The Zero Hour Portfolio — Tim Ferriss is Promoting Robo Advisors

Robo Advisors: From the creator of the “Four-Hour Workweek” comes the Old practice of “Zero-Hour Portfolio Investing” aka Leave it to the “Experts” (?)

I -as many people- am a big fan of Tim Ferriss, the immensely popular author, marketer, startup investor/advisor, entrepreneur and overall lifehacker.

For me, he is a modern Renaissance Man since he has devoted himself to learning so many diverse practices like Foreign Languages, Efficient Physical Exercise, Martial Arts, Marksmanship, Meditation, Professional Cooking, Stoic Philosophy, Tango and of course writing best-sellers.

And he learnt how become a master of all in record-breaking times.

But as of lately I’ve been actually very disappointed when I found that he is promoting the latest investment fad: Robo-Advisors.

Like I’ve explained in other posts, I am not against technology making things better for us, its the how the underlying principles of what the technology is meant to do are applied.

The same kind of technology for atom bombs can be used for nuclear power plants, like Arnold Schwarzenegger was a human-killer robot in the first Terminator movie, but with the appropriate programming became a benevolent and cool protector of mankind.

It’s all in the fundamental principles that give birth to the programming.

I agree that Robo-Advising is far more optimal than having human teams that pick stocks, rebalance portfolios, do tax-loss harvesting and all the tasks that Human Advisors are currently doing -but can perfectly be automatized.

Yet they are running on the wrong kind of programming.

Their credo is the following: Since nobody can’t predict what stocks are going to do, they spread the risk around by diversification, buy for the long term and hope for the best, when we all know that, in any business endeavor hope is not a rational strategy.

Basically, automatized, efficient, convenient and low cost stupidity, is still stupidity. Nothing will change if you start something from a flawed premise.

Take this for example:

BlackRock’s Robot Stock-Pickers Post Record Losses (January 9 2017)

-Thank you to Tony Battista (@Tony_BATtista) for pointing out these news in Tastytrade Live-

So I gave Tim the benefit of the doubt, sat down and listened to a 35 minute long podcast called “The 5 Things I Did to Become a Better Investor” (October 2015).

Maybe I could find what are his arguments for passive investing, and in particular Robo-Advisory.

I, for sure know one of them: He is an investor in Wealthfront, a Silicon Valley investment startup that is a Robo-Advisor aimed for the masses and, most likely, in particular to millennials.

Here’s the craziest thing of all- because of regulations, companies that manage money for others, cannot use client testimonials.

So he can’t be a promoter/marketer or do affiliate marketing for them if he becomes an user. In my opinion, it’s not a nice thing to promote something that you are not a user of, even though arguments and facts should be the main decision.
He excuses himself he cannot do so because of regulations that I’m not necessarily in favor of but could be avoided.
For example, a Trust-type entity in which his assets are dissociated from him could perfectly be Wealthfront’s customer, with him being the beneficiary of the Trust’s produce. But the disclosure is very welcomed.

If it weren’t for such regulations, I’d like him to make the “Lost Decade Experiment”, in which you invest in S&P 500 index from January 1st, 2000 to December 31st, 2009 and have nothing to show for, staying about in the same level for the S&P 500- all the while, inflation did its ugly work with your dollars’ worth in the background — don’t forget fees and of course, lost opportunity costs.

Would like to see how well would that have turned out for him.

Anyways, going back to the podcast: he describes several types of investment styles, value investing, index investing and that you should read about several types of investments. But all these types of investments he lists and talks about would give him significant stress and sleepless nights. His objective is to invest to improve quality of life.

He says in order to win at the stock market you need any one of these three types of advantages:

