Sources of Friction: Why Investment Expertise Often Fails to Help You and What You Can Do About It
Most of the time when I talk to people about the investment industry I get the distinct sense that they would rather talk about almost anything else. While there are certainly many potential causes for such an understated response, I also don’t get the sense that an overwhelming degree of satisfaction is usually one of them. Rather, there seems to be a persistent state of frustration lurking under the surface that occasionally reveals itself in comments like, “I’d like to be able to get more confident with my investing”, and, “Do you ever get to talk to the person managing the money?”To the extent that lurking frustration exists, it is not for lack of investment expertise. Not only are there thousands upon thousands of investment professionals, but there are also terrific credential programs like the CFA and the CFP, a substantial and diverse active management industry that has a business model predicated on developing proprietary insights, and research that suggests it works. For example, the study “Best Ideas” [Cohen, Polk, and Silli, 2010] shows that the typical active money manager actually does outperform with his/her best ideas (the problem is that most portfolios also contain a lot of other ideas which aren’t nearly as good).So why do investors continue to be frustrated when all of this expertise is available? The answer, in a word, is friction.Sources of frictionJust like the progress of any vehicle is slowed down by the friction created by its contact with the road, so too is the efficient transfer of investment expertise constrained by a variety of structural sources of “friction” in the industry.One important source of investment friction is the tendency of many firms to focus more on the business of investment management than on the profession of investing. Because the universe of significant investment opportunities is limited in a competitive environment, managers must settle for progressively less attractive alternatives as a fund grows larger — and this dilutes performance. The conflict of interest between an investment manager’s desire to grow assets (and therefore business profits) and an investor’s desire for a smaller fund focused exclusively on best ideas is one way in which investment expertise often fails to benefit clients.A second source of friction is essentially a corollary of the first: Many firms fail to focus on the types of activities that are closely associated with generating superior investment returns. For example, many firms persist in charging high fees for investment services despite widespread evidence that high fees detract from returns. Many run portfolios that look very similar to their benchmarks rather than concentrating on best ideas (i.e., high active share). Many react (and overreact) to short-term results for which there is very little information content (i.e., low signal to noise ratio). Each of these types of activities is a well-known structural impediment to good investment performance and each is the result of a choice, a tradeoff, made by an organization’s leaders. While it is unfortunate such impediments exist, they are absolutely avoidable.A third source of friction is over-specialization. When an environment remains stable for a long period of time the most successful entities are those that focus on a very narrow area of expertise. Examples include narrowly defined functional silos such as industry-specific analyst coverage and very narrowly defined investment mandates. In such an environment, flexible business approaches and policies to insure against large losses represent unnecessary opportunity costs. In a more tumultuous environment, however, the costs of focusing too narrowly can be debilitating and sometimes even deadly. It’s fine to pack only swim suits and t-shirts for the beach as long as the weather stays nice. If it gets cold and rainy, you’ll wish you had better choices.What you can doWhile various sources of friction often prevent investors from deriving as much benefit as they might from the industry, the good news is that they also provide a clear target for improvement. If you want things to run more smoothly and efficiently, just reduce or eliminate the sources of friction. For investment firms this is simply a matter of making policy choices — of choosing to focus, on the margin, more on the exercise of investing than on the business of investment management. For investors, this is just a matter of identifying the firms that are not only willing to accept, but to actually encourage, making the tradeoffs that benefit investment results.Another way for investors to derive more benefit from the investment services industry is to find better user interfaces. Steve Jobs revolutionized the computer industry by developing a graphical user interface (GUI) that made it much easier for normal people to interact with computers. The same needs to be done with investment firms. While a great deal of investment expertise does exist, only a small subset of that resides with organizations that have cultures truly oriented to helping people. Without such a culture, the path of least resistance is for that expertise to first benefit investment firms and their employees.The investment services industry is interesting as a case study because it defies so many well established norms in other industries. Exceptionally few businesses in a competitive environment can afford to persist with processes and behaviors that impede performance and client satisfaction. If you went to a nice restaurant and ordered an expensive meal and the waiter came out and just threw it down in front of you without explanation and walked away, you would probably be miffed and might consider never coming back. Oddly, the same behavior happens with investment firms all the time — except in these cases investors tend to resign themselves to accepting such treatment. You can do better, but you will almost certainly need to look for new approaches that avoid old, and predictable, sources of friction.
