14 ms·

At Blackrock, machines are rising over managers to pick stocks

198 points by Futurebot 10y ago

terravion 10y ago
It is interesting, but not all that surprising that ineffective management strategies are slowly being flushed out of the market. That human stock picking is pretty bad, is widely known, sorry for the pickers, but I'm sure there are other things that they can do to actually create instead of destroy value--reallocating their labor is a huge benefit for society. The real questions for me with this transition though are: -With all these people passively investing, are we going to see reduced competition within industries because you don't have active, non-diversified, significant, institutional shareholders to drive aggressive competition against other industry participants? In fact, we may get the opposite where institutional shareholders don't want to see aggressive competitive moves because it is profit destroying for them on both sides (aggressor spends money to return less than the defender loses in profit--lose, lose for investor in both companies win, win for the consumers of this industry). -How good is price setting if there are less and less actively managed funds? Are there new inefficiencies that are created by all this passive investing? -Where aren't the machines taking over? Obviously, something like replicating an index is a great exercise for automation and programming. But truly maximizing return? Who is successfully, consistently beating the benchmarks with active strategies automated or not?
- tormeh 10y ago
  Following a market cap index investing - the most popular method of passive investing - means buying a set of stock weighted by market cap and then mostly doing nothing. It's hardly the machines taking over. Algorithm investment is probably not passive investment.
  - simo7 10y ago
    Exactly, how can algorithm investing be truly passive investing? There's a lot of confusion in the article.
    - dsr_ 10y ago
      Disclosure: I work for a company which does this stuff. I'm not in the financial programming side. There are several things you can do. For example, say you wanted to hold the S&P500, but as individual stocks rather than paying someone at a mutual fund or ETF to hold it for you. This might be beneficial in a number of ways, but it has the serious drawback of having to manage 500 entries. You might already own a dozen or two of those entries already, or you have overlapping purchases in other investments. You could tell a smart portfolio management program to use the S&P500 list as a target, and tell it about all the rest of your current holdings. Then it could analyze your current portfolio each day and make recommendations about how to get closer to your target, while avoiding wash sales and duplicate purchases. If you trusted that program, you could feed the output to your brokerage and have the trades executed automatically. Or you could look at the output and make decisions about whether you want to make the changes. Either way, you are no longer doing analysis yourself, and you're edging closer to your target, at which point you would be passive. On the other hand, suppose you wanted an approximation of the S&P500 -- a target that would give you most of the same exposure and opportunity, but had a reduced number of individual stocks. You could run simulations on subsets of the S&P500 until you got a group that performed sufficiently similarly to the whole thing - 300? 250? 100? 50? as you reduce the set size you reduce the fidelity of the model - and then buy and hold those. You can do a lot with an algorithm, and if your strategy doesn't need to operate in realtime, it will certainly look passive compared to HFT bots. A human might not want to rebalance more than annually or quarterly, because it can be a lot of work -- but a robot has no problems doing all the calculations daily and looking for a sufficient reward to present to you.
      - simo7 10y ago
        Thanks for the explanation, there are 2 things I don't quite understand though. What is the advantage of building a replica of the S&P500 with individual stocks rather than having it done with an index fund? Isn't the second option much cheaper? Secondly, isn't finding a subset of the S&P500 and trying to replicate it still an active strategy?