1. Informational: You know something other people do not
2. Analytics: Can crunch data, model markets, etc. better than others
3. Behavioral: Skills/behaviors that help you avoid “Mr. Market” that human nature tends to lead to mistakes.He also says that his portfolio is 90% cash or cash equivalent instruments and 10% startup stocks — that I believe he invested with his own money or got it in exchange for startup advisory services.Let’s address these “advantages”
   In a very efficient marketplace like the US Stock Market, in the Internet age, if you know something other people do not, you are either an Insider or a Spy, because that is the nature of public companies- everything must be made publicly available at the same time to all, because if you don’t, you are giving an unfair advantage to someone to profit over others because of “Information Asymmetry”. And that is illegal.
4. Even if you knew something about a company that everyone else doesn’t, you have no idea how that is going to affect stock prices. The best example of that are earnings releases, when sometimes even when data is better than expected, stocks still manage to drop like a brick.
5. Same goes for analytics, it’s a type of fundamental investment type argument. He mentions Renaissance Technologies, a very successful closed hedge fund, that has all sorts of bright people like physicists, rocket scientists etc., but the truth of the matter is, there hasn’t appeared a machine or algorithm yet that can create a model that can predict the future and/or what a stock is going to do with 100% confidence.
6. And since Renaissance Technologies is a closed fund, with its own “proprietary secrets” aka secret sauce, we can’t see whats going on inside to test whether if they have built a machine that can really predict the future or not.
7. Today we are also at the most efficient point in history to trade in markets because we all have in our pockets enough computing power to do almost any type of complex computation needed to put on trades and making statistical analysis at milliseconds.
   The sheer amount of technologically-enabled participants (direct market access) and dollar-traded volume in a great group of stocks and its derivatives also adds to the efficiency and low costs of active trading.
8. So no one can have an edge by having a faster computer, at least if you don’t daytrade, where Virtu and other High-Frequency Trading (HFT) algorithm firms will eat your lunch and your wallet.
9. The behavioral argument by itself is not enough, you need the necessary skill and the correct techniques in order to have an edge.
10. In summary, everything that he mentioned here was aimed for himself, and not useful and actionable advice for everyone else.
11. For he has an informational advantage by being well connected in Silicon Valley and advising startups, and its not illegal since these companies are Private.
    But not everybody has that type of connections like Tim, so its not advice useful for everyday investors who want to grow their money in the public, open markets.
12. He has a disadvantage though, he has been extremely successful on paper but could have difficulties cashing out until those companies make IPOs or have other liquidity events. And that, for someone who is not a (multi) millionaire like him is a killer factor.
13. The other 4 things he talks about (in the middle of a barrage of information and recommendations) that made him a better investor are:
14. - Read books about investing (lots of recommendations)
    — Pick an area, timeline and rules
    — Paper Trading
    — Find an approach that best fits your personality, resources, timing etc.
15. All the books that he recommends are not bad, they are actually great but the problem is that there are no PRACTICAL books that have statistically and scientifically proven practices to make you a successful investor.
16. The area, timeline, rules and paper trading also depend on you having found a system that really works, these factors are not to be left chosen by chance or personality but by science. If you practice chopping trees with a blunt ax it will be useless.
17. He says, if you are not willing to do all of this research, you will “get your effing’ face ripped off”(sic).
18. I’m willing to bet, that even if you do all this research, you still will achieve the same result.
19. Just because these approaches that Tim mentioned don’t work in US public stock markets due to their high efficiency, doesn’t mean that you should forget about approaches that DO work even in highly efficient markets like the Tastytrade methods.
20. When we want to get fit, have a higher quality of life, we join a gym and go workout in it regularly, based on routines that have been scientifically tried and tested in order to achieve our objectives.
21. Don’t be like the New Year Resolutioners that go the first weeks after January and then completely forget about it because that is exactly what Passive Investing does to your portfolio.
    It makes it weak and susceptible to disease (market crisis and crashes). You can’t do three weeks worth of workouts, do nothing the rest of the year and expect to be healthy.
22. Tim Ferriss advises and recommends people to be Passive Investors when he in reality is an active investor and a very successful one, he invests in startups. He does so because he has an edge.
23. You can have an edge too, with Tastytrade and Tastyworks. Because they present practical and proven methods to be a successful investor.
24. And you can have quality of life too, because with options trading it means you don’t have to be glued to the screen or constantly monitoring your positions.
    You only check and adjust your portfolio once a day, no longer than 45 minutes or an hour -when you are really experienced. Much like a regular workout.
25. Time is on your side and every minute that passes makes you more likely to win, when you are an option seller.
    And if you have a lot of very small positions and trade them often, you are less likely to worry about the temporary outcome of any one stock option position in particular.
    Peace of mind by calculated and atomized risk taking is assured.
26. That is what the Tim Ferriss that I know and grew to like would do- find the optimal practices and execute them in a very short period of time with intense focus — like the Four Hour Workweek- but Passive Investing is a Zero Hour Portfolio … how would you expect to get anything or LEARN anything from it if you put nothing inside but money?
27. But I guess the Robo-Advisors got the best of him with the mirage of efficient technology, and promises of a no-brainer solution, when the Tim Ferriss I know, puts his brain in everything that he wants to master, why should it be any different with investing?
28. I would like to see though, a book about him talking on best practices on early stage startup investing dishing out all of his tactics and know how, but I think he won’t spill the beans that soon enough until he’s retired or out of the game.
29. That being said, I love you Tim but please be careful about what you recommend to people. The things that seem safest without any further examination or questioning, are the most dangerous of all, because ignorance doesn’t come cheap.

Originally published at MyTraderJourney.com.