Kewsong Lee from Carlyle said that investment is most importantly about judgement.
I have a view that investing is about judgment. It’s more about the poetry than the math. … I’m not so sure a robot can ever replace a person who needs to make the most fundamental and important decision in private equity, which is: Can this CEO, this team, execute this business plan, at this company, in this sector, with everything going on around it?
This is a pretty strong statement given that poetry is thought to be harder for computers to own vs math, which is the language of computers.
Do you agree with this thought?
My thoughts on vectors of human advantage vs. computers: * Time horizon - Longer vs. shorter (HFT) * Stake - Control investment vs. small stake * Sector - Dynamic (higher growth / risk) vs. stable * Investor objective - Higher required out-performance / alpha vs. smaller alpha / beta return requirements * Information availability: High / Public / Trustworthy vs. Low / Opaque / Private / Untrustworthy
Probably others that I'm not thinking of.
Personally, I'm far more interested in deals with the former characteristics vs. the latter. Not interested in tuning algorithms to safely pick up pennies even if massively profitable. Much more interested in messy, transformational deals with higher risk and return.
Algorithmic investing (picking up the pennies) is like removing all art, just like everything else in society. Robin Williams is turning over in his grave.
I would agree with that. At a certain level, everything depends on your ability to hire, build and motivate excellent teams composed of people smarter than you.
In the short-term, with a large amount of information, odds are a computer will outperform. Naturally, in situations such as HFT, or even time horizons spanning a few days, I would typically bet on the computer, assuming it isn't a special situation. Traditional value (Graham style) has mostly been killed off, and will die over the next 1-2 decades. To clarify, this is specifically with regards to ratio investing and searching for dirt cheap stocks that have been momentarily undervalued. However, value investing is not dead, and should do well for a few decades still (the types practiced by Buffet or Klarman).
What a computer can't do is where you should be looking & positioning your career towards, specifically for public equities:
That being said, it is far more difficult to outperform now than 30-40 years ago, and will only continue to be more difficult. Only the top 30-40% of managers, IMO, will survive through the next 1-2 decades. Just my two cents
The computer stuff is just really boring, by personal preference. It's like building a model. Ok, cool, look at what it does for me, synthesizing some information and spitting out some output. That satisfaction tends to be very short lived. At the end of the day, it's just a means to an end.
I'm much more excited about what I do or contribute in aggregate. Looking back and knowing I was part of some deal, or had a hand in something transformative just feels good, and is meaningful. This computer stuff means nothing except a couple of extra pennies.
But will any single one really matter long-term at the macro level? If you take a ton (really a handful like 10) of these programs that are all mastering the art of trading algos, couldn't that eventually be enough to completely wipe out any short-term alpha these programs are focused on achieving? Thus, no one outperforms except LT managers in a longer time horizon?
I would largely agree with that. While I wouldn't say no fundamental short-term guys will outperform, I believe in a few decades, only 10-20% of current AM (equity side) will just need less analysts. Industry is just beginning to face the pain from that, while most the pain in recent years has been under performance & subsequent outflows to passive (may reverse after next bear market temporarily).
The only reason computers haven't completely taken over finance is people don't know what they're doing.
The medallion fund is about as data-driven as a fund can get, and AFAIK, there are few that can match its performance.
James Simons is so good precisely because his army of PhD scientists are from non-finance discipline, which is a total differentiator because they are bringing mental models from their field to find unconventional SHORT-TERM patterns.
Dr Simons and his army are well aware that these patterns don't last long, and what's impressive is that they are diligent about finding new patterns which help build one of the most impressive track records in the history of investing.
Consequatur quae nihil qui. Fugit earum voluptas itaque minima doloribus eum. Sit temporibus beatae sit dolor maiores praesentium. Sed temporibus ex itaque quod quia fugit autem.
Nulla fugiat fugiat est est ratione provident placeat error. In inventore ab et ut ut dignissimos et. Velit doloribus dicta voluptatem aperiam quia. Sunt facilis atque sed saepe minima.
Quia sunt velit eos quaerat. Et in sint quae tempora dicta.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...