Why Robo Trading Doesn’t Make The Cut & Today’s Market Sentiment

I see robo’s getting bigger, but fizzling out. Yes, I am sure they can pick stocks based on fundamentals or technical points, but miss on having any type of out of the box thinking or being savvy, knowledge in the intricacies of the financial markets, they won’t be able to build the necessary relationships, they don’t have the experience, ability to use his experience to see market 3 or 6 months out. They are not creative or innovative all of which robots do not have. A lot of advisory work is behavioral and our job is to cool you down when you get too over excited or keep you together when you are too worried about your portfolios when we hit a bubble or a correction, respectfully. They won’t be able to build a portfolio like Ackman or Buffett anytime soon.

The market is definitely rip roaring, but that is because of the Federal Reserve sort of losing the reigns of the market all together. The amount of fiddling with the market since ’08 has been unprecedented and they do not have a clue how to unwind that trade. If you take a look, a real look at Main Street. You will see everything is not all sunshine and rainbows. A lot of people are working two or more jobs to make ends meet and the government is making it sound like the economy is doing very well when it is not for the average American. Unfortunately, the market will continue to rise and the bubble will get bigger and bigger while the average American will be hit with higher inflation which will put more pressure on them and discretionary spending will decrease. The market will pull back and the people who are feeling good about their portfolios at this moment will start to become very concerned and may pull out of the market due to fear of 2008. Americans who were in their late 40s and early 50s during 2008 are much closer to retirement and the flashback back to when they saw their portfolio lose 40%. The Federal Reserve is out of bullets to stop any type of serious market correction. It is a very dangerous time in the financial markets and lack of cohesion inside the Fed and the government is going to be a problem down the line. A lot of people do not want to admit that the markets are overvalued as a whole and even more so when you look at individual equities even as earnings are giving the impression that they are strong. Institutional investors will take profits instead of moving to the bond market like the Fed and even rational thought that investors would likely do as they raised rates. Normal everyday investors are not taught about financial markets enough to know not to panic when there is a correction and they are close to retirement age since they will not get the “bail out” that previous generation received.

For RIA’s, they are going independent because the advisors are getting higher fees and they have more room to do what they want to do. Meaning they are able to use different products that aren’t approved at certain big wire houses. Not everything is uniformed at let’s say Morgan Stanley and Merrill Lynch. Bank of America has made it harder for some of the bigger names in the mutual fund space to bring over their whole product line and that sometimes means that clients at ML are missing out on some of the mutual fund companies best products and vice versa. RIAs who are independent do not have the same complicated compliance restrictions on certain funds and they are able to rebuild some products that are “proprietary” to certain big wire houses that is cheaper and more beneficial to the client. However, it is in my opinion it comes down to making more money for the advisor at an independent shop since the wire houses take most of the fees that the advisors make from their clients.

-Dan Wachtel

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