10 Astonishingly Easy Ways To Make Money Online
Whether you have your own blog or website it can be astonishingly easy to make money online, so much so, you don’t necessarily need either.
Listed below are excellent ideas to make money online, for a full-time income or just to give you a little extra money each month.
1. Blogging – naturally this is my first suggestion and can be very lucrative. It does require you to create a blog, build on the content for a few months in order to generate followers and visitors, encouraging search engines and content readers to visit and buy from advertisements or your own uploaded information documents
2. Create your own online store – online businesses such as eBay, Amazon and Zazzle provide you with the tools to create your own online store, offering products for sale, often without the need to store yourself as you can advertise products, prior to purchase, for a higher price, arranging despatch and delivery from your supplier direct to the customer
3. Online Assistant roles – there are various websites which advertise admin and data entry type jobs where you provide a typing, translation or proofreading service for an hourly rate, set fee or negotiated amount without you having to leave your front room. The requirements are set out in the job advert and you then offer your services to the advertiser
4. Write books, articles or instructions/courses – if you have story ideas, a skill that you can teach others or want to provide advice on a specific subject, why not write your own material. If you can tell someone or demonstrate something it is possible to turn this into an eBook, upload onto a marketplace and sell this to others.
5. Create YouTube video tutorials – similarly, instead of getting this in writing, why not record yourself, a presentation or screen capture video, upload onto YouTube and advertise your skills. Placing advertisements alongside this can generate a tidy income. Also advertising your own website or blog, eBook or products for sale.
6. Sell your own photographs – everyone today has a digital camera and there are many superb photographs taken every day. It was recently reported that there have been more photographs taken this year since then ever before. Everyone takes selfies, spontaneous photographs as well as those who do this for a living. Get your photographs uploaded to a stock photography site and earn an income every time someone buys one.
7. Affiliate marketing – this involves you advertising for sale other peoples’ products and, on making a sale, receiving a commission for that sale from the owner of the product. This can involve the creation of a website and advertising on this or creating advertisements, placing these on others’ websites to generate interest and hopefully a sale.
8. Create and sell unique items – jewellery for example. Other items include paintings, furniture, clothing, ornaments and so on. Once created, advertised on your own or others’ online shops for sale and generate an income. These can also be uploaded for sale on eBay, Amazon and other similar marketplaces.
9. Teach online – if you have a skill, specific expertise in a subject or have a hobby at which you excel, why not create a website offering hints, tips and advice. You can then go on to sell tutorials in eBook, video or audio formats.
10. Market research – there are numerous companies who pay website visitors to review products, websites and information sites and provide feedback and comments. This is then used by that company to advise their clients, make improvements or select specific products which perform well. payments from these companies vary from discount vouchers, point collection and turn this into cash or free products in return.
For more ideas in making money online or advice on creating eBooks, websites or blogs, visit Progress for Success now.
Crypto Currency Vs Fiat Currency
Crypto currency vs. Fiat currency
Are you aware of the fiat currencies and the crypto currencies? They both are currencies in one form or the other and are open for public use across the world. But they are both different and distinct in their own ways. There is always one group that favors the use of cryptos, while the other has a soft corner for the fiat currencies.
In cashless society- crypto money play a huge role
If you have a look at the market of the 1970s and 1980s, you will find that the cash played the dominant role. But, with the change in the technology, electronic transactions have become the usual norm. Today, more and more people are influenced in becoming the cashless society. With the progress towards the cashless society, cryptocurrencies have a big role to play.
Crypto currency and fiat currency are always at loggerheads
Cryptocurrency and fiat currency are popular types of digital currency, especially when it is about an online transaction. They both are currencies currently in use in the market but have some differences in them. There is a hell lot of hypes that you will hear on a daily basis comparing the crypto money and the fiat money. This article will highlight the difference between the two in a more comprehensive and clear manner.
Differentiating in what the currencies stand for
Before going for the difference between the two, you must understand what do they stand for and how are they are defined.
