A 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.
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.
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.