DR 054: Motif Investing: Interview with Tuhin Ghosh, Vice President of Investment Products

Tuhin Ghosh of Motif InvestingA number of new ways to make investing easier have launched over the past few years. One is Motif Investing, which I reviewed some time ago. It’s a fascinating way to approach investing, combining low costs and tremendous flexibility.

It such a unique option that I invited Motif’s Vice President of Investment Products, Tuhin Ghosh, to the Dough Roller Money Podcast. Here’s a transcript of the interview:

Rob: Tuhin, welcome to the show.

Tuhin Ghosh: Thanks, Rob.

Rob: I appreciate your time today. I’ve always been interested in Motif Investing because it has such a unique approach to the brokerage space and the investing space, I’m looking forward to hearing about it today. I want to jump right into it, but for those who aren’t familiar with you and Motif, Tunin, if you could just start off with a little bit about yourself and your background and what you do at Motif?

Tuhin: Absolutely, Rob. I’m the Vice President of Investment Products at Motif. What I and my team do is build these baskets – or motifs. And each motif is actually and intelligently rated portfolio of stocks and ETFs.

If you go to our site and go under the tab that says “Explore Motifs,” you’ll see two sections under the catalog. One section says “Our Motifs.” Those are the motifs we build at Motif Investing. And there’s a second category called “Community Created Motifs” because ours is also a cloud-sourced social platform where you can build your own motifs to share with friends and the broader community.

Rob: Right.

Tuhin: So that’s what I do here. When we started Motif about 3 1/2 years ago, the goal of the company was first to democratize investing – make it cost-effective and use the principles of index investing.

All the baskets we create – whether they’re for a topic like 3D printing or for an income-oriented investor – for example, a motif for an income-oriented investor would be the Dividend Stars Motif – for all of these teams, our baskets use the discipline that comes with index investing.

So these things are rebalanced periodically. There are no management fees. It’s completely transparent, and you can buy up to 30 stocks for $9.95. And you can customize it. So if you don’t like what we’ve constructed for you, you can go ahead and customize it to suit your specific needs and goals.

Rob: Okay, well I’ve got a lot of questions about all of that. But before I jump into those, what’s your background? Is your background in finance and investing?

Tuhin: Yes, it is, Rob. I started my career – I went to grad school and did my doctorate in Engineering, and I started my career in technology. I was working in the Valley, and had always been interested in economics and finance. So I moved from technology to an internal hedge fund at Barclays Global Investors, which is now Blackrock.

I worked there for a few years, then I was with another broker/dealer here in the San Francisco Bay area. I was at Ronin Capital when the founders of Motif contacted me in the fall of 2010 when they were just getting started. And that’s been my career path so far.

In fact, everyone on my team – they’re all ex-Wall-Street folks who have – who sort of believe in disrupting the investing – particularly the retailing investing space. So we’re all looking at building products that are cost-efficient, that are transparent and take away all the layers that come with mutual funds and ETFs.

Rob: It’s interesting to me that your background is in engineering because there are lots of folks on Wall Street with a background in engineering and computers. Why is that?

Tuhin: I think the reason that you that have a lot of what they call “Quantum Wall Street” is because – you know, if you’ve gone to school for physics, engineering, or math. One of the reasons finance is so attractive is because, firstly, you get to leverage your skills in finance, and there is the fundamental aspect of finance, but it’s also very analytical and quantitative.

The other thing that really attracted me to finance is that there is this behavioral aspect to finance which is something that you don’t find in the hard sciences. What’s interesting about finance is this mix of economics, analytics, but also human behavior – which is why I was attracted to it. And I speak for a lot of Quantum who have moved to Wall Street. That’s what attracts them.

Rob: Yeah, human behavior is huge. You’ll see a lot of mutual funds, for example, that’ll show you the historical returns of the funds – whether it’s one, three, five, ten years or what have you. When folks look at studies as to what the investors actually earned and their behavior – when they bought, when they sold, when they bought again, and when they sold again – you’ll see a very different picture.

