March 19th, 2017

The Weekly Archive: Machines Are Probably Smarter Investors Than You

I am $11 richer today than I was last Sunday.

At one point this week I was $24 richer. But hey, the market is a crazy thing, huh?

Here’s the thing: I know next to nothing about the financial world. The extent of my knowledge on stock trading comes from when Randolph and Mortimer Duke explained commodities brokerage to Eddie Murphy in the movie Trading Places. I thought The Big Short was a funny movie or something staring Danny DeVito.

But, hey, $11. And I didn’t do a thing.

How did I create wealth the equivalent of a super sized Big Mac meal? I took a large chunk of my liquid assets and put them into a robo advisor account. If I am lucky, in another 30 years, with steady investment, I should be able to pay off my student loans.

If you are unfamiliar with robo advisors, they are a relatively new kind of investment tool popular with a younger generation of investors. Instead of manually picking stocks or trusting a human broker, robo advisors create a diversified portfolio that is algorithmically driven to produce quality results for investors. You set your risk tolerance, aim for a goal, put a time period around it and the robo advisor crafts a portfolio specifically for your financial requirements.

I am in my mid-30s, so I am still relatively young. A couple of years ago I crafted a plan to pay off my student loans by the time I turn 40. And yet, I have always had trouble saving money. Mostly because, for a long while, I didn’t have any. But even recently I spent a lot of my fungible assets on improvements. A new car, a new couch. A trip to Jamaica for my friend’s wedding. This year, I have no plans for major purchases. So, instead of money just sitting in my checking account, I figured I would invest. I set an aggressive goal and my age provides me a fairly high risk tolerance.

All comedy aside, I have learned a bit about how the markets work in recent years. Many of the top robo advisors work through Exchange Traded Funds—ETFs—that have many benefits for individual investors. ETFs allow investors to get into certain markets in a diversified manner with the risk tolerance set between the percentage of stocks (high yield but riskier) and bonds (lower risk but safer). I don’t have to pick certain stocks, bonds or industries. The ETFs—automatically traded through the robo advisors—make sure that I have a diverse portfolio that will change with market conditions to maximize investment.

I may not know a lot about the markets. Most average people in the market—via pensions, IRAs, 401ks, mutual funds etc.—don’t exactly know what is happening with their money. But what I do understand is how technology can be used to maximize the value of market efficiencies. I understand how algorithms, run through the cloud, can analyze data sets over time and craft the optimal strategies for the best results, build bigger gains and minimize losses. Computers can work faster, understand more data and make quicker decisions than a human financial advisor.

Given a choice with my future wealth, I will choose the algorithm over the human every time. Hopefully, the future won’t prove me to be foolish.

Weekly Archive Links Of The Week

HOW … France got its act together and built a nation-wide startup community focused on global growth. Here is a deep dive into La French Tech and the technology ecosystem of France.

ALEXA … just performed a sneak attack on the iPhone.

THE … Internet of Things is coming to improve the customer experience for retailers.

HOW … developers and testers can share ownership of a product’s quality.

23% … of apps are only used once.

FOX uses crowdtesting to provide its viewers and readers with a seamless digital experience.

SECURITY … testing in IoT is tantamount to success (at the very least, to mitigate risk).

SPOTIFY … is renegotiating its royalties with record labels ahead of a possible IPO.

DEVELOPERS … are losing interest in iMessage apps.

NINTENDO … will double production of the new Switch console. One hopes that Nintendo will have new hot games like Zelda to reinforce the investment.

SAMSUNG PAY … to adopt facial recognition for payment authentication.

AMAZON … is making it cheaper to host Alexa skills on AWS.

DEEPMIND … is teaching its neural network to remember.

Programming note: ARC will be at ShopTalk in Las Vegas this week. Let us know if you are working on something interesting and we may come by and say hello.

Take deeper breaths, think bigger thoughts.

Dan Rowinski
ARC – The Application Resource Center