Who is better at value investing: robots or people? How have robots — the quantitatively-driven passive funds that hold, for example, low price-to-book stocks — fared against actively managed value mutual funds?
A provocative paper forthcoming in the Financial Analysts Journal, “Facts About Formulaic Value Investing,” by U-Wen Kok, Jason Ribando, and Richard Sloan, argues that robots are poor value investors.
You need people — analysts studying companies — to pursue value strategies successfully, argue the authors. The reason is that robots have no intuition for the data and can only take the data literally, while, in value investing, the key to success is in knowing when certain types of data, such as earnings and book value, can be trusted and when they are exaggerated or manipulated.
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