I’m curious: I’m kind of diving into the weeds here but I will back up and get a higher level of understanding of Motif. Does Motif do any work to evaluate not just the returns of each of their baskets or each of your motifs, but also what your actual investor returns are for those motifs?

Tuhin: I think that’s a great point. I think the point you’re referring to, Rob, is that the studies show that the dollar rated average return of these mutual funds is actually a lot worse than what you see. What you see on motifs is the theoretical return. But once you own the motif – which is something that is unique to Motif is – you don’t get this on other brokerage platforms – but once you buy one of these baskets on Motif, we will actually show your daily performance.

We don’t have any advanced risk metrics yet. One of the things that we want to put in the near future are the maximum draw-down that you have experienced, the volatility of your portfolio, and your exposure to specific risk factors. We haven’t done that yet. But we do show you – which a lot of brokers are adverse to showing you because a lot of times the charts don’t look pretty.

What we do show you is that if you’ve owned a portfolio for six months, a year, or two years, you will see exactly what your portfolio did over that one or two years.

Rob: Okay. By the way, I looked at your profile on LinkedIn, and I saw your graduate work. I’ve been just reading from it – Computational and Theoretical Research on Effects of Thermodynamic Stress on the Structure and Dynamics of Condensed Media. I’m not even sure if I pronounced all those words correctly.

I was an English major. I’m as far from engineering as I could possibly get. I guess suffice it to say that you’re a pretty smart guy. I just find it fascinating how you went from that to investing and working in Motif. That’s pretty interesting background.

So, are Motifs like mutual funds? That’s how I see them. But how are they different from or similar to your typical mutual fund or ETF?

Tuhin: Actually, there are similarities, but there are big differences, as well. The similarities are, like mutual funds and ETFs, you are not investing in a single stock. We believe in the philosophy that single stocks are too risky for retail investors.

So you want to leverage the power of diversification, and move away from single stock bets to baskets, which is what mutual funds and ETFs do, too.

The difference is – there are actually a lot of differences. The first difference is that most ETFs and mutual funds of today pretty much focus on things that retail investors find too hard to understand. For example, a mutual fund can be called total return value advantage, and that means nothing to a retail investor.

Rob: Right.

Tuhin: So what we decided to do was firstly, move away from that paradigm and move to a model where these things are intuitive – tied to your everyday ideas, needs, and asset allocation. That’s one difference.

The second difference is that mutual funds and ETFs typically come with management fees. Expense issues can be low for some ETFs. For example, some of the management ETFs are cheap. But at the same time, if you go up the ladder, you go to some of those actively managed mutual funds. You’re easily talking more than 1% in management fees.

On the other hand, Motif comes with no management fees. All you pay is the commission when you buy it, and if you choose to rebalance it, you pay a commission again. That’s it. We don’t charge you management fees over and above that.

The third difference is transparency. With mutual funds, they will typically file their holdings, and you get to see them maybe once every quarter or once every six months. With ETFs, they’re a little more transparent. You do see end-of-day holdings. In our case, you get what you see.

So, when you buy a motif, if there are eight ETFs within that motif, you actually own all of those eight ETFs. What’s more, with ETFs and mutual funds, you’re really relying on a manager. The ETF manager or the mutual funds manager is making all these decisions on what goes into the fund, how often it is rebalanced, and what to do with taxes.

But with Motif, since what you see is what you get, it is completely transparent and it is also completely customizable. For example, if you want to invest in rising interest rates – which is one of our Motifs – and if you are worried about interest rates going up. And if you don’t agree with our construction, you can change the stocks that are in the construction. You can also change the rates.

What we strive to do is give you a good starting point, and you can take it from there.

Rob: Yeah, that’s an interesting aspect of Motif that I hadn’t appreciated. Of course, for the mutual fund or the ETF, you buy it, and you simply have whatever is in that fund, in whatever proportion. There is no control over that.

Tuhin: Correct.

Rob: In many cases, that’s perfectly fine. But for example, you mentioned your Dividend Stars Motif, and I am looking at that now. It looks like it has – I’m just guessing – maybe twenty companies. All companies I’ve heard of – Exxon, Dominion, McDonald’s, and Kellogg. But I take your point that if I wanted to buy that motif, I could buy it but say, “You know what? I don’t want to invest in McDonald’s, so I’m going to take that one out.” I could do that if I wanted to?

