Monthly Commentary

Evidence Based Investing in 2017

What happens when you challenge conventional thinking?

Here are all my notes from an excellent conference


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What a great conference I attended in New York. After picking up the 5:30 am train from Baltimore to NYC, my Uber driver got lost and drove me three right turns in a row so that we ended up right were I was picked up. Wonderful! I jumped out and high stepped it six blocks to the Marriott in Battery Park for the conference. Thankfully, I was able to get right in and sat down as it was starting. Much better than the gentleman who arrived just after me sweating profusely from his dome and through his suit. He must have run from midtown!

I want to first recap what evidence based investing is all about and then my notes from the conference. Registered Investment Advisors from all over the country gathered to listen and share our thoughts over the course of 8 hours. Speakers and Panelsts included the following:

  • NYU Stern Professor, Scott Galloway
  • Schwab chief investment strategist Liz Ann Sonders
  • AQR Capital’s, Cliff Asness
  • The Wall Street Journal’s Investment Columnist, Jason Zweig
  • Vanguard President and incoming CEO Tim Buckley
  • Jeremy Schwartz, Director of Research at Wisdom Tree
  • Leigh Drogen, CEO of Estimize
  • Patrick O’Shaughnessy, PM at “O’Shaughnessy Asset Mgmt
  • Jim Ross, Chairman at State Street Global

The above named entities, ADE, LLC, Celestial Wealth Management and LPL Financial are separate entitles.

I must say, as far as conferences go, this was well organized, provided tons of relevant content and was intimate as most attendees, like me, represented independent investment firms around the country.



The essence here is A simple yet complicated to actually adhere to.

  • What happens when you begin to eliminate all the financial noise propagated from Wall Street and “Financial Infotainment”?
  • What happens when the myths, heuristics and false investment propaganda are broken down?
  • What happens when we stop relying on conventional wisdom and flawed assumptions?

What is left is the actual investment data over the last roughly 120 years. The beauty of “big data” and the power of the computer is that actual data can be found for factors that have been demonstrated to work. The difficulty, is that humans are just not hardwired to invest rationally. We are subject to emotional peaks and valley, engrained biases and other headwinds.

I am reminded of the famous quote from Foghorn Leghorn, the animated chicken , “Don’t bother me with the facts, son. I’ve already made up my mind.”

The magnitude of societal change toward many areas of life is truly amazing. Science, medicine and technology just to name a few, are areas with massive advancements in the past few decades. One of the few areas that hasn’t adapted much is the manner in which the majority of people make their investment decisions.

In the past 50 years, the amount of readily available data about how capital markets work and what specific factors have driven return in the past is truly amazing. Research has clearly demonstrated which approaches have the potential to succeed over time as well as those that contain risk that is often obvious or that is more likely to fail.

Even though this research is available, often times investors still do not make investment decisions based on the evidence. In fact, often times investors aren’t even aware this data is available or where to find it. Some investors fly by the seat of their pants without any discernable strategy, paying egregious expenses to managers who have little plan other than an unproven process and gut instinct. Just as bad, in my opinion is the belief that there are no factors that have been shown over time to provide attractive risk adjusted returns compared to just owning every single security, good bad or ugly.

EBI (Evidence Based Investing), involves the judicious use of objective evidence to make informed investment decisions. In my opinion, the goal of EBI, is to maximize AFTER-TAX returns while reducing risk and striving to protect portfolios from large drawdowns.

Here is a 4 step framework for the EBI framework.

This process seeks to ferret out questions that have little to no long term effect on an investment plan and to focus on more meaningful questions. Then applying historical data to a framework that strives to build wealth and protect capital through market cycles. Finally, monitoring progress and modifying as needed.


With that as a 5,000 foot framework, let’s dive into my notes from the day long conference. These were speakers that I thought said things that are perhaps influential to an investment framework and should help you and me become more educated investors.

Prior to 2008 did evidence even matter?

If the glossy Wall Street brochure had a golden couple strolling on the beach that was good enough.

If the brokerage firm had an office down the street from you, it was good enough.

If the financial advisor played golf at your country club or was your brother-in-law, that was good enough.

But that world doesn’t exist anymore.

Today we live in a world with thousands of websites, social media accounts and sites dispensing news about investing all day long. ANYONE can have an opinion on the markets and consider themselves an expert. As I have said before, there is almost too much information.

Why is evidence important? For example, there was a protest in Texas a year ago, just before the election with the two sides on opposite sides of the street, yelling, picketing and eventually fighting. We recently learned both sides were organized by Russians on Facebook. It cost them $200 and had people hitting each other in the streets. It has never been more important to be an evidence based person and institution.

