Should we worry about the Shiller PE Ratio?

Shiller PE ratio

The rise in global equity prices in recent years has led to continued concerns over valuation levels. One indicator that appears to cause endless nervousness is the so-called “Shiller” PE ratio, which considers US stock prices relative to the rolling 10-year average level of earnings. As this note demonstrates, however, the Shiller PE ratio has proven to be a poor short-run market timing tool. And while it has proven to be a reasonable guide for likely longer-run returns in the past, allowance today needs to be made for the large structural decline in interest rates.


Which jobs in wealth management can’t be automated/ replaced by robots?

Which jobs in wealth management can’t be automated/ replaced by robots?
Someone asked the question “Which jobs in wealth management can’t be automated/ replaced by robots?”. Below is my answer:

1. Portfolio construction: In future, artificial intelligence will be used to make better sense of the vast data available to us, and help us in determining good investment opportunities. However, portfolio construction is a subjective activity, and it is based on an investment methodology that is designed by human perspectives.


Should I hire a financial adviser to help me invest a small amount, say $5,000, for the long-term?

Should I hire a financial adviser to help me invest a small amount, say $5,000, for the long-term?This is a common question asked by many young people who have just started their journey to save for their future. If you have this question, then I am glad that you intend to invest for the long term. I am also glad that you are open to seeking the help of an expert to help you make your investments.

However, if you are considering to take the help of a high-quality financial adviser providing you the service face-to-face, then, unfortunately, the amount of investible assets that you have is not sufficient.


Answer to “Do any robo-advisors focus on downside risk?”

Answer to “Do any robo-advisors focus on downside risk?”Someone asked the question: “Do any robo-advisors focus on downside risk?”. Below is my answer to that person —

Factoring-in the downside risk is an essential part of portfolio construction and investment management, and I am sure that credible robo-advisors deal with this.

As a client, if you are worried about the downside risk of your portfolio, then may be that portfolio is too risky for you. May be, your risk tolerance level is much lower, and you would need to opt for a less risky portfolio.


What’s going to happen to the robo-advisors the next time the market crashes?

What’s going to happen to the robo-advisors the next time the market crashes?Someone asked the question: “What’s going to happen to the robo-advisors the next time the market crashes?”

The next time the market crashes, people who would have previously burnt their hands while investing in individual stocks or in not-so-highly-diversified portfolios, will migrate to a highly-diversified portfolio managed by a low-cost automated investment service.

Typically, people assume that they know more about the markets than others. People assume that they can time the market.


Answer to “Will robo advisors survive as independents or just as tools on bank websites?”

Answer to “Will robo advisors survive as independents or just as tools on bank websites?”Someone asked the question: “Will robo advisors survive as independents or just as tools on bank websites?”

In the coming years, the automated investment management industry will become very advanced technologically. For example, artificial intelligence will be applied to investment management service. Only those independent firms that can understand technology better (like our firm QuietGrowth) will be better placed to provide a superior service in the coming years.


Answer to “What is the ultimate goal of a Robo Advisor?”

Answer to “What is the ultimate goal of a Robo Advisor?”Someone asked the question: “What is the ultimate goal of a Robo Advisor?”

The ultimate goal of an automated investing service should be what is also the actual expectation of a typical customer.

The ultimate goal of an automated investment management service is to provide the best long-term, risk-optimized returns to the client net-of-fees. This is what a typical client wants — What is the return that I am going to enjoy in the long term for a specific portfolio risk that I am willing to take?


Answer to “Is there a list of hedge funds or mutual funds that invest in fintech?”

Answer to “Is there a list of hedge funds or mutual funds that invest in fintech?”Someone asked the question: “Is there a list of hedge funds or mutual funds that invest in fintech?”. Below is my answer to that person —

You seem to want to have an investment exposure to fintech.

Even though financial service companies have been developing/adopting technologies at least for last couple of decades, fintech as a distinct and more visible space has been emerging strong only since last few years. So there are very few fintech companies that are public.


Answer to “Will robo-advisors replace independent financial advisors?”

Answer to “Will robo-advisors replace independent financial advisors?”Someone asked the question: “Will robo-advisors replace independent financial advisors?”

Robo-advisors / automated investment managers (AIMs) will make things hard for financial advisors with mediocre skills, and some jobs in this segments will be lost. However, financial advisors with superlative skills will survive (and may thrive) as they start to focus more on providing financial advisory services that are not provided by AIMs.


Answer to “Will there be oligopoly in the robo-advice industry?”

Answer to “Will there be oligopoly in the robo-advice industry?”Someone asked the question: “Will there be oligopoly in the robo-advice industry?”

Yes, in the medium-term (around next six years) in each market, there will be an oligopoly in the robo-advisor / automated investment manager (AIM) industry.

AIMs should be prepared for the long haul to generate profits. It is being discussed that an automated investment firm in the US should have at least US$30 billion under management to become cash-flow positive (assuming no further investment in new product development, and with most of the R&D spend going towards the maintenance of the existing product).