Tuhin: Yes. That’s exactly right.

Rob: Or I can say, “I like McDonald’s. I want to keep it in there, but I want to put more of my money into McDonald’s.” I can change the weight?

Tuhin: You can overweight it. Exactly.

Rob: Yeah, that’s pretty neat for me. That might be dangerous. I’d get in there and tinker with everything. Okay. Again, for the pricing – For example, as I mentioned, this motif has about 20 companies. I can invest $100,000 in this motif, Dividend Stars, tomorrow for $9.95?

Tuhin: Correct.

Rob: So there has to be some fine print. There has to be a “gotcha.” I mean, how does a company survive allowing someone like me to invest in 20 companies? Even with a low-cost broker, I’m going to pay $4-$6 per transaction for these 20 companies. I’m going to spend over $100. How does Motif survive charging investors just $9.95 for up to 30 ETFs and stocks?

Tuhin: That’s a great question, Rob. We get that question fairly often. The answer to that is the following:

What has happened over the years is that trading costs have gone down a lot. With everything going electronic, the trading costs are not as high as they used to be – say in the late 90s. What also happened is that most brokers have passed on those cost savings to their customers. First point is that the cost of trading has gone down.

The second thing is that – so we do a couple of innovative things in Motif. Firstly, we do real-time fractional shares. For example, Google, which is now a $500 stock and you want to put $500 into a portfolio, we can actually buy .25 shares of Google on our platform. In enabling the fractional shares, what we’ve also done is we’ve come up with an innovative patented algorithm which lets us control the cost.

There are three reasons – doing the fractional shares, controlling costs, and general cost of trading going down. At $9.95, believe me, we still make money.

The other thing is margin accounts, which mean you are borrowing money from the broker to invest. We make money on the interest we charge for those margin accounts. The excess cash in your accounts, there is a split that we make on it. You sum all of that, and it still makes up a very viable business.

Rob: Okay. Now, what about rebalancing? And, again, I’m going to stick with this Dividend Stars Motif just because I’m familiar with it. Obviously, I buy it today, and tomorrow it’s technically out of balance. I mean, I would assume that the prices would go up and down for various companies within the motif over time, and it’s going to get out of balance.

Tuhin: Correct.

Rob: So, how would an investor go about rebalancing a motif?

Tuhin: For these motifs that we build, Rob, what we do is we maintain these motifs. When I say we maintain these motifs, we rebalance them back to their target rates, and we also take care of IPOs and acquisitions. We do these once every quarter.

Now, there are some more actively managed ones. And I use the words actively managed somewhat liberally here, but there are some motifs that move faster. It has something to do with how fast the team moves.

So for example, Dividend Star – you know, these are all stable companies which have not cut their dividends in the last 25 years. We do some retakes and appropriate risk mitigation measures. And then, we publish the rebalance.

When we published the rebalance – one of the neat things about the product is that if you own Dividend Stars, you will see a little update available about the next year’s position. With just one click on that, you can actually rebalance to the latest construction. That’s how we take care of rebalances for all our motifs.

That is what happens with all our motifs. In fact, if you created a motif and you shared it with your friend, it would work exactly the same. If your friend bought this motif, and you publish the rebalance, they will see a little button. One click, and they are also back to the latest construction.

Rob: Is there another $9.95 charge when I click that button to rebalance my motif?

Tuhin: There is a $9.95 charge. As of today, we are working on the subscription models because we do realize that $9.95 – especially if you’re following something that is rebalanced quarterly – the cost can add up if you have a small investment. So we are trying to introduce a subscription model later this year that has a subscription fee where you can subscribe to as many rebalances as you want.

Rob: I guess it would depend. If you just have Dividend Star, you may not need it because it rebalances once a year.

Tuhin: Exactly.

Rob: But if you have other motifs that get rebalanced monthly, then the subscription approach might save you some money.

Tuhin: Correct.

Rob: Okay. What about reinvesting? Of course this is perfect for Dividend Stars. All these companies pay out dividends every quarter. Do these automatically get reinvested?