The fiat currency is a legal tender that has the support of the central government, and it operates in the physical form. For instance, US dollars, British Pounds, Euro etc. On the other hand, the crypto currency is a non-legal tender, and doesn’t have any backup from the central government or bank.
Hence, the difference between crypto currency and fiat currency is noted as follows:
• Crypto-currencies are decentralized and global in nature. There are no one entity or government that controls the currency with their laws and regulations. The Fiat currency is centralized, under the control of the laws and regulations of the banks and government.
• Crypto-currencies have their existence only in the digital domain. On the other hand, you will find that the fiat currencies have a tangible and physical existence.
• There is a limited supply of crypto-currencies with a maximum set of them getting supplied in the market. Whereas, the fiat money has an unlimited supply as the government and bank are entitled to produce coins and paper money whenever the situation is required.
• The Bitcoin and other crypto type currencies are created by the computers, while the fiat currencies are issued by the local government and the banks.
• Cryptocurrencies are presented as the public and private code pieces. On the other hand, the fiat currencies are presented in the form of coins and paper money.
• The value of the crypto currencies is not recognized by the supply and demand of the market. Whereas, the fiat currency value is determined by the market regulations of supply and demand.
The different types of crypto and fiat currencies
In the last one decade, the popularity of crypto type currencies has emerged as a huge success. It was in 2009, when Bitcoin was first introduced, and years after several other types of crypto currencies have emerged. Starting from Litecoin. Dogecoin, Ripple to the Dcash and Zcash, there is a plethora of them. On the other hand, the fiat currency has a rich and ancient roots, with the Great British Pound, that dates back to 775 AD. It is considered as the oldest currency in the world that is still in use.
The differences in the anonymity between the two currencies
When you are using the fiat currencies, you need to undergo a user identification or verification process. You are asked to upload a recent picture of yourself and some of the required documents to be issued as per the public authorities. You don’t need to undergo any of the required processes with the crypto currencies. Though your personal information and confidential details don’t get public, but all your transactions are recorded and tracked in both the fiat and the crypto currencies.
Fiat currency vs crypto currency: transparency level
• The transparency level with the crypto type currencies are considered to be more. This is because the revenue streams are displayed in a public chain. Everyone can witness their own and others’ transactions.
• The fiat or govt. currencies are not transparent, as there are not public chains to see the revenue streams of the people.
A comparative historical roots
If you compare the crypto money with that of its counterpart, fiat or government currency, you will find that their existence and creation brings the difference. The Fiat or government currency, dates back its existence as early as 775 AD with the introduction of the Great British Pound. This is why fiat type currency is easily accepted by the people all over.
On the other hand, the crypto coin was perhaps first introduced only a decade ago, with the introduction of Bitcoin in 2009. The challenge that the Bitcoin and other crypto currencies face is catching up with the immense popularity and increasing fan base of the fiat currency. Crypto currency, is no doubt gaining importance and popularity in the economic market, but it has still not been accepted widely in the society as the fiat currency.
A comparative history of the two currencies:
• It was in the 11th century, when the Chinese Song dynasty was perhaps the first one to issue the paper money. It was not allowed to exchange with valuables like gold and silver or silk.
• There were Tally sticks that were introduced as a fiat or government currency. 1100 Tally sticks were introduced as a combat for the shortages in gold.
• 1971, was the year, when the fiat currency received a worldwide recognition. President Nixon introduced it in order to eliminate the dollar pegging system to gold.
• It was in 1998, when the idea of an anonymous electronic cash system emerged by Wei Dai. Bitgold-the very first crypto currency was created by Nick Szabo, but it didn’t receive as much attention as Bitcoin.
• In 2009, Bitcoin was introduced in the market, that became the first crypto currency that was accepted across the globe. In 2011 and after, a series of several other crypto currencies were introduced. Some of the popular ones include, Litecoin, Dogecoin, Ethereum, Ripple, Zcash, Dash and so on.
The traits of both the currencies
The potential of the crypto type currencies and fiat currencies, accessing their traits is important. You will find that in some of the criteria, Bitcoin and other crypto currency is superior than the fiat or government currency, and in some cases, the latter surpasses. It is absolutely your call to choose the type of currency (crypto type currency or fiat type currency) based on your personal needs and requirements.
