Artificial Intelligence Attempts to Replace Human Judgment

Published on July 14, 2010

The Wall Street Journal published an interesting profile of a small hedge fund which employs an “artificial intelligence” strategy seeking to replace human judgment with the wisdom of computer algorithms.  Spencer Greenberg, founder of Rebellion Research, is the 27 year old son of well known value investor Glenn Greenberg.  The hedge fund has also attracted the personal funds of Jean-Marie Eveillard who is also well known for employing value investing strategies.  One interesting aspect of Mr. Greenberg’s fund is that holding periods average four months.  This is hardly a long term strategy but a marked contrast to the minutes or seconds that positions in high frequency strategies are often held.  A video interview of the managers of the fund appears below.

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Taking human judgment and emotion out of the investing process could help some investors who lack the judgment to make intelligent decisions on their own, but the same is also true of index funds.  Of course, funds like Mr. Greenberg’s aim to beat the overall market rather than just match it. But can computers really substitute for the wisdom of skilled value investors applying years or decades of experience, some of which involves business analysis factors that cannot be quantified?

Whether the fund succeeds over longer periods of time with larger amounts under management is an open question.  It is possible that some algorithms will succeed by exploiting market inefficiencies that are undetected by other participants.

The fund does not claim to have a “value” strategy but does employ some criteria that are supposed to consider valuation factors.  Obviously, the majority of value investors would never employ a quantitative strategy of this kind but it will be interesting to watch the performance of the fund given the support it has received from well known value investors.

Disclosures:  None

Artificial Intelligence Attempts to Replace Human Judgment