Last year, it began applying a similar approach to tech investments, launching an “Innovation Fund” that enables individuals to access venture capital-type investments in tech companies before they go public. Now just over a year old, the fund is focusing on investments in the data infrastructure, artificial intelligence, and property technology sectors. 

“We created something new, which is a venture fund that the public can invest in,” said Fundrise CEO Ben Miller on the “Financial Samurai” podcast with Sam Dogen. 

Investors can buy into the fund for as little as $10, a far cry from the usual six-figure minimum requirements to buy into traditional VC funds. It currently has a total of 19 assets ranging from early--, mid-, and late-stage private companies to a few public companies.

“We launched the Innovation Fund to democratize investing in these companies because they're not public. OpenAI is not a public company. Databricks was not a public company. Canva is not a public company. I think that everybody needs to be able to invest in these companies,” said Miller on his company’s “Onward” podcast. 

“And then, just to get a little bit into the weeds, we are not taking a 20% carried interest. We're not charging this very massive toll, 20% toll to enable it. I think that’s one of the reasons why we started our tech fund. That’s a practical thing I’m trying to do.”

Fundrise on AI: ‘Our Job Is To Get in the Middle of It’

Miller told Dogen that he’s extremely optimistic about the future of AI and that Fundrise’s Innovation Fund will invest accordingly. He compared the current boom in generative AI to the advent of the internet in terms of creating value, noting that a recent Goldman Sachs study projected that AI could double gross domestic product growth and account for 500 times the productivity gains that resulted from the invention of the personal computer. 

“So the amount of value created and captured here is going to be astronomical,” Miller said. “And that has nothing to do with us. We just happened on the scene when that’s happening. And our job is just to get in the middle of it as much as possible because that’s what’s happening today and that’s the opportunity. It’s unbelievable.”

While there are still relatively few private companies developing large language models — the foundation of generative AI applications — Miller sees an opportunity to invest in companies that provide the necessary data infrastructure for this new technology to thrive. 

“We can play AI at different places in the stack. The data infrastructure is sort of the platform level underneath AI,” he explained.

“You could also think of it as if there’s a gold rush, you can try to find gold or you can sell picks and shovels. The data infrastructures are the picks and shovels. Everybody needs these technologies to be able to do the stuff that is the application. And we’ve been investing like crazy into the picks and shovels because that’s clear and yes, and pricing the [large language models].” 

The fund is also backing companies that stand to benefit from improvements in AI technology. For example, in September, it invested $6.2 million in Canva, an online design and visual communication platform that enables users to create social media-friendly images and text using LLMs. 

Data Infrastructure Investments

The Innovation Fund’s largest position is its investment in Databricks, a data infrastructure provider with a valuation of $43 billion. Fundrise has invested $25 million, a quarter of the Innovation Fund’s holdings, into the company. 

Databricks’ software is used by over 10,000 organizations worldwide. It has raised roughly $500 million from investors such as Andreessen Horowitz, Baillie Gifford, ClearBridge Investments, and NVIDIA. It recently crossed a $1.5 billion revenue run rate at over 50% revenue year-over-year growth and acquired MosiacML, a leading generative AI platform. 

“They are one of the great companies in the world right now. Everybody who's in the tech space knows Snowflake's been absolutely on a tear. Databricks is comparable to Snowflake in terms of opportunity and excellence, in my opinion, many ways better,” Miller told Dogen. 

“To be able to get Databricks now and own a chunk of that company is just so exciting and they are integral. It's a different risk profile. You're not taking a ‘Is this company going to be successful?’ risk. You're taking a ‘how much are they going to grow?’ risk. And I think they're going to grow a lot.” 

The Innovation Fund has also made smaller investments in other data infrastructure companies, including Immuta and Vanta. 

Proptech Expertise

As a company that started in the real estate space, Fundrise has an inside perspective on the proptech sector, and its Innovation Fund has targeted several companies in the space that it uses to help manage its properties. 

Its first proptech investment was in the property inspection software platform Inspectify. The fund invested $4 million in the early-stage company, which is currently valued at $47 million. 

The fund followed this up with a $2 million investment in Jetty, a mid-stage company that provides a unified financial services platform for renters and property owners with four features: security deposit replacement, renter's insurance, flexible rent payments, and rent reporting. 

Miller noted that these investments in technologies that are adjacent to its platform mean that the fund can add value to these companies. 

“When we sent out our email to our investors saying, ‘Hey, we invested in Inspectify,’ Inspectify’s web traffic doubled," he told Dogen. “They got a hundred sales leads, which in B2B business is a lot. If we can get more investors, we’re more valuable to the companies we invest in. And so our long-term play is that we bring something to the table that's different. Sequoia brings all sorts of things to the table. They don’t bring 2 million investors. So there's a potential network effect.” 

‘You Have To Get Access’

The Innovation Fund is still in its early stages, and it’s too early to assess how this unique approach to venture investing will play out. It’s clear, however, that the fund is doing something different than the standard VC and providing unprecedented access to retail investors who don’t necessarily have thousands of dollars to invest.

“If you have money you say, ‘I want to buy Nvidia, Google,’ you can do that, but if you want to buy the best tech companies in the private markets, you can’t,” said Miller. “You have to get access.”

Recent reports show that the notional value of forex trading is more than 6.6 trillion dollars per day. Most of the trading that is transacted is in the major currency pairs. Company treasurers can use forex trading to hedge profits and liabilities in other countries while tourists use it to change currencies. 

There are several ways to trade the forex markets, and before you begin to risk capital, you should determine the most suitable process for you. You also want to understand the different trading strategies often used to generate revenue when trading the forex markets. Once you have a good understanding of a strategy and find a process that is easy to employ, you can begin to practice trading and eventually risk your capital in the forex markets.

How Do You Start Trading Forex?

The first step is to determine the most efficient way for you to transact currency transactions. There are several ways for you to accomplish your goal. The most common ways to trade currencies are through contracts for differences (CFD) brokers, a forex broker or bank, a futures contract, or an exchange-traded fund. 

Each of these products provides an investor with a different asset to trade. CFDs are the most flexible but are not legal in the United States. A contract for differences allows an investor to purchase an asset that tracks the movements of a forex currency pair. An investor is only responsible for the change in the exchange rate. CFDs are an efficient way to engage in forex trading. CFDs also provide investors with leverage. Leverage allows you to enhance your gains by increasing the size of the position you take. You will need a margin account to trade forex with leverage. When you sign up with a CFD broker, they will ask some personal background questions to determine how much leverage to offer you in your margin account. Note that while leverage can increase your potential gains, it can also increase your losses to ensure you have a firm understanding of the risks involved. 

