Ritholtz Wealth Management & IMN Present

THE INAUGURAL 

EVIDENCE-BASED 
INVESTING C
 ONFERENCE
November 1
 5, 2016 | New York, NY

Q&A

Featured Speaker Interviews with Robin Powell

www.imn.org/ebi

Table of Contents
F. William McNabb III, Chairman & Chief Executive Officer, Vanguard........................ Page 3

Charley Ellis, Founder, Greenwich Associates................................................................... Pages 4-5

Larry Swedroe, Director of Research, Buckingham Asset Management...................... Pages 6-7

Blair duQuesnay, Chief Investment Officer, ThirtyNorth Investments......................... Pages 8-9

Ben Carlson., Director of Institutional Asset Management,

Ritholtz Wealth Management.........................................................................................................Pages 10-12

Clare Flynn Levy, Founder & Chief Executive Officer, Essentia Analytics.................... Pages 13-14

Tadas Viskanta, Founder and Editor, Abnormal Returns.................................................. Page 15

Interviews Conducted by Robin Powell of

The Evidence-Based Investor
Robin Powell was a TV reporter, producer and presenter for more than 20 years, working for Sky News,
ITV and for The Sunday Politics on BBC 1. He reported from locations including Baghdad, Soweto and
Guantanamo Bay, and made award-winning documentaries on the Holocaust and on Britains Romany
Gypsy community.
He is the founder of Regis Media, which provides niche content and social media management for growing
fiduciary businesses. For three years he was a consultant to Sensible Investing TV, for whom he produced
and presented the highly acclaimed online documentary How to Win the Losers Game. He also works as
a brand journalist and content marketing consultant for advisers in Europe, North America and Australasia.
Robin is a member of the Chartered Institute of Journalists and was a Visiting Media Fellow at Duke
University in North Carolina.
Married with two children, Robin lives in rural North Warwickshire and works in Birmingham. A former
intern on Capitol Hill, Robin has supported a number of lost political causes over the years, and a few
sporting ones, including Aston Villa Football Club and the England cricket team.
Follow on Twitter: @RobinJPowell
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F. WILLIAM MCNABB III

Chairman & Chief Executive Officer
VANGUARD
As CEO of Vanguard, the biggest asset management company in the world, Bill McNabb is one of the influential people
in finance. Ive twice been to Vanguards Pennsylvania headquarters to interview him first, for the Sensible Investing TV
documentary Passive Investing: The Evidence, then for the follow-up series How to Win the Losers Game. Since then,
Vanguard has been on an extraordinary run, attracting record inflows for four years running.
So, what does the man at the helm put that success down to? Has it fundamentally changed the nature of the fund industry? And what does it
mean for financial advisers?
This exclusive interview is the latest in a series of articles previewing next months Evidence-Based Investing Conference in New York, at which
Bill is one of the headline speakers.

Vanguard has had an extremely successful couple of years, especially in the US. What do you put that down to?
Everything starts with our unique client ownership structure. Throughout our history, it has driven our clientfirst culture, our four decades of lowering costs for clients, our advocacy for investors, and our commitment
to improving the funds and services we offer.
Do you think Vanguards success and the growing popularity indexing in general means the rle of the
adviser is changing? If so, how?
The nature of advice is changing. Its no longer about great stock tips or picking the right funds to beat the
market. Its about giving investors the appropriate asset allocation and diversification, keeping them on track
to reach their goals, and having important conversations with them along the way as questions arise and big
life changes occur.
Do you see the rise of robo-advice as a challenge to traditional advisers?
The answer is both yes and no. Robo-advice is not a fad. Its here to stay and it will put a downward pressure
on the price of advice. Advisers must adapt. As portfolio construction is becoming commoditised, the best
advisers are adopting fin-tech elements into their own practices, enabling them to cultivate deeper client
relationships and focus on more complex aspects of planning.
You said recently that advisors need to seize the moment to tell their story. What do you mean by that?
Advisers who demonstrate the value they add above and beyond straight technology offerings will have
tremendous opportunities. For example, about 10,000 Baby Boomers in the US will retire every day between
now and 2029. They will face complicated, emotional questions, many of which cant be answered adequately
though a computer model. There is great power in conversation and advisers are in a prime position to help
people navigate some of the most important decisions they will make.
What did you make of the controversial Bernstein paper which claimed that passive investing is worse than
Marxism?
Indexing is the most efficient vehicle to ever connect everyday investors to the broad capital markets. Consider
the fact that you can invest $1,000 in a total world stock ETF that invests in virtually every publicly traded
company on Earth, and your fee to do that is less than two dollars. Indexing has democratised investing by
making it more accessible to all.
As a company, Vanguard believes active management has a place. But has it grown too big? And do you expect
the sector to shrink in size over the next few years?
Active management will always have an important place, but high-priced active management will not. Were
seeing that play out in the marketplace right now, as investors are showing a preference for index strategies
and low-cost active funds. I dont foresee that trend reversing.

