Stock Investing: Even Robots Can Do It

The FT is reporting that Monex, an online Japanese brokerage, plans to introduce a long-only "stock robot fund" that will be operated by Japanese fund manager T&D Asset Management. The fund's managers consist of four computer models created by prize winners in a competition held by Monex. The developers of the models include individual investors, professional and amateur computer programmers as well as IT and financial technology researchers. More than 4,000 models are being simulated. The Kaburobo Fund will invest in the top 500 stocks listed on the Tokyo Stock Exchange.

Random walk theorists in the early 1980s insisted that, since stock prices "rationally" discount all available information, even a monkey throwing darts could theoretically outperform many fund managers, and that seeking consistent alpha was a waste of time. Brokerage firms have long used algorithms (mathematical models) to automatically trade stocks, and the US market almost melted down in 1987 because of program trading, i.e., leveraged trading based on computer programs.

Thus a stock robot fund is not outlandish as the article would seem--but it is the first time in our memory that automated stock picking has been promoted so openly as a viable mutual fund. The trend heretofore had been to promote "star" fund managers that enjoyed a loyal following of investors...bye-bye highly paid fund managers?