Tuhin: That’s a good question. Currently, they are not reinvested. I think you are referring to dividend reinvestment, which is a common feature that you see on other brokers’ platforms. We don’t currently have that.

That is something that we will introduce later this year. Another feature that we are planning to introduce is adding cash with rebalances. The primary thing that you get out of DRIPs (dividend reinvestment) is putting your cash back to work, and not having to worry about the cash lying idle.

What we’ll do is we will introduce this feature which is adding cash with rebalances. When you pay the $9.95, not only do you get back to the target construction, but you can also add cash while you’re rebalancing.

Rob: Okay. You expect that feature to be available this year?

Tuhin: Yeah. That’s right.

Rob: Okay. One last question on cost, and then I will move on to something else. It seems to me that for someone who has tried to invest $100 a month, Motif is not going to really work for them because of that $9.95 charge. What do you think of someone who is going to invest $100 or $200 a month, and how would Motif work given the cost structure?

Tuhin: That’s a great question. You are probably referring to the way most retirement plans work where I’d set aside $200 each month, and I want that invested in whatever my current construction or my current portfolio is. With that current cost of $9.95, that is not going to work.

While we think about the subscription model, we will think of something similar for these plans where every month, you set aside some money. I think that would be addressed in the subscription model that I was referring to a while ago.

Rob: Alright. Do you offer IRA accounts?

Tuhin: Yes, absolutely. We do offer IRA accounts.

Rob: I can see where folks who want to do a roll-over. They want to leave their job. They want to roll over from a 401(k), for example. Or even if they make their contribution once a year, and they maxed out the $5,500, then the $9.95 fee would be pretty insignificant.

Tuhin: Yes, exactly. It is really a small portion.

Rob: Okay, good. Do you offer both traditional and Roth IRAs?

Tuhin: Yes. We do offer traditional, Roth, and rollovers. All kinds of IRA accounts.

Rob: Alright. Now, one thing I noticed for all of your motifs is that you have at the top a little symbol for the volatility and the valuation. Can you just walk us through the volatility data? Is it just standard deviation? How do you assess volatility?

Tuhin: The little sundial thing that you see now is currently calculated using the standard deviation of daily returns over the past one year for the portfolio construction that you see. That is how the volatility is calculated.

The valuation is based on a composite to price earnings. So you take the earnings over the entire basket of securities, and you look at the combined price of it. It’s the composite PE. Now, what I want to point out here is we are actually very conscious of the fact that the composite PE has its own problems, and it may not be the best valuation metric.

But the challenge is that we also want to come up with something intuitive and something that works better than a PE ratio. As of today, that is the composite PE ratio, but we are working on better valuation metrics to help our investors and traders.

Rob: Okay. Are the PEs trailing twelve months on the earnings?

Tuhin: We are trailing twelve months, yeah.

Rob: Okay. It drives me crazy when folks use projections. I know they do it all the time. Anyway, that is just my own personal bias, I suppose.

Tuhin: No, I agree with you.

Rob: What about risk-adjusted returns? Is there any way – if you want to compare two motifs – obviously, you can look at the return, but that is only half of it. Is there a way to compare motifs based on the risk-adjusted returns?

Tuhin: You currently cannot. Again, you are pointing out one of the weaknesses that we have and that we want to address. What we want to be able to do is come up with something intuitive. Even Sharpe ratios may not always be intuitive for the average retail investor.

Rob: Right.

Tuhin: But you know our motto has always been “Simple, Yet Powerful.” Some of the things that you have reflect the simplicity, but at the same time, you don’t want to compromise the power of what that number reflects. Good question, again. I don’t think we have a great way of addressing it as of today, but these are some of the issues we’re actively thinking about.

Rob: Okay. Now, let’s talk about the community or the social aspect of investing. You alluded to that early on.

As you’ve mentioned, the motifs that you have created – the community-created motifs – I take it I could create a motif. I would, of course, call it the Dough Roller. Why not, right? I could put in there up to 30 ETFs or stocks. Then folks could look at my motif. They could laugh at it, or applaud it if it’s doing well. They could even decide to invest in that motif?

