Why humans are better than computers at making money

The chaotic and emotional nature of financial markets means they are virtually impossible to predict with computers, says Matthew Lynn.

Two years on from the start of the credit crunch and not a great deal has really changed. The banks have gone back to paying big bonuses, traders and dealers are as speculative as ever, and the hedge funds are still raking in fortunes. Still, one corner of the capital markets has been hammered hard the so-called 'quant funds'.

A few years back, the intellectually super-charged hedge funds that used mind-bogglingly complex formulas to trade assets and make huge profits for their owners were the hottest sector in the City and on Wall Street. But now the combined assets of the quant funds are down from around $1.2trn at the industry's peak to around $470bn now. That's a drop of more than 60%, according to data from the research firm eVestment Alliance. And around a quarter of the quant funds have closed in the last two years, according to figures from Lipper TASS. In part that tells us that investing styles go in and out of fashion. Sometimes people want gurus, sometimes charts, other times they want geopolitical trends, and so on. But it also tells us something more interesting.

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Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.