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A Tale of Two Investors

Next week I will have the distinct pleasure of joining a distinguished cadre of financial advisors, institutional investors, asset managers, journalists and fellow bloggers in New York City for the inaugural Evidence Based Investing Conference. It’s rare to come across a conference where you are just as excited about the attendee list as you are the speakers, but the folks organizing this event have done just that. For the uninitiated, the conference website provides a (working) definition of the phrase:

Evidence-Based Investing (EBI) is a disciplined approach to asset management that combines the data we have from the past and present with honesty about the unknowable future. Where others would use forecasts, relationships or emotions to guide their decisions, practitioners of EBI would substitute facts, logic and reason.

Pinning down exactly what it means to be an Evidence Based Investor is a daunting task because no two Evidence Based Investors are cut from the same cloth. Subscribing to an Evidence Based Investing philosophy won’t tell you what funds to buy, how you should be allocated, if alternatives make sense, or whether 30% or 40% in international stocks is more appropriate. It’s more than just a label – it’s a movement. It’s a way of thinking, not a “how to” manual. And while it has certainly picked up steam in recent years, there is still a lot of runway left as access to information continues to be democratized and the never ending quest by academics and practitioners to discover what makes markets tick marches on. Rather than make an attempt at a one-size-fits-all classification of a surprisingly diverse group, I thought a better exercise might be to compare and contrast two hypothetical investors: the Conventional Investor and the Evidence Based Investor. Enjoy!

The Conventional Investor gravitates towards narratives.

The Evidence Based Investor gravitates towards numbers.


The Conventional Investor thinks in black and white.

The Evidence Based Investor sees room for grey.


The Conventional Investor has a hard time distinguishing between luck and skill.

The Evidence Based Investor appreciates that luck plays a larger role in outcomes as the aggregate level of skill increases among market participants.


The Conventional Investor pays a premium to avoid risk.

The Evidence Based Investor earns a premium by taking intelligent risks.


The Conventional Investor searches for the needle.

The Evidence Based Investor owns the haystack.


The Conventional Investor loses sleep over what the market might do in the coming days.

The Evidence Based Investor sleeps well at night knowing their portfolio is designed for decades, not days.


The Conventional Investor scours the world for numbers that fit their narrative.

The Evidence Based Investor welcomes opposing data and reserves the right to change their mind if and when necessary.


The Conventional Investor can’t resist the siren song of buying investments with lottery or insurance like characteristics.

The Evidence Based Investor happily takes the other side knowing that over the long haul those are “bad trades.”


The Conventional Investor conflates volatility with risk.

The Evidence Based Investor conflates volatility with opportunity.


The Conventional Investor focuses on pre-tax returns.

The Evidence Based Investor knows he can only eat after-tax returns.


The Conventional Investor sees high costs as the price of admission into an exclusive club for “elite investors.”

The Evidence Based Investor sees low costs as additive to his bottom line.


The Conventional Investor looks up star ratings on Morningstar.

The Evidence Based Investor looks up fund expenses on Morningstar.


The Conventional Investor pats himself on the back in good times and places blame in bad times.

The Evidence Based Investor accepts that he is neither genius nor idiot.


The Conventional Investor relentlessly pursues the perfect portfolio.

The Evidence Based Investor realizes they have a better chance of finding Bigfoot. Instead, they focus on finding the right portfolio, i.e. the one they can stick with!


The Conventional Investor wants to know what’s done well (poorly) lately and why they don’t own more (less) of it.

The Evidence Based Investor knows what they own and why they own it.


The Conventional Investor can’t focus and tries to control everything.

The Evidence Based Investor focuses on what they can control.


The Conventional Investor is driven by guesswork.

The Evidence Based Investor is driven by goals.


The Conventional Investor acts like a value investor at momentum time horizons and vice-a-versa.

The Evidence Based Investor acts in accordance with the time horizon in their financial plan.


The Conventional Investor has 20/20 hindsight vision.

The Evidence Based Investor understands that the crystal ball is always cloudy.


The Conventional Investor maximizes distractions.

The Evidence Based Investor minimizes frictions.


The Conventional Investor emphasizes feelings over facts.

The Evidence Based Investor emphasizes process over outcome.


The Conventional Investor thinks Alpha grows on trees.

The Evidence Based Investor prefers to harvest the low-hanging fruit of Beta.


The Conventional Investor views alternative investments as a silver-bullet that can earn above-average returns all the time.

The Evidence Based Investor keeps an open mind to non-traditional asset classes and strategies – provided they diversify, have sound theoretical underpinnings, and can make money on average and over time.


The Conventional Investor is heavy on hubris.

The Evidence Based Investor is heavy on humility.


The Conventional Investor is swayed by a 30 second spot for gold during a commercial break on CNBC.

The Evidence Based Investor is influenced by 30 years of academic and empirical research (and even then maintains a healthy dose of skepticism!)


The Conventional Investor craves the latest and greatest.

The Evidence Based Investor embraces the tried and true.


The Conventional Investor confuses activity with results.

The Evidence Based Investor defaults to “don’t just do something, sit there.”


The Conventional Investor seeks to have their cake and eat it too.

The Evidence Based Investor eats a steady diet of diversification – the only free lunch in investing.


The Conventional Investor maintains loose beliefs, strongly held.

The Evidence Based Investor maintains strong beliefs, loosely held.


The Conventional Investor reads articles and newsletters.

The Evidence Based Investor reads books and white papers.


The Conventional Investor views markets as an adversary for them to outsmart.

The Evidence Based Investor views markets as an ally and appreciates their collective wisdom.


The Conventional Investor expects to be handed a return without bearing any risk.

The Evidence Based Investor expects to earn a return on the risks they intentionally bear.


The Conventional Investor compounds their mistakes through attempts at timing the market.

The Evidence Based Investor understands compound interest and thus the importance of time in the market.


The Conventional Investor believes that simple is too easy.

The Evidence Based Investor knows that simple and easy are not one in the same.


The Conventional Investor looks for interesting ways to “play” the market.

The Evidence Based Investor approaches investing not as a game, but a means to achieving what’s important to them.


The Conventional Investor lives vicariously through their portfolio.

The Evidence Based Investor lives their life outside of their portfolio.


The Conventional Investor hires a financial advisor for advice that sounds good.

The Evidence Based Investor hires a financial advisor for good advice.


The Conventional Investor likes to talk about his individual stock picks at a cocktail party.

The Evidence Based Investor finds an excuse to leave the conversation with the Conventional Investor at said cocktail party.


Now tell me, what kind of investor do YOU want to be?

About the author

Phil Huber, CFA, CFP®

Phil is the Head of Portfolio Solutions for Cliffwater, a leading alternative investment adviser and fund manager. Prior to joining Cliffwater in 2024, Phil was the Chief Investment Officer for Savant Wealth Management, a multi-billion dollar wealth management firm. Phil has been involved in the financial services industry since 2007. He earned a bachelor’s degree in finance from the Kelley School of Business at Indiana University. He is a member of the CFA Society of Chicago. More about me here. Twitter: @bpsandpieces

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