You can also set up an account with a forex broker, a stockbroker, or a bank with multiple account types. A forex account will give you access to the forex market via an over-the-counter transaction. You will be exchanging one currency for another digitally and will be asked to move money when the transaction reaches maturity. For example, if you trade a spot over-the-counter currency transaction, you are obligated to exchange currency two business days after the trade is transacted. Most of the time, you will likely extend your trade through the forward market, and your broker will handle the movements of your currency. 

You might also consider opening a futures account. Futures trading allows you to transact on a regulated futures exchange. However, the number of currency pairs might be limited. Futures trading also provides clients with leverage via a margin account. 

Lastly, you might consider purchasing or selling an ETF that tracks the movements of a currency pair. For example, the FXY ETF tracks the movements of the USD/JPY. The holdings are usually Japanese yen futures contracts, which allows the ETF to track the movements of the underlying asset.

Once you have decided which type of asset you might want to trade, the next step is to find a reliable broker to facilitate your transactions. During the due diligence process, you should look up your potential broker and read any reviews that might influence your thought process. You also want to evaluate the site and trading platform to see if they are easy to use. Many sites or downloadable apps are very sophisticated and complicated to get started. If you are a novice trader, look for something simple to understand and easy to navigate. If you find it too difficult, you could get lost before understanding the ins and outs of forex trading.

How Do You Create A Trading Strategy?

Before you risk your capital on forex trading, you should spend some time evaluating different types of trading strategies. You need to decide if you want to trade over short periods, like day trading, or more extended periods, where you hold your positions for weeks or even months. 

There are fundamental trading strategies in which you look at the interest rate differentials or macro backdrop to determine the future direction of a currency pair. Investors interested in understanding the long-term trend in the currency markets need to have some background news related to macroeconomics. For example, a stronger-than-expected inflation report in the United States is likely to buoy U.S. yields and help benefit the upward trend in the U.S. dollar.

Another type of trading strategy is through technical analysis. Technical analysis studies past price movements and includes patterns, momentum, trend following, and mean reversion. You might want to learn about support and resistance levels and the different studies that help determine if a trend is accelerating or decelerating. 

Test Using A Demonstration Account

Before you start trading your capital, you should test your strategy and your ability to navigate your broker’s website and trading platform using a demonstration account. Demo accounts use fake demo money that is not real, allowing you to see if your strategies can be effective. Many brokers have live demo accounts that allow you to trade in real-time using demonstration money.

The Bottom Line

The upshot is that there is a process involved in starting to trade Forex. First, you need to determine the type of instrument you want to trade. Next, you should evaluate different trading strategies. You then need to perform due diligence on your broker. Lastly, you should use a demo account to see if your strategy is viable before you begin to risk real capital. 

This volatility has made it difficult to predict what to do with crypto because you never know if it will dip even lower or rise higher. It can also be hard to pick the best currencies and figure out which ones are worth buying, which has prevented people from investing.

Despite the ever-changing and unpredictable volatility of cryptocurrency, many experts in the industry have found a way to make money off of these fluctuations by doing crypto arbitrage.

What Is Crypto Arbitrage Trading?

Crypto arbitrage trading is a financial strategy that involves simultaneously buying and selling cryptocurrencies to generate profit. The goal is to exploit any price discrepancies between the exchanges where the cryptocurrencies are traded to make a profit.

Cryptocurrency arbitrage trading is a strategy that allows traders to take advantage of price differences between different exchanges. For example, if Bitcoin sells for $10,000 on one exchange and $9,500 on another, a trader can buy Bitcoin on the cheaper exchange and sell it on the more expensive exchange, pocketing the $500 difference.

Crypto arbitrage trading opportunities usually come when there is a large enough price difference between exchanges. This can happen when there is a sudden change in market conditions or when one exchange lags behind the others in terms of prices.

It is important to note that arbitrage trading is a high-risk strategy and should only be attempted by experienced traders with adequate capital. The risk of this strategy is that the asset price can change quickly, which can lead to a loss on the investment.

How Does Crypto Arbitrage Trading Work?

Certain conditions must be met for a crypto arbitrage to occur:

1. There must be an imbalance in an asset price across exchanges. Crypto arbitrage is usually done with the same assets but at different market prices.
2. The two trades must be executed simultaneously on different exchanges. The token is bought on the exchange that has a lower price and at the same time sold on the exchange with the higher price.

Despite the profitability of cryptocurrency arbitrage, it is not a popular strategy. This type of trading generally lasts for only a few minutes, as the prices in the different exchanges quickly converge. Thus many traders are unable to keep up.

In order to find and take advantage of arbitrage opportunities, traders need to have access to real-time data from multiple exchanges. This data can be challenging, so many arbitrage traders use specialized software to find and execute trades automatically.

Crypto arbitrage trading software allows for real-time monitoring of all trades and seamless execution of buy and sell orders across multiple exchanges. This enables traders to capitalise on any price discrepancies between the exchanges.

Types Of Arbitrage Trading

There are different types of crypto arbitrage strategies that traders can use to take advantage of price discrepancies in the market. Some of them include:

1. Cross-exchange arbitrage

The trader buys a crypto asset on one exchange and sells it immediately on another exchange where the price is higher. This is possible because the same asset prices can vary from one exchange to another. The trader needs to have accounts on both exchanges and be quick to take advantage of the price difference.

2. Spatial arbitrage

This involves buying and selling cryptocurrencies in different locations around the world to earn a profit. One example of a place where this could be profitable is Japan, which has a much higher demand for cryptocurrency than most other countries. By buying and selling cryptocurrency in Japan, you can earn a profit while avoiding the risks associated with investing in cryptocurrencies overseas.

3. Triangular arbitrage

Triangular arbitrage is a type of crypto arbitrage that uses the price of a digital asset to speculate on the price of another digital asset. This technique can be used to make money by trading one asset for another and immediately selling the second asset for a higher price. The idea is to exploit the difference in prices between the two assets to make a profit.

Is Crypto Arbitrage Still Profitable?

Crypto arbitrage trading is still possible today, although it has become more complicated than before. This is because there are now more exchanges and more liquidity in the market. As such, it is more difficult to find price differences that can be exploited.

That said, crypto arbitrage trading can still be profitable if done correctly. In order to be successful, traders need to have a good understanding of the market and be able to execute trades quickly. Here are some things to look for when considering crypto arbitrage:

1. Volatility: There needs to be enough price movement in the markets you're trading in order to make a profit. If prices are too stable, you won't be able to make enough of a profit to offset the costs of trading.

2. Liquidity: There needs to be enough liquidity in the markets you're trading so that you can buy and sell without affecting the prices too much. If there's not enough liquidity, you may not be able to execute your trades at the prices you want.

3. Fees: Trading costs, such as commissions and spreads, will eat into your profits. Make sure you're taking these into account when considering whether or not arbitrage is suitable for you.

4. Risk: Arbitrage involves risk, as do all trading strategies. Before deciding if crypto arbitrage is right for you, be sure to understand the risks involved.

