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What caught my eye this week.
Would you be happy handing over the reigns of your portfolio to a robot? Given most of you will be regular Monevator readers and email subscribers, I can guess the answer – if not the specific gentle expletive added for colour…
Of course, the typical Monevator reader (rightly) invests passively in index tracker funds. And those funds are managed by software – albeit usually with some kind of human oversight to determine which companies go in and come out of a given index, as we saw with the recent controversy over SpaceX.
However it’s one thing to use software to follow a well-established and diversified benchmark via what’s now very mainstream index fund investing. It’s another to toss the keys to a novel AI agent with a cheery, “have it it, call me if you blow the kids’ inheritance!”
Okay, in practice any self-driving portfolio is going to have guardrails. But even so, you can easily imagine countless robot investing edge cases that are the financial equivalent of a self-driving car facing a hotdog cart trundling into the road, or the driver in front falling asleep at the wheel.
Or consider the market madness proxy of gridlock and traffic jams, when movement (liquidity) evaporates.
Think back to the crazy ride that was the Covid crash. How would a cheapo trading robot cope?
Investing under the AI influence
Naturally, just because we don’t need self-driving portfolios, that doesn’t mean we won’t get them.
Innovation in financial services is driven by what sells, not what is good for us.
Only this week CNBC reported that:
Larger brokerages are moving in [this] direction. Robinhood in May introduced tools allowing third-party AI agents to connect with customer accounts. Brokerage firm Public, meanwhile, is developing AI agents in-house that can automate investing workflows within its platform.
“What this era of agentic is doing … it goes away from just being able to research something by yourself and then make up your own ideas and then trade the way you’ve traded where it’s now becoming automated and where AI agents can actually execute investment strategies on your behalf,” said Leif Abraham, Public’s co-founder and co-CEO.
The article paints a breathless future of AI agents turning private investors into DIY hedge fund managers. There’s nary a mention of fees and costs, though – although to be fair the piece does conclude with caveats about the risks of letting Clippy 2026 trade stocks.
That latter sentiment is echoed by a blog from the CFA Institute, which reviewed the *cough* mixed results from research into trading via LLMs.
It concluded:
The evidence for multi-agent and LLM-augmented portfolio construction is promising. The failure literature does not invalidate this, but it does suggest that the gap between a research prototype and a production-grade institutional system is larger than the paper acknowledges.
The human overseer […] cannot yet take a purely passive safeguard role.
But who am I kidding? The reality is tens of thousands of retail investors are already experimenting with AI trading, whether through financial service scaffolding such as RobinHood or via the – hopefully judicious – interrogation of their nearest chatbot.
Top gear
As far as I can tell, this era’s Warren Buffett – part-man, part-machine, all alpha – has yet to reveal himself.
But if enough people do it then we’ll probably get an AI-enabled self-made trader billionaire someday, just thanks to the law of averages.
Famously, a few quant shops like Renaissance have smashed the market for years by force feeding gargantuan amounts of data into supercomputers. However that’s very different from Joe Day Trader setting a few rules in an AI-enabled investing account.
Yet even a few traditional stock picking active managers do beat the market, at least for a while, and no doubt so will some AI agents.
The odds have always been against it however – active investing is a zero-sum game – and AI cannot change that.
Have a great weekend.
