How Motif helped two 11-year-olds beat Ivy League MBAs in an investing contest
A little over a year after opening up its thematic investment platform to the public, Motif has seen more than 75,000 individual investment motifs created by its users, co-founder and CEO Hardeep Walia announced today from the Stocktoberfest conference in Coronado.
These motifs, which function like zero fee, low-cost ETFs, center around ideas like “Big Data,” “Bear International Market,” “Buy the Dip,” and “Biotech Breakthrough.” By comparison, it took the company’s team of data scientists and professional investors a similar amount of time to create the first 120 such motifs in the platform’s earliest days. But by relying on the power of the crowd, as well as using social proof and real investing results to rank these strategies, the company has dramatically expanded the universe of accessible investment strategies.
“There’s more motifs today than ETFs and mutual funds combined,” Walia says.
The takeaway, as Walia explained to the room of several hundred traders, financial advisors, technologists, and angel investors, is that investing has never been more accessible.
Walia offered a powerful testament to the democratizing effect of the Motif platform, sharing a story about the surprise winners of a University investing competition sponsored by his company. As he explains, it wasn’t the soon to be MBA grads from a handful of Ivy League schools that created the highest performing motifs under the contest. Rather, it was two 11-year-olds from Fargo, North Dakota, even though the company didn't know they were participating.
The winners, as part of their 9th grade math class at Oak Grove Lutheran School, were participating in the contest unofficially. But they outperformed their graduate school counterparts by an average of five to six percent, nevertheless.
The result was first identified by an AP reporter who eventually interviewed the teacher and his students, prompting a visit by Walia. Relying on a keen eye for changing consumer behavioral trends around them and a healthy dose of common sense, the winning investors bet on popular brands like Facebook, Under Armour, Netflix, Starbucks, Amazon, Google, and Priceline.com. Walia says that he has since invested into the Oak Grove Motif and "made a lot of money" as a result.
Where Motif's platform shines is in allowing retail investors who may have a deep understanding of a particular industry -- or simply have a hunch about a secular trend in the market -- act on that knowledge and quickly and easily put money to work. Previously it would have been both expensive and extremely time-consuming to choose and purchase a representative basked of stocks around a single idea.
Through Motif, a doctor who wants to bet on the advancement of stem cell-related therapeutics can create a custom Motif, selecting up to 30 stocks to represent this market – Motif’s algorithms and data engine can do this automatically or the user can elect to do so manually. Either way, buying that Motif in any dollar amount and any allocation costs just $10, and can be rebalanced at any time for the same fee. Similarly, an everyday consumer with no medical training but who wishes to bet on the likelihood of an Ebola pandemic could purchase a basket of stocks intelligently selected to represent that idea and market.
Neither of these scenarios require the investor to pay inordinate fees or to be a sophisticated stock analyst. In many cases, an existing Motif or basket of stocks already exists around a given theme, and investing is as simple as deciding how much money to put behind the idea and whether to stick with the “off the shelf” allocation or to manipulate a given weighting to better suit you personally. If that Motif was created by a member of the Motif user community, then the company pays the creator a small commission every time someone invests in their creation.
According to Walia, the third-most popular search term on the platform today is marijuana, proving that investors are eager to wager on the expanding legalization of weed. It would be extremely difficult to invest in marijuana in an intelligent and diversified way via traditional means, but through Motif, it can be as simple as a one-click process and a single $10 fee.
But not everyone has clear ideas of where they want to invest their money or which Motifs are risk-appropriate given their life stage and other factors. This is the next area of innovation for Motif, according to Walia. Next week, the company will be releasing its new Investing DNA feature which will allow users to complete a quick assessment to help gauge this suitability. The tool will rely on much of the data that Motif has captured over its early rollout, like which Motifs are popular among investors of a certain age, net worth, profession, sophistication, and other factors. Further, users will be able to include their personal values into this calculation, so that, for example an environmentally conscious investor will never see an oil company stock featured in their portfolio. At all times, users can see down to the penny what individual stock they own and in what allocation.
With the addition of Investing DNA, the broader Motif platform is looking more and more like a data-driven paint by numbers for stock investing. And I say that very much as a complement. That said, there is room for the company to add more sophistication to cater to more sophisticated investors. Motif will soon support short positions (betting against stocks), options, and mutual funds (at the insistence of its financial advisor partners), as well as expand to international markets. The company is also adding more sophisticated data analytics and charting tools for more technically-minded investors.
Motif will look to make further use of this growing data set by asking it questions like, “What do people really think of Obamacare?,” Walia says. By looking at where and how people put their money to work, Motif can assess sentiment based on age, net worth, political affiliation, and other demographic and psychographic factors that should be far more revealing than the simple answers to an exit poll or market research survey. The plan isn’t to sell this data to third-parties, Walia says, but rather to use it to better inform investors on its platform about how the market might move, and why.
One big surprise during Motif’s early days has been the identity of its early adopter audience. The company’s initial assumption was that it would be digitally-minded millennials that would gravitate toward the platform, but in fact the company has seen a majority of its uses being over 65 years old and high net worth. It certainly didn’t hurt that the product was quickly adopted by the investment advisor community, even before the company eventually added support for that enterprise-type user.
Motif has closed a total of $86 million in venture funding from a combination of traditional VCs as well as industry heavyweights Goldman Sachs and JPMorgan Chase. Disrupting the multi-hundred-billion dollar financial services industry is no small task, so having this kind of resources and Wall Street connections go a long way toward lending Motif an heir of credibility. The competition from incumbents as well as other upstarts like Wealthfront and Robinhood will be stiff. Given this, Motif still has plenty left to accomplish, but the early feedback has been extremely positive.
“I think 2008 was really a watershed moment,” Walia says. He further explains that, not only did most retail investors lose their shirts in the market but they payed a host of fees for the privilege of doing so. A lot of them said to themselves in the aftermath, there has to be a better way.
“We’re making investing accessible and affordable regardless of your level of experience and time,” Walia says. “How many other platforms can honestly claim that?"