Are stock pickers better than Computers?
Empiritrage has a detailed research piece on the question of whether or not quantitative value can beat fundamental stock-pickers. http://empiritrage.com/2012/03/24/man-vs-machine-quantitative-value-or-fundamental-value/ Here are a few highlights: First, some summary statistics.
MF_EW_Top10% represents a portfolio of Magic Formula stocks with market caps greater than $500mm. VIC_EW_500mm represent a calendar-time portfolio of recommendations posted to Valueinvestorsclub.com.
From the looks of it, Man beats Machine…but…
Stock-pickers eat some serious drawdowns. Also, over 5-years you can still be out 25% with the stock-pickers relative to -12% with the Machine. Anyway, interesting piece regarding the philosophical battle between process and private information. Here is an old video I created to mock both value investors and quant investors:
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Definitions of common statistics used in our analysis are available here (towards the bottom)