People don’t accept arguments from authority anymore. They look up what you are saying right in front of you and say, show me the evidence that it may work. People generally now want constant reassurance that what they are doing should work over time. It’s a different world and is why I attended this conference.

KeyNote Speaker –Scott Galloway, Clinical Professor of Marketing, NYU, founder L2

  • People are generally looking for someone to answer the unanswerable question
    • However, those looking for that super-being in person has been declining. Attendence at church has been declining but reliance on Google has been increasing.
    • 1 of 6 Google queries have never been asked before (according to
    • Do you trust Google’s answers more than any other entity? Many people do.
  • Artificial Intelligence (AI) can figure out almost everything about you from your Google search history. Your education, marital status, income levels, likes, dislikes etc.
  • Loving others is the key to happiness.  Here are the three things most likely to help you live to 100
    • 3) Genetics
    • 2) Lifestyle
    • 3) How many people you take care of/are responsible for
      • Life expectancy rises when you take care of others. Your decisions are often more responsible because they affect more than just yourself
  • The highest margin businesses are often those that help you appeal to potential mates
    • We are most irrational with our purchase decisions that may signal to possible suitors that we are a good mate
  • Apple IOS Software is dominant in highly affluent cities, such as L.A., Manhattan, Chicago, Miami, etc.
  • Low Income Areas often have more Android users, Discover Card and Ad-Supported Pandora
  • The GDP of India is equal to the Market Cap of Apple, Google, Facebook and Amazon
  • Did television and print advertising get better in the last year? Did it get cheaper? No, but Google did.
  • The curriculum at NYU teaches the old way of brand building so that students can secure jobs at General Mills like the old days. However, they will be laid off in two years
  • “Search” business is now larger than all the advertising in the world (Ex. US) and 90% of that is controlled by Google.
  • According to ComScore’s 2016 Mobile App Report, more than 80% of your time spent on your smartphone is spent on one of 6 Facebook controlled Aps.
  • Current advertising generally stinks
    • Technology lets us opt out of most advertising.
    • Advertising has become a “tax” on the poor and the technologically illiterate
    • You can get Modern Family for free on (with commercials)
    • Or you can pay $2.99 to Apple to watch it without commercials
  • Most of every AD on television is not important to you
  • Amazon is remarkable (below statistics according to various online sources)
    • 44% of people own a gun
    • 49% of people own a landline
    • 51% of people attend church monthly
    • 55% of people have incomes north of $50k
    • 55% of people voted in the 2016 election
    • 58% of people have Amazon PRIME and growing
    • In 2015, Amazon was #7 in primetime video streaming, now #3 according to Business Insider
    • Amazon is the #2 spender on original content, double that of HBO according to Business Insider
  • It has never been a better time to be a remarkable person or company but never been a worse time to be average
  • The ratio of time you spend sweating to watch other people sweat is a measure of your success.
    • The less live sports you watch on television, the better chance you are more successful
    • Young people work out more and watch sports less than predecessors
  • In the last 6 months, Wal-Mart has paid 6X the amount of taxes as Amazon
    • How do we pay for the army and social backstops when the largest company pays little to no tax revenue?

Myles Udland (Yahoo Finance) with Liz Ann Sonders (Charles Schwab), Eddy Elfenbein (Crossing Wall Street), Wes Gray (Alpha Architect) and Vladimir Zdorovtsov (State Street)

Liz Ann Sonders, Chief Investment Strategist, Charles Schwab

  • One of the biggest mistakes individual investors make when looking at markets is the difference between absolute and relative economic data.
  • Rate of change is what is important not absolute levels.
    • If you wait for the economy to show incredible strength you will miss the run. Your inflection point (appropriate entry level) is when the data looks the worse but begins to look less bad.

Wes Gray, CEO Alpha Architect

  • Mr. Gray believes anything other than quantitative based investing is gambling of some form.
  • Quant processes help to systematize your thoughts and opinions
  • How do you communicate what you believe in if it changes all the time?
  • Realize the biases you have and how you fight to understand and control them
  • Show people actual data and facts. Today’s investor wants to see provable processes and back tested data. It helps maintain confidence in the long-term viability of strategy in the face of occasional underperformance.

Cliff Asness (AQR Capital), Barry Ritholtz (RWM)

Cliff Asness, Founding Principal, AQR Capital Management

  • His original beliefs for starting AQR were based on the long-term prevalence of the value and momentum factors.
    • It evolved over time.
    • Investing is harder than he originally thought when he entered the business out of University of Chicago
  • He is worried about machine learning and “data mining”
    • We can now find more patterns than ever before due to data analytics
    • They key is if the data is repeatable, Is it a repeatable pattern?
    • Big data can help create high Sharpe ratios (risk-adjusted returns) initially that often dissipate fast as others learn about the anomaly.
    • Machine learning is only a few years old
  • Earnings yield matters. Starting valuations drive future returns and we are currently at high U.S. stock and bond valuations.

