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Why pay for anything in financial services?

Some time ago, in a coffee shop in Stamford, I had the pleasure of meeting with one of the consultants affiliated with Bridgewater.  Our conversation centered around the definition of "alpha".

"Their focus is so intense it is mind boggling," I was told.  "They literally look at all of their operational costs, as small and obscure as some of them are, as contributors to alpha."

That comment resonated with me.  All operational costs...even those that were small and obscure.

Ray Dalio has run one of the world's most efficient engines of alpha. (Click here for a writeup of his recent outperformance)

Why would you treat your life any differently?  Why not treat everything as a source of alpha?

Now in P2P lending we have the opportunity to compete disintermediate banks.  We can lend to one another.  Alongside that there is a whole cottage industry skilled portfolio managers who are exceptionally proficient in this space (here is one).

What about FREE mutual funds?  Yes, this is true.  Check out the folks at Replicas who are completely disintermediating mutual funds with Motif.

All of these vocational components of the financial services industry are going away.  Irrevocably going away.

Whats remaining?  Those that can truly create alpha.

 

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