Information Management Network, T: (212) 901-0542, E: amelvin@imn.org, W: www.imn.org/ebi

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CHARLEY ELLIS
Founder
GREENWICH ASSOCIATES
Of all the speakers at Novembers Evidence-Based Investing Conference in New York City, perhaps none has done has more
to advance the evidence-based approach than Charley Ellis. He was himself an active money manager, but he worked out
in the early 1970s that although fund management companies and other intermediaries stand to gain from it, for ordinary
investors active management is, to use his famous phrase, a losers game. In this exclusive interview with The EvidenceBased Investor, Charley discusses his long career in finance and his new book, The Index Revolution: Why Investors Should Join It Now.

Burton Malkiel has called your book the most financially rewarding two hours you could possibly spend,
which is praise indeed. What are you hoping that readers get out of it?
My main hope is that investors will recognise that the markets have changed enormously over the past 50 years
and will want to understand things as they are, not as they were 50 years ago, and to act sensibly in their own
interests. My second hope is that as investors index the daily, monthly, annual operations of investing, they will
devote time, energy and care to the really important work of defining their real long-term objectives and their
ability to stay the course during market ups and downs.
In the book you describe a personal journey youve been on over more than 50 years from genuinely
believing in active management to being a staunch advocate of index funds. When did your first doubts about
active management begin to set in?
My first doubts for individual investors came in 1972 which is why I wrote the article The Losers Game. Back
then, I still expected the pros to get superior returns. But, as more and more splendid people got into investing,
it got harder and harder for the professionals to beat the market, because that meant beating other pros. 50
years ago, professional investors were 9-10% of all market activity. Today, they are 99% of listed trading and
100% of the even larger derivatives market.
Added to this is the fact that the secret sauce of active investing has always been to get an advantage on
information. 50 years ago, that was easy. Guys like me would study and analyse information for 3-4 weeks
and then go visit the company for 2-3 days and interview several executives, who would gladly answer all our
questions so we would really know what was going on. Today, that is long gone. The SEC requires all public
companies to make sure that any useful information is distributed simultaneously to all investors at the same
time. Poof, there goes the chance to get a competitive advantage on information.
Success (and high pay that came with the competition for talent) attracted lots of people who also found the
work was exciting and fun, that you learned a lot about all sorts of subjects, that the people involved were
interesting and great to work with, and that everybody admired professional investors. Later, we also learned
that while traders retire by 45 and investment bankers quit by 55, investment managers could continue into
their 80s, so career competition was even greater.
Something you have always stressed is the importance of fees, and how although they look small in
percentage terms they are in fact very significant. Explain that.
As a percentage of annual returns of around 7%, a fee of, say, 1% is very high. Investors can now get the market
return at no more than the market level of risk for 10 basis points with an index fund. When they pay up to
1% or more incrementally, what incremental return do they get? The record, with deleted failures restored for
fairness, shows that over 80% of funds fall short of their chosen objectives. So, hold your hat, fees for active
investing are actually more than 100%!
There have been huge outflows from active funds, and into passive funds, in the last couple of years, at least in
the US. If this trend continues, do you think it will create more opportunities for active managers to outperform?
Everyone seems keen to learn when indexing will be so large that active investing can make a comeback. Here
the real question is, When will enough people quit active investing so the markets will have enough mistakes
in pricing so capturing those mistakes will once again be fairly easy? First, it is not a red or yellow line that will
apply to all. Each active investor will make her or his own decision and they will do so in a wide spectrum. My
guess is something like 80-90%.
Charley Ellis continued onto the next page
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CHARLEY ELLIS
Youre not a fan of so-called smart beta. Why is that?
Smart beta is such a clever name second only to the clever Scots who changed the name of death insurance
to life insurance. The guy who came up with it has already made a large fortune on the name. Portfolio
insurance was another clever name until it failed miserably.
There are factors that can be identified and experienced specialists with great skill can here and there exploit
these ephemeral opportunities. But most offerings are likely to attract the most interest when the case looks
best: unfortunately that will be after the best opportunity has passed, so most of the money going into such
products will miss the positive and, as that area of the market inevitably regresses to the mean, that same factor
will surely underperform. It cannot do better forever.
Do you see the fund industry contracting over the next few years?
The number of active mutual funds will probably decline over time. After all, we now have more funds than
stocks! Every year, funds disappear, but new funds get created because the fund business pays so well, not for
investors, but for the fund management companies.
Finally, what would you to say to someone in their 20s, whos starting to think about investing? What should
they be doing?
When advising young people, I urge them to ponder the long-term compounding advantage of index funds
and to recognise that their investments will be invested for 50 or more years and that with such a long, long
time horizon, if they can live through the fluctuations, they will invest almost entirely in stocks. If they will be
working, the net present value of their earned incomes (which are so predictable that they are more like bonds
than any other securities) is so large that it dominates their total portfolio. So the only reason to own bonds
now is to help protect them from misbehaving when market seem scary.

