Please note that this is a rough introduction to Artificial Intelligence (AI). All of the information presented is from my own research and is only meant to provide a brief overview with some examples of AI and investing.
By now, many of you have probably heard about AI. And if you have not I am sure you have heard the rumours of computers taking over jobs or doing tasks more rapidly than humans. Yes fortunately (unfortunately depending on the way you look at it) - AI is here to stay. Artificial Intelligence is a branch within CompSci whereby computers mimic the intelligence of humans as they learn key processes that can be applied to a variety of domains. The uses of AI (although applied on a basic level now) are limitless as long as there is sufficient data for the AI to sift through. Data is the key.
AI is already used in many areas of business today and can be used for problem solving, learning, planning and forecasting. Some of the basic examples of AI include Q&A’s where the AI is able to answer simple questions. It can be expanded in ways that retail companies use it today where the AI is able to learn from current algorithms and past operating history to issue orders, anticipate stock changes and keep inventory in check.
In my personal opinion, I do think AI has a place in business but I do not believe it has the capacity to do some of the complex analysis and other tasks that humans currently do. I think AI is best used as a frontline tool and in scenarios where a good chunk of prior data is available. This way the AI has a good amount of data in which to generate a result. But just like in investing past results do not indicate future performance. Computers for now lack the ability to use limited pieces of data to form concrete thoughts about the future. They also maybe lack the ability to use data from one scenario and applying it to another - unless its experienced something like that before.
So how does AI tie in with investing?
I think the past year has been a good one for the world of investing from a development perspective. The market has been hit with some new funds; most notably: A marijuana etf launched by Horizons, the bitcoin ETF trust and bitcoin futures. The market also saw its first AI powered equity fund which launched recently.
The reason why AI works is two fold:
It is able to sift through tons of data seamless lessly picking up key points according to a set template or algorithm. So for example, you could potentially set up a few valuation metrics and ratios you use during investment research and the AI can pull up a list of stocks that match those metrics.
AI is constantly updating itself - but to do this it needs data. AI systems cannot familiarize themselves when it comes to new ventures (at least not yet). I would suggest that AI systems would be baffled with many cryptocurrency ventures and even private equity deals due to uniqueness of each deal.
The “problem” not so much with investing and other related activities is that data is not always driving decisions. Many of times fear, greed, emotions, motivation and unpredictable behavior is doing the moves. Because these are non-consistent factors, it is very hard for the AI to pick up data on these points. Although AI is constantly adapting and learning from new trends - it may be the case it is picking up data that was only a one time occurence. This is where AI has its limitations and since many activities business and non-business related are not driven by pure data but instinct, gut and other aspects the AI can only use with what is there.
AI is also based on past trends. But trends do change.
For example, when the market is hit with significant news such as Brexit, data scandals, or political moves - normally the stock market responds negatively. What we’ve seen though in the last 18 months or so is a trend reversal and negative correlation. In the past, the signal would have been to sell which is what AI systems would have done also. However, the market picked up in all those instances leaving the news behind.
I think one thing you see now is the vast widespread implementation of AI in business practices. The reason being that tech changes usually boost productivity and increase the bottom-line significantly. It will be interesting to see if the AI related savings don’t cannibalize other aspects of the business.
Disclaimer: All of the above information is my own personal opinion. It should not be used as investment advice. This article is designed to be an introduction into the world of Artificial Intelligence and is based purely on my opinions and research.
Thumbnail Image: TechJuice