Dave Nadig (CEO ETF.COM), Perth Tolle (Founder, Life and Liberty Indexes), Jeremy Schwartz (WisdomTree), Leland Miller (CEO China Beige Book International)


  • India’s PM Modi has allowed stock ownership in the 401(k) for the first time. Could be huge for Indian stock market
  • Market Cap weighted emerging market indexes require large country concentration
    • However, weighting in a more balanced approach can potentially result in much higher deviation from the benchmark both good and bad.
  • China demographics are a problem 15 years from now. You should only care about the next 3-5. The one-child policy has created all kinds of unintended consequences for the Chinese and will take decades to fix.

 Leigh Drogan, CEO Estimize

  • Mr. Drogan believes there is a behavioral gap at most asset managers between the quant data and how the portfolio manager makes decisions. Ideally, quant data is used to augment the discretionary portfolio manager. But, if the data is presented and the portfolio manager does something else that is ineffective.
  • Ideally, quant data should provide a consistent process for decision making and then the portfolio manager interprets that data and makes idiocyncratic decisions that the data just can’t see.

Tim Buckley, Vanguard President and Incoming CEO

    • Vanguard develops future leaders of the company by moving them around the company providing exposure to all areas that drive the business forward. The result is well-rounded leaders
  • The number one thing that keeps him up at night is cybersecurity.
    • They are responsible for a lot of retirements, college educations, etc. and if they were hacked it could decimate a lot of people.
    • If you can write rules for how something should be done, then it should be automated

    Josh Brown (The Reformed Broker), Jason Zweig (Wall Street Journal)

Jason Zwieg, Columnist, Wall-Street Journal

  • There is nothing that is conflict-free. Beware of someone who doesn’t realize that.
  • The biggest biases we have are the unconscious ones (both social and investment related)


This really was a well put together conference. I am very glad that I attended as I continue to expand my knowledge and help my clients strive to answer the question, “What am I missing?” This conference helped me immensely by verifying 90% of what I do, and helping me hone the other 10%. If you would like to learn more about evidence based investing, my notes or just more detail feel free to send me a note.


  • Rather than trying to “beat the market”, focus on beating inflation and the rate on cash.  Plan for safety and liquidity while seeking positive returns.


  • Equity valuations are very rich but masked due to the distortion of the Treasury curve. Volatility is returning to the markets and I think long/short managers are best positioned to capture this volatility by owning companies with strong businesses, barriers to entry, and good valuations and selling short weaker companies with high debt loads that have risen sharply with the broad market rally. I think this strategy of hedged equity may have the potential to produce attractive risk-adjusted returns if and when investors begin to question the valuations of companies. Stock investing involves risk including loss of principal. No strategy ensures success or protects against a loss. Long positions may decline as short positions rise, thereby accelerating potential losses to the investor.


  • Monsoon country investments. Attempting to take advantage of demographic, educational and investment possibilities in the countries surrounding the old spice routes of the Indian Ocean. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.


  • A potential U.S. infrastructure upgrade cycle may be around the corner. Moving from our current grade of D+ to B would require an investment of $3.6 trillion by 2020.


  • Supply problems remain high across the energy asset class. While there isn’t a current shortage of energy on the planet, it is taking more and more energy and capital to discover, drill, transport and refine it. Long term Demand should continue to grow globally, particularly in China, India, and other developing countries.


  • Potential food shortages due to inclement weather and higher demand from the emerging Asian middle class could result in a boon to agricultural land and potash fertilizer companies. International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.


  • The rise of E-Commerce has coincided with an increased desire for efficient warehouse distribution real estate. As e-commerce moves toward even faster delivery, positioning of distribution becomes even more important.


  • Precious metals mining companies have been extremely beaten down over the past four years. Mining is an industry that spans hundreds of years. Companies that mine for commodities are often highly cyclical, meaning they have sustained moves both up and down. When investing in the mining space it is important to be a contrarian. Ideally, you would want to accumulate miners when sentiment is poor around them and sell them when sentiment is positive. Historically this has been a good strategy.


No strategy ensures success or protects against a loss.

If you haven’t followed me on LinkedIn make sure to connect with me. Since the beginning of the year, I have been a contributor to many major investment publications and it has been great getting to know some of the writers.


Check out my appearances by clicking here




Colin B. Exelby
Celestial Wealth Management



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