Tuhin: Exactly, yes.

Rob: Okay. Tell us about how that has worked for you. How long has it been available? What do you think are the results of those community motifs?

Tuhin: It’s actually a very popular feature. We first launched the Build-Your-Own, which is the community-created feature, we launched this about a year ago. In fact, what we did in September of last year was we got regulatory approval to launch what’s called a Creator Loyalty Program.

For example, Rob, you build a motif and you sign up for the Creator Royalty Program, and other investors and your friends buy it. We share our commissions with you.

It’s been rolled out in phases. The Community Creator Program, which is the social aspect, is hugely popular because we are harnessing the power of crowd sourcing. Over the last two years, my team and I – composted of six to seven people with advanced degrees and ex Wall Street experience – managed to build somewhere between 140 and 150 motifs. Whereas the community has already created about 30,000 motifs.

This goes to show the power of crowd sourcing. There are a lot of smart people in retail who have great ideas. They also like to talk about their ideas.

What the CRP (Creator Royalty Program) has done is that a lot of these people are very active in the social stream. They’re constantly following the news. They’re constructing baskets, which are relevant to contemporary teams. So it’s hugely popular.

Rob: It is interesting. I really like the idea, but I will be honest with you. There’s a part of it that scares me a little. I’m looking at the motifs. When I click on the tab for your motifs, for example, the highest one month return is from Dr. Copper – which, I guess, is a copper motif.

Tuhin: Yeah.

Rob: And your one-month return is 7.9%. And I’m looking at them from highest to lowest, so that’s the highest “Motif motif,” if you will. When I click over to the community-created motifs, 7.9% for last month wouldn’t even be on the first page, right? The highest one-month return for Pay It Forward – I don’t know what that is but a guy by the name of Igor created it – it’s 94.3%. I mean, they are clobbering you guys!

Tuhin: They are [laughing].

Rob: Of course, there’s the whole risk, and that is just one month. That’s where I get the idea that the community may be getting too infatuated with these short-term returns.

Tuhin: Sure. Our product, Rob, really addresses the needs for both traders and investors. The needs are at times similar and at times different, as well.

For traders, they are looking for volatility. They are looking for short-term ideas. For them, these community-created ideas, at times, can work well.

You’re also pointing out one flaw in the way we organize these motifs, which is by one-month return. I think the more appropriate way to do that would be to adjust them for risk. And, you know, that would take some of the noise out.

Having said that, for traders, these are still very attractive. For investors, I mean, you don’t just want to look at the one month or one year return. You really want to look at risk. You really want to look at whether it addresses your income and capital appreciation needs. You want to look if you are getting diversification across US equities, bonds, and international equities – and all of that. I think it caters to the whole spectrum, but your point is well taken.

Rob: It sounds more as a criticism than I intended it to be. I think that community-created motifs are a good idea. I’ve spent some time looking at them. They are a lot of fun to look at, and they’re good for ideas – whether you invest in one or you don’t.

I just hope that folks look beyond the short-term returns on them. Although, again, if you compare them, they’re clobbering you guys over here. You have to up your game here! I’m just kidding.

Okay, a lot of folks who listen to this podcast are more of the passive index fund investors. Are there motifs that cater to that type of investor?

Tuhin: Yeah. Absolutely, there are, Rob. If you go to the section which says “Our Motifs,” which are the motifs created by Motif Investing, there are two sections. On the left-hand panel, you will see Asset Allocation and Target Retirement. Let me just go there myself so I know what I’m talking about.

If you scroll down, the left-hand panel has a section called Investing Classics, and under that are two sub-sections: Asset Allocation and Target Date. There is also Dividend and Fixed Income, which are also relevant to the audience you are talking about.

Under Asset Allocation, we currently have eight motifs, and what each of these eight motifs do is – basically these are asset allocation models which have been popularized and made famous in well-known books. For example, there’s the Ivy League Portfolio, which is in the center right now. That has a one-month return – somewhat boring on a one-month return – of .8%.

Rob: Hey, boring is beautiful when it comes to investing.