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LARRY SWEDROE
Director of Research
BUCKINGHAM ASSET MANAGEMENT
A while ago I mentioned the inaugural Evidence-Based Investing Conference, which is taking place in New York City in
November. Over the next couple of months, Im going to be helping to promote the event with a series of interviews with
some of the speakers.
The first interview is with Larry Swedroe, the well-known investment writer and Director of Research at Buckingham Asset Management.

Larry, youve been a prolific author over the years, writing nine different books on evidence-based investing.
How did it start?
When I joined Buckingham in 1995 there were no good books on the subject that were accessible to the
average retail investor. And I thought it was important to provide one that would present the compelling case
for passive investing. So in 1996 I started to write my first book, The Only Guide to a Winning Investment
Strategy Youll Ever Need. It was published in 1998 at about the same time as Charles Ellis classic Winning the
Losers Game.
Your latest book, which is due for publication in the next few weeks, is Your Complete Guide to Factor-Based
Investing, which youve co-authored with Andrew Berkin. How does the book add to the body of knowledge
already out there?
Ive always been interested in the latest academic research on which factors have produced excess returns and
why investors should expect that to continue into the future. Weve made major strides since the publication
of the Fama-French paper in 1992, The Cross Section of Expected Returns, which changed the way we had
thought about investing in the previous 30 years. The workhorse model until then had been the single-factor
CAPM.
But advances didnt end there, and now we have multiple factors that deserve consideration by investors, as
well as new and innovative ways to gain exposure to them (some good and some not so good). And there is
no reason to think that advances will not continue, because the incentives are so great and theres so much
talent attacking the problem. But any advances now I believe will be only marginally incremental as we can
already explain the vast majority of the differences in expected returns.
The book sorts out the wheat from the chaff in what John Cochrane has called a zoo of factors. There are
now more than 600 factors identified in the literature, but we show in the book that there are only a small
number that warrant consideration. Our criteria are persistence, pervasiveness, robustness, implementability
and intuitiveness. Only a few factors meet those criteria and are not subsumed by other factors.
Everyone seems to be talking about factor investing, smart beta, or whatever you prefer to call it. Are we making
too big a thing of it?
Most of whats called smart beta, in my opinion, is just marketing hype. Beta is just beta, or loading on some
common factor. So theres really nothing smart about it. On the other hand, there can be intelligent (or dumb)
portfolio construction rules used to implement factor strategies. So an example of a smart strategy would be
to accept random tracking error and avoid pure indexing so that you can be a provider instead of a taker of
liquidity, using algorithmic programs to make the trades. And some indices are more intelligently designed than
others in terms of turnover and transparency.
Larry Swedroe continued onto the next page

