Last year Howard Marks was interviewed as part of an Investor Series named after him at Wharton.
At the Wharton fireside chat, Marks reflected on a successful investment career that spanned a half century. One critical thing he learned was that unlike in marriage, “not being very emotional is very useful in the investing world. … You make the really big money in this world by unhooking from the market when it gets up [high], when everybody’s happy and nobody could think of anything that could ever go wrong and everybody thinks that trees could grow to the sky.” That’s the time to sell. When the market collapses and everyone’s pessimistic, it’s time to buy.
For most this is easy to say but hard to do, unless you are a computer.
Lately computers have been replacing humans on and off the trading floor.
Will machine learning enable computers to study the entirety of financial history, figure out what made for the most successful investments, and sense what will work in the future? I have no way of knowing, but even if so, I think that’s not enough. Computers, artificial intelligence and big data will help investors know more and make better quantitative decisions. But until computers have creativity, taste, discernment and judgment, I think there’ll be a role for investors with alpha.
The thing is, you can’t have creativity, taste, discernment and judgment without emotion.
Post by Marcelino Pantoja