Risks Associated With Crypto Arbitrage Trading

Crypto arbitrage trading can be a lucrative investment strategy, allowing investors to take advantage of price discrepancies in different digital currencies. However, there are a number of risks associated with this type of trading.

First and foremost, crypto arbitrage trading is highly speculative. The possibility of making a large profit quickly can lead to significant losses if the market moves against you. Furthermore, crypto arbitrage trading is often based on small price differences, which can be easily manipulated. Finally, there is the risk of being scammed by fraudulent brokers or traders. As a result, it is essential to exercise caution when undertaking this type of trading.

But in contrast to other types of trading, crypto arbitrage trading seems safer. If you buy and sell crypto on two exchanges simultaneously, you might not always make a significant profit, but you most likely won't make a considerable loss either.

Crypto arbitrage is, therefore, an excellent alternative for people who don't want to risk long-term investments in the volatile cryptocurrency market, mainly because there are tools to make the process easier.

Conclusion

Crypto arbitrage still seems to be a viable strategy for those looking to make money in the crypto space in 2022. While there are some challenges, such as increased regulation and volatility, it appears that arbitrage is still a viable way to make a profit. So if you're looking to make some extra cash in the coming year, keep an eye on prices and see if you can take advantage of any opportunities that arise.

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More than just a list of strategies and methods, a plan gives you a goal to focus your sights on as you’re working your way towards financial independence. With the right solution in place, you’ll know how much to save, how much to spend, and when to switch courses.

The first step in developing a successful plan, is to complete a cash fact find. In other words, take stock of your current situation. Do you already have an emergency fund in place? If not, you’ll need to deal with that before you begin looking into stocks and funds. How much do you feel comfortable investing in different assets, and what risk level are you comfortable with? Once you have that information, you can begin to work on your plan.

Laying Out a Basic Strategy

Drawing on the information you have from your fact find, you should be able to set out your goals for your money and the kind of things that will help you to achieve them. For instance, are you going to be looking into swing trading strategies, or long-term investments? Your time frames for when you want to reach your targets, your current financial situation and your risk appetite will all help you to figure out where you should be heading. Your plan can also give you an insight into the kind of returns you need, and what you can expect to reasonably accomplish. If you’re having trouble with this part, it may help to speak to a qualified advisor about your options.

You can also speak to an advisor about how much of your plan you want to handle on your own and how much you need to get assistance with. You can also determine how frequently you’re going to check on how your strategies are doing, and under what circumstances you might make changes to your portfolio. Check out any kind of fees and product charges you’ll need to think about at this time too, so you know what’s going to be eating into your earnings.

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Putting your Plan to the Test

Once you’ve got a basic idea of how you’re going to reach your goals and what you want to accomplish with your money, the next step is putting your strategy into action. The important thing to remember here is that you can take things slow until you figure out whether your strategy is really working for you. There’s no need to spend a small fortune on your initial assets and shares straight away. You might even decide to do some paper trading first. This essentially means that you open a demonstration account where you can see exactly how profitable your efforts will be in practice. You won’t make any money with the paper account, but you can put your ideas to the test without any risk too. Remember to come back and update your plan from time to time when the situation calls for it.

As a company leader, you will be doing everything possible to grow your business, but what is the true impact of good, strong branding, and why is marketing so important? Read on to unearth some of the key financial benefits that you will stand to reap when you decide to improve your brand model.

Increased awareness and revenue

Making more people aware of your brand's existence will stand you in better stead in your attempt to increase your revenue, there's no doubt about that. Fishermen and women cast bigger nets if they need to catch more fish, and you need to make more people aware of your services if you want to draw more customers and turn over a greater profit.

You can increase your brand awareness in a number of different ways. If you have a big marketing fund to tap into, you can go ahead and promote your brand on a plethora of different online mediums. Don't worry if you don't have a lot of cash left in your advertising reserve, though. Having a small marketing fund doesn't need to spell disaster for you in your attempt to increase your brand awareness. It just means that you have to be more strategic in your attempt to ensure that your branding model is easy to remember. Companies such as Monzo and N26 have already made a conscious effort to ensure that their product marketing campaigns are alternate and more memorable than most. Monzo have tapped into the impact color has on the memory by making a bright orange credit card available, while N26 have striven to help their audience 'make a statement' by offering them their patented Metal card.

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It's not just debit cards that can make your brand stand out from the crowd, however. There are a plethora of ways for you to advertise your business in a memorable fashion. You could, for example, print your company name and logo on items that your consumers are likely to use on a day-to-day basis, such as drinking mugs. Going down this route will help your brand to remain at the forefront of your audience's mind, simply because your consumers will come across it whenever they use the product that you have opted to print on.

Decreased price sensitivity

Price sensitivity describes the way in which demand for a product changes based on how the price of said product changes over time. It is the degree to which elasticity in cost impacts customer buying habits. As expected, price hikes generally act as a customer deterrent in this instance. For example, should a barbershop raise its prices by an extra few dollars to cover certain costs, it will be liable to lose customers due to the fact that the same service is available close by… only cheaper.

Sometimes, due to economic inflation or personal financial difficulties, price rises are necessary. With a good branding model in place, however, you will be able to limit the impact price sensitivity has on your ability to draw customers going forward. By branding your business as a leader in its field, people will still feel inclined to bring you their custom despite the fact that your products/services are more expensive than others in your market. Think about it this way, would you shy away from paying an extra dollar for Coca-Cola's original taste when your only other alternative was a store's own version of cola? Chances are, not likely, and so this is important to remember.

As a result Jason Lin, CFO at Centage Corporation says CFOs are losing sleep over the end result. This is so far from ideal, which is why I’m offering these five recommendations to help financial teams sleep better.

1. Instill confidence in your data

I totally get why finance teams lack confidence in their budget data. Last year’s actuals are typically re-keyed into a budget spreadsheet, and manual data entry inevitably leads to mistakes. Worse, it’s incredibly difficult to spot where, in a series of spreadsheets linked together with macros, a zero may have been left out or numbers were transposed. And once the data is entered, it’s used for what-if scenario planning -- i.e. predicting the future -- which takes the budget even further away from the “truth.”

Finance teams can get a lot more sleep if they ditched the spreadsheet and replaced it with a tool that can pull data directly from their GLs. Not only will the data be accurate (and teams spared countless hours of data entry), the budget will be a replica of how the business is organized, making scenario planning a lot more accurate. Of course, the predictions may still be wrong, but at least the effects of those assumptions on the financial statements will be realistic.

2. Avoid forecasts that have major variances versus actuals

This is a tough one because there are so many external variables that can affect the actuals. What will the economy do? Will interest rates go up? Will new tariffs drive up manufacturing costs? How is that upcoming election going to shake out? In all honesty, attempting to predict market conditions in Q4 2020 in the summer of 2019 is a bit unrealistic. No amount of effort will change that reality.