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LARRY SWEDROE
Presumably you would urge investors not to be blown off course by that other big event happening in the US
in November, the Presidential Election?
Most importantly my advice would be not to let your political views impact your investment decisions. We
have good research on this which shows that when the party you support is in power you are a better investor
simply because you are more confident and thus tend to trade less. Youre also less likely to panic and sell.
You work for Buckingham Asset Management and its network of advisory firms, the BAM Alliance. Why do you
think the business has been so successful?
Id say there are few key things. First, our commitment to provide a high level of client service and always do
the right thing for clients. Second, our commitment to give advice that is not based on our opinions, but on
peer-reviewed academic evidence. And third, by building a real community of firms that makes the whole
greater than the sum of the parts.
Finally, what are your ambitions now?
I plan to enjoy my life and help to train the next generation of Buckingham thought leaders.

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BLAIR DUQUESNAY
Chief Investment Officer
THIRTYNORTH INVESTMENTS
Among the speakers at The Evidence-Based Investing Conference in New York City in November is Blair duQuesnay.
Blair is considered one of the rising stars in the US advisory profession, and is the Chief Investment Officer at ThirtyNorth
Investments in New Orleans, the city where I set out in journalism as a bright-eyed intern, quite possibly before Blair was
even born! Here she looks ahead to the conference and explains why the under-representation of women in the investing
industry is such a serious problem.

Which speaker are you most looking forward to listening to at The Evidence-Based Investing Conference?
There are so many great speakers and panelists on the agenda that it is difficult to pick a favourite. Bill McNabb
and Jim OShaughnessy are two titans in the industry. Im probably most excited about Charles Ellis. One of
my mentors gave me his book, Winning the Losers Game, early in my career. The book was fundamental in
shaping my investment philosophy. I am also looking forward to catching up with friends Jeremy Schwartz,
Meb Faber, Josh Brown and Ben Carlson. And Im hoping to meet Morgan Housel in person for the first time.
Youre on the panel for a session called Organisational Alpha (as opposed, presumably, to alpha generated
by picking the best money managers). Why is it so important that advisors examine their organisational
structures and work processes?
As the investment profession has progressed over the past 40 years, teams of portfolio managers replaced star
(solo) managers. Process and discipline replaced ad hoc stock selection. The academic research on diversity
of teams and collective intelligence is compelling. We know there are not enough women in investment
management. Only 16% of CFA Charterholders are women, less than 10% of mutual managers, and less than
3% of hedge fund managers are women. I recently heard Mohammed El-Erian say that the number one solution
to overcoming blindspots for his portfolio management teams at PIMCO was by adding gender diversity.
Lack of gender diversity in the industry certainly is a problem. Why do you think women are in a minority? And
what can be done about it?
The CFA Institute Research Foundation shared survey data of its members with Terrance Odean, Brad Barber,
and Renee Adams, who just published a fascinating paper on this very topic Family, Values, and Women
in Finance. One key hypothesis from this paper that struck me was the concept of convex compensation for
time in our industry. Basically, we (as an industry) disproportionally reward those who work long and specific
hours. This puts women at a disadvantage because they are socially expected and biologically required to be
the caregivers of children. I also suspect, although I have not seen research to support this theory, that there
is something in the messages we, as a society, send to young girls that dissuades them from choosing finance
as a profession. Clearly medicine, law and accounting are making better progress than we are in recruiting
women. We need to continue to research this topic and actively encourage young women to join us. I am very
enthusiastic about the work the CFA Institute is doing in this area.
I notice from your Twitter posts that you like to speak your mind! Advisers often tend to be quite cautious about
what they say on social media, perhaps for fear of upsetting their client base. What are your thoughts on that?
In 2016, transparency is vital. Be yourself and you will attract the right clients for your business. Authenticity
builds trust, while opaqueness has the opposite effect. I have always enjoyed hearing and debating opposing
points of view. Twitter is the ultimate place to engage in these kinds of discussions and debates, as long as you
always treat others with respect.
Blair duQuesnay continued onto the next page

