ETF Expert Corner

Abnormal Returns Founder Tadas Viskanta Offers Key Lessons for Investors

February 17th, 2015 by ETF Store Staff

Tadas Viskanta, Founder & Editor of the popular investment blog Abnormal Returns, offers key lessons for investors culled over his years of blogging and own investing experience.



Transcript

You can listen to our interview with Tadas Viskanta by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: Welcome back to The ETF Store Show Nate, Geraci and Conor Kelly live in-studio this morning. We have a tremendous guest for you this morning. Tadas Viskanta is the Founder and Editor of one of the more popular investment blogs out there. The blog is called Abnormal Returns. You can find it at abnormalreturns.com. This blog has been recognized by all sorts of thought leaders across the investment industry. Tadas himself has over 25 years of experience in the financial markets. He's coauthored numerous investment papers. He's even penned a book about what he's learned from the front lines of the investment blogosphere. We're very pleased this morning to have Tadas join us via phone from just outside of Indianapolis. Tadas welcome to The ETF Store Show.

Tadas Viskanta: Hey Nate, good morning and thanks for having me on.

Nate Geraci: Well Tadas first please just explain to our listeners what they can expect to find at Abnormal Returns. What kind of investment content is on the blog?

Tadas Viskanta: Abnormal Returns is really a daily stopping point for people in the finance and investment industry. It really gives people a one-stop shop in terms of trying to find the best content out there. You were talking about, in the last segment talking about how it is that a lot of what you see in the financial media is just click driven. It's out there to get people to click on stories that may not necessarily have a whole lot to do with their own personal finances. At Abnormal Returns we try and calm a lot of that content down to the best of the best and bring content that is relevant and interesting to people. Abnormal Returns is a one-man shop and so to a degree you're going to get my viewpoint and my take on things, but my idea is always to try and make life a little bit easier for people out there trying to wade through the vast amount of financial content that is out there.

Nate Geraci: How did you get involved with this? What's the background story behind Abnormal Returns?

Tadas Viskanta: As you said I've been involved in the financial markets essentially since the beginning of my career. I've always had a deep and abiding interest in the financial market. Somewhat early in my career I got interested in researching various topics in terms of investments, in turning global asset allocation, and country risk. That eventually turned into an interest in terms of writing more about these sorts of topics. About 10 years ago I tried to write a book about the hedge fund industry and that book didn't go anywhere but I still had an interest in continuing to write. The investment blogosphere at that point was really taking off. It's interesting that some of the names that were around then are still around and have stuck it out. I joined the fray as it were and have stuck with it for going on 10 years now.

Nate Geraci: I think the blog along with your own investing experience has really afforded you a front row seat to see how some of the smartest minds in investing operate. One of the reasons I wanted to have you on the show is because I thought it might be fascinating to see if we could distill some of your experience with the blog into some takeaways for our listeners. I know we could probably spend several hours if not days on this. If you were to maybe offer a few key lessons for investors, what would those be? What are some things that you think every investor should know?

Tadas Viskanta: I want to touch on two things and one is about the industry and two is about us as investors. Let me start with the second point, us as investors. I think a lot of what has happened in academic research over the past 10 or even 20 years is that it has shown that we individuals and we investors are not really rationale, we are not rationale creatures. We get scared when markets fall, we get euphoria when markets rise, we get nervous when markets zigzag. All of that tends to affect our ability to not only formulate an investment plan but to stick with it. A lot of what you see in terms of behavioral finance is to a certain degree, not to be pejorative but it's academic. It talks about some things that are somewhat obscure but when it comes right down to it, it comes down to our ability and often our inability to come up with and stick with a plan. I think that that has really come to the fore and I think that what I've seen over the past 10 years is that we've seen people go from a lot of what you saw in the blogosphere back then was people writing about stocks and, "Stock XYZ is going to go to $50 and here's why you should buy it." A lot more today, I think people are being a lot more thoughtful and talking about the pitfalls and the challenges that we all have in trying to deal with our investments. I think that's really in a certain respect is a really positive development.

The other thing that I've seen is we have more to do with the industry. I think that over time and one of the things that obviously this show is about is about ETFs. I think that has been a key driver in what has happened to the investment industry. I think ETFs have been instrumental in helping to drive down the cost of investing for not only individual investors but institutional investors as well. Things that institutions were able to do 5 or 10 years ago, individuals are able to do today and I think that's a really big change. I think that opens up a lot of opportunities for people that really weren't there 5 or even 10 years ago. I think that's important. I think on the blog a couple of days ago I showed a graph on Morningstar showing the continuing fall in expense ratios for open-end mutual funds. I think that's in part driven by the competition that you see from ETFs and from the broader idea of indexing as well. I think in a certain respect these are two positive takeaways from the things that I've seen over the past 10 years or so.

Nate Geraci: We're visiting with Tadas Viskanta, Founder and Editor of one of the more popular investment blogs you're going to find out there, Abnormal Returns. Tadas going back to your first point, this gets at the behavioral side of investing. You mentioned that investors maybe aren't the most rationale creatures. What are some of the biggest mistakes you think investors make managing their money that you might attribute to poor investment behaviors?