My best recommendation: move to a rolling forecast that’s updated monthly, or at least once a quarter. Not only will it lessen the variances, but it will also allow teams to spot trends that have the potential to affect the goals set (positively or negatively) much earlier.

3. Test your assumptions for accuracy

I realize what a big ask this recommendation is. This issue of testing your assumptions for accuracy will never go away because, as mentioned above, there are way too many factors that affect performance but are way outside of your control.

While you can’t control what will happen, you can anticipate potential variances and put plans in place to respond to them. Scenario planning and what-if scenarios are your saving grace here. For instance, you can test the impact on your P&L if sales decrease by, say 10%, or if the cost of oil spikes. You might not like what you see, but at least you’ll know ahead of time the potential outcomes so you can warn the executive team upfront, and make contingency plans if your assumptions aren’t correct.

4. Meet your budget deadlines and be boardroom ready

When I hear the concerns of CFOs about meeting deadlines I like to tell people what Steve Player, noted business author and Program Director for the Beyond Budgeting Round Table (BBRT) North America, has to say about it. To paraphrase his viewpoint: starting earlier is a terrific way to build more errors and delays into your budget. Again, in the summer of 2019 you are attempting to predict what Q4 2020 will look like. Do you know the outcome of the 2020 election? Do you know whether we’ll continue to see massive flooding in the South and Midwest? How will either of these events affect your actuals?

The solution is to shift your focus to a continuous process. If you believe in planning, why not do it monthly? It makes no sense whatsoever to start earlier and earlier when it’s not humanly possible to predict what the world will look like 18 months from now.

5. Break down your company silos

It shouldn’t come as any surprise that when budgets are created in silos, they won’t mesh with one another. Marketing will spend the summer months coming up with campaigns to launch the following year, while sales will review their customer and prospect pipeline and make their own plans. There is no connection between the two.

Financial teams have two options to address the issue of silos. First, implement a collaborative budgeting tool so that teams can see how their plans affect one another. If sales is pinning a revenue number of an increase in new SMB logos, marketing needs to know that, and to allocate part of their budget for an SMB customer acquisition campaign. Second, view this as an excellent opportunity to take a more leadership, hands-on role in the business. Bring the two teams together, and help them to create a tighter plan.

I realize that some of these suggestions can seem blasphemous; finance teams have always created budgets, stayed in the back office, and put stakes in the ground in terms of assumptions. But given the pace of business change, the old ways aren’t cutting it anymore. These tips reflect the reality of business planning today.

How has the wealth management landscape developed recently and what has influenced this?

The thing I love the most about our industry is that it is always changing. In addition to changing market conditions, there are new products developed and made available on an ongoing basis, and most significantly - clients’ expectations, needs and objectives are always changing too. For investors entering or being in retirement, there are more potential solutions available today than ever before. From low-cost and no-load insurance products to ETFs and separately managed accounts focused on paying a reliable income stream from high-quality dividend paying stocks. It takes a lot of research and dedication to sift through it all, determine the best in class solutions, tune out the noise from product salesmen and advertisements, all the while knowing that a changing market environment may require a complete rethinking of the current strategy.

What are common misconceptions you find that clients have towards wealth management?

One of the first discussions I try to have with clients is about what they want versus what they need. Wants are often heavily influenced by personal biases and predispositions towards one type of strategy or another. Needs are driven by circumstances and personal expectations. It’s rare that these two align, so one of my jobs is to make sure everyone is on the same page.

Secondly, I explain and illustrate to clients that predicting outcomes in the short-term is nearly impossible (or at the very least based on luck not strategy), and that in order to be a successful investor, one must have a consistent replicable process to guide us in the decision-making process. If you trust the process, then you won’t be distracted by short-term events that can derail a sound long-term strategy.

If you trust the process, then you won’t be distracted by short-term events that can derail a sound long-term strategy.

Can you outline how you go about auditing a client’s needs and then designing a successful wealth management plan? What would you advise the first course of action to be?

Naturally it starts with a discussion on what brings them to me. Understanding a client’s concerns, goals and objectives has to be the first step. Then, comes the review of their existing portfolio and understanding why they are invested the way they are. By gaining insights into their past decision-making process, their current objectives and needs, we are able to tailor a set of solutions that addresses these issues.

How does your parent company, Bruderman Asset Management, assist in enhancing GGFS’ services?

Bruderman Asset Management has been deeply rooted in the asset management business since 1879 and has worked with some of the wealthiest families in the world. Because of their broad expertise and our ability to tap into these resources, we are able to provide sophisticated solutions and money management services to investors who might typically not be able to access these services. Of course, sometimes the simple solution is the best solution, but if something more complex is required, we have access to the expertise and tools required.

Do you expect any changes in wealth management in the US in the upcoming years?

A lot of advisers are retiring, and that will impact both clients and the industry. One of the reasons I developed our firm’s mentorship program almost a decade ago, is because we recognise the need to develop talent and we want to ensure that in 10 or 15 years our clients will receive the same level of expert advice they are getting today.

Market conditions and product availability will change, but what shouldn’t change is a well-thought-out, consistent, replicable and reliable investment process.

What are your top tips for wealth management in 2019?

Same as always, trust the process! Market conditions and product availability will change, but what shouldn’t change is a well-thought-out, consistent, replicable and reliable investment process. Don’t allow short-term events and ‘noise’ from the media to distract you from your long-term goals.

You recently spoke about trade deficits in the US. Can you briefly summarise how they hurt the economy?

In the short and sometimes intermediate term, tariffs act like a tax on consumers, as they raise prices. The real question is what will the long-term result be? If, this time next year, the United States has been able to negotiate better trade deals with China and Europe, as we already have with Mexico and Canada, then the short-term pain may be well worth it. From an investment perspective, it simply means that your process should guide you towards investments that are less susceptible to the impact of tariffs or the trade war – that’s our approach.

Website: http://www.ggfs.com

Marketing is of great importance to any sector, but each industry has its own pitfalls and problems it needs to avoid when it comes to developing its marketing campaign. If you’re already running a FinTech business, or are planning on starting one, there’s a few obstacles you need to be aware of in order to market your brand effectively.

Below Where the Trade Buys provides the following guide to help you navigate effectively through the world of marketing.

Social media avoidance

Social media can seem like a difficult arena to step into — it’s huge, the competition is astounding, and your customers can speak to you directly, in front of a massive audience. In fact, many sectors have fallen foul to ignoring and avoiding social media. According to Incisive Edge, banks were a prime example of this, citing a report from Carlisle and Gallagher Consulting Group that revealed 87% of consumers perceived social media usage by banks as being dull, irritating, or unhelpful.

