Are stock pickers better than Computers?

/Are stock pickers better than Computers?

Are stock pickers better than Computers?

By | 2017-08-18T17:10:27+00:00 March 24th, 2012|Research Insights, Value Investing Research|1 Comment

Empiritrage has a detailed research piece on the question of whether or not quantitative value can beat fundamental stock-pickers. http://empiritrage.com/2012/03/24/man-vs-machine-quantitative-value-or-fundamental-value/ Here are a few highlights: First, some summary statistics.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

MF_EW_Top10% represents a portfolio of Magic Formula stocks with market caps greater than $500mm. VIC_EW_500mm represent a calendar-time portfolio of recommendations posted to Valueinvestorsclub.com.

From the looks of it, Man beats Machine…but…

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

Stock-pickers eat some serious drawdowns. Also, over 5-years you can still be out 25% with the stock-pickers relative to -12% with the Machine. Anyway, interesting piece regarding the philosophical battle between process and private information. Here is an old video I created to mock both value investors and quant investors:

[youtube url=”http://youtu.be/PaaBuZUeWfo”]


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About the Author:

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

One Comment

  1. March 30, 2012 at 10:15 am

    The video is pretty awesome!

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