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BLAIR DUQUESNAY
Do you welcome the Fiduciary Rule recently introduced in the US? And, generally speaking, do you think it will
improve investor outcomes?
I absolutely welcome the Fiduciary Rule, and I do not think it goes far enough. I realise, however, that it is not
easy to get a massive ship to make a 180-degree turn. That is essentially what we need in financial services. The
industry was set up to compensate for sales incentives instead of as a trusted profession, like law or medicine.
At the same time, the responsibility to save and invest for retirement shifted from institutions to individuals.
Individuals need professionals, not sales people, to help with the crucial process of planning for retirement. It
will be expensive for large banks, wirehouses and insurance companies to completely transform their business
model from sales to advice. I think the DOL made a bold, calculated, step to start this process in passing the
Fiduciary rule. Its far from perfect, but it is a vital step in the right direction.
Final question: What would you to say to someone in their 20s, whos starting to think about investing? How
should they go about it?
Start now, do not delay. Time is on a young persons side because of the magic of compounded returns. You
will need to save much less if you start today. Right-size your housing and transportation costs to fit within
your means. Save at least 6 months of living expenses in a cash reserve. Simultaneously, take advantage of taxdeferred savings options such as your 401k, an HSA, or IRA. Invest in broadly diversified, low cost investment
options of global stocks and bonds.

Information Management Network, T: (212) 901-0542, E: amelvin@imn.org, W: www.imn.org/ebi

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BEN CARLSON
Director of Institutional Asset Management
RITHOLTZ WEALTH MANAGEMENT
Someone Im particularly excited about meeting at the Evidence-Based Investing Conference in New York City in November
is Ben Carlson. As well as being Director of Institutional Asset Management at Ritholtz Wealth Management, Ben also writes
one of the best investing blogs on the web the very aptly named A Wealth of Common Sense. Here he talks about his
philosophy and, in particular, his belief in keeping things simple.

How excited are you about this conference? Which speaker or speakers are you most looking forward
listening to, and why?
Our entire team is thrilled about the prospects of this conference and how everything is coming together.
There are so many big names in the world of investing that are going to be there Jim Chanos, Bill McNabb,
Larry Swedroe, Savita Subramanian, Jim OShaughnessy and the list just goes on and on. But Im most looking
forward to seeing Charles Ellis speak. Ellis is one of my heroes in the investment world for his ability to take
complex topics and simplify them so all investors can understand his message in a clear and concise manner.
What are you planning to speak about yourself?
I will be speaking and moderating on two different topics. The first will be on organisational alpha, which will
look at how investment funds and organizations can add value through improved decision-making capabilities
and policies. The second topic will deal with institutional asset allocators and how they can utilise an evidencebased approach when making portfolio decisions.
What were you looking to achieve with your book, A Wealth of Common Sense: Why Simplicity Trumps
Complexity In Any Investment Plan? And what sort of response have you had to it?
When I set out to write my book I asked the Wall Street Journals Jason Zweig if he had any advice for a firsttime author. Heres one piece of advice he provided that I tried to remember throughout the writing process:
Imagine that your grandmother came to you and wanted to know ten things about investing that she could
understand and that she needs to understand. What would you tell her?
My investment philosophy is grounded in the idea that less is more and complex markets dont require
complex solutions. And these things are true for all investors, both novice and professional. Thats what I
tried to convey. The response has been great as more and more people are coming around to the benefits of
simplifying your message and approach. Understanding what youre doing and why is an underrated aspect of
a simpler approach to the markets.
So, youre a great believer in simplicity. But large sections of the industry often make out that investing is a
complex process. Why do you think that is?
Its really hard to change your behaviour once youve been doing things a certain way for an extended period
of time. This is true of both individuals and financial firms. Because people are hard-wired to be swayed by
narratives and storytelling, complexity has always made for a good sales pitch. And contrary to popular belief,
the sales people will almost always trump the investment people when getting clients into investment products.
Complexity has led to plenty of fee revenue over the years for so many financial firms, so why change now?
Ben Carlson continued onto the next page

