Evidence-Based Investing: Peace, Love and Chaos

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Join us on the magic bus to the Nov. 15 Evidence-Based Investment Conference in NYC. (http://bit.ly/2c8DmRd)

A Wendy’s Wednesday Whimsy

“There’s something’s happening here | What it is ain’t exactly clear …”

If you’re an American flower-power child from the 60s or 70s (or have similar musical tastes), you’ve probably now got a certain classic protest song injected into your head, which you may be humming all day. You’re welcome.

The song’s title, “For What It’s Worth,” is less familiar. Even less well known is its intent. I was surprised myself when I read on Wikipedia that, despite its 1966 “man with a gun” lyrics, it was apparently not another anti-war song. It was composed in reaction to a 10 pm curfew aimed at clearing out the music-loving party-goers who were congesting Los Angeles’ Sunset Strip. Who knew? Based on the crowds that remain there to this day, I’m guessing that curfew thing didn’t go so well.

Evidence-Based Investing: The Movement

What’s this got to do with evidence-based investing? There’s been something happening here too, baby, in a big way. Any of us who have been part of the movement for a while can’t help but notice it. After years of playing the role of the anti-establishment protester, we’ve recently picked up a mass of followers in the U.S. and around the globe. The crowds are spilling out into the streets.  Suddenly (or so it seems), we pacifist protestors have become the Man, the Establishment, the status quo to rail against.

For example, the popular press is proclaiming that passive investing has become the latest investment bubble and even accusing us of being Marxist. It’s hard to tell whether it’s because of or in spite of this stunning turn of events, but at the other end of our unruly movement comes a new(ish) breed of “protestors” who are fervently focused on advancing the cause of factor-based investing, under the rallying cry of any number of names: evidence-based investing, factor investing, smart beta (personally, yuck) and more.

Call it what you will, components that have been integral to passive investing all along have been receiving a level of attention like never before: factors and asset allocation, cost control and diversification, investor behaviors and advisor duties.

Where Are We Headed?

What does it all mean? Where is it going to lead? Who should we heed? If we’re now truly in charge, what should we do with our newfound power?

It ain’t exactly clear.

On the one hand, like a giant love fest spilling into the street and disrupting the orderly flow of our evidence-based investment efforts, the current pace may seem chaotic. Maybe that’s why even our usual friend Jason Zweig recently expressed some exasperation on the matter when he wondered, “Are Index Funds Eating the World?” Poor guy, when you’re in the thick of things, being elbowed by everyone around, it can be hard to see your way through the unrest.

On the other hand, just as the markets tend to be a whole lot more volatile than we’d like on their way to delivering long-term returns, change – even change for the better – is almost always so much messier than we’d prefer.

Some of “us” are probably going to take things further than others of “us” would recommend: tending to too many factors, taking too big of a slide down the slippery slope toward active investing in disguise, treading too incautiously when rushing into an unsubstantiated trend.

Others of “us” are going to be too slow to change, even when change is warranted.

For What It’s Worth

If you consider yourself an evidence-based advisor, here’s the essence of it:

You slowpokes had best consider what the vanguard is laying down, lest you be left in the dust. You vanguard had best respect the wisdom of the ages, lest you be blinded by a flash in the pan. We all need – and your clients all deserve – your best thinking and your best collaboration.

That’s not going to be easy for any of us. But it sure should be exciting. And maybe that’s what makes life and living worthwhile.


PS: One of many ways I intend to remain current on the varied forms and flavors of evidence-based investing is to attend the inaugural Evidence-Based Investing Conference in New York City on November 15. To get a taste of what Larry Swedroe will be presenting there, check out this great interview between Larry and Robin Powell on Robin’s Evidence-Based Investor blog. Join all three of us and many others in NYC, and we’ll keep the collaboration alive.