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What are you optimizing for?

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I recently watched a TED Talk by Intel Futurist Brian David Johnson. In the talk, given at TEDx Wall Street, he talks about how we as humans interact with machines—calling their ability to make us healthier, happier and more productive “awesome.” However, his optimism about the future of machines was “shaken to its core” on May 6th, 2010—when the Dow saw its biggest one-day point decline in history, only to recover most of those losses within minutes. This phenomenon would later become known as the Flash Crash of 2010.

Newspaper headlines the next day read “Machines crash the stock market”—enough of a headline to make anyone panicky.

Brian was compelled to explore what led to the crash. He discovered that the machines were actually performing exactly as designed—they were optimized for profit and behaving as such. The algorithmic software, which conducted transactions at nearly the speed of light, was programmed specifically for making as much money as possible.

Which bodes the question: Could the system be optimized for something other than profit?

As Brian continued his research, he learned that this was entirely possible. Trading systems could instead be optimized for quality, or fairness. Outside the financial world, other software can even be optimized for happiness. He met people optimizing smart phones to “care” for veterans suffering from PTSD, by using sensors to monitor physical and mental health.

Brian found that the machines were not, in fact, to blame for the crash. Because while the technology is autonomous, it is still programmed by people. We build it, and instill it with our values—and in this case, the value was profit.

Since then, I cannot get this line of thought out of my head—particularly as it relates to wealth management. What are you optimizing for? What do you value? And how are you being intentional about it today?

How are you optimizing your investments?

When investing, it makes sense to align resources with your financial goals. Another way of saying this is to optimize your investments to meet your financial needs. The important part is to first establish your objectives, then optimize resource allocation to get there.

However, this is not how it’s frequently done. Many optimize investments for their entertainment, based on their political views, or solely to make the most possible money[1].

However, none of these optimization strategies assist in achieving your goals–and are thereby missing the point.

Optimize What You Can Control

Instead, optimize the things you actually have some control over. For example:

  • Risks and Behavior – It’s important to understand what risks you take and are willing to stick with over time. Risks should be taken in line with your financial goals, and you should have confidence in them through all market conditions.
  • Asset Allocation – You cannot control the returns of the market from year to year, but you can control where you are invested and make sure it aligns with your goals.
  • Taxes – By placing the least tax-efficient assets in your tax-deferred accounts (and periodically tax-loss harvesting), you can save yourself annually on your tax bill.
  • Expenses – Expenses can be a big drag to returns over time. By being intentional about the expenses you pay and avoiding unrewarded expenses, you can save a significant sum of money annually.

These things may not sound as fun as picking the next great stock, or as entertaining as Jim Cramer telling you to “buy, buy, buy” or “sell, sell, sell.” But keep in mind what you are trying to achieve with your resources, and optimize based on the factors you can control to help get you there.

Is Your portfolio Evil?

Brian concludes his talk with a discussion of evil—saying, “People have defined the nature of evil as thoughtlessness. Not thinking about what you are doing. Not thinking about the consequences. So, if we are not thinking about the consequences……we are, at some level, creating evil machines.”

So my question to you is, “Are you creating an ‘evil’ portfolio?” Have you thought about how it aligns with your financial goals, and considered the consequences if it doesn’t?

What are you optimizing your finances for? What do you value about your future, and what are you doing about it today?


[1] For example, one way to chance making a lot of money is to make a concentrated investment in one company. This tends to produce very binary outcomes—either you make a lot of money or you lose a lot. Most people are not (and should not be) comfortable betting their retirement on a coin flip.

To learn more about how to optimize your investment strategy, click here to download our free whitepaper.

Click here for disclosures regarding information contained in blog postings.

Cordant, Inc. is not affiliated, associated or endorsed by Intel.

Click here for disclosures regarding information contained in blog postings.
Cordant, Inc. is not affiliated or associated with, or endorsed by, Intel.

Published on November 11, 2014

Isaac Presley, CFA

Isaac Presley, CFA

Isaac Presley is the President and Director of Investments for Cordant, a wealth management firm serving current and former Intel employees. To learn more, you can read Isaac's full bio.

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