Let us compare their traits with respect to certain factors.
• Both the crypto coins and fiat type currencies are interchangeable in nature.
• As per the portability is concerned both the currencies secure more or less the same position.
• With respect to the non consumable criteria, crypto currency and fiat type currency have the equal status.
• Crypto type currencies have high durability as compared to the fiat-currencies that have moderate level of durability.
• Both the crypto or virtual currencies and the fiat or government currencies ensure secure and safeguarded transactions and exchange.
• Crypto or digital currencies are highly divisible in nature. On the other hand, the fiat type currencies are moderately divisible.
• In terms of the transaction process, the crypto currencies are easy and hassle free. Whereas, on the other hand, the traction process associated with the fiat currencies are easy, but not like the cryptos.
• The crypto based currencies are decentralized and global in nature, unlike the fiat currencies that are centralized and functions under the laws and regulations of the government.
• The crypto based currencies have high scarcity, where as, the fiat currencies are unlimited as the government can issue coins and paper money whenever there is a need.
• The crypto based currencies are based on mathematical algorithms, and are programmable. The fiat currencies are not at all programmable.
• The fiat currencies are sovereign in nature, while the crypto currencies are not.
The process of the functioning of the currencies
You can find the significant differences between the crypto or digital currencies and the fiat currencies with the way they both operate and the transaction process that take place. They are contrasting in nature. The transfer of money using the Bitcoin is very quick, and you absolutely don’t need any third party association.
On the other hand, if you are involved with the money exchange using Fiat type currency, a mobile wallet is in use. You can exchange an amount of e-money that gets transferred into the equal e-value amount. Both the fiat and the crypto currencies enable you to purchase everything that you desire. But the processes involved are absolutely distinct from each other.
Depending on the things you purchase, you will find that one currency form is better than the other. This is absolutely your choice.
Is Bitcoin, a crypto currency better than the fiat-currency?
The long term benefits and the capability of the Bitcoins is still not established. But it has been predicted by the crypto currency gurus and experts, that they will go a long way, especially revolutionizing the way the online transactions are done. In the current market, the Bitcoin is mainly included in the online casinos and the gambling, but it is not limited to it.
Furthermore, when you compare the fiat currencies, the Bitcoin allows you to seize the power and authority from the banks and the government since it is not controlled. The cryptography based currency has the capability to create or come up with the free market capitals. Fiat currencies are affected by the inflation and the changes in the market, unlike the crypto based currencies. Such aspects make individuals believe that cryptograph based currencies will soon take over the mainstream currencies and bring a transformation in the way the money is used.
Why is Bitcoins considered to be a better aspect than the fiat type currencies?
• Bitcoin gives you the opportunity to re-create a free market capitalism.
• The power of controlling the money is absolutely with the individuals, and not with the banks like the fiat type currencies.
• When there is an inflation, the Bitcoin is not affected. But the Fiat type currency will be easier to lose and get affected by it.
• The Bitcoin currency is easy easier to exchange and transfer as compared to the fiat or government currencies.
• The transaction fees involved with the Bitcoin are way cheaper and easily affordable.
Crypto currencies seem to be a favorable option among the people
The fiat type currencies are the centralized and legal way of exchanging money. But, the crypto currencies have acquired immense popularity in the past few years. There will never be anyone who would act as a middle man, like the case with the banks. Moreover, the cryptos are way cheaper and less expensive that the conventional fiat currencies.
Send money anywhere directly without waiting for the bank’s approval
You can send money to anyone in the world directly, and it is super fast. The money gets cleared within a few minutes time. You don’t have to wait for the traditional clearing and verification processes of the banking systems, which might take up to several days to get a clearance. Since it is decentralized and doesn’t come under the law and regulations of the government, nobody has any power to do anything with your account.
The blockchain technology has a very big role to play
Thanks to the crypto currencies, that gives us the power and the authority to become our very own bank, and take control over our finances. It is because of the blockchain technology that offers a higher level of sophistication while dealing with the finances. In fact, there are some mainstream financial industries that have started incorporating the idea of the technology.