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BEN CARLSON
You have a very popular blog, which must take a great deal of time and effort. What are your motives for writing
it? And would you recommend that other advisers consider blogging too?
I was never much of a writer before starting my site, but it really is a great addition to the learning process.
Documenting your thoughts and ideas is a great way to understand what it is you really think about something.
And Ive found that the more I write the more Im willing to learn. When I started writing the blog a few years
ago I assumed I would run out of topics to write about fairly quickly. Instead, I find I now have more ideas than
ever because my writing habit has increased my reading habit.
I do think it makes sense for other advisers to blog because its a great way to get your message and philosophy
out there. But you have to make sure youre writing in your own voice and not trying to emulate what others
are doing. And in the worst-case scenario i.e. no one really reads what youre writing youre still forced
to come up with new and creative ways to look at the world and what interests you.
You wrote recently about the lessons youve learned about personal finance and investing in your 30s. If you
could pick out, say, two or three of the most important ones, which would they be?
For the majority of people out there mastering their personal finances will be much more important than
mastering portfolio management. So one of the most important revelations Ive had over the years is the
importance of understanding the three pillars of personal finance saving money, making more money and
avoiding lifestyle creep. All three can be a challenge, but I feel the last one is the hardest for most people
because envy can be such a destructive force when trying to get ahead financially.
The other important one for me personally is valuing experiences over material possessions. The things we
remember and make us happy are not the clothes or cars we buy but the time spent with friends, family or
community.
You specialise in advising institutional clients but you recommend simple, low-cost and low-maintenance
strategies. Is this a problem for you in that institutionally investors often consider themselves more
sophisticated investors?
Yes, it can be a challenge in many respects to get buy-in from institutional investors on a simpler, low-cost
approach. Institutional investors tend to have a lot more money at their disposal than retail investors. The
assumption is that more money should be able to buy more exotic or better investment managers and
strategies.
Yales David Swensen, likely the greatest institutional investor of all-time, has actually suggested that most
investors dont have the expertise or resources at their disposal to pull off a more complex approach, when
he said the following:
Two types of investors inhabit the investment world a vanishingly small group that makes high quality active
management decisions and a much larger group that commands neither the resources nor the training to
produce market-beating results. Membership in the active management cohort requires full-time dedication
to understanding and exploiting market opportunities. Few qualify. Unfortunately, too many imagine that they
possess active management skills, leading them to pursue costly strategies that all too predictably fail.
The problem is that the majority of institutional investors assume they are in the vanishingly small group
without realising they actually belong in the much larger group. This leads to all sorts of problems in an
investment program. Fees paid tend to be far too high, trustees or beneficiaries dont understand what exactly
they are invested in and investment committees tend to chase past performance. All successful investing starts
with the ability to admit your limitations and sophisticated investors often have a difficult time with that, to
their detriment.
Ben Carlson continued onto the next page