Tuhin: Boring is beautiful. I couldn’t agree with you more. The Ivy League Portfolio is basically based on ideas that David F. Swensen put in his book Unconventional Success. He’s been the successful CIO of Yale’s endowment for the last 25 or 30 years. This is an asset allocation model based on his book Unconventional Success.

Similarly, there is the new portfolio which was Mohamed El-Erian, who, until recently, was at PIMCO. That, again, is an asset allocation model. It takes low-cost ETFs and provides diversified exposure across US and international equities.

Then, there are some subjective views of the authors. El-Erian, in this case, believes that you have to prepare your portfolio for inflation, and that’s reflected in the construction of the portfolio. you will see that 50% of the weight is in equities across US and international. You will also see that 23% of the weight is in real assets because he thinks that is a good hedge against inflation. And then, he also has this section called Special Opportunities.

The way we have modeled this is we have put that into some of these new ETFs. For example is the Guggenheim Spin-Off ETF. This is again an example of a model that a lot of financial advisors follow, and a model that is implemented using best-in-class, low-cost ETFs. Typically, the aggregate expense ratio for these things, if you look up the ETFs that make up any of these motifs, the expense ratio is anywhere between 6 basis points to about 20 basis points.

Rob: Yeah, very inexpensive. I mean, a lot of the ETFs are Vanguard or iShares. I see the Lazy Three Portfolio, which I have talked about in the past which I think was developed by Bogleheads. The idea here is you could create these portfolios on your own at Vanguard or somewhere else. But with just a click of the mouse you can invest your money and have it invested across these ETFs automatically for you, both when you buy and when you rebalance.

Tuhin: That’s correct. You are harnessing the power of this intuitive technology. It’s just $9.95. That is what you would use for the strategic core of your portfolio. Some of the other stuff that you see in our catalog is more meant for tactical tilts. Some of these ideas, you would want to put a little more of your money in. But the core part of your portfolio should sit in something like this.

Rob: Yeah. And just to round that out, when you search for motifs that are Target Date, you have the same concept that you’ll see at Fidelity or Vanguard. You can pick the year that you think you’re going to retire. So, I’m seeing that you’ve got retiring at 2040, 2035, and 2055. I take it that as you get closer to those retirement years, your portfolio will become a little bit more conservative?

Tuhin: Correct. Exactly. So if you look at the “Retiring at 2020,” it has a lot more bonds in it – 28% bonds, only 18% in US equities, and 18% in international equities, but almost 40% in US and international bonds.

Rob: I just happened to click on the “Retiring at 2050” portfolio, and I see that you have 10% in gold. That strikes me as curious. Why 10% in gold?

Tuhin: There is no standard way of constructing these Target Date Funds. In fact, if you look at Vanguard’s and iShares’ Target Date Funds, they follow slightly different philosophies. Gold has somewhat of a dubious track record. It is somewhat of a hedge against inflation, but it’s also a good portfolio diversifier. We don’t believe in a big weight in gold, but the 10% weight in gold here reflects the fact that we think gold would be a good diversifier.

Rob: I guess we could talk all day about portfolio construction, and I won’t take us there, but I want to follow up. I’m curious: why not just more broadly diversify the commodities fund versus specifically choosing gold? Is there something in gold that Motif Investing sees as unique? As a way to diversify a retirement portfolio?

Tuhin: This provides a great segue for something that I want to mention. What we are planning to do later this month is we are planning to launch nine motifs which address asset allocation. They will also address the broad spectrum of risk tolerance and your horizon for investing.

I would say that the construction for the Target Date motifs that you see now is based on more of a conventional glide path. Everybody has a glide path. Vanguard has a glide path. iShare has a glide path.

We have chosen gold to model the commodities class. What we’ve done with this horizon motifs, which will be launched in a couple of weeks from now, is that these are actually taking the investable universe and put back into six broad asset classes: US equities, international equities, US bonds, international bonds, real estate, and commodities.

And what we’ve done is we’ve looked at the efficient frontier and how that efficient frontier sort of changes your horizon, and where your risk tolerance puts you in that efficient frontier. What we want to be able to do with those horizon motifs is to provide a very simple construction.

