Robovisor Risks

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Trusting your money to a financial app sounds like a great idea. After all, you can order a ride with Uber, get someone to pick up your laundry using TaskRabbit, or find a place to stay using Airbnb. Why not have an app manage your money too? After all, the Robovisor app uses a sophisticated algorithm to construct a portfolio. Right?

It sounds good. At least in theory. You can manage your money with an app, accessible on your phone, and the fees are low. But can things really be that simple?

Unfortunately, when you peel back the onion problems begin to appear. Among other limitations, a Robovisor:

  • Constructs and manages a portfolio by using only historical, backward looking statistical data.
  • Tends to use only investments in the US Markets, often ignoring the opportunities presented by investments in the rest of the world.
  • Uses the same algorithm to generate a portfolio for every client.
  • Doesn’t consider long-term trends, current and potential political and economic events, employing unique insights.
  • Does nothing to address the weakest link, which is often the client, who all too often lacks investing experience, and is mainly guided by the basic emotions of fear and greed.

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Because of these limitations, the Robovisor assumes the future will be just like the recent past.  It can’t anticipate inflection points.  It doesn’t invest based on experience, consideration of long-term trends, or anything else other than very recent, backward-looking statistical data.  So using a Robovisor to determine where to invest your money is like driving a car relying mostly on the rear-view mirror.

Using technology to guide investing is also nothing new.  Techniques like “Program Trading” were all the rage back in the 80’s, right up until they failed to work on Black Monday, when markets fell 23% in a single day.  Brilliant minds and advanced mathematical algorithms were also going to make LTCM (Long Term Capital Management) a surefire company to make money, until their algorithms failed to anticipate future events (i.e. The Asian Financial Crises of 1997 and the Russian Financial Crises of 1998) and the firm blew up.  Then there was the Flash Crash of 2010 driven by algorithmic trading.

With a Robovisor, your money is invested just like everyone else’s.  So you pay too much for the same investments as everyone when the market is going up, and your investments drop in value more quickly when everyone is selling the same thing.  In an extreme market sell-off expect your portfolio to drop in value quickly.

Some Robovisor firms also make other dubious claims.  For example, that they alone use long-standing, routine techniques such as tax-loss harvesting.

The Robovisor also doesn’t address the key factor.  The emotions that tend to drive the decision-making of investors.  Especially inexperienced investors.  The Robovisor won’t stop you from piling into the market after it’s run up and you feel it’s “safe”.  And it won’t stop you from panicking and selling your investments when the market has dropped by 10-20%.  In theory the Robovisor can manage your money, but it can do nothing about human emotions, driven by fear and greed, that will cause you to buy high and sell low.  Exactly the opposite of what you should do.

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Don’t be fooled into thinking that an app on your phone can manage your financial future.  Technology is a tool, but it can’t replace investment experience, that anticipates complex and forward-looking long-term trends, and the emotions that guide individual investors.  Let me help guide your financial future.  Explore the pages of gaylordwealth.com to learn more.

For more information about Gaylord Wealth Management and opening an account, please visit my FAQAlthough I often service High Net Worth Clients, you can open an account with as little as $5,000.  I believe that well management services are not just for the well-to-do.

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Peter Gaylord, CFA
Gaylord Wealth Management, LLC
535 Mission Street
14th Floor
San Francisco, CA 94105

+1 (415) 971-7529
pgaylord AT gaylordwealth.com

Investment Management – Financial Planning – Portfolio Construction & Management