Tags: Shiller | markets | Buffett | computer

Shiller: Markets (And Buffett) Can't Be Replaced by Computers

By    |   Thursday, 16 July 2015 06:00 AM

Some investment analysts say that we're moving to the point where computer algorithms will perfectly determine financial asset prices.

It has even been suggested that a computer could match Warren Buffett's investing genius.

Not quite, counters Nobel laureate economist Robert Shiller of Yale University.

"This imagined state of affairs might be called the financial singularity," he writes on Project Syndicate.

"Financial singularity implies that all investment decisions would be better left to a computer program, because the experts with their algorithms have figured out what drives market outcomes and reduced it to a seamless system."

But that doesn't jibe with reality, Shiller says. "Markets seem to be driven by stories. There are stories of great new eras and of looming depressions. There are fundamental stories about technology and declining resources."

Stories about Greece and China hurt U.S. stocks last week.

The stories may not always be true, but they affect the market anyway, Shiller notes. "The idea of financial singularity may seem inspiring, but it is no less illusory than the rational utopia that inspired generations of central planners," he maintains.

"Human judgment, good and bad, will drive investment decisions and financial-market outcomes for the rest of our lives and beyond."

As for Buffett, perhaps a computer program can match his past investing style. "But that does not necessarily detract from his genius," Shiller says. "Indeed, the true source of his success may consist in his understanding of when to abandon one method and devise another."

Elsewhere on the financial market front, you can count James Montier, manager of GMO's Global Real Return fund, among those who are concerned about lofty asset valuations.

He told Citywire Global that he has cut the fund's risk to the lowest level since 2008. He has curbed its stock positions, keeping 20 percent in liquid assets, such as cash, and 30 percent in fixed income.

"In 2007 and 2008 we had about 80 percent of the fund in non-risky assets. This has been the first time since that we have had over 50 percent," Montier said. "This is definitely the most difficult time to be an asset allocator. It’s very hard to find value."

The S&P 500 index carried a trailing price-earnings ratio of 20.60 Friday, up from 19.13 a year earlier, according to Birinyi Associates.

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Some investment analysts say that we're moving to the point where computer algorithms will perfectly determine financial asset prices. Nobel laureate economist Robert Shiller says otherwise.
Shiller, markets, Buffett, computer
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2015-00-16
Thursday, 16 July 2015 06:00 AM
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