No Sugarcoating: Homework Happens After Investing, Not Before

Building a brand in the bond space is uncomfortable when your early users are return-hungry.

When we launched BondScanner, most of the money went into BBB securities. 84% in January. That's not a bad number on its own: BBB is investment grade, yields are meaningful, demand is genuine. But it sits uneasily with me because retail investors are often working with limited tools to properly evaluate credit risk. They have a yield number. They have optimism bias. They fill in the rest themselves.

I don't say this to be condescending. I say it because I've seen what happens when that gap catches up with investors in other asset classes. The outcome is rarely straightforward. And it's usually the investor who feels it most.

So when our early data skewed heavily BBB, I wasn't sure whether to be pleased that we had demand or worried about what the demand meant.

Four months in, something I didn't anticipate is happening. Investors are moving themselves up the curve. January was 84% BBB. April is 59%. AA, A, and AAA are all meaningfully higher. We didn't engineer this. No campaign, no product redesign. They just started making different choices.

My theory and it's still a theory is that you can't teach someone credit risk evaluation in the abstract. A webinar doesn't do it. A blog post doesn't do it. But having real money in a bond will. They get their first coupon. They look up the issuer name. Buyer's accountability kicks in and suddenly they're reading things they'd have skipped two months ago. They start asking what if. They do the homework they should have done before, but do it now because now it matters.

I guess that's just how financial learning works. You can't front-load it. It happens after the investment, not before.

What I'm still not sure about: whether this is existing investors learning and upgrading, or new investors arriving with different preferences. Probably both. The honest answer is four months is too short to be certain about the mechanism. The pattern is visible. The cause is still somewhat opaque.

But for now, the data is more reassuring than I expected it to be.