How does Recompound Assist Close to 300 WhatsApp Groups (people)?

We have speedy fingers and we go to the WhatsApp group one by one for all 200+ clients. Just kidding 🙂

Assisting people with their equity investments is tricky. The technical challenge here is different from investing with one big pot of fund.

In our case, we are helping people by providing investment intelligence reliably for “fund” sizes that are way smaller in size — many small pots rather than one big pot. On average, the investments of a Recompound customer is $10,000. This is very tiny compared to the average size of a mutual fund. As a comparison, the smallest mutual fund needs to be at least $700,000.

Also, the goal is not to have a good combined performance. Each portfolio needs to be optimised to ensure long-term likelihood of success (years, not months) against the benchmark that we have set such as S&P500 and IHSG.

So how do we do this?

We have speedy fingers and we go to the WhatsApp group one by one for all 200+ clients. Just kidding 🙂

Our operations right now

Our clients are invested in publicly listed companies in Indonesia. We help track their investments by closely looking at the core variables that our investment team decide and update from time to time. We closely look at the core variables and decide if a rebalancing is necessary.

Note, these core variables are unfortunately trade secret. We cannot give out our investment edge freely to people. Despite not being able to tell you what they are, we can tell you what they are not. They are definitely not: (i) headline news that create fear or greed sentiments or (ii) short-term stock price fluctuations, as we are long-term oriented.

Going back to how we manage our clients’ portfolios. The flow chart is somewhat like the following:

As you notice, there are parameters that we track for each stock. For the coal industry, as an example, one of the core variables we closely monitor is coal price. Is it above or below a certain price? If above, we know that coal companies stand to make more money. And we can come up with our own risk to reward ratio if the coal price goes up or down based on past price action and dividends data.

So let’s say there exists clients in Recompound that is invested in coal stocks namely {A, B, C, …, N}.

In short, any changes in the core variables will translate to a rebalancing action decided by the investment team. Let’s say if coal price drops below $100, then we will exit partially; if it drops below $80, we will exit entirely. This is because earnings of a coal company is usually tied to coal price.

This sheds some insight on our strategy:

• We usually would have a target allocation for rebalancing if we want to underweight or overweight a certain stock (e.g. reduce from 20% to 10% of the portfolio).

• This target would be determined by the portfolio size, average price of that stock, whether the clients have received dividends from the stocks, and other parameters.

How do you assist close to 300 clients?

That’s the strategy. Now let’s talk about the execution.

One sentence to summarise how we do this: as we are helping close to 300 clients, we have designed a simple programming language that enables us to rebalance our customers’ portfolios programmatically based on a set of parameters.

In simpler language: we cast a spell, for example “for customers whose average price of stock COAL is above $100, make sure that the share of stock COAL is at maximum 10% of their portfolio". We flick our wand and then you receive the Whatsapp message. It’s like magic!

Because we are assisting smaller cheque size, the problem of doing it the primitive way (aka type and send the message one-by-one to each group) is the following:

• Risk that we miss a client who needs to be informed

• Heavy administrative cost

• Wrong delivery of rebalancing message to the customers

Hence, the combination of (1) human intelligence that formulates the investment strategy and (2) the help of algorithms and tech infrastructure to translate that into an personalised investment information → is key for us to assist our customers at scale.

Closing Remarks

We continuously refine our operations and investment process as we grow. If you have suggestions on how we can do better, please feel free to contact me via email at toby@recompound.id

Thanks for tuning in!