Marc Gerstein Blog | Robo-Investing: Separating Substance From Sizzle | Talkmarkets
Portfolio Strategist

I'm an investment strategist specializing in rules-based equity and ETF investing strategies, with particular emphasis on small-cap equities. I believe the most promising ideas are those that are off the beaten track, far from the glare of day-to-day investment headlines and that these can ... more

Robo-Investing: Separating Substance From Sizzle

Date: Tuesday, August 11, 2015 5:02 PM EDT

Welcome to the new era of Robo Investing.

OK. Now what?

How do you usually react when you, as an investor, are pitched the next big thing, when the likes of Schwab, Vanguard, and Fidelity are all over it, when startups raise eye-catching amounts of money to jump into it, when the media is all over it (Google the phrase, you’ll see)? Usually, my gut reaction is to cringe: “Uh oh, here we go again.”

It’s good to be skeptical. After all, it’s your money the robos want to manage. And they’re coming at you with some serious marketing including diligent-sounding questionnaires, attractive web sites, and, of course, some nice advertisements. So yes, there is definitely a healthy supply of sizzle.

There are also “white papers” and methodology descriptions you can access if you find and click on the appropriate links. In some cases, there is some serious name dropping here such as Burton Malkiel, Harry Markowitz, Fischer Black, Robert Litterman and William Sharpe and references to such things as expected return, variance, covariance, standard deviation, correlation, capital asset pricing model, mean-variance optimization, efficient frontiers, Black Litterman optimization, and full-scale optimization, constraints, alpha, beta, skewness (a term well known to statisticians and those at Microsoft who program Excel but apparently unknown to those who handle the Word spell checker), and kurtosis.

So the answer to the Substance or Sizzle question is: Both of the above.

Yes, there is a lot here. It really is a very big thing

WAIT! Don’t let your well-justified skepticism cause you to click away to a different article.

Guidance With a Difference

Consider who it is that’s now telling you about this next big thing. (This is where it gets awkward, the place where I explain why you should follow me in this new blog about all things robo. I’m not used to writing about myself this way, but I’m doing this the morning after the first debate among candidates for the Republican presidential nomination, so perhaps my display of ego can blend in with the overall landscape.) 

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