        10y ago
  - rockinghigh 10y ago
    There are actually two trends: 1) Move to ETFs: Clients have been moving away from high-fee hedge funds into passive funds (ETFs) where trading is generally simpler. 2) Automation: There used to be a lot of analysts working on reports to monitor fund performance, tracking error, trading costs, risk exposures and so on. They are being replaced by software.
- frgtpsswrdlame 10y ago
  >With all these people passively investing, are we going to see reduced competition within industries... I read an article a while back, wish I could find it. It was about how CEO compensation is often tied to absolute performance as opposed to performance relative to the whole industry and how passive management actually prefers this so I'd say yes. >How good is price setting if there are less and less actively managed funds? Are there new inefficiencies that are created by all this passive investing? Well Shiller PE is getting up there. I think this is super interesting because in our next correction or perhaps even now, as we move to an increasing rate environment, we will get to see some analytical minds actually beating the market. It's gonna be interesting.
- Analemma_ 10y ago
  There's been a lot of interest lately in the hypothesis that increased passive investing might cause non-competition as mutual funds hold shares in every company in a sector. It's now gotten a couple studies from both academia and even the Federal Reserve, and so far the evidence is that there is nothing to worry about yet. Check out Matt Levine's daily column and the "Should index funds be illegal?" section, he's been following these developments. That doesn't necessarily mean it won't be a problem in the future. Right now the big index funds like Vanguard and BlackRock own something like 10% of public shares. If they reach, say, 50%, we might have to revisit this, but for now, it seems to be a non-issue.
  - Maven911 10y ago
    Hi, I am curious, do you do lot's of finance type research, would like to chat if possible to learn more. P.S. Also really like Matt Levine's postings.
- prostoalex 10y ago
  Social aspect of this are also interesting. We use the stock ticker as a reward and punishment for the companies involved, so introducing a new product that sells in unexpectedly large quantities generally leads to the stock price going up, while any bad news, e.g. pollution, poisoning, product recall, illegal behavior by the exec generally lead to a sell-off. In an index-centric world if neither of the events cause the company to leave the index, I wonder if we'll still see such price adjustments.
  - inthewoods 10y ago
    The really interesting social aspect, to me, is that we have a huge number of people in the US that are concentrated in the financial sector around active management. What happens to all those people? Are we about to see a huge downsizing of the financial industry?
    - prostoalex 10y ago
      Is the number huge, though? Retail stock-picking is done through mutual funds and active ETFs, which are typically owned by a larger outfit like Blackrock or Franklin Templeton, so the active stock picking is done by a select few managers of the fund. If that goes away, Blackrock or FT can still sell indexes and variety of bond funds. On the hedge fund site extreme churn is fairly typical and considered part of the job. Well-known pickers (known mainly due to their windfall successes of the past and survivor bias) like Stephen Cohen, Carl Icahn and John Paulson are motivated less by the need to live paycheck to paycheck and more by the gambler's high.
- Danylon 10y ago
  It's not a case of exclusive or. Gather a list of a 100 or so human stock pickers. Train a model to predict the effect of following their suggestions (buy, hold, sell) to both identify which experts are most right, and which particular experts do well for particular kinds of stocks. This model will do better than random guessing, and quite likely, better than any individual stock picker.
  - simo7 10y ago
    So you're basically saying the model should identify which human stock pickers to follow for each sector? If it's so easy why not to identify directly which stocks to invest in? If you can predict which investors will perform well, then just try to predict which stocks will perform well directly.
