in Link Post

A.I. Has Arrived in Investing. Humans Are Still Dominating.


Conrad De Aenlle:

“When it comes to traditional portfolio management, managers are going to talk to analysts and sector specialists, but these people have biases and incentives,” he said. “The algorithm doesn’t have them.”

What it also doesn’t have is a superior track record. Between Oct. 18, when it began trading, and the end of the year, the E.T.F. rose 3.1 percent, compared with a 5.1 percent gain for the Standard & Poor’s 500-stock index.

Mr. Amador attributed the underperformance to a normal variability in returns. The fund’s programming beat the market when tested against historical data, he said, and he expects the same in real life as time passes.

Three quick thoughts, one for each of these paragraphs:

  1. Algorithms almost always inherit the biases and incentives of their creators;
  2. It’s nice to know that there are still some things which humans are better at;
  3. Historical performance is no predictor of future performance. Hindsight is no predictor of foresight.

It sounds like I’m being quite negative here, and I suppose I am. I’m no fan at all of high frequency trading, AI backed or otherwise. A long term approach like this does seem like it could be more stable and sustainable, though.