John Rogers: In Investing, Brains Are More Reliable Than Machines. Here’s Why

Johnny HopkinsJohn RogersLeave a Comment

Just read a great article by John Rogers from Ariel Appreciation, who illustrates why brains are more reliable that machines in the world of investing. It reminded me of an article by Scientific American which says, “Computers are good at storage and speed, but brains maintain the efficiency lead”. The article went on to say:

For decades computer scientists have strived to build machines that can calculate faster than the human brain and store more information. The contraptions have won. The world’s most powerful supercomputer, the K from Fujitsu, computes four times faster and holds 10 times as much data. And of course, many more bits are coursing through the Internet at any moment. Yet the Internet’s servers worldwide would fill a small city, and the K sucks up enough electricity to power 10,000 homes.

The incredibly efficient brain consumes less juice than a dim lightbulb and fits nicely inside our head. Biology does a lot with a little: the human genome, which grows our body and directs us through years of complex life, requires less data than a laptop operating system. Even a cat’s brain smokes the newest iPad—1,000 times more data storage and a million times quicker to act on it.

Here’s an excerpt from the article by John Rogers:

Man vs. machine. It is an old, well-trodden debate. There is little question that technological advances have forever changed and improved our lives in ways big and small. But now, some are predicting that machines and their algorithms will supplant humans in the investment firm of the future.

I will be the first to admit that technology helps me do my job better. I still remember my days of skimming through S&P tear sheets to find new ideas. Now a phone in my pocket can provide everything from tick-by-tick stock quotes to pages upon pages of corporate filings.

But here is the thing: data alone isn’t enough. As Albert Einstein once supposedly said, “Information is not knowledge.” Those promoting artificial intelligence would lead one to believe it is all about replicating human judgment in a superior manner. The data part may be easy for machines but the human part isn’t. This is where computers meet their limits and our brains can triumph. Much of the investment world is captivated by using quantitative models to solve math problems when so much of investment success involves untangling behavioral problems through slow, hard, qualitative analysis.

You can read the article at the WSJ here.

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