What I don’t like about the current Target Date construction is the fact that remodeling the US equities in terms of sectors, which, to a Bogelhead, too, is already getting a little bit fancy. So, what we want to do is use these single ETFs for each asset class, and use the model of six broad asset classes, and use a broad commodities ETF to address commodities instead of using the glide path notion that has been previously used by use and by several others.

Rob: That will be interesting to see. You say this’ll be coming out in a couple of weeks?

Tuhin: Yeah, it will be out in a couple of weeks.

Rob: I’m looking forward to taking a look at that. That is an interesting issue, generally in terms of retirement. That will be interesting to see. I will look forward to that.

Listen, I appreciate your time, but let me just cover one last quick question before I let you go. You mentioned the Creator Royalty Program, and I find that fascinating. I want to kind of touch on that briefly. If I were to create a motif or a listener would create a motif, and others decided to invest in it, we can make a little money?

Tuhin: You can, yeah.

Rob: How does that work, and what kind of money do you make? Are there folks in the motif-investing community that have motifs that are pretty widely followed and invested in?

Tuhin: Yes, let me address the first question first. The commission for a motif currently is $9.95. So we share $1 with the creator of the motif. If somebody buys or rebalances a motif that you’ve created, you get $1. That is the first part.

The second part – like I said, this is already very popular. A lot of the motifs that people share with their friends are more of the fast-moving trading teams – things which you want to trade today, buy today, and get out of a couple of weeks from now. We’ve seen more social activity around those motifs. But I think there is a real need for great asset allocation models, more passive strategies, which has more mass market appeal and people would feel comfortable putting the strategic core part of their portfolio into.

Rob: I think I’m going to have to move in there and start creating some motifs and see how I do because I find that fascinating.

Tuhin: Sounds like a great idea, Rob.

Rob: Listen, I really appreciate your time. I find Motif Investing to be very interesting. You have a very creative way of entering this retail investing space. It will be fun to see how your guys do in the coming months and years.

Tuhin: Yeah, thanks a lot for your time, Rob. I’m glad to share whatever insights we have that can help the retail investor. They’re always worth our time.

Rob: We really appreciate it. Thank you so much.

Tuhin: Alright. Take care, Rob.

An Afterword

I hope you enjoyed the interview. I had a lot of fun. Tuhin and I talked a little bit after the interview, and I enjoyed giving him a hard time about this community-created motifs supposedly outperforming the motifs created by the folks at Motif Investing.

But there’s actually a really important point in all of this. When you look at investments with returns that say 80% to 100% in a single month, you may be impressed. However, what that tells you is that the asset class is extremely risky. If it can fluctuate to a 90% positive in one month, it can go down just as quickly and just as much.

When you look at the motifs that Motif Investing is creating, certainly the volatility from one motif to the next is going to vary. But my hunch is that if you look into the details, you’d find that they weren’t nearly as volatile on the whole as the kind of investment that might return 80% to 100% in a month.

That doesn’t mean that those very volatile investments are necessarily bad. In the right kind of portfolio, they might be a good addition.

But I think for the majority of us, that kind of volatility is just unnecessary. I can tell you that in my investment portfolio, I don’t have any assets that are nearly that volatile. I can’t fathom any significant portion of my portfolio going up 100% in a single month. That’s just not the way I invest.

But, again, the nice thing about Motif is they’re building investments that serve a lot of different types of investors, including those who follow my approach – long-term passive index fund investing. As you heard, they can address that kind of investor, as well.

It’s one of the things that I think is so unique and interesting about Motif Investing. By the way, if you want to check out more about Motif, just click here to be directed to their site. Also, I do have a review of Motif Investing here.


Topics: Investing

2 Responses to “DR 054: Motif Investing: Interview with Tuhin Ghosh, Vice President of Investment Products”

  1. Robert Kanterman

    This was one of my favorite podcasts. I really enjoyed learning more about the Motif platform, which I have been using since I first learned about it here earlier this year. I had two questions about Motif that were answered in the course of the interview, which was very helpful.

    Thank you!

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