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The Other Free Lunch in Investing

Harry Markowitz, the father of modern portfolio theory, is credited with the phrase “diversification is the only free lunch in finance.”

I have nothing but the utmost respect and admiration for Mr. Markowitz and all of his contributions to our profession, but I feel obligated to point out that his statement is inaccurate.

Not that diversification isn’t a free lunch – it absolutely is. It’s just that there is another free lunch – all-you-can-eat buffet style – that investors in today’s world don’t quite appreciate enough: nearly unlimited, complimentary access to high quality investment research and content.

There were three items in particular that caught my attention over the past week that reminded me of this wonderful free meal that I at times take for granted:

  • First, my pal Corey Hoffstein at Newfound Research put out a monster piece on the history of momentum investing. This is can’t miss whether you’re a novice or an expert on the subject. A decade ago this would have undoubtedly been stuck behind a paywall.
  • Second, the folks at Research Affiliates put on what appeared to be a fantastic Advisor Symposium earlier this month. I remember seeing the stacked agenda beforehand and being disappointed I couldn’t make it. Fortunately for myself and others, they were kind enough to post all of the presentations to their website. Between that and following along in real-time on Twitter with my industry colleagues who were in attendance, it almost feels like I was there. Although a trip to Newport Beach would have been nice this time of year…
  • The same can be said for the Democratize Quant Conference my friends at Alpha Architect recently hosted in conjunction with Villanova University. The Alpha Architect mission is to empower investors through education and these guys eat, sleep and breathe that mantra. Like Research Affiliates, they made all of the slide decks available and CEO Wes Grey posted a nice recap of the event on their blog.

The examples cited above are just the tip of the iceberg. In addition to deep dive research pieces like Corey’s and being able to vicariously experience conferences, there is the ever-growing number of investing and business podcasts. I tweeted this out a few months back:

And don’t even get me started on the countless amazing blogs (hopefully including this one ) and the curated aggregation sites like Abnormal Returns. What a time to be alive indeed!

Gone are the days when advisors had to rely on fund company wholesalers for product information or market commentary. No longer do advisors need to shell out over $20K per year for a superfluous Bloomberg terminal that they would likely not scratch the surface on using anyway. An advisor today can realistically have a research budget of peanuts and with enough time and effort, stand toe to toe with the vast majority of their industry peers. The information asymmetry of yesteryear has all but vanished.

I only wish that I had all of these tools and resources available to me when I was in college or had just started my career. For someone in their early twenties who is just starting out or thinking about entering the investment industry in some capacity, the world is your oyster. And the earlier you can take advantage of the plethora of incredible content at your disposal, the more of a leg up on your peers you will have.

Knowledge – like interest – can compound over time. It may not dethrone diversification as the commonly accepted “free lunch” in investing any time soon, but at the very least it’s a beautiful piece of dessert – on the house, of course.

Additional Reading:

Two Centuries of Momentum (Newfound Research)

Research Affiliates Advisor Symposium

Democratize Quant 2018 Recap and Educational Materials (Alpha Architect)

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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