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BEN CARLSON
As institutions increasingly switch to more passive investment strategies strategies, is there still a rle for
investment consultants? How does that rle differ from the traditional one were used to?
There definitely is a rle for them. The majority of trustees or investment committee members dont have the
time or asset management experience required to run the day-to-day operations of an institutional investment
fund. Plus, theyre more worried about running the organisation, not managing a portfolio.
Consultants can add value is by making their clients lives easier. They can handle all of the minor elements
involved with running a fund that are boring, yet necessary, including monitoring results, performance
reporting, rebalancing, implementing risk management protocols, and reviewing banking services and fees.
Client education and communication are also extremely overlooked aspects of any adviser-client relationship
to provide transparency to the process. Setting realistic expectations and managing short-term liquidity needs
can lead to improved organisational planning. Documenting the investment process can ensure everyone is on
the same page. And behavioural management can help the client avoid making a huge mistake at the wrong
time.
The best consultants are really there to help the client focus on what they can control.
Traditionally consultants have promised their clients that they will pick the best money managers. They promise
outperformance. The research shows that just hasnt been the case and alpha continues to shrink because of
increased competition in the markets. Most consultants and clients would be better-served to focus less on
traditional alpha and more on organisational alpha.
Finally, there clearly is a savings crisis not just in the US, but globally too. Its a big question, I know, but what
do you think the answer is?
I wish there was an easy answer here, but the reality is that changing peoples behaviour is tough. No one
wants to be told what to do, but automating good decisions ahead of time (automatic saving, increases in
saving rates, investing, bill payments, etc.) would help a lot of people get out of their own way. Short of forcing
people to save for retirement I think automated saving is our best bet.

Information Management Network, T: (212) 901-0542, E: amelvin@imn.org, W: www.imn.org/ebi

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CLARE FLYNN LEVY

Founder & Chief Executive Officer
ESSENTIA ANALYTICS
OK, well be far outnumbered by our North American colleagues, but there will be a small British contingent at the EvidenceBased Investing Conference in New York City on November 15th. Among them is Clare Flynn Levy, whose firm Essentia
Analytics uses machine learning technology to help professional investors to identify behavioural patterns which are likely
to have a detrimental on their returns.
Behavioural finance is a fascinating subject. Understanding the intricately complex connection between behaviour and returns and, crucially,
applying the lessons learned, are in my view a very important part of the evidence-based approach to investing. In this interview, Clare explains
how technology can help all investors professional and otherwise to achieve better outcomes.

What are you going to be speaking about at the conference?

Ill be speaking about the extent to which technology can help investors stop being their own worst enemies.
For those who arent aware of Essentia Analytics, what exactly does it do?
Essentia uses machine learning technology to identify behavioural patterns in a given investors trade history
and translate them into intelligible, actionable insights. Our technology then nudges the investor when it
thinks he or she may be repeating the same detrimental patterns.
When we talk about behavioural bias, were normally thinking of retail investors. But your experience is that
professional investors can be just as prone to those same biases, right?
Yes, thats right. Theres no reason to believe that behavioural bias only affects retail investors it affects all
humans, to a greater or lesser extent. In professional investors, whether they be fund managers or indeed
investment advisers, bias has a direct cost that undermines the fees that are being charged.
Of course active funds have been having a very difficult time outperforming their benchmarks. How big a part
do you think manager behaviour has played in that? And whats the answer?
The only thing that a manager can control is his or her own behaviour. So if you believe that there is any skill
at all involved in investing (and I do), then a manager who wants to outperform the benchmark must focus
on maximising skill. That requires maximising returns to the investment process, and minimising the impact
of behavioural bias. The average fund manager simply hasnt been doing that they (like everyone else in
the industry) have been caught up in chasing the outcome, rather than focusing on the process. I believe that
there is scope for a smaller number of highly-skilled, process-oriented managers to outperform benchmarks.
You recently said that the fund industry needs to go into centaur mode combining the strengths of man
and machine. What does that look like in practice?
Centaur mode means recognising what computers do best crunching vast quantities of numbers and
letting computers do that. It also means recognising what humans do better than computers: making judgement
calls. If you use technology to tee up decisions to be made, and let the human actually focus on making the
decisions, you get the best of both worlds. What Essentia does is use technology to tee up decisions to be made
based on our understanding of how and in what contexts you make your best and worst decisions.
Clare Flynn Levy continued onto the next page

