After spending 13 years in equities on Wall Street, I’ve been able to personally speak to some of the most successful institutional investors around on how to invest and manage money. The one consistent piece of advice I always hear is to invest in long-term trends and forget about the day-to-day minutiae. For example, shorting/underweighting Japanese equities since the late 1980s and going overweight commodities in the 1990s have been great winning decisions.
As a result of my experience working with successful fund managers, I weaned myself off of trying to constantly trade around the market after the NASDAQ burst in 2000. I’ve been focused on long-term, idea-driven investing ever since. I’ll always have a Unicorn Fund to punt around for the next multi-bagger stock, but the fund is always less than 5% of my net worth or 10% of my entire equity exposure.
Motif Investing is a great company based right here in the San Francisco Bay Area that allows retail investors to invest in ideas, much more inexpensively.
A motif is essentially a basket of 30 stocks you can invest in, which are aimed to profit from a specific idea or underlying theme. Let’s say you think new housing construction is going to quicken in the US next year. You could buy a housing motif which might contains Lennar, KBH, Home Depot, Bed, Bath, and Beyond, Zillow, and more in various weightings. Given my focus on buying winning long-term ideas and ignoring the short-term volatility, I really like Motif’s value proposition for retail investors.
MOTIF INVESTING REVIEW
Lower Investing Cost
Let’s say you’ve got $50,000 to invest. You could buy a bunch of low cost ETFs for $7.95/trade via E*TRADE to create your ideal portfolio. Or you could buy an expensive target date retirement fund that might cost over 1% in fees if you’re not buying from a low-cost shop like Vanguard. Or you could buy individual stocks at $7.95/trade to create your own portfolio.
Instead, what you could do is buy a motif of up to 30 stocks for a one-time fee of $9.95, instead of spending $238.50 in commissions to buy 30 individual stocks. Obviously if you have a larger portfolio, the commissions matter less. But most retail investors have less than $100,000 in their after-tax investment portfolios and should be cognizant of their trading fees.
Now let’s say you want to buy or sell an individual stock within a motif that you’ve purchased. You can do that by paying $4.95 in commission for the trade. So again, the transaction cost is lower, and I’m sure the transaction cost will continuously adjust to the market rate, as low cost is one of Motif’s value propositions.
Further customization within a motif is also possible and affordable if you want to buy or sell multiple stocks. That’s no problem too. Motif Investing gives you 2 cost-efficient options. You can add, delete or change the weightings as you like, then buy the entire customized motif for a commission of just $9.95, regardless of how many stocks you’ve changed. Alternatively, you can buy or sell each individual stock in a motif you own for just $4.95 in commission per stock.
As your investment performance changes over time, rebalancing can occur to ensure the motif stays true to a specific idea or trend. The creator of the motif will adjust stocks, segments, and weights accordingly. If you decide you want to participate in those rebalance changes, it costs $9.95 to follow suit with one click of a button. In an ideal world, you hope to never pay any fees after purchase ever again. But let’s say your Apple stock is up 100% and has gone from 25% to 50% of your entire Silicon Valley motif, and your Netflix stock is down 40% and only has a 6% weighting from a 10% weighting; you might want to rebalance for your own good as one never knows.
Asset Allocation Ease
Motif Investing also offers Strategic Asset Allocation Models through their motifs for those of you who don’t want to select stocks and pick ideas. There are no monthly fees once you buy the motif. The idea is just like buying a target date fund based on the age you wish to retire.
Below are three examples of asset allocation motifs for those who plan to retire in 1-2 years, 5-10 years, and 10-20 years.
Endless Variety Of Ideas
What’s probably the most exciting about Motif Investing is the endless amount of ideas you can invest in. There are so many ideas to choose from, which can be sorted by popularity, performance, industry, brands you know, megatrends, current events, cultural, fixed income, target date, dividends, and asset allocation. It’s incredible. The risk is that the investor gets overwhelmed and wants to buy everything.
Here is a snapshot.
COMPARISON CHART BETWEEN MOTIFs, ETFs, MUTUAL FUNDS, STOCKS
YOU CAN ALSO BUILD YOUR OWN MOTIF
Instead of showing you in writing how to build your own motif, here’s a video showing how it’s done. Building your own motif can be a fun and a profitable way to take advantage of new trends in the markets. For example, let’s say everybody is up in a frenzy regarding the Zika virus. You or someone in the Motif Investing community can and will probably create an Zika motif.
I like the idea of creating a motif of multiple stocks based on an idea because it helps remove endogenous risk to a company. You never know if a company might be a fraud, have an accounting scandal, get tripped up by regulation or a lawsuit, and so forth. By buying a basket of stocks to associate around an idea, you de-risk. Concentration risk is the #1 reason why retail investors underperform.
Here’s my 30 stock, ETF motif that consists of familiar stocks that have corrected by more than 20% from their highs and are beneficiaries in a low interest rate and low oil environment. I invested $10,000 to take advantage of the market volatility starting on 1/30/2015 and have seen a 10% total performance as of 4Q2016.
BE YOUR OWN FUND MANAGER
Motif Investing will never fully supplant the enormous ETF and index fund industry. But I do believe Motif Investing can create its own asset class that will become popular with the DIY investing crowd. The combination of low cost, flexibility, social, and idea generation is attractive. The Motif Investing platform is incredibly simple to use as well. There’s no need to pay expensive recurring active management fees when you can build your own 30 stock portfolio for only $9.95.
As more and more savvy and experienced investors go on the Motif platform, one can theoretically just piggy back off of the most successful investors who you can follow in real-time as well. There’s definitely a place for investors to carve out a slice of their investment allocation pie to Motif. You can get up to $150 for free when you first sign up here.
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.
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