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My ‘Wisdom’ On Robo Advisors

Tadas Viskanta has put together a nice collection of opinions regarding the new “Robo Advisor” trend. Here’s my general view: “Robo “advisors” aren’t really advisors. They’re robo asset allocators. The robotic allocations are susceptible to flawed risk profiling and inefficient portfolio management for most people with a sophisticated financial plan. The business of asset allocation is too personal and customized to ever become fully automated so the best solution is some integration between the human and robot sides.” These are great new services, but you have to be careful with them. When there’s no advisor involved, you’re highly susceptible to poor risk profiling and behavioral problems along the way. After all, a robo advisor doesn’t help you stick to an asset allocation or help you manage it along the way. And I’ll be blunt about the risk profiling process for many of these services – it’s dangerously insufficient. While these are fantastic low-cost options for many investors, I do think they carry their own unique risks if they’re not utilized appropriately. In summary, I’d argue: If you have trouble with your own behavioral biases and maintaining an appropriate asset allocation, then you might consider a low-cost advisor to help you implement the appropriate plan and maintain it. Additionally, if you’re in need of more planning services, then it’s worth bundling a low-cost advisor with your portfolio management services. What’s “low-cost” in today’s world? I’d argue it’s anything less than 0.5% per year. If you don’t have trouble with your own behavioral biases and maintaining an appropriate asset allocation through market gyrations, then you should just buy a simple Vanguard or Schwab ETF allocation and perform annual maintenance, thereby cutting out the extra fees the robos or advisors charge for rebalancing and harvesting tax losses. If you don’t have trouble with your own behavioral biases and maintaining an appropriate asset allocation through market gyrations, but you’re too disorganized or busy to rebalance and harvest losses , then you should consider one of the human PLUS robo options, such as the Vanguard or Schwab offering. I wrote much more about this topic a few years back.

Stock Spinoff Performance By Market Cap

I wanted to share a quick stock spinoff analysis. I downloaded all the stock spinoff data that was available on Bloomberg and then analyzed total 1-year returns, 3-year returns and 5-year returns by market capitalization. Here is what I found: micro-cap spinoffs outperform in year 1. Specifically, “Less than $500M Market Cap Spinoffs,” “Less than $100M Market Cap Spinoffs,” and “Less than $50M Market Cap Spinoffs” generated total 1-year returns of 29%, 37%, and 55%, respectively. However, over longer time periods, the outperformance of micro-cap performance fades. Over longer time periods, the best-performing spinoff market cap cohort is “Less than $1B” which generated 3-year and 5-year total returns of +69% and 170%, respectively. Here are the charts: Click to enlarge Click to enlarge Click to enlarge Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Steve Gerbel Explains How To Manage Merger Arbitrage Risk (Video)

By DailyAlts Staff In this video , Steve Gerbel explains merger arbitrage by making an analogy to air travel: “They say the safest place for an airplane is in the hangar, but that’s not what airplanes are for,” he says. When we fly, we want the reward of air travel, and we’re willing to take on some risk in pursuit of that reward – but we want the risk to be as minimal as possible. This, according to hedge-fund expert Mr. Gerbel, is what the SilverPepper Merger Arbitrage Fund does: it seeks the highest rewards for the least risk. What is merger-arbitrage? Mr. Gerbel explains with an example of a stock trading at $8.50. When another firm announces its intention to acquire it at $10 per share, the share price of the acquisition target might rise to $9.70 – the remaining $0.30 reflects the uncertainty that the deal might not go through, and this is where arbitrage comes in. By buying shares of the acquisition target after the announcement but before the deal is closed, SilverPepper seeks to make a predictable $0.30 gain on the deal. “Dime after dime,” this adds up. According to Mr. Gerbel, 96% of all announced mergers have closed, but his firm still undertakes extensive research before entering a trade. Mr. Gerbel likens this to a pre-flight checklist to ensure an airplane is safe to fly.