The Human Advantage

Back in the nineties, it was relatively easy for professional traders to make money. It was the dawn of direct market access and electronic trading. Stocks would occasionally trade at different prices on different exchanges, allowing traders to buy Lufthansa in Berlin while simultaneously selling it in Frankfurt for a profit. It was, for a while at least, the closest thing to printing money.

Of course, those opportunities could not last. They gave rise to high-frequency trading, algorithmic strategies and armies of quantitative analysts whose computers scanned markets for the slightest inefficiency. The dinosaurs, otherwise known as traders who could not code, were steadily pushed aside. For almost two decades, the machines ruled the markets, until competition became so fierce that the easy profits largely disappeared.

Then, the world stopped. During Covid, millions of people found themselves stuck at home. Some binged Netflix, others downloaded Robinhood and took on Wall Street. What began as a hopeless contest against sophisticated algorithms soon became something altogether different. As more retail investors piled in, sheer weight of numbers overwhelmed logic, and the more absurd the investment theme, the more spectacular the rally.

GameStop was a timely reminder that machines may be able to analyse every balance sheet, headline and economic data point, but they still struggle to quantify fear, greed and irrationality. As AI becomes ever more sophisticated, it is tempting to believe the future will become increasingly predictable. Fortunately, human behaviour remains the one variable no algorithm can fully model.