Howard Marks says AI can't match the edge of great investors

In the realm of investment, artificial intelligence may excel at analyzing vast amounts of data, but renowned investor Howard Marks believes that the finest investors possess unique qualities that AI cannot replicate. Marks, co-chairman of Oaktree Capital Management, which oversees $223 billion in assets, shared his insights in a memo published on Thursday. According to Marks, successful investors are not just rapid, emotionless data processors. They navigate genuinely new situations and make subjective decisions based on qualitative factors, demonstrating taste and discernment. While AI can generate hypotheses based on historical data, Marks expressed skepticism about its ability to speculate on new opportunities with consistent accuracy compared to human investors. He emphasized that much of the investment process involves speculation, and due to AI's inherent limitations, it is improbable that the technology will achieve infallibility in investment decisions. Marks pointed out a crucial distinction: AI lacks personal stakes in the investments it analyzes. "It doesn’t feel the weight of concentrated positions or the fear of capital loss," he noted, highlighting that top investors often have an instinctive understanding of risk that contributes significantly to their success. Marks further articulated that if readily available information fails to provide a competitive edge, the true distinction in investing lies in judgment and qualitative assessments, including the ability to foresee companies' futures. He remarked that only a select few individuals possess the exceptional insight necessary for these non-quantitative tasks, suggesting that this creates space for a distinctive group of human investors to excel. Despite the rise of AI, Marks is confident that there will always be human investors who can outperform AI in certain areas. However, he acknowledged that the standards for many investors are increasing. The advantage that active managers previously sought through access to timely data is diminishing, a trend he believes is indicative of a broader transformation in the investment landscape. In a previous commentary, Marks expressed grave concerns about the implications of AI on employment within the industry, describing the technological shift as "terrifying" for those whose jobs may become obsolete due to AI advancements.