Kewsong Lee from Carlyle said that investment is most importantly about judgement.
“Kewsong Lee”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?
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 1 yr time horizon guys will still be around. Even LT will face some pressure, but that's more related to automation, and having computers handle a lot of basic quant stuff, like the modeling you mentioned, so 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).