In his recent memo entitled, “Investing Without People” Oaktree co-founder Howard Marks argues that passive and quantitative investing will all help keep markets efficient and reduce costs for investors. This according to an article in The Wall Street Journal.
But while active managers have underperformed their benchmarks for years while charging high fees to investors, Marks doesn’t think the strategy is “dead,” adding, “I doubt computers can do what the very best investors do.” The best active managers, he argues, use qualitative skills that can’t be mimicked by algorithms—such as evaluating a company’s management team.
According to Marks, both active and passive strategies need to exist for the benefit of the other. He writes, “When active investing is dismissed totally, and all active efforts cease, passive investing will become imprudent and opportunities for superior returns from active investing will reemerge.”
“Computers, artificial intelligence and big data will help investors know more and make better quantitative decisions,” Marks asserts. “But until computers have creativity, taste, discernment and judgement, I think there will be a role for investors with alpha.”