If you think you can beat the stock market, don’t bother reading this post. This post is about a startup that wants to make investing boring and predictable, which is something most of the investing public could use right now. MarketRiders has actually been in beta for about a year, and now it is ready to be tested by a broader group of investors. The idea is simple: If you get your asset allocation right and eliminate management fees, you can boost your returns and outperform nearly every actively traded fund over the long haul.
Mitch Tuchman, the founder of MarketRiders and a former hedge fund manager, studied the investment strategies of big university endowments like Yale’s. He learned that 80 to 90 percent of returns within any given year come from being in the right asset class (stocks, bonds, real estate, commodities, emerging markets), not from stock picking or market timing. The trick to steady returns is to try to mimic the market, not beat it, through exposure to broad asset classes. “Wall Street is the biggest fleecing machine in the world,” says Tuchman. “It is selling investors on the idea that if you give this manager money he will give you a better return than the market.”
A better strategy, he thinks, is simply to buy a variety of exchange-traded funds which index different markets and then periodically re-balance your portfolio. Rebalancing means trimming back the (inflated) winners and buying the (cheap) losers, which requires discipline and emotional detachment. MarketRiders helps you come up with an asset allocation strategy appropriate to your age and investment goals, suggests ETFs to buy, and then sends you rebalancing alerts whenever necessary. ETFs have very low fees, which help overall returns.
You still need to take the suggestions and place orders with your broker—a detail which introduces some friction into the process. But once you have your account set up, it tracks everything automatically. Still, for the $9.95/month MarketRiders is asking, it could at least hook up with your brokerage account and do the re-balancing automatically.
Nevertheless, Tuchman is on a mission: “I am trying to save people from the biggest con game in the country right now.” If you feel comfortable taking an active role in managing your own money and can attend to it on a regular basis, you can give MarketRiders a free try for a month. You can click on the image below to see a screenshot showing a typical portfolio, along with the alert levels (red means sell, green means buy).
Well, aren’t they just sticking to the basics?
Rebalancing means trimming back the (inflated) winners and buying the (cheap) losers
I guess that is all what every stock market investor must do!
In an amazing discovery, Mitch Tuchman breathlessly announced, that if you buy assets when they are at their lowest price and sell when they are at their highest price, you will make money!
Incredible!
This is the strategy for those who don’t have any confidence in their abilities to analyze the market. By diversifying across stocks and across asset classes one’s portfolio ends up being extremely average. This was the strategy of choice for investment advisors who didn’t know better, and was fine when everything was going up year after year, but it doesn’t work now.
Investors today must be intelligent to make good money. This could mean riding the winners and ditching the losers (there is a reason they are losers) and then eventually selling the winners for a reason, rather than simply the fact that they went up. Or, according to this guy, it could mean picking asset classes intelligently.
I launched my own virtual website investment (marketplace) yesterday.
http://www.webm.../techcrunchcom/
test 1 2 3. Wondering if my last comment went through
This is an interesting post. My friends and I found out about this site last week. We didn’t realize they were only around for a year.
We recently launched a similar site into beta.
http://www.trad....com?techcrunch
A different angle at the problem.
stfu n00b
Mitch Tuchman said…
I am trying to save people from the biggest con game in the country right now.
I kind of agree and disagree. I agree that some fund managers have fairly basic knowledge of market analytics, I mean the manager only know simple calculations. I disagree on the level that Wall Street is all for conning investors, perhaps he meant Mr. Bernie Madoff. The analytics used in Wall Street are quite sophisticated in which some users including fund managers don’t know how they work or at least know the objectives of those analytical techniques and possible outcome but have no clue to how they work. These analytics methods are based on economics fundamentals not on psychics stock reading.
The asset allocation that Mitch Tuchman is talking about where he includes the age of the investor as a variable, is something new to me. I am not aware of any model that includes the age of the investor even the standard Markowitz’s type Modern Portfolio Theory (MPT), doesn’t have a variable for age. Perhaps Mitch has developed his own proprietary MPT efficient asset allocation & diversification model, which would be good for his business. I seriously doubt this, ie, Mitch is using a proprietary MPT.
Every portfolio needs some fresh blood he,he.
Interesting comments.
The likely use of the age variable is to be able to offer clones of “life cycle” funds.
The underlying theory is that an investor’s risk appetite and time preferences change with age in a predictable fashion.
Quote:
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He learned that 80 to 90 percent of returns within any given year come from being in the right asset class (stocks, bonds, real estate, commodities, emerging markets), not from stock picking or market timing.
