Long Tail — returns beyond the efficient frontier

Published on
26 Jun 2015
Final Author
Juan Colon

It’s 2015, yet Main Street savers invest every bit as they did in 1915.

When banks feel like lending, they force­feed investors with products that fund bank loans cheaply. When they don’t, they pitch complex “opportunities ̈ with hidden fees. Where money is invested is an afterthought: “experts” simply channel way too much money into way too few strategies under restrictions designed to “protect” consumers from advisor abuse.

In 2015, collective investment schemes are still designed by middlemen to feed middlemen:

John Doe saves to just about pay for fees and taxes, by definition.

Luckily, it’s 2015 and the net fuels consumer and investor creativity.

The network economy empowers consumers to bypass producers. 1­size fits all designs lose out to consumers who design, produce (3D printers!) and sell niche creations. Readers read, tweet, blog and publish niche books. Hackers use, share and code open­source niche apps.

In the long tail economy, consumers become producers. Even savers get to think independently: crowds fund projects they love, peers lend to each other in online marketplaces.

Networked millions of nimble, active investors achieve risk­adjusted returns previously unthinkable under the traditional “efficient frontier” narrative. It turns out, when technology spread and cut both intermediaries and transaction costs, small size, large % long tail profits grew below where oversized investment banks and hedge funds could afford to look.

And thus long­tail investing was born. Independent investors achieving precious returns on too little capital paired with savvy peers who leveraged their savings with the crowd’s talent to achieve returns beyond the 1915 “efficient” frontier.

It turned out, the returns were precisely where middlemen weren’t looking. It just took the crowd to spot and harvest them, one investor at a time, for everyone’s benefit.