Man vs. Machine: Quantitative Value or Fundamental Value?

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Quantitative value investors generate alpha from process; Fundamental value investors, or “stock-pickers,” generate alpha from better information. But who is better? We compare the performance of a quantitative value strategy (Machine) and pit it against a calendar-time portfolio of recommendations from Valueinvestorsclub.com (Man)—a private message board for stock-picking value analysts.

  • We find that there is no clear winner between Man and Machine.
    • Man generates better returns (14.95% vs 11.19% CAGR), but does a poorer job preserving capital relative to the Machine (-58.18% vs -48.89% max drawdown).
    • Based on 5-year rolling CAGRs, Man outperforms in the first half of the sample, but underperforms in the second half.
    • Looking at 5-year rolling max drawdowns, Machine does uniformly better than Man.
    • Sharpe and Sortino are higher for Man, but Man’s returns are more non-linear on the downside relative to Machine.
    • Man outperforms over bull and bear cycles, but underperforms significantly during negative S&P 500 months.

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