Latest Blog Posts

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July 7, 2016 GabiBalhiser
Moving Forward

For those of you who may have been following the Sigma 1 blog for the past few years, you may be surprised by the sudden rebranding and name change. A lot has happened in 2016 that has precipitated these changes. Firstly, I am sad to inform you that the founder of Sigma 1, Dave Balhiser, passed away in January of 2016. Secondly, I would like to introduce myself. I am Gabi Endress-Balhiser, and I was Dave's wife and partner. I have decided to not let the work my husband put into his portfolio optimization product go to waste, so I have partnered with some of his team and we are working on continuing to develop the tool and bring it to market, hopefully sometime in 2017. Admittedly it has been a difficult year. Dave's brilliant mind and kind heart are missed by many. I watched him put hundreds of hours into developing this software. It was his passion and he truly believed it was revolutionary. The back-end of the product was rock solid before he passed, and the only missing element was a front-end to make it user-friendly. I have a background in usability and I have managed teams of developers in the past, so I am hoping I can help my husband's dream come to fruition. I am admittedly not a Quant by any stretch of the imagination, but if there is an interest I may invite guest bloggers to contribute to this site as we continue to move forward. Thank you to everyone who supported my husband in his quest to build a revolutionary portfolio optimization software. I hope I will have your support along the way as well.

August 6, 2015 Dave
A Better Robo Advisory

Building a Better Robo Advisor

The more we learned about the current crop of robo advisory firms, the more we realized we could do better. This brief blog post hits the high points of that thinking.

Not Just the Same Robo Advisory Technology

It appears that all major robo advisory companies use 50+ year-old MPT (modern portfolio theory). At Sigma1 we use so-called post-modern portfolio theory (PMPT) that is much more current. At the heart of PMPT is optimizing return versus semivariance. The details are not important to most people, but the takeaway is the PMPT, in theory, allows greater downside risk mitigation and does not penalize portfolios that have sharp upward jumps. Robo advisors, we infer, must use some sort of Monte Carlo analysis to estimate "poor market condition" returns. We believe we have superior technology in this area too. Finally, while most robo advisory firms offer tax loss harvesting, we believe we can 1) set up portfolios that do it better, 2) go beyond just tax loss harvesting to achieve greater portfolio tax efficiency.

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August 1, 2015 Dave
I Robo: The Rise of the Robo Advisor

Think Ahead About Your Role in a Robo Advisory World

Financial innovation is here and it is here to stay.  Financial advisors, broker/dealers, hybrids, and even financial planners should be thinking about how to adapt to inevitable changes launched by disruptive investing technologies.

Robo Design -- Chip designers have been using it for decades

I have an unique perspective on technological disruption.  For over ten years, my job was to develop software to make microchip designers more productive. Another way of describing my work was to replace microchip design tasks done by humans with software. In essence, my job was to put some chip designers out of work. My role was called (digital circuit) design automation, or DA. In reality my work and the work of software design automation engineers like myself resulted in making designers faster and more productive -- able to develop larger chips with roughly the same number of design engineers.

Robo Advisors: Infancy now, but growing very fast!

"The robos are coming, the robos are coming!" It's true. Data though the end of 2014 shows that robo advisors managed $19 billion in assets with a 65% growth rate in just eight short months. This is essentially triple-digit growth, annual doubling.  $19 billion (likely $30 billion now), is just a drop in the bucket now... but with firms like Vanguard and Schwab already developing and rolling out robo advising option of their own these crazy growth rates are sustainable for a while. With total US assets under management (AUM) exceeding $34 trillion, an estimated $30 billion for robo advisors represents less than 0.1% of managed assets.  If, however, robo advisors grow double their managed assets annually for the next five years that amounts to about 3% of total AUM management by robo advisors. If in the second five years the robo advisory annual grow rate slows to 50% that still mean that robo advisors will control in the neighborhood of 20% of managed assets by 2025.

"Robo-Shields" and Robo Friends

Deborah Fox was clever enough to coin and trademark the term "robo-shield." The basic idea is for traditional (human) investment advisors to protect their business by offering robo-like services ranging from client access to their online data to tax harvesting. I call this the half-robo defense Another route to explore is the "robo friends", or "full robo-hybrid" approach. This is partnering with an internal or external robo advisor.  As an investment advisor, the robo advisor is subservient to you, and provides portfolio allocation and tax-loss harvesting, while you focus on the client relationship.  I believe that the "robo friends" model will win over the pure robo advising model -- most people prefer to have someone to call when they have investment questions or concerns, and they like to have relationships with their human advisors. We shall see. What matters most is staying abreast of the robo advisor revolution and having a plan for finding a place in the brave new world of robo advising.