{"id":372062,"date":"2024-02-22T15:30:49","date_gmt":"2024-02-22T10:00:49","guid":{"rendered":"https:\/\/zerodha.com\/z-connect\/?p=372062"},"modified":"2024-03-04T17:14:55","modified_gmt":"2024-03-04T11:44:55","slug":"investing-is-a-problem-that-has-been-solved","status":"publish","type":"post","link":"https:\/\/zerodha.com\/z-connect\/subtext\/investing-is-a-problem-that-has-been-solved","title":{"rendered":"Investing is a problem that has been solved"},"content":{"rendered":"

\u201cInvesting is a problem that has been solved.\u201d<\/em><\/p>\n

Dave Nadig, a veteran of the US ETF industry, said this on a podcast, and it has been stuck in my head ever since. I remembered this quote because I saw this poll on Twitter (Umm\u2026 X. What sort of name is that?). I\u2019ve been thinking and writing about how to get regular people to invest for some time, and I have thoughts. Since I\u2019m on the internet, I must subject you to them\u2014that\u2019s the rule.<\/p>\n

\"\"<\/a>

Tweet link<\/a><\/p><\/div>\n

So, is investing solved?<\/p>\n

In my view, the answer is both yes and no. Is the core problem of saving, investing, and building wealth solved?<\/p>\n

Yes.<\/p>\n

So, I love these grand challenges. I think they focus the mind. And for a long time, investing was kind of this grand challenge and starting you know, going all the way back to the Fama-French and then all the amazing work that\u2019s been done, you know, Jim Simons. All sorts of people over the years have teased apart what really makes markets work, to remove as much uncertainty from it. And while it is not still a science in the sense that I can tell you precisely what set of inputs is going to reveal what set of results. I feel like it is incredibly well-understood.<\/em><\/p>\n

And the pieces that we don\u2019t understand that get knocked down in the academic journals once a year are very small. The pieces \u2013 people are now talking about scraping five basis points of alpha from better trading strategies. Or timing strategies or you know, arbitraging sub-second price discrepancies and information flows. That\u2019s the deep end of the pool, right? That is fundamentally a solved problem, the way that building a building is a solved problem and we\u2019re just arguing about what you\u2019re putting on the roof.<\/em><\/p>\n

So, from that perspective, I just don\u2019t think that there\u2019s that much \u2018interesting\u2019 left in the core science of how investing works. It doesn\u2019t mean it\u2019s easy. It just means it\u2019s largely solved.<\/em><\/p>\n

\u2014 Dave Nadig<\/a>.<\/em><\/p><\/blockquote>\n

Let me make this more concrete. Today, building a globally diversified portfolio is inexpensive. Take a look at this hypothetical portfolio of funds along with their expense ratios:<\/p>\n