But social media is where your audience is, and it’s where many spend a large amount of time. Securion Pay noted that an effective marketing campaign needs to consider Millennials, of who 84% have smartphones and 78% are on them for more than two hours every day. Embrace this and establish a strong presence on social media! Just make sure you have an effective plan for each channel — content for Twitter might not work as well on say, LinkedIn.

Also, social media is a great way to build a rapport with your customer base. Even in the event you get negative feedback, the way you deal with it will be seen just as much as the original comment. You can turn a negative into a positive: show ownership of the feedback and resolve it quickly. If you ignore it, the chances are the unhappy consumer will feel stung that you have ignored their attempt to reach out to your directly and give you a chance to respond. They will turn to other websites to tell other people of this experience. As social media and customer services expert, Jay Baers says: “A lack of response is a response. It’s a response that says, ‘We don’t care about you very much’.”

Saying too much, too soon

Do you have big news? Great! But before you rush off to tell the world, take a moment to pause. Would the news be better used slowly? Incisive Edge advises FinTech companies to consider an embargo if you’re heading to a trade show soon.

Basically, you can still create a press release about your exciting news or innovation plans, but don’t release it immediately. Place an embargo on it, so that your press sources can’t publish the news until a certain date, such as the trade show or another effective date for your company. This not only stirs up a sense of excitement, but it also lets the journalists and content writers have more time to write an engaging and detailed piece.

Ignoring offline

You may feel that as a primarily online company, your marketing strategy needs to have an online focus too. But the world of offline marketing is still going strong, and it’s a great way to build your brand and get it noticed.

For example, Delineo reported on some highly effective FinTech marketing campaigns, including offline print marketing. In the report, a robo-advisory firm was shown to have created a brilliant offline campaign that saw printed adverts placed through the underground tube network. People don’t have great signal on their phones at underground stations, so tend to notice and read printed adverts more!

As a start up, you might not have enough in your marketing budget to pull off such a wide-spread campaign but consider the use of printed media elsewhere. Are you headed to a trade show or exhibition soon? Seek out a provider of PVC banners and get your brand and goals printed up for your stand! Banners are a great tool at exhibitions and tend to be more effective than digital ads at these events, with customers recalling the brand from a banner long after the show has ended.

Ads with poor language use

You should be making use of both online and offline media in your marketing strategy, but you’ll need to make it as powerful as possible. There’s no use having a well-placed digital advert or a beautifully designed banner if the language used is dull and uninspiring.

Often overlooked, the use of language is a complex skill that can make or break your intended message. There’s a reason why so many people study language at high academic levels!

Consider the intended outcome of your marketing. What are you trying to tell the customer? At a basic level, new technology is designed to solve a problem, so tell your audience this. Words like “innovative”, “cutting-edge”, “rapid”, and “simple” can help address technology woes such as slow loading apps or complicated processes. After all, FinTech is a disruptive innovation — tell the world how it’s shaking up the banking and financial sector.

It’s important for your business to stand out for the right reasons. FinTech is a fast-growing sector, so it’s vital that you keep ahead of the game. Keep your marketing strategy strong and wide-reaching with these campaign tips.

Sources: 

https://www.callboxinc.com/b2b-marketing-and-strategy/fintech-marketing-strategy-tips/

https://blog.incisive-edge.com/blog/6-fintech-marketing-strategy-tips

https://www.delineo.com/culture/4-fantastic-fintech-marketing-campaigns/

https://securionpay.com/blog/6-marketing-trends-fintech-industry/

http://www.brightnorth.co.uk/whitepapers/Image_Quality_and_eCommerce.pdf

https://skift.com/2016/05/13/why-the-tourist-brochure-is-still-surviving-in-the-hotel-lobby/

https://www.forbes.com/sites/rogerdooley/2015/09/16/paper-vs-digital/#7de095dc33c3

https://www.pinterest.co.uk/pin/307300374549933402/

https://www.ama.org/partners/content/Pages/6-dos-and-donts-of-promotional-product-marketing.aspx

https://expandedramblings.com/index.php/tripadvisor-statistics/

https://www.prnewswire.com/news-releases/print-ads-in-newspapers-and-magazines-are-the-most-trusted-advertising-channel-when-consumers-are-making-a-purchase-decision-300424912.html

https://www.forbes.com/sites/matthunckler/2017/02/01/jay-baers-top-3-tips-for-acing-customer-service-in-the-age-of-social-media/#1cbbd1764a08

https://www.forbes.com/sites/rogerdooley/2015/09/16/paper-vs-digital/#31d49c533c34

https://blog.techdept.co.uk/2014/12/marketing-technology-words-marketers-need-to-know/

Four out of five businesses will use chatbots by 2020, 85% of all customer interactions will be handled by them and they will generate $600bn in revenue in the same year, according to a recent Oracle survey. This week Chris Crombie, Product Manager at Engage Hub, believes now may well be the best time to start investing in chatbots.

In just under two years’ time, chatbots – conversation-mimicking computer programmes that provide your customers with an instant, personalised response – will be ubiquitous. Driven by innovation in artificial intelligence (AI) and the insatiable desire to enhance and personalise the customer experience.

Simply put, chatbots are one of the clearest concrete examples of how the “AI revolution” is impacting on the business landscape and on the day-to-day lives of millions of consumers worldwide.

Consumers happy to chat to bots

Consumer familiarity with chatbots has increased over the last decade, a result of our familiarity with things such as self-service machines in supermarkets and interactive IVR.

With the latest advances in AI technology pushing new boundaries, it’s easy to see why many are claiming that 2018 is set to be “the year of the chatbot”.

That’s because, for any company that has an interest in offering a great customer experience, the potential benefits of enhancing customer satisfaction and responding to customer’s needs in a faster and more efficient manner by using chatbots are immense.

Plus, new messaging applications such as Facebook Messenger, WhatsApp, WeChat and traditional SMS are proliferating, which means millions of new opportunities to reach customers and communicate with them using the communications channels they utilise and like the most.

Understanding innovation in AI, Machine Learning and NLP

To understand the latest chatbot innovations, it’s necessary to have an understanding of Artificial Intelligence (AI), Machine Learning and Natural Language Processing (NLP).

Artificial intelligence is the theory and development of computing technologies that can perform tasks that previously required human intelligence. Mainly relating to speech recognition, visual perception, decision-making or language translation.

As an extension of this, Machine Learning is the application of AI technologies in ways that use data to learn and improve automatically, without being given explicit instructions. While NLP is the branch of AI that helps computers understand human language as it’s spoken and written to be able to understand intent.

The computer chatbot uses AI and NLP to imitate human conversation, through voice and/or text. So, in addition to the above-mentioned text-based instant messaging systems, voice-controlled chatbots are becoming increasingly popular, both in the home and in business contexts.

