{"id":3275,"date":"2020-10-15T23:23:39","date_gmt":"2020-10-15T23:23:39","guid":{"rendered":"https:\/\/techclot.com\/index.php\/2020\/10\/15\/post-woman-against-machine-in-the-financial-markets\/"},"modified":"2020-10-15T23:23:39","modified_gmt":"2020-10-15T23:23:39","slug":"post-woman-against-machine-in-the-financial-markets","status":"publish","type":"post","link":"https:\/\/techclot.com\/index.php\/2020\/10\/15\/post-woman-against-machine-in-the-financial-markets\/","title":{"rendered":"Post: Woman against machine in the financial markets"},"content":{"rendered":"

Post: Woman against machine in the financial markets<\/a><\/p>\n

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\u201cWhen stupid money realizes its limit, it stops being stupid,\u201d Warren Buffett said. In recent years, the fund debate has been about who is smart or stupid: those who believe in active management, or those who put their trust in passive index funds. <\/p>\n

The debate has stalled in many ways. The \u201cstupid\u201d money should stick to the index, while active management is reserved for the \u201csmartest\u201d. Paradoxically, Buffett himself is an active investor promoting passive management. <\/p>\n

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Anette Hjert\u00f8
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Critics now claim that technology will take over: Artificial intelligence and machine learning, combined with the pressure of ever-lower costs, will make us humans redundant in future money management. Last out is former manager Stig Myrseth, who has changed pastures for the browser company Opera: \u201cThere will be a battle between technology companies and traditional banks for hegemony in the financial industry. I think the technology companies will win that battle, since they have an advantage over artificial intelligence and machine learning. Traditional management companies will be squeezed \u201c, he says to Finansavisen. <\/p>\n

Artificial intelligence and machine learning are already in use by both traditional funds and hedge funds, and not without reason. They are useful tools in what we call systematic management. If there are two trends in management that I believe will prevail in the years ahead, then it is cost pressure and systematic management. <\/p>\n

\u201cHigh fees create low returns,\u201d as Buffett so aptly put it. We are unlikely to have more managers per krone managed in the years ahead. But that the woman is completely overcome in the fight against the machine, I have no faith in that. <\/p>\n

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Systematic management \u2013 also known as \u201cquantum\u201d, \u201cfactor\u201d and \u201csmart beta\u201d \u2013 is a relatively new way of managing money. There is a place between active management (woman) and passive management (machine). <\/p>\n

I would argue that the management of the future will not try to distinguish between \u201csmart\u201d and \u201cstupid\u201d money, or between woman and machine, but that efficient and cost-conscious management will be a combination of characteristics from humans and computers. <\/p>\n

Systematic methods can also be used to achieve index returns. <\/p>\n

The first time I heard about this was when a colleague had been commissioned to set up an index portfolio of government bonds. He had neither the capital nor the capacity to do as the biggest managers: Buy rubles and bits. Each state has issued hundreds of bonds with different maturities. However, he managed to recreate the same return by buying only seven percent of the bonds in this universe. He has now repeated that feat for 17 years. <\/p>\n

I think more people will do the same in the future, preferably with input from artificial intelligence or machine learning. <\/p>\n

Another example, from the active side: With systematic management, one can screen far larger amounts of data than a manager can do alone. This means that you can identify risk factors in the market that you want \u2013 or want to avoid \u2013 in the portfolio. <\/p>\n

For example, one of my colleagues uses a systematic model to reduce the risk of losses in falling stock markets. <\/p>\n

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