Algos have already taken the lion’s share of trading volume across all markets. 80% of Tokyo Stock Exchange daily volume is done via algos. If investment is a process then automation is the logical conclusion
First, ETFs will displace discretionary participants, not algos
If every person contributing to their 401K asked themselves this simple question: “do i want to retire on numbers, or on stories?”, then the assets under management of the active management industry would melt twice as fast as the arctic polar cap.
Algos are not about to change the way discretionary participants work anytime soon. ETFs will. Investors have gradually woken up to the fact that the only competitive advantage provided by rows of analysts and company visits has been a marketing argument, not a trading edge.
Evolution does not take prisoners
Active managers who want to survive have to up their game. That means better risk control, better stop-loss policy, better bet sizing, better execution, better emotion control. In a nutshell, that means better process. If investing is a process, then automation is the logical conclusion. Discretionary investors will gravitate towards algorithms to remain competitive
Even if they choose not to automate their systems, discretionary traders should formalise their process to the point of being computer coded. This sheds light on the blind spots in their process.