Amazon Alexa, for example, has proven to be an immensely useful consumer technology over the last two years in terms of its educational benefits, teaching consumers about the ease-of-use of voice controlled tech and helping them to feel comfortable and happy using it.

Test chatbots properly, to boost business

So that’s a brief overview of the key technologies and the commonly-used acronyms behind chatbots. Yet the key thing you need to know if this: when implemented correctly, chatbots are a demonstrably fantastic way to increase engagement with your customers.

So, what’s the secret of rolling out chatbots in a way that resonates well with your customers and doesn’t risk you losing sales?

As with any new technology, rigorously test it out internally before you let your customers start to use it. This is particularly critical with chatbot applications, as the bot will start to learn from your team, which helps to ensure that it knows how to deal with a wide range of the most common customer questions, complaints and enquiries.

Thorough testing will ensure your chatbots work as efficiently as possible, giving the correct information to customers as rapidly as they demand it.

All of which means that you will gain a clear competitive advantage, future-proofing your business by improving the customer experience whilst also delivering operational excellence.

Connecting you to your customers 24/7

Businesses in all verticals, particularly finance, retail and logistics, and businesses of all sizes – from small start-ups through to global enterprise – need to be investing in the latest chatbot technologies in 2018 to stay ahead of the curve.

And in today’s market, enhancing the customer experience is all about providing a high quality ‘always on’ service to deliver the information that they need, on demand, 24/7.

This week Finance Monthly hears from Nick Williams, Head of Business Development at UK Accountants, Intuit, who discusses change management methodologies and outlines an 8-step process for accountancy firms to apply Dr John P. Kotter of Harvard Business School’s methodology to ensure a smooth transition to Making Tax Digital.

These are changing times in the UK's accounting industry. Making Tax Digital (MTD) is the biggest overhaul to the taxation system in decades, and firms are not only adopting new ways of working, but they are completely re-thinking business models to meet the evolving needs of their small business clients.

The shift to digital accounting introduces new opportunities for accountants to take on more of a financial advisory role, providing real-time insights and strategic guidance to grow their clients’ businesses. However, while the shift to digital accounting is part of a wider push to digital in nearly all aspects of both our business and personal lives, the enormity of it cannot be underestimated. To ensure a smooth transition for their practice and their clients, accountants would do well to approach it in the same way as any other change management programme.

One of the most well-known change management methodologies is by Dr John P. Kotter of Harvard Business School, who observed countless leaders and businesses as they were trying to transform and execute their strategies, and developed the 8-Step Process for leading change. Here’s how accountancy firms can apply the same methodology to ensure a smooth transition:

1. Establish a Sense of Urgency: For months – years perhaps – we’ve been saying “it’s not too late to be early” to prepare for MTD. Communicate the message internally and externally that now it is in fact is a bit too late to be early. It really is time to move forward with cloud-based accounting to avoid a last-minute panic when deadlines approach.
2. Create the Guiding Coalition: Having dedicated “experts” flying the flag for digital accounting will help to ensure broader education among all employees on the forthcoming regulations. Start a process to train fee earners on your preferred cloud software and have "champions" trained as soon as possible.
3. Develop a Vision and Strategy: Think about how you can use MTD to seize new market segments or opportunities. For example, there are an estimated 1.75 million landlords in the UK, and all those earning more than £10,000 from property income will be liable for Making Tax Digital. For some, recording transactions online will be a first, and they will likely seek counsel from dedicated experts. Be one step ahead by positioning yourself as a future-ready firm.
4. Communicate the Change Vision: Once employees are up to speed on the changes, running a Making Tax Digital marketing campaign with clients is critical. Telephone calls, emails, client letters and even social media marketing will help to communicate these changes, and position your practice as a firm that is there for its clients every step of the way.
5. Empower Employees for Broad-Based Action: Some firms and their clients will be new to digital accounting; however, employees should be given freedom to experiment with different ways of working. Periods of change are frequently followed by periods of innovation, so try not to hamper any enthusiasm as employees “test and learn” to drive better outcomes for their clients.
6. Generate Short-Term Wins: Employees and clients will be more receptive to digital accounting if they see immediate benefits. Highlighting the time saved from less manual entry and the benefits gained from automation, for example, can help staff members see the potential of their roles to evolve from keeper of historical records to real-time financial advisor.
7. Consolidate Gains and Produce More Change: Use data to establish what changes have driven the best rewards for clients and share best practices across the business.
8. Anchor New Approaches in the Culture: Reward employees who share examples of how they have used digital accounting to achieve a better outcome, and encourage sharing, feedback and open discussion as you adopt new technologies to take your practice to the future.

By adopting a change management mindset, firms can ensure they stay ahead of the curve and have a business set up for long-term success.

To hear about all things joint ventures, Finance Monthly connected with David Ernst, Managing Director of Water Street Partners - a company that he co-founded in 2008.  David is a leading adviser to global companies on strategic transactions and governance, especially JVs and partnerships. In addition to a book, Collaborating to Compete, David has published articles in the Harvard Business Review, CFO Magazine, the Financial Times, McKinsey Quarterly, and a number of other publications. David was previously a Partner at McKinsey & Company, Vice President at Evans Economics Inc., and an Economist at Chase Econometrics.

Water Street Partners advises clients on transactions and governance. The firm’s transaction work specialises in joint ventures and other non-M&A partnerships, both in new deal formation and restructuring. Water Street Partners advises clients on corporate and joint venture governance, working with corporate and joint venture boards, management teams, and individual shareholders.

Since its establishment a decade ago, the company has worked on hundreds of transactions valued at more than $500 billion - supporting clients around the world and across industries.

What are the right and wrong reasons to use a joint venture?

There are several ‘right reasons’ to use joint ventures, and some situations when a JV is a bad idea. First, JVs are an appropriate strategic vehicle to combine complementary capabilities of two companies – for example, when one company brings product/technology, and the other company brings distribution or sales. Second, JVs are a good way to enter new geographic markets at lower risk than go-alone strategies. And third, joint ventures can be good ways to combine activities into ‘shared utilities’ – such as when multiple health-insurance or credit-card companies create a jointly-owned company to support their processing needs. JVs are also a reasonable fallback strategy when an outright acquisition would be attractive, but isn’t possible either because of national regulations which prohibit foreign ownership, or because the target company isn’t available for sale. In these cases, JVs can be a way to enter a relationship that can be a stepping-stone to a later full combination.

As for the ‘wrong reasons’ to use a JV, they include: using a JV principally as a way to access capital; venturing with a partner to try to fix a weak company; and using a JV to avoid selling a business that doesn’t fit in the corporate portfolio.

Once a company has decided to use a JV, what ‘killer questions’ should dealmakers ask to ensure the venture is successful, and to avoid doing a bad deal?

