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Will Robots Be Better Investors Than Humans?

In investing, we are often our worst enemy.

We know the theory.

We know that we have to invest for the long term. We know that the stock market can be volatile and we certainly know that we should be greedy when others are fearful. However, all of these are easier said than done.

This is because, we, as human are emotional creatures. No matter how hard we try, our decision will be influenced by our emotions. Yet, the best investment decisions are made if they are logical and without emotions. Does that mean the best investors are the ones without emotions?

In my opinion, the answer is slightly more complicated. For starters, yes, computers should make better investors than humans. It is true that about 97% of fund managers have underperformed the market over the past decade. That is why there has been a massive flow of funds moving into passive investing funds. That might also be why roboadvisors, investment advice based on the decisions of computers, are gaining popularity.

Yet, at the end of the day, the final decisions still lie with us. It is because we can increase our investments or withdraw our funds at any time. That would indirectly affect the buying and selling decisions of the robots.

And the general market would still follow the market trend. This means that in a bull market, investors would get greedier and start putting in more funds to invest.

Similarly, in a crisis, investors would start withdrawing funds from these passive funds and roboadvisors in a time of panic, which is the opposite of what logical investors should be doing.

Foolish Summary

In theory, robots and computers should be much better investors compared to us. In practice, they might only be as good as how well we can control our emotions during times of greed and times of panic.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.