Tadas Viskanta: Let me take one step back and say that we're all prone to these biases and errors. No one of us is perfectly immune to these things. I think the only things that can really help you over time is (A) education and (B) experience. If you haven't been through a bear market before, it's hard for someone to say ... One of the challenges for investment advisors is trying to map out people's risk tolerances and saying, "Oh how would you feel if the market were to fall 20%?" Or, "How would you feel if the market were to fall 50%?" Saying that in the abstract is easy; having to live through it is a completely different thing. Part of it for investors is coming to terms with those types of things. There are so many different biases that people have found. I think that it's almost too difficult to go to. There's one blogger who came up with an A-Z list of biases, and that was just kind of the beginning. Things like loss aversion, we are far more sensitive to losses than we are to gains. That really affects the way we do a lot of different things. I think the challenge for investors is not only knowing the markets in a certain sense and understanding the history of markets and what can happen, but also understanding your own reactions to them. I think for some investors that's easy, it's easier to do on your own. For other investors it's helpful to have somebody else provide, be counsel, or to provide a buffer between them and their portfolio. I think there are a lot of different ways to approach things but I think that education and experience are two key points in that.

Conor Kelly: Tadas this is Conor Kelly. I want to bring it back to your comments on the industry. You discussed the positive impacts ETFs have had and index investing as a whole on both retail and institutional investors over the past 5 years to 10 years. What do you see moving forward for the next 5 to 10 years in our space?

Tadas Viskanta: I think it's exciting and like we said you really push down, if you take a look at it, we really pushed down the cost on, for lack of a better term, plain vanilla indexing for let's say the S&P 500 or a total market index. We're pushing down towards zero. We're getting to the point where those index, those funds or those ETFs they're essentially free. I think that's an exciting development. What it allows for is it allows for advisors whether it be established advisors or what people are calling robo advisors, this new group of startups that have been built up online. To build out all sorts of different services on top of what is essentially this layer of ETFs. They can do so at a relatively modest cost. One of the things that coming back to some of the things that I've learned over time is that 10 years ago when I started the blog I was very much in the DIY camp, the Do It Yourself camp. That you needed to manage your own money. In part so that you could avoid the high fees that investment advisors were charging. That was 1% or more, and that was, those were for advisors who were not putting you in ETFs, but they were putting you into high cost open-end mutual funds.

Today like we've talked about that has really changed. Robo advisors today charge a relatively modest fee on top of what are essentially almost index funds that are almost free. I think that's big, that has really changed the equation in my mind. I think that has opened up the services for a lot of people who would not have, who 10 years ago I would not have recommended have done that. I think it's a really exciting time period and I think that every year that goes along, you see more and more creativity in the ETF space. Not only have the costs been driven down on these plain vanilla products, but you're also seeing all sorts of asset classes and strategies open up that really weren't available to investors before in the ETF forum. I think that's interesting as well.

Nate Geraci: Again we're visiting with Tadas Viskanta, Founder and Editor of the investment blog Abnormal Returns. Tadas we have a few minutes left here and I do want to briefly touch on the current financial markets before we let you go. For longer-term investors, how do you think they should be approaching the markets right now? There's a lot of fear that perhaps stocks are overvalued. There's concern on the bond side that interest rates are going to rise. Cash isn't paying anything right now. We're sort of in this no-place-to-hide environment. Should long-term investors simply stay patient and stay the course or do you think the game is changing here?

Tadas Viskanta: I'll take one step back here and I think at any point in time there are always, there's always a reason to be fearful. Sometimes those fears are well-founded whether it be 2007 and 2008 or 1999 and 2000. In the past 15 years we've lived through two pretty dramatic market declines and obviously we are living ... Something is different about today, we're living in an era of zero and in Europe we're looking in some places you're looking at an era of negative interest rates. Which is very different than the environment that I grew up in and that a lot of investors grew up in. Anything that you say, it really has to be somewhat tentative because we are living in pretty unchartered territory. From an investor perspective, I don't think you can get too hung up on those sorts of things. Any strategy that you come up with has to be valid over all sorts of different market cycle. I think moving in one direction, too far in one direction and another based upon what you think might happen in the economy and the financial market I think is usually a mistake. What you have to do is come up with a strategy that you can stick with over time. That's easier said than done. There's no doubt about that, but I think that's the kind of attack that you need to take.

Certainly we are living in a more lower nominal return era whether it be 0% on cash or low inflation rates or low rates on treasury notes and bonds. Those are all a reality, there's really nothing new. There's nothing that investors can do to transform those sorts of safer investments into higher return. I think coming to terms with lower returns going into the future I think is a pretty smart decision. There's only a couple of ways that you can combat that as an investor. One is the thing that we talked about before is driving down your cost. Those costs include the expenses on funds, the fees that you pay for broader portfolio management. Three, the other thing that you guys have talked about is talking about taxes and trying to be as tax-efficient as you possibly can. That being efficient on taxes puts net dollars into your pocket. Those are things that you can do on the expense front. From a more holistic perspective when you look out to whether you're saving for college for your kids or whether you're saving for retirement, you have to think about saving more. There's no way to offset, that's the only other offset to lower returns in the future is being more conscious about your spending and saving more and saving in an efficient manner.

Nate Geraci: Well Tadas we'll have to leave it there. Just some excellent words of wisdom for investors. We certainly appreciate your time this morning.
Tadas Viskanta: Thanks, it was a pleasure.

Nate Geraci: That was Tadas Viskanta, Founder and Editor of Abnormal Returns. Again you can find his blog at abnormalreturns.com. If you're someone who's on Twitter, Tadas is a great follow on Twitter. His Twitter handle is @abnormalreturns.