When clients come to us in the deal strategy phase, we aim to ensure that the JV negotiation process leads to either a ‘quick no’ or a ‘good yes’. Joint venture dealmakers should ask themselves five questions – if the answer to any of these is ‘no’, they should not proceed with a JV deal.

• Is a robust deal rationale in place? Dealmakers should ensure that the strategic reasons and business case for the JV are clear and compelling. They should also be confident that other approaches – i.e. go-alone, simpler partnerships, or M&A transaction – can’t achieve the same objectives quicker, more simply, or at lower cost and risk.
• Is there a good partner ‘fit’? Do the partners bring capabilities, compatibility, and commitment? Partner screening should begin with partner capabilities – the geographic, product, or functional strengths that the potential partner will contribute – which are core to the reason for selecting them as JV partners.
• Has the team considered various deal concepts, i.e. competing options for the scope, contributions, economic model, and staffing of the JV? The greatest benefit of the JV structure is that it can be tailored across many dimensions – but teams rarely take the time up-front to consider the broader set of deal options before digging into details and writing the legal agreements.
• Do the financial arrangements align partners – and are they ‘fair’? Few JVs end up as successes for one of the partners and failures for the other. Financial arrangements should reflect the value of initial contributions as well as ongoing support that each shareholder will provide to the JV.
• Has a workable governance model been agreed? Decision gridlock is an inherent pitfall of JVs, especially those that are structured with 50-50 ownership or shared control. There are many tactics to mitigate this risk – all of which require going beyond the legal boilerplate to develop a governance blueprint and agree in advance how the shareholders intend to govern the venture.

How long do JVs last, and are there ways to ensure a long-lived partnership?

The average span of JVs is about 8 to 9 years. JVs need to evolve to thrive and survive. Ventures are often scoped as fairly narrow-purpose entities – initially conceived to operate in well-defined product markets, with specific technologies. But the world is a dynamic place. For many JVs, there is a need to consider fundamental changes in strategy, scope or structure after three to five years, driven by technology disruption, emergence of new competitors, or the achievement of initial objectives.

The ability to evolve a venture’s strategy – and dynamically adapt to changes on the landscape – is clearly correlated with financial and strategic outcome performance: roughly 80% of JVs that have materially evolved their strategy and scope meet or exceed the performance expectations of their parent companies, whereas those JVs that have remained essentially unchanged have only a 33% success rate.

How should venture partners approach exit or termination? Should a ‘pre-nuptial’ be put in place?

Yes, a ‘pre-nup’ is essential. Few JVs last more than 15 years – so having an exit clause is definitely a good idea, though the discussions can be sensitive. Recognising that an eventual termination is the inevitable outcome of most ventures, most JV agreements do include exit provisions in some form. But these provisions often take the shape of boilerplate legal language, with symmetric buy-sell agreements. This is fine if both shareholders are equally able to acquire and operate the venture. More often, one of the shareholders is a ‘natural owner’, and a more tailored approach to exit clauses would provide more protection.

Contact details:
Email: David.Ernst@waterstreetpartners.net
Website: www.waterstreetpartners.net

To learn about portfolio management in Canada, Finance Monthly hears from Constantine Lycos, the Founder and CEO of Lycos Asset Management Inc., a Vancouver-based firm offering investment management services to business owners and professionals. Constantine has over 20 years of experience as an investment professional, holds the Chartered Financial Analyst designation, as well as a Master’s degree from Oxford University in Mathematical Finance.

In what ways does Lycos Asset Management do things differently than other investment management companies?

I believe several factors differentiate us from other firms:

• We are a boutique firm and we look after a relatively small number of families’ investment portfolios and our clients really matter, they are not rounding errors as they can be for large firms managing billions of dollars.
• Our vision, which is to manage clients’ ‘serious money’ as a marathon, using a proven and consistent approach to grow and preserve clients’ wealth with a long-term investment objective. We believe that the centerpiece for success is a long-term plan that outlines the investment polices to follow, so that clients can reach their unique goals. Our experience is that asset mix decisions have the greatest impact on portfolio returns as well as portfolio risk and we pay a lot of attention to getting that right for each and every client. The foundation of investing ‘serious money’ requires patience, discipline and objectivity.
• We are committed to the success of our clients and to fostering long-lasting relationships and we tend to have a very low client turnover rate.
• We are independent and ‘fee-only’, only compensated by our clients.
• Our advice is objective and unbiased.
• Our counsel is without conflicts of interest.
• Our integrity of counsel is uppermost.
• We are fiduciaries, i.e. we are obligated by law to put our clients’ interests first, ahead of ours and do what’s in their best interests. While this is true of all portfolio managers in Canada, portfolio managers currently make up a very small percent of the investment professionals helping families invest and manage their wealth, so we operate at the highest level.
• Client portfolios subject to a minimum asset size are fully customizable allowing for special circumstances to be taken into consideration and for better tax efficiency.
• We have a value investment philosophy. We look for good investments where there is good inherent value in the investment. If the market takes such investment down in price unless the fundamentals have changed, we feel good buying more of such investment. While this is true for all asset classes it is especially true for public traded equites where market prices may fluctuate a lot more than the inherent intrinsic values of the investments. This not only makes us more comfortable navigating volatile markets, it also provides us with opportunities at times when other investors are running scared, realising losses and taking permanent hits to their portfolios.
• The biggest problem investors face is in our opinion a behavioral bias, specifically recency bias. Investors tend to give more weight to recent performance than they probably should, feel good when markets are down and commit more capital at higher prices, feel bad when markets are up and either sell or do not commit new capital at lower prices. Our investment philosophy helps us fight this in clients’ portfolios, forcing us to buy when prices are generally low and sell when prices are generally high. We also help educate clients of the huge importance of the correct investment behavior and how it can determine their financial success more so than picking any individual investment.
• Our investment philosophy also helps us avoid ‘benchmarkitis’, a disease that has plagued the investment management community, where investment managers construct client portfolios in such as way is to be very similar to market benchmarks. This is done unintentionally by over-diversification or intentionally by trying to avoid the risk of under-performing a benchmark by a wide margin. This behavior is usually not in the best interest of clients and allows for a dumb investments, usually in highly overvalued stocks, that can have devastating effects when markets go down.

When is the best time for a family office or business owner to take on a portfolio manager?

