Everyone knows the advice: Drop your mutual fund, pick an index, and don’t try to beat the market. Instead, ride its waves. Such a strategy is in fact, historically, the best investment advice for the common man; most mutual funds don’t beat the market over a ten, or twenty year period, and thus to simply take the market’s rate is superior for most.
Warren Buffett we are not.
But what if the idea of what an index is, changed. What if the broad basket of companies that constitute an index, were different. In fact this isn’t exactly a new idea; the NASDAQ index funds have different companies, and different sorts of companies than the NYSE, and so forth.
Take whatever you know about an index and set it on fire. A company called Motif is redefining what an index is, and how you can invest in it. Instead of building a set of firms so big that they, in effect, are the market, Motif has built a collection of indices based on ideas, creating a rather unique method of investing.
Motif has indices based on caffeine, the companies that sell it, and one based on the firms that have the most Facebook likes. It’s funny to think about, indices based on such ideas, until you see the results. The following chart is of the caffeine index on Motif beating the pants off the S&P 500 over the past year:
It’s an interesting concept. So long as you are sure that you know a specific market segment is set for a good few years, you can get into it, in a big way, safely, and with no continuing fees. That’s one of the more interesting point of Motif, how cheap it is. Transactions into an index, which is a 30 company collection, cost $9.95, again with no continuing fees. That number doesn’t change based on how much you put in, it’s just ten bucks.
Motif is a fresh take on how to invest, in a cheap way, allowing people to place big bets on stable[er] indices. It will be interesting to see how the investing public reacts to what its has built.