Are Human Stock Pickers Really Better Than Machines?

By Chris Skinner via

I got into an argument after a presentation where I said that active fund management is dead. It wasn’t the best thing to say in front of a group of active fund managers, but I can’t help myself. It’s my background in dealing with program trading in the 1990s; then algorithmic trading in the 2000s; and now high frequency trading in the 2010s. It’s my background in saying that all finance is moving to machines and everything that can be automated, will be automated. It’s my background in commonly joking that investment markets can be run by one man and his dog: the man is there to feed the dog … the dog is there to stop the man from touching the computers.

This vision is coming true and, specifically, the developments around blockchain and distributed ledger (DLT) to record investment transactions and artificial intelligence (AI) to make the decisions is a critical part of all this.

Equally, I’ve blogged several times about monkeys making better bets than active fund managers. It is for this reason that Warren Buffett, a pretty good active fund manager I’m told, made a specific bet against active fund manager Ted Seides that a passive fund would outperform his active fund. Ten years later and that passive fund returned four times better profit on the investment, so he was right.