There are lots of research papers that showed that it is the opposite, ie, good returns come from sophisticated stock selection and market timing. Anyway, well done to Mitch for bringing his product to the market. This is an untapped market, ie, cloud market analytics, and similar products are only going to get better and sophisticated as they launched.
Market timing is not a good approach, stock selection is much better.
Hard for these guys to compete with an outfit like Dimensional Fund Advisors, who specialize in fund products (low cost of course like ETF’s) that do exactly what MarketRiders suggest. Totally passive and all the rebalancing is done by a professional portfolio manager. There are also a couple of ultra-diversified ETF’s coming out for this. There’s a reason stock-picking sells so well on the internet…
But wouldn’t something like MarketRiders have a lower fee because of the lack of professional portfolio manager
The shake-up in the financial services sector continues. And it should. Nice work Mitch!
Why not just buy Nasdaq and NYSE Index and be done with it. Essentially, that _is_ the market.
Seems like there’s a fundamental problem with their market size.
Of the people who have the necessary financial knowledge to appreciate what MarketRiders is doing, there are two fundamental types: aggressive investors and passive investors.
Aggressive investors think they can beat the market and aren’t going to like the autopilot approach.
Passive investors tend to want someone to handle their trading for them. If they’re worried about “getting fleeced” by high fees and biased advice, then they can use Financial Engines. And if the fees for having FE manage their account are unacceptable, then I could see an argument for a DIY market.
So there’s the market: sophisticated passive investors who want to save money by managing their own portfolio.
But then my question is: are these people even buying ETF’s? Because if you’re building a portfolio based on ETF’s, it implies you have exhausted your 401k (which typically DO NOT allow you to invest in ETF’s) and potentially other tax-advantaged accounts, which means you are putting away over $15k, possibly $30k per year (depending).
If you assume that 30k represents 15% of pre-tax income, we’re taking about people with at least a household income of $200k (probably quite a bit higher).
So then the market gets winnowed down further to sophisticated passive investors who want to save money by managing their own portfolio and make at least $200k per year.
I have to agree here, this narrowing is definitely the operative constraint on the business model. Then again, 401ks can be rolled over into an IRA whenever you leave a company, so it’s not necessarily locked-in forever.
I’m not sure you can grow for long and still avoid the messy legal and technical aspects of ‘do it for me’, but this seems like a good way to get started.
Congrats Mitch — Love you site and always have. It has been a pleasure working on some of the experience with you and I wish you tremendous success.
Brian
While I cannot argue with the investing principles it sounds as though Mitch’s research consisted of buying a copy of Unconventional Success by David Swensen (http://www.amaz...2419&sr=8-1).
For those who don’t know, Mr. Swensen is the portfolio manager of Yale’s endowment and has written a few books.
Would hope Mitch would give more credit next time.
G
Yes, I read David Swensen’s book “Pioneering Portfolio Management” some time ago and everything written above isn’t novel.
The biggest problem with offering investment advice is the the catch-22 involved. Those who are actually smart enough to understand the principles involved (those who may have read David Swensen, for example) could do it alone. And those who haven’t, will never be able to comprehend and/or listen to why investing in a different manner (or at all) makes sense.
I attempted to start a similar company right out of college about 6 years ago and simply couldn’t convince the uninformed why they needed help. Best of luck.
Best of luck to these guys–the world certainly could use more informed investors.
Investment principles aside, this service doesn’t seem to offer anything of value. The net is littered with free asset allocation tools that are essentially all driven by the same so called “scientific method” that MarketRiders claims to use….there’s nothing secretive about it. At best this is an alert service that warns you when one asset class needs to be trimmed or added to. Hardly worth paying for.
I’m fine with passive etf investing, but this guy wants to save you money on active management fees just to pay him a fee of a different kind (albeit much smaller i’m sure) for something that is available free online and very simple to do on your own. I smell deadpool.
Mike said…
The net is littered with free asset allocation tools that are essentially all driven by the same so called “scientific method” that MarketRiders claims to use….there’s nothing secretive about it.
Where are they? There are tons of different computational models in finance available today and if these sofwares are available on the internet, then perhaps they’re the unsophisticated ones, ie, easy to implement (algorithmic-wise). This is why quants are always developing (or looking ) new models for competitive advantage. Researchers have continuously published new models in the finance/economic literatures.
Himself is doing a con game
Himself is doing a con game, as Madoff.
I think that Mitch is brilliant and that MarketRiders is a fresh approach and that his business model is brillliant as well
I think that Mitch is brilliant and that MarketRiders is a fresh approach .