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in LeoFinance •  3 months ago 

This is one of the biggest shifts in the world of investing that is not really being discussed. Part of the reason is because it is still a rather new concept, at least to the general public.

Money managers are a long-time part of Wall Street. Investors are constantly looking for those who are able to beat the market. The sad fact is that few money managers are able to do this consistently. Only a handful are able to produce out-sized returns. Individuals such as Peter Lynch are not the norm.

The sad part is that these people are still paid big money to manage these funds. In spite of their incompetence, they still get their bonuses based upon money under management. Thus, they tend to be more salesperson as money manager.


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One thing that is spreading on Wall Street is automation. Traders on the floors of exchanges were basically replaced over the last 2 decades. Analysts are starting to feel the pinch as AI programs are starting to develop analysis for a fraction of the cost. Obviously, the age old stock broker has been eliminated for the most part.

Could we see money managers be next? It is already well known that passive investing far outpaces the actively managed money. This means the money goes into a fund and sits. Index funds are at the top of this list.

Thus, is it a big jump for people to embrace AI driven money management? At present, the is very little data on the ability to beat the human managers since this is relatively new. However, the information that is accumulated so far shows that AI managed funds are consistently beating the human counterparts.

And when it comes to investing, returns are what grabs the headlines.

Removing the human element could, over the long term, produce much bigger returns. The reason for this is the lack of emotion. When it comes to investing, buying into fear and greed can be fatal. It pushes people to sell to early or buy too late. Computers do not have this problem.

Another factor in this is the fact that computers have access, and can process, all the data that is out there. If something happens on the other side of the world, a computer can determine the impact that has on the present investment portfolio. A human manager might not even be aware of the event let alone how it will affect things.

At the core of all of this is how quickly society shifts to trusting computers more than people. When it comes to investing, if the computers produce better returns, people will shift.

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It's scary...I'm starting to see more and more funds who advise that the fund trades based on AI and it's cheaper to invest in these funds due to the lack of overhead.

Posted via Steemleo