    - Danylon 10y ago
      > If it's so easy why not to identify directly which stocks to invest in? It is not easy. Both to set-up, and the problem itself (you won't get a very high accuracy, but you will get much better than random guessing). > If you can predict which investors will perform well, then just try to predict which stocks will perform well directly. This won't work, because you don't have access to all the information that the stock pickers have access to, just their advice, and some features about the stock / the company the stock pickers work for.
  - WalterBright 10y ago
    Algorithms that predict the past accurately but are no better than random at the future are a dime a dozen, and I don't see how your suggested algorithm is different.
    - pizza 10y ago
      Corollary: having a time machine that can go a few minutes back in time is worth much less than one that can go a few minutes forward in time.
- blazespin 10y ago
  Computer stock pickers look at balance sheets, p/l statements, etc. if anything the markets will become more rational and less prone to bubbles.
  - simo7 10y ago
    Algorithms look at the very same things humans look at. They will try to time the market and speculate as much as now or even more.
  - hendzen 10y ago
    Computer stock pickers generally don't view balance sheets, P/L statements and other fundamentals data in isolation - they match them up temporally to historical market data and try to model what the effect of future financials releases will be on the price of the relevant security. If markets are historically irrational w.r.t. fundamentals, due to human falliability, or whatever else, our machines seem destined to repeat our mistakes.
    - Danylon 10y ago
      Is a mistake still a mistake when it is a profitable action? If fitting to human irrationality increases generalization performance, then it does not matter if the "machines seem destined to repeat our mistakes", it is still a useful signal. If fitting to human irrationality decreases generalization performance, your algorithm is overfit to noise (and you have bigger fish to fry than human irrationality). Overfitting to noise is perfectly avoidable, not pre-destined when part of your data is noisy (noisy data is the rule not the exception).
    - eru 10y ago
      Why? If the robot sees a historical parallel to a popped bubble---the robot might anticipate the popping short-sell now?
jwilliams 10y ago
This is for mutual funds, which are ultimately intended to operate under given parameters -- balancing a cocktail of risk, reward, timeframe etc. Seems natural that you'd eventually move to algorithms for this, particularly as information asymmetry drops or is negated by other factors. This is really now becoming a form arbitrage between the mega-funds on a sizable, but discrete, chunk of the trading market. Probably the same chunk that's already reserved for market-makers who can (usually) succeed through volume and brute force alone. I think this is a good thing - arbitrage is a terrific leveller for the rest of us. It opens up the real market for us small fry.
StClaire 10y ago
Hopefully, we can eventually cut down on fees with those mutual funds too. You don't have to worry so much about algorithm engaging in insider trading or some other securities fraud. The auditors just have to look at the algorithm's data sources to verify the fund stays compliant with securities regulations. Fewer costs (hopefully) mean fewer fees
bertlequant 10y ago
It will be interesting to see what happens when machines and algorithms really start coming for jobs on that level. I wonder if far down the line, will there be one sole human at the top of all of this automation, protected from its outcomes?
nickpsecurity 10y ago
Hasn't the Aladdin system been doing this for a long, long time? Or was it actually semi-automated?
- AznHisoka 10y ago
  Aladdin simply provided portfolio managers with data. it did not pick stocks. the onus was on the portfolio managers to pick the best stocks given that data.
  - nickpsecurity 10y ago
    Thank you. I wssn't clear on it.
one-more-minute 10y ago
