The era of robo advisers

There are two games created by humans challenging the power of God. One is Go, and the other is investing in the stock market.

The 9-dan rank in Go is considered to be the level of a superhuman. Does it mean that a 9-dan rank Go player can play against God? More than 30 years ago, a mischievous reporter asked late legendary Go player Hideyuki Fujisawa how he would play against the God of Go. He said that a two-stone advantage would be enough, but if he had to risk his life, he should be given a three-stone advantage.

Fujisawa won six consecutive Kisei titles in his 50s and became the oldest champion at age 66. In Korea, he is better known as the teacher of Cho Hun-hyun, also a 9-dan rank player. How could he be so confident that it would only take three stones to play against God over his life? In the world of Go, is God so easy to play with?

Google DeepMind’s AlphaGo, which will play against another 9-dan rank Go player, Lee Se-dol, is expected to become the God of Go soon - thanks to the machine’s learning capability. The key to the learning capability is “pruning,” the ability to weed out unnecessary information.

But artificial intelligence - capable of calculating 200 million possible options for every move - has lost to human players because it does not have the ability to weed out. AlphaGo considers only 100,000 moves yet knows to exclude hundreds of thousands of unnecessary options. A human player reviews about 1,000 possibilities at most. So Go, as a game of humans challenging God, is not likely to exist any longer.

What other choices do humans have? Just as Cho Hun-hyun suggested, we can change the rules of the game, changing the 19x19 board to a 17x17 or 21x21 or 23x23 board. But it will only hinder AlphaGo temporarily. What would AlphaGo say when reporters ask the same question in the future? It may respond, “The God of Go needs to have a two-stone advantage.”

The situation is not so different for the other game, the stock market. Robo advisers are expected to be the gods of the stock market. The invasion of robo advisers has already started in the global asset management market. There are more than 200 of them in the United States.

A.T. Kearney, a global management consulting firm, reported that robo advisers run $20 billion today and are expected to manage more than $2 trillion in five years. This year, robots are emerging in Korea as well. Yuanta Securities’ T Radar 2.0 is the leader, and NH Investment & Securities introduced QV Robo Account, and Samsung Securities has Smart Adviser. KB Kookmin Bank became the first retail bank to roll out a robo adviser in partnership with Quarterback Investments.

Robo advisers have many merits compared to human fund managers. First, there are no emotional interactions. T Radar 2.0 recommended selling 150 stocks in January alone, while only 11 of more than 10,000 reports by securities firms last year recommended selling. Human fund managers cling to this “Korean sentiment” of refraining from recommending selling stocks when the price is expected to drop. They want to please customers and listed companies. But robots’ decisions are not affected by these human feelings.

Second, they cost less, and companies can lower fees drastically. In the United States, robo advisers charge 0.25 to 0.5 percent - less than half of the human traders who take 0.75 to 1.5 percent fees annually. Robots also work 24 hours a day without complaining.

Third, they perform better. This year, Quarterback raked in 2 percent profit, a clear victory over the average 3 percent loss of other asset portfolio management funds.

Here, we wonder if we need human fund managers anymore. What about replacing them with robots altogether? Can humans finally be free from investment risks? Can anyone make money now by investing in stocks?

A CEO of a security firm said it would be a black swan, a symbol of perfect danger nonexistent in reality. “Robots have no greed or fear. When the market is on the verge of collapse, they may still go for ‘selling’ altogether.”

We often say even God cannot predict the stock market. God does not have the fear and greed of humans. Neither do robo advisers.

JoongAng Ilbo, March 3, Page 34

*The author is an editorial writer for the JoongAng Ilbo.

by Yi Jung-jae