I saw an infographic on social media recently with a breakdown of COVID infections in the United States by county. What caught my eye was the state with the fewest infections – Louisiana with zero. How could this be? The author’s reply in the comments: The computer program used to scrape the data from state websites counted Louisiana as zero because that state doesn’t have counties, it has parishes. This was a case of Artificial Intelligence lacking Actual Wisdom.
Like many of you, we are constantly pitched financial products. Intelligence helps sort the good strategies from the bad, but it’s wisdom that sorts products that are a want (hot sectors, name-brand hedge funds) from investments that are truly needed to get investment results.
We are on guard against “new” products that are really just old ideas wrapped in a shiny, more expensive wrapper. This includes closet indexers, managers who charge a premium for their security selection expertise, but their portfolios look like their benchmark index. ESG investors especially need to be careful with the revelation that Deutsche Bank’s asset-management arm allegedly overstated how much it actually invested using ESG criteria.
Some funds look great on their own, but in the context of a diversified portfolio add no value. Why pay 1.5% for a strategy like that when a portfolio of ETFs does the same thing for a fraction of the cost?
Do we REALLY need this fund/strategy/asset class? Whenever I’m tempted to add something new to our lineup, I ask myself, “Am I adding tomato to a fruit salad?” A smart person knows a tomato is technically a fruit, but a person with common sense knows tomatoes don’t belong in a fruit salad.