Interesting to note that BlackRock's Aladdin software platform, powering much of this stuff, is being largely written / re-written in Julia. https://juliacomputing.com/case-studies/blackrock.html https://juliacomputing.com/case-studies/blackrock.html
- eb0la 10y ago
  Not surprising. Just take any function you write and write code_native( your_function, () ) Knowing that the JIT is actually executing means a lot to me. For investment banks this means lower cost (quants can write code that goes into production) and lower latencies.
- tnecniv 10y ago
  Any idea what it was written in before?
  - jwilliams 10y ago
    C++ and Java - including some Scala I believe.
    - dragonquest 10y ago
      A lot of Perl before Java came along.
  - 5706906c06c 10y ago
    Java primarily.
  - deleted 10y ago
    [deleted]
- daveguy 10y ago
  Does Julia have good substitutes for Numpy / Scipy / sk-learn / Pandas / Matplotlib / Keras / Tensorflow / Theano yet either natively (for Numpy) or from libraries (for others)? Ease of analysis being almost at the level of matlab is why I stick with python. I would love to be able to switch to something that doesn't have such a heavy handed approach at the top.
retox 10y ago
Reminds me of this art project by Michael Marcovici where they 'taught' rats to trade. Sadly no longer online. https://web-beta.archive.org/web/20140220072141/http://www.rattraders.com:80/methodology https://web-beta.archive.org/web/20140220072141/http://www.r...
- goldenkey 10y ago
  That was bizzare but interesting. Looking for more on it now. Thanks for sharing.
ww520 10y ago
Does the machine just run a random generator to pick the stock?
- WalterBright 10y ago
  There's a back room with monkeys throwing darts somewhere :-)
  - tonyedgecombe 10y ago
    No change then :)
    - WalterBright 10y ago
      Hey, it's how I pick stocks!
TheRealPomax 10y ago
So... wait, this is what investment banks have been doing for literally over a decade, is this news? For legal accountability someone has to sign off on the orders but that's about it. The computers have been picking stocks for years.
- ekianjo 10y ago
  exactly what i was thinking. does not seem remotely new.
jgalt212 10y ago
Not to be skeptical, but Blackrock was never known as a stock picker's shop, it's a fixed income shop. The equities side has largely been a function of their indexed ETF biz. If Fidelity or TR Price were going all in machine based stock picking, then this would be news.
deleted 10y ago
[deleted]
tim333 10y ago
It's not so much machines getting better. It's investors switching to low cost passive funds rather than giving 2% a year to pay for the managers next vacation home.
- Beltiras 10y ago
  Reminds me of the story of the manager of CALPERS (California's public workers pension fund). Can't find the article but it focused on how hard work it is for a moneymanager to do nothing. CALPERS is showing good return for it's inactivity.
  - mason55 10y ago
    He's in Nevada actually https://www.fnlondon.com/articles/nevada-pension-fund-manager-does-nothing-all-day-20161020 https://www.fnlondon.com/articles/nevada-pension-fund-manage...
    - Beltiras 10y ago
      Hah! That's why I couldn't find it! Could have sworn it was about CALPERS. Thanks! It was in some other publication thou (if my memory isn't Swiss Cheese).
      - mason55 10y ago
        Yeah there were a few articles about it. The first one I found when googling just now was WSJ but that's fully pay-walled at this point
- inputcoffee 10y ago
  Exactly. These algorithms are not "picking" stocks so much as tracking stocks. This is a story about investor behavior.
mrich 10y ago
I wonder how much of this trend is helped by the stock market going mostly up and sideways in the past years. In that case passive investing is very good, you need to minimize fees. Timing the exit before the bubble bursts again and re-entering at the right time will be a big part of the long-term performance and I expect many humans to outdo the robotic overlords who will just stay invested.
blueyes 10y ago
BlackRock isn't a whole lot more advanced than many other asset managers. So sure, Wall St. uses algorithms to trade, but that's not really news... Separately, BlackRock bought FutureAdvisor so that it could use machines to do the opposite of picking stocks; i.e. rebalance assets using index funds. A very different proposition.