Immediately! Business owners and professionals with a minimum of $500K of investable assets that do not work with a team of investment professionals that are fiduciaries do themselves a huge dis-service. I will emphasise the word fiduciary again, as our industry has been very good at making things look very complicated when they don’t have to be. Fiduciaries have to do what’s in the clients’ best interest. Portfolio managers licensed to operate in Canada, in order to earn the right to be able to invest client money on a discretionary basis (i.e. the portfolio manager decides what investments make up the investment portfolio), have achieved the highest level of professional qualifications, experience and integrity and are obligated by law to act in the best interests of clients. Hiring a portfolio manager when a family’s nest egg has reached 500K is a no brainer, even if they are already working with a financial adviser, typically at a bank. Our fees are usually lower than the banks’, and perhaps more importantly - the opportunities for improvements in the family’s investment portfolio and tax efficiency are huge. If they are not working with an investment professional already, the opportunities are even bigger. Research has shown that investors working with an adviser have vastly outperformed, on average, investors investing on their own. A 2016 study by Dalbar concluded that the average investor grew 100K to 305K over the previous 30 years when over the same period, the stock market would have grown 100K to 2.3 million! Working with an investment professional, especially one that subscribes to a value investment philosophy, would likely have produced at least similar results to that of the stock market. My US stock picks over the last 17 years have outperformed the market by roughly 3.5% per year, with the market returning 202% total return and my picks returning (net of fees) 425%.

What can you advise for strengthening an investment strategy?

Typically, if there is room for improvement in an investment strategy, it comes from the risk management side, for example incorporating low cost hedging. Hedging is hopefully a drag in investment performance because it means that the main investment strategy is performing well, but is there just in case the strategy does not work.

For what reasons might a client’s portfolio need to be customised?

The two most common reasons are a family’s over exposure to specific stock or sector and tax efficiency. An Executive’s or Senior Manager’s stock options or holdings in a publicly traded stock can be dealt with by using a custom portfolio - part of which includes a hedge against that single stock risk and/or sector risk. Similarly, a business owner’s exposure to a particular sector or industry can be hedged or dealt with by using a custom portfolio approach. Additionally, every family’s tax situation is different - some carry unused capital losses for example and some don’t. Thus, different strategies can be employed depending on the circumstances of the individuals involved. Capital loss harvesting can be employed for some families but not necessarily for others. More flexibility allows for better efficiency.

What is your process for identifying the risks and opportunities?

We typically look after a family’s whole nest egg and the opportunities and risks can be on the investment side, the tax side, the estate side, etc. In order to help clients as best as we can, we need to (and do) get to know our clients very well. Then the risks and opportunities specific to them and their situation will reveal themselves.

On the investment side, the risks and opportunities are more investment specific rather than client specific. We typically find the best investment opportunities in equities. They typically carry with them the most risk. Our value investment philosophy of ‘buying good businesses at good prices’ helps both to identify good opportunities and mitigate risk through a margin of safety in our valuation process. Typically, we would prefer lower beta stocks to higher beta stocks (relative volatility to that of the market), if other stock attributes are similar. My best stock ideas are in the fund that I manage, the Lycos Value Fund.

We also find good investment opportunities in private equity, albeit with an even longer time horizon than publicly traded stocks. For private equity, we would rely on outside managers. The process here is more with identifying competent and honest outside managers that are also reasonable on fees, an approach every investor should be using in selecting investment managers.

Fixed income investments are challenging in this low-interest-rate environment and are going to be challenging for years to come as either rates stay low or go up, essentially devaluing the worth of longer dated debt. We are at this point underweighting high-grade corporate bonds as the additional yield these bonds offer over government bonds is not enough to compensate for the additional risk and reduced diversification benefits, due to the higher correlation to equities. At this point, we prefer shorter-term private debt financing growth companies in the US or commercial mortgages also in the US, as the yields are better and the US economy is doing well. We also obtain private debt exposure through outside managers, so the process here is similar. In addition to analysing the risks and opportunities inherent in the asset class, we try to identify competent, honest and low-fee outside managers to help us. We also use long dated US Treasuries and long dated provincial bonds that carry the so-called duration risk, i.e. that the value of our holdings will go down as yields go up, not because of the yield we are getting from there, but primarily because of their negative correlation to risky assets such as equities.

Finally, and most importantly of all - how do all the different pieces fit together? Getting the asset mix right is the most important decision for us. Our process there is that for any particular return target for a client portfolio - we optimise the allocation to the various asset classes so that the portfolio can have the highest expected Sharpe ratio, i.e. the highest expected return divided by the expected volatility of the portfolio. We have found that this method has worked quite well.

Of what importance are third-party custodians in the management process?

Having independent third-party custodians to hold client cash and securities is important to our clients. As managers, we make buy and sell decisions on clients’ behalf, but we do not have physical access to their money, cannot make withdrawals from their accounts and essentially, have trading authority only. This is a good standard, one that I believe should be a requirement for all investment funds and a standard that helps maintain a high integrity and trust in the markets. I believe that the Madoff scandal would have been avoided if this was a requirement then, as the custodian for Madoff’s funds was a related party, not an independent third party.

What are the signs of a good investment to buy into?

Equities tend to make the best investments over time so I’ll focus on this asset class. Shares of businesses (“stocks”) whether traded on a stock exchange or not, represent fractional ownership of the businesses. Investors sometimes lose track of that simple fact and think of stocks as things that go up and down based on random macro-economic events, geopolitical events, company news, investor phycology, etc. While all of these may be true at one time or another, they neglect the two most important factors: the quality of the underlying business and even more importantly the price/valuation of the business in question. A good way to bring these two important factors into focus would be to think that you owned the entire business, not just a fraction of it, and that you couldn’t sell for a very long time, if ever. With that in mind, good investments will tend to be shares of good businesses bought at a good price. What makes a business a good business? This is not a particularly hard question. Some signs are:

1. The business has a good track record of profitability, for example an average return on equity over the last 5 years of at least 10% per year;

2. Good future prospects: for example, analysts are expecting decent growth over the next 3%-5% years;

3. A strong balance sheet;

4. The business has some ability to control its own destiny, rather than rely on external
factors such as the price of commodities or energy; As far as price is concerned, traditional valuation metrics here work well: low price to book, low price to earnings, low price to sales, low price to cashflow. Additionally, else being equal, given two stocks with the same attributes, a stock with a lower price volatility would be preferable.Stocks that meet the above criteria tend to do really well over time and make great investments. I have made it my aim in my professional life to look for such investments! Examples of good investments like these today would be: Walgreens (WBA) with a 5 year average Return on Equity (ROE) of 16%, price to book (P/B) of 2.26 and price toearnings (P/E) of 10; Arrow Electronics (ARW), Toyota Motors (TM) and Goldman Sachs (GS) with similar attributes.

Is there anything else you would like to add? 

I would like to reiterate the most important takeaways for investors: 1. Work with an investment advisor if you do not already have one, research has shown that investors working with an advisor vastly outperform those that do not. 2. Work with a fiduciary if you have enough money to invest such a portfolio manager. A fiduciary has to by law put your interests first ahead of their own or other clients’. 3. Do not let emotions dictate when you invest money, invest money consistently: do not sell after markets are down just because they are down and do not add to investments after they’ve gone up in value because you feel good about them. Using an investment manager with a “value” investment philosophy will go a long way in helping with that.

Website: http://www.lycosasset.com/