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CLARE FLYNN LEVY

Can technology also help ordinary investors to be more disciplined?
Yes, although that is harder because they typically make fewer decisions, those decisions are often driven by
things other than market values, and they tend to have less rigorous processes for making them. An intermediate
step might be to help investment advisers to be more disciplined after all, the academic research shows that
they commit most of the same errors with their own money that retail investors commit on their own.
Finally, what would your advice be to ordinary investors when they feel their emotions starting to get the better
of them?
The best practice is to spend time crafting a plan, before making any investment, that says what you will do if a
variety of different scenarios occur. Then, when emotions inevitably do arise, acknowledge them for what they
are. One of the worst mistakes that any investor can make is to think that he or she is immune to emotional
decision-making. But rather than acting on the emotion, refer to the plan. What did you say you would do in
this situation? Your emotions are providing you with useful information that its worth noting down, but the
key to success is sticking to the plan.

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TADAS VISKANTA
Founder and Editor
ABNORMAL RETURNS
One of the problems a financial writer faces is theres so much content out there that its very hard to sort the wheat from the
chaff. Thats why content curators add so much value. For me, theres no one better at it than Tadas Viskanta, best known for
his blog Abnormal Returns. I began this interview by asking Tadas about The Evidence-Based Investing Conference in New
York City in November, where hes going to be chairing a panel.

Are there any speakers youre particularly looking forward listening to in NYC, and why?
Luckily I have met many of the bloggers who are serving on panels. However I am looking forward to hearing
from some true legends like Charley Ellis, Jim Chanos and Jim OShaughnessy. That is not something you get
to do every day.
Youre a prodigious consumer of financial media, curating content for your blog, Abnormal Returns. Theres
a huge amount of information out there, and of widely varying quality. What advice can you give to financial
practitioners and journalists on finding the best content?
I think you have to distinguish between news and everything else. On Abnormal Returns I am focused almost
exclusively on analysis and commentary. That is why you can hopefully read a daily post later in the week and
there will still be things of interest. The other big thing to recognise is that everyone are talking their book.
That is they are discussing issue through the lens of the personal and professional biases.
Which leads us on to your own book! in the book, Abnormal Returns: Winning Strategies from the Frontlines of
the Investing Blogosphere, you talk about the need for ordinary investors to restrict their media intake to go
on a media diet, as you put it. For those who havent read the book, what do you mean by that?
Try and think ahead a year. What content that youre reading, watching or listening to today will be relevant
let alone interesting a year from now? When it comes to the financial markets, most of what we are reading is
ephemera. It will quickly disappear into the ether, never to be read again. Therefore focusing on those things
that have the potential to have lasting impacts on the financial markets and your investment philosophy should
be your focus.
What did you make of all the noise surrounding the Brexit vote? And do you see something similar
happening with the US Presidential election coming up?
Noise is inherent in markets. If it werent Brexit or the Presidential election it would be something else. The key
for investors is to have a plan in place that is relevant no matter the circumstances.
Its been said that investors read too many articles and too few books. Is that something you agree with?
Absolutely. That being said, it is ever more difficult to make the time to quietly focus on a book. I have been
recommending Cal Newports latest Deep Work on trying to re-focus on meaningful work in an age of infinite
distraction. My only caveat is that many non-fiction books are better off left at article length instead of being
padded out to commercial book length.
Of course, our lives are so busy that its hard to make time for reading books. Do you have any advice about
that?
I used to be an advocate of e-books and the like. I would read books on my iPhone in snippets. I have recently
reverted to physical books in part because it provides a more immersive experience.
Finally, how do you see financial blogging developing in the years ahead? And do you see a bigger rle for audio
podcasts and video?
I love podcasts. That is why I devote a weekly post to them. However I would hope to see some more
experimentation in the form. An hour-long interview between two interesting people is great but that is a big
ask for most listeners. I think some form of short-form financial content is out there to be made.
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