198 points by Futurebot 10y ago

It is interesting, but not all that surprising that ineffective management strategies are slowly being flushed out of the market. That human stock picking is pretty bad, is widely known, sorry for the pickers, but I'm sure there are other things that they can do to actually create instead of destroy value--reallocating their labor is a huge benefit for society. The real questions for me with this transition though are: -With all these people passively investing, are we going to see reduced competition within industries because you don't have active, non-diversified, significant, institutional shareholders to drive aggressive competition against other industry participants? In fact, we may get the opposite where institutional shareholders don't want to see aggressive competitive moves because it is profit destroying for them on both sides (aggressor spends money to return less than the defender loses in profit--lose, lose for investor in both companies win, win for the consumers of this industry). -How good is price setting if there are less and less actively managed funds? Are there new inefficiencies that are created by all this passive investing? -Where aren't the machines taking over? Obviously, something like replicating an index is a great exercise for automation and programming. But truly maximizing return? Who is successfully, consistently beating the benchmarks with active strategies automated or not?

tormeh 10y ago
Following a market cap index investing - the most popular method of passive investing - means buying a set of stock weighted by market cap and then mostly doing nothing. It's hardly the machines taking over. Algorithm investment is probably not passive investment.
- simo7 10y ago
  Exactly, how can algorithm investing be truly passive investing? There's a lot of confusion in the article.
  - dsr_ 10y ago
    Disclosure: I work for a company which does this stuff. I'm not in the financial programming side. There are several things you can do. For example, say you wanted to hold the S&P500, but as individual stocks rather than paying someone at a mutual fund or ETF to hold it for you. This might be beneficial in a number of ways, but it has the serious drawback of having to manage 500 entries. You might already own a dozen or two of those entries already, or you have overlapping purchases in other investments. You could tell a smart portfolio management program to use the S&P500 list as a target, and tell it about all the rest of your current holdings. Then it could analyze your current portfolio each day and make recommendations about how to get closer to your target, while avoiding wash sales and duplicate purchases. If you trusted that program, you could feed the output to your brokerage and have the trades executed automatically. Or you could look at the output and make decisions about whether you want to make the changes. Either way, you are no longer doing analysis yourself, and you're edging closer to your target, at which point you would be passive. On the other hand, suppose you wanted an approximation of the S&P500 -- a target that would give you most of the same exposure and opportunity, but had a reduced number of individual stocks. You could run simulations on subsets of the S&P500 until you got a group that performed sufficiently similarly to the whole thing - 300? 250? 100? 50? as you reduce the set size you reduce the fidelity of the model - and then buy and hold those. You can do a lot with an algorithm, and if your strategy doesn't need to operate in realtime, it will certainly look passive compared to HFT bots. A human might not want to rebalance more than annually or quarterly, because it can be a lot of work -- but a robot has no problems doing all the calculations daily and looking for a sufficient reward to present to you.
    - simo7 10y ago
      Thanks for the explanation, there are 2 things I don't quite understand though. What is the advantage of building a replica of the S&P500 with individual stocks rather than having it done with an index fund? Isn't the second option much cheaper? Secondly, isn't finding a subset of the S&P500 and trying to replicate it still an active strategy?
      - 10y ago
- rockinghigh 10y ago
  There are actually two trends: 1) Move to ETFs: Clients have been moving away from high-fee hedge funds into passive funds (ETFs) where trading is generally simpler. 2) Automation: There used to be a lot of analysts working on reports to monitor fund performance, tracking error, trading costs, risk exposures and so on. They are being replaced by software.
frgtpsswrdlame 10y ago
>With all these people passively investing, are we going to see reduced competition within industries... I read an article a while back, wish I could find it. It was about how CEO compensation is often tied to absolute performance as opposed to performance relative to the whole industry and how passive management actually prefers this so I'd say yes. >How good is price setting if there are less and less actively managed funds? Are there new inefficiencies that are created by all this passive investing? Well Shiller PE is getting up there. I think this is super interesting because in our next correction or perhaps even now, as we move to an increasing rate environment, we will get to see some analytical minds actually beating the market. It's gonna be interesting.
Analemma_ 10y ago
