.
To be honest I should have worked it out long ago — and it would have saved me a great deal of time, let alone aggravation, if I had.
The lightbulb moment for me came about a year ago, in conversation with Gina Miller, whom you’ll probably know as the the scourge of Theresa May over Brexit, but who’s better known to me as a tireless campaigner for greater transparency in asset management. Why, I asked her, when presented with the evidence about the futility of using high-fee, actively managed funds, were people on Twitter who advocate active management so belligerent in their support of it?
The answer, Gina told me, is that you can never win an argument on Twitter. And, I’ve discovered this week, there is in fact academic evidence which suggests she’s right. In 2009, two political scientists, Brendan Nyhan and Jason Reifler, published a paper on political misinformation. Their findings were based on a series of psychological tests on people who believed, wrongly, that Barack Obama was a Muslim.
We’ll believe anything if we’re paid to
When I first started writing about active fund management for Sensible Investing TV five years ago, I generally found it generated two different responses from the UK investing industry — either people would ignore what I was saying, or they would ridicule it. Nowadays, at least people are more likely to debate the issues.
I am, however, resigned to the fact that many — in fact, possibly most — investment professionals will continue to believe (and genuinely so) that active management is superior to low-cost indexing. The reason, simply, is that their jobs depend on it.
There was a fascinating paper in the February issue of the Journal of Economic Psychology called Self-deception facilitates interpersonal persuasion. In it, the authors explain how we instinctively seek information that supports what we want to believe and avoid information that does not.
Bob Seawright on behavioural finance
If you want to come to Evidence-Based Investing West, the clock’s ticking. The event is just eight weeks away.
One of the speakers you’ll be missing if you decide against it is Bob Seawright. When, in September 2014, The Wall Street Journal published a list of fifteen “smart people for investors to follow,” Bob was on it with the likes of Warren Buffett, Howard Marks and William Bernstein.
Based in San Diego, Bob is the Chief Investment and Information Officer for the investment advisory firm and broker-dealer Madison Avenue Securities. His blog, Above the Market, is one of my personal favourites.
In this interview, Bob explains his approach to investing, and why, despite being strong advocates of passive investing, his firm tends to include at least an element of active management in clients’ portfolios. He also talks about his blog and gives a useful tip to other advisers who are thinking of starting a blog of their own.
The active management conspiracy: fact or fiction?
I’ve been writing about active management’s shortcomings for so long now that it’s sometimes hard not to feel cynical about it, not to mention a little angry.
After all, around the world, there are thousands of people retiring every day with pension pots very much smaller than they would have been if they had simply invested in a portfolio of low-cost index funds and resisted the temptation to tinker with it.
For some of my fellow commentators, active management was an elaborate conspiracy, a rigging of the system, an industrial-scale hoax designed to transfer wealth from the many to the few. Though I can see why people think that, I’m sure the reality was very different.
Also worth reading
Five things active managers should do (Barry Ritholtz)
Have ETFs become just too specialised? (Philip Coggan)
Why the FCA should shake up adviser websites (Paul Lewis)
Young women are more financially astute than older women (Simoney Kyriakou)
How are UK advice advice firms choosing their passive buy lists? (Valentina Romeo)
The investing industry is full of experts on an earlier version of the world (Ben Carlson)
What can investors learn from Isaac Newton and the South Sea Bubble? (Vishal Khandelwal)
What might an ad campaign highlighting the value of financial advice look like? (David Rowley)
From our sister blog, Adviser 2.0: Dan Solin on the crisis in financial advice
Dan Solin, the Florida-based consultant to advisory firms, is very bearish on traditional financial advice. Unless they find ways to grow, he says, many firms will simply won’t be able to compete in the years to come.
But don’t shoot the messenger! Dan’s a smart guy with many decades of experience in this sector and, although I personally think he slightly overstates his case, I largely agree with him on this. He also has some good ideas on how advisers can help to protect and grow their businesses in the face of ever-increasing competition.
Episode 4 of Intelligent Adviser is the first in a series of three podcasts, in which Dan sets out the three main challenges confronting advice firms today; he also explains how he strongly disagrees with the view of his friend and former colleague Carl Richards that advisers should be more like life coaches.
He’s going to be talking about what he sees as the possible remedies to the existential crisis he believes smaller firms faces in Episodes 4 and 5.
And finally, something completely different
Important though investing is, there are of course far more important things in life, so forgive me for devoting today’s post to something completely different.
Frank Valentine Pearman was an ordinary working man who made an extra-ordinary sacrifice. On 3rd May 1917 — one hundred years ago this week — he was killed, missing in action at the Battle of Arras.
Aged 33 when he died, Frank was a shopkeeper from Birmingham, married with two small daughters. He was also my great-grandfather.
This three-minute film, produced by Ember Television, briefly tells his story.
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
