Can A Robot Be The Best Fund Manager In The World?

To me, there are only two secrets to investing: be patient and control your emotions. However, they are also the fundamental weaknesses of any human. After all, we are all prone to instant gratification, and our emotions are what make us human.

In recent years, there has been a huge development in the field of robo-advisors in the investment world. Many of the largest fund management companies and brokerages around the world are investing in these new robo-advisors and embedding them into their ecosystem.

It seems that the trend is here to stay. On the surface, it makes perfect sense. If having patience and the ability to control our emotion are the keys to investment success, wouldn’t a robot be the best possible investor?

Although having a robot fund manager is still new, it does seem that there is indeed a high chance that machines could replace humans in picking stocks. However, what are some of the challenges for robots?

A Great Stock

There is hardly any fixed criteria that signify a great investment. George Soros famously said that he makes investment decisions based on how badly his back hurts. Machines would need to learn for themselves how to spot a great stock instead of copying the investment styles of fund managers.

However, with the development of artificial intelligence and machine learning, computers might have a high chance of developing their own investment style over time.

Black Swan Events

Data is required for machines to learn. However, the stock market is prone to black swan events now and then. These low probability events do not occur often, but their effect could be very hazardous. Thus, for a machine that bases its investment style on past data, would it be able to react appropriately during a major financial crisis? That remains to be seen.

Foolish Summary

Computers have proven to us that they are indeed better at some of the most complicated games such as Weiqi and chess.

Investing in the stock market, however, might be different from playing a game. It will be interesting to watch how robots can come up with their own investment style and also overcome low probability events like black swans.

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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.