There's been a lot of interest lately in the hypothesis that increased passive investing might cause non-competition as mutual funds hold shares in every company in a sector. It's now gotten a couple studies from both academia and even the Federal Reserve, and so far the evidence is that there is nothing to worry about yet. Check out Matt Levine's daily column and the "Should index funds be illegal?" section, he's been following these developments. That doesn't necessarily mean it won't be a problem in the future. Right now the big index funds like Vanguard and BlackRock own something like 10% of public shares. If they reach, say, 50%, we might have to revisit this, but for now, it seems to be a non-issue.
- Maven911 10y ago
  Hi, I am curious, do you do lot's of finance type research, would like to chat if possible to learn more. P.S. Also really like Matt Levine's postings.
prostoalex 10y ago
Social aspect of this are also interesting. We use the stock ticker as a reward and punishment for the companies involved, so introducing a new product that sells in unexpectedly large quantities generally leads to the stock price going up, while any bad news, e.g. pollution, poisoning, product recall, illegal behavior by the exec generally lead to a sell-off. In an index-centric world if neither of the events cause the company to leave the index, I wonder if we'll still see such price adjustments.
- inthewoods 10y ago
  The really interesting social aspect, to me, is that we have a huge number of people in the US that are concentrated in the financial sector around active management. What happens to all those people? Are we about to see a huge downsizing of the financial industry?
  - prostoalex 10y ago
    Is the number huge, though? Retail stock-picking is done through mutual funds and active ETFs, which are typically owned by a larger outfit like Blackrock or Franklin Templeton, so the active stock picking is done by a select few managers of the fund. If that goes away, Blackrock or FT can still sell indexes and variety of bond funds. On the hedge fund site extreme churn is fairly typical and considered part of the job. Well-known pickers (known mainly due to their windfall successes of the past and survivor bias) like Stephen Cohen, Carl Icahn and John Paulson are motivated less by the need to live paycheck to paycheck and more by the gambler's high.
Danylon 10y ago
It's not a case of exclusive or. Gather a list of a 100 or so human stock pickers. Train a model to predict the effect of following their suggestions (buy, hold, sell) to both identify which experts are most right, and which particular experts do well for particular kinds of stocks. This model will do better than random guessing, and quite likely, better than any individual stock picker.
- simo7 10y ago
  So you're basically saying the model should identify which human stock pickers to follow for each sector? If it's so easy why not to identify directly which stocks to invest in? If you can predict which investors will perform well, then just try to predict which stocks will perform well directly.
  - Danylon 10y ago
    > If it's so easy why not to identify directly which stocks to invest in? It is not easy. Both to set-up, and the problem itself (you won't get a very high accuracy, but you will get much better than random guessing). > If you can predict which investors will perform well, then just try to predict which stocks will perform well directly. This won't work, because you don't have access to all the information that the stock pickers have access to, just their advice, and some features about the stock / the company the stock pickers work for.
- WalterBright 10y ago
  Algorithms that predict the past accurately but are no better than random at the future are a dime a dozen, and I don't see how your suggested algorithm is different.
  - pizza 10y ago
    Corollary: having a time machine that can go a few minutes back in time is worth much less than one that can go a few minutes forward in time.
blazespin 10y ago
Computer stock pickers look at balance sheets, p/l statements, etc. if anything the markets will become more rational and less prone to bubbles.
- simo7 10y ago
  Algorithms look at the very same things humans look at. They will try to time the market and speculate as much as now or even more.
- hendzen 10y ago
  Computer stock pickers generally don't view balance sheets, P/L statements and other fundamentals data in isolation - they match them up temporally to historical market data and try to model what the effect of future financials releases will be on the price of the relevant security. If markets are historically irrational w.r.t. fundamentals, due to human falliability, or whatever else, our machines seem destined to repeat our mistakes.
  - Danylon 10y ago
    Is a mistake still a mistake when it is a profitable action? If fitting to human irrationality increases generalization performance, then it does not matter if the "machines seem destined to repeat our mistakes", it is still a useful signal. If fitting to human irrationality decreases generalization performance, your algorithm is overfit to noise (and you have bigger fish to fry than human irrationality). Overfitting to noise is perfectly avoidable, not pre-destined when part of your data is noisy (noisy data is the rule not the exception).
  - eru 10y ago
    Why? If the robot sees a historical parallel to a popped bubble---the robot might anticipate the popping short-sell now?

