Can Human Choice Survive in Investing?

June 29, 2017 6:40 p.m. ET

Investment professionals younger than 50 can be forgiven for wondering whether they should have spent less time studying Graham and Dodd and more time learning about algorithms and other computer processes.

Whether the subject is quant investing or the rise of passive investment vehicles, it’s rare that a day goes by without a story chronicling the rise of investing that takes daily human choices out of the equation.

For example, a piece in Wednesday’s Wall Street Journal pointed out that the flood of cash into exchange-traded funds has been so great lately that ETFs bought $98 billion in U.S. stocks during the first three months of this year, “on pace to surpass their total purchases for 2015 and 2016 combined, according to the Federal Reserve Board’s most recent quarterly tally of U.S. financial accounts.”

By contrast, writes the Journal’s Chris Dieterich, “actively managed mutual funds, run by stock pickers who choose shares based on business prospects and valuations, have become sellers recently to meet redemption requests.” These funds, Dieterich adds, suffered $985 billion in withdrawals since the start of 2009 through May, according to Morningstar.

That’s a shocking development for active management since that period coincides with an almost nonstop bull market in stocks.

But a piece by Bloomberg earlier this week gives traditional investors reason not to hang it up just yet.

The article profiles how four different hedge-fund firms, including those who have used algorithms to conduct business, have kept human decision-making alive in their work.

The article states that Winton Group, a $30.6 billion-in-assets hedge fund that has used algorithms to trade for two decades, told clients that people must still make the big decisions.

Meanwhile, “Michael Hintze, who runs another major fund, said computer models can spot market anomalies but rarely provide answers. Jordi Visser, investment chief at a third firm, said humans still have the upper hand when it comes to recognizing patterns. Billionaire bond manager Jeffrey Gundlach said he’s betting people will prevail.”

The Bloomberg piece quotes David Winton Harding, a billionaire and founder of U.K.-based quant shop Winton, as saying that “despite the…

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