As an investor and online marketer, I've been hearing a lot about “bots” in the last few years.
Robo-advisors are “bots” that manage investment portfolios on behalf of people using algorithms based on technical indicators.
And now every online marketer and their brother is touting “Messenger Bots” as the next big thing.
Just today in one of my online masterminds, the group leader tried to get me to renew my membership with this nugget…
This Is the Year of the Bot!
Um… no thanks.
As an investor, I don't want a robot to manage my money.
As a consumer, I don't want to engage with a brand's robot.
As a business leader, I don't implement things that I personally don't research, test, master, or believe in.
And, outside of Alexa (Alexa, add key lime pie to my shopping list!) I don't believe in bots.
Back in 2014, Tony Robbins published a book called MONEY Master the Game: 7 Simple Steps to Financial Freedom.
In the book, he was touting “robo-advisors” to manage your investments for you.
The two he wrote about were Wealthfront and Betterment.
He claimed that these robots would manage your investment portfolios better than humans because they are…
- Trading according to your investment goals.
- Using algorithms to trade automatically.
- Removing emotion from trading because they are robots.
So, as I do with just about everything, I decided to test it.
I signed up for a robo-advisor in January 2015 and turned my Fidelity IRA over to the bot.
My Bot Results
At the end of the year, my bot managed to earn a (3.5%) return on my portfolio.
Yes, that's a NEGATIVE return. Granted the S&P total return for 2015 was only 1.19% but if I wanted to match the market, I'd just invest in a cheap index fund and call it a day.
I don't want to do that. I want to make money.
And it's clear that the bot and I were not on the same page.
My Own Results
I fired the bot at the end of 2015 and took back the reins of managing my own retirement account.
Since that time, I'm kicking the S&P 500's ass.
My annualized 3-year return beat the S&P by 33.48%.
And my annualized 1-year return beat the S&P 500 by 131.35%!
Why do bots suck?
Here's the real reason why I personally think that automated trading sucks: It manages our money exactly the opposite of how it's supposed to be managed.
Buy Low; Sell high
I think we can all agree that the goal of investing is to buy low and sell high.
We've heard it for years.
Even Warren Buffett's most famous quote, a riff on the original attributed to Baron Rothschild, is…
What happens with all automated trading, including stop loss orders, is that when a stock goes down, the bot SELLS and when a stock goes up, it BUYS.
That's fundamentally backward.
The Fear & Greed Index
This index tracks seven market indicators and helps HUMAN investors make money the right way – buying when others are fearful and selling when they are greedy.
So, is this the year of the bot?
No. I hope that no year ever is.
I don't want to engage with one on Facebook, and I definitely don't want one to manage my money.