jwilliams 10y ago

This is for mutual funds, which are ultimately intended to operate under given parameters -- balancing a cocktail of risk, reward, timeframe etc. Seems natural that you'd eventually move to algorithms for this, particularly as information asymmetry drops or is negated by other factors. This is really now becoming a form arbitrage between the mega-funds on a sizable, but discrete, chunk of the trading market. Probably the same chunk that's already reserved for market-makers who can (usually) succeed through volume and brute force alone. I think this is a good thing - arbitrage is a terrific leveller for the rest of us. It opens up the real market for us small fry.

StClaire 10y ago

Hopefully, we can eventually cut down on fees with those mutual funds too. You don't have to worry so much about algorithm engaging in insider trading or some other securities fraud. The auditors just have to look at the algorithm's data sources to verify the fund stays compliant with securities regulations. Fewer costs (hopefully) mean fewer fees

bertlequant 10y ago

It will be interesting to see what happens when machines and algorithms really start coming for jobs on that level. I wonder if far down the line, will there be one sole human at the top of all of this automation, protected from its outcomes?

nickpsecurity 10y ago

Hasn't the Aladdin system been doing this for a long, long time? Or was it actually semi-automated?

AznHisoka 10y ago
Aladdin simply provided portfolio managers with data. it did not pick stocks. the onus was on the portfolio managers to pick the best stocks given that data.
- nickpsecurity 10y ago
  Thank you. I wssn't clear on it.

one-more-minute 10y ago

Interesting to note that BlackRock's Aladdin software platform, powering much of this stuff, is being largely written / re-written in Julia. https://juliacomputing.com/case-studies/blackrock.html https://juliacomputing.com/case-studies/blackrock.html

eb0la 10y ago
Not surprising. Just take any function you write and write code_native( your_function, () ) Knowing that the JIT is actually executing means a lot to me. For investment banks this means lower cost (quants can write code that goes into production) and lower latencies.
tnecniv 10y ago
Any idea what it was written in before?
- jwilliams 10y ago
  C++ and Java - including some Scala I believe.
  - dragonquest 10y ago
    A lot of Perl before Java came along.
- 5706906c06c 10y ago
  Java primarily.
- deleted 10y ago
  [deleted]
daveguy 10y ago
Does Julia have good substitutes for Numpy / Scipy / sk-learn / Pandas / Matplotlib / Keras / Tensorflow / Theano yet either natively (for Numpy) or from libraries (for others)? Ease of analysis being almost at the level of matlab is why I stick with python. I would love to be able to switch to something that doesn't have such a heavy handed approach at the top.

retox 10y ago

Reminds me of this art project by Michael Marcovici where they 'taught' rats to trade. Sadly no longer online. https://web-beta.archive.org/web/20140220072141/http://www.rattraders.com:80/methodology https://web-beta.archive.org/web/20140220072141/http://www.r...

goldenkey 10y ago
That was bizzare but interesting. Looking for more on it now. Thanks for sharing.

ww520 10y ago

Does the machine just run a random generator to pick the stock?

WalterBright 10y ago
There's a back room with monkeys throwing darts somewhere :-)
- tonyedgecombe 10y ago
  No change then :)
  - WalterBright 10y ago
    Hey, it's how I pick stocks!

TheRealPomax 10y ago

So... wait, this is what investment banks have been doing for literally over a decade, is this news? For legal accountability someone has to sign off on the orders but that's about it. The computers have been picking stocks for years.

ekianjo 10y ago
exactly what i was thinking. does not seem remotely new.

jgalt212 10y ago

Not to be skeptical, but Blackrock was never known as a stock picker's shop, it's a fixed income shop. The equities side has largely been a function of their indexed ETF biz. If Fidelity or TR Price were going all in machine based stock picking, then this would be news.

deleted 10y ago

[deleted]

tim333 10y ago

It's not so much machines getting better. It's investors switching to low cost passive funds rather than giving 2% a year to pay for the managers next vacation home.

Beltiras 10y ago
Reminds me of the story of the manager of CALPERS (California's public workers pension fund). Can't find the article but it focused on how hard work it is for a moneymanager to do nothing. CALPERS is showing good return for it's inactivity.
- mason55 10y ago
  He's in Nevada actually https://www.fnlondon.com/articles/nevada-pension-fund-manager-does-nothing-all-day-20161020 https://www.fnlondon.com/articles/nevada-pension-fund-manage...
  - Beltiras 10y ago
    Hah! That's why I couldn't find it! Could have sworn it was about CALPERS. Thanks! It was in some other publication thou (if my memory isn't Swiss Cheese).
    - mason55 10y ago
      Yeah there were a few articles about it. The first one I found when googling just now was WSJ but that's fully pay-walled at this point
inputcoffee 10y ago
Exactly. These algorithms are not "picking" stocks so much as tracking stocks. This is a story about investor behavior.

mrich 10y ago

I wonder how much of this trend is helped by the stock market going mostly up and sideways in the past years. In that case passive investing is very good, you need to minimize fees. Timing the exit before the bubble bursts again and re-entering at the right time will be a big part of the long-term performance and I expect many humans to outdo the robotic overlords who will just stay invested.

blueyes 10y ago

BlackRock isn't a whole lot more advanced than many other asset managers. So sure, Wall St. uses algorithms to trade, but that's not really news... Separately, BlackRock bought FutureAdvisor so that it could use machines to do the opposite of picking stocks; i.e. rebalance assets using index funds. A very different proposition.