How AI is changing investing … a new cutting-edge AI tool from our corporate partner, TradeSmith … what it looks like in action … beware the “deep fake” AI imposters
There’s something massive happening in our industry.People all around the world are talking about it – from mom ‘n pop investors, to billionaire hedge fund managers, to the financial/investment media…I bet you’re talking about it too, or at least thinking about it – and for good reason…This controversial topic is going to change investing as we know it.I’m talking about the synthesis of Artificial Intelligence (AI) and investing.
To say that this is going to change how we invest might be the understatement of the century
On one hand, this is a bit like the investment Holy Grail.The union of AI and investing holds the promise of hyperintelligent algorithms that scan trillions of data points in fractions of a second, incorporating changing market conditions in real time, providing investors an extraordinary edge over those individuals without such revolutionary tools.On the other hand, this brand-new investment landscape is ripe for imposters.You’ve likely heard how “deep fake” videos are a new danger brought about by our accelerating technological capabilities. Well, in the coming months, the great deep fake of our industry will be “investing AI.” In other words, every investment service out there will claim to have harnessed this revolutionary technology.That won’t be the case.As our CEO Brian Hunt put it recently, “most investment services won’t know the difference between Artificial Intelligence and artificial flavors.”Today, let’s get you out ahead of this issue.
Last night, our corporate partner, TradeSmith, debuted their latest AI investment product and it has everyone buzzing
I write “latest” because TradeSmith has been a leader in the algorithmic investment space for years. They are the polar opposite of “deep fake.”TradeSmith is — and always has been — in a constant state of R&D (research and development) to make their quant-based products better.They’ve spent over $19 million and over 11,000 man-hours developing their market analysis algorithms.They have a staff of 36 people working on developing and maintaining their software and data systems. Their systems run day and night, processing information and spotting major opportunities.All that work, all that time, and all that expense is devoted to a single goal: Leveling the Wall Street playing field.And years ago, they saw AI was the way to do that. So, developing a predictive AI algorithm was really their next logical step.And what they debuted last night was extraordinary.Let’s better understand what it is, what the cutting-edge of AI and investing looks like today, and what investors need to be wary of as everyone tries to jump aboard the AI investment train in the coming months.
Understanding what AI investing is – and is not
I would guess that your idea of AI-enhanced investing is a bit like mine was until very recently.You have high-powered computers that run detailed, hand-designed algorithms, scouring the market for the quantitative “fingerprints” of a homerun investment.Now, I’m not knocking this. This approach is vastly more advanced than what the investment research process looked like even 10 years ago.But AI is flipping this on its head.To understand why, ask yourself…What if all those hand-designed algorithmic inputs didn’t actually do a good job of finding the right stocks?Or what if the algorithms were effective for a while, but then market conditions changed and the type of stock the computer identified no longer produced the same returns?The reality is that your investing output is only as good as your data/algorithm input.And so, if humans are behind the inputs, then there’s the potential for human error in some way, at some point.The latest generation of AI has a better way – machines that learn how to customize the right inputs and parameters to achieve a stated output.In other words, you don’t tell the computer to look for specific “data clues” that you believe are suggestive of a stock that could climb higher.Instead, you tell the AI program your end goal (a climbing stock price) and it does the heavy lifting of figuring out the right input parameters to achieve the goal.For more on this, as well as how it looks in TradeSmith’s new AI tool, let’s turn to TradeSmith’s CEO, Keith Kaplan:
With incredible computing power and AI at our fingertips, our team embarked on the most important research project in our company’s history… one that could help you make much bigger stock market returns than you’re making now, while taking less risk…We call this “Project An-E” (pronounced Annie).But, here’s the key: Not just anyone can create a program like this…You need a lot of money, and you need access to a tremendous amount of data.Then you have to make sure the data is accurate before you feed it into the machine.Not only that, but once the machine finds a useful model, you have to run that model through every type of market in the past to “train” the system to work in all types of scenarios.It took us a while to get to the point where we could reliably trust An-E to predict a stock’s future price action.But it was all worth it, because what makes An-E so powerful is that through all this training and development, humans aren’t the ones setting the parameters. Humans are prone to errors and bias, and our fallibility can skew the results.An-E doesn’t have biases.It’s designed to create its own optimal parameters based purely on getting a desired result: helping folks make money and avoid taking unnecessary risks.
What can this cutting-edge AI product actually do?
To better understand how An-E works, let’s look at a test case.The image below is a stock chart for the manufacturing company Vontier Corp. (VNT).The red “X” is when An-E made a prediction of what was going to happen to the stock price in the near future, and the blue circles are the predicted returns:
So, how did An-E do?Marked by the green line in the image below is the actual stock price movement of VNT, along with An-E’s predictions:
Here’s Keith with the results:
…As you can see, An-E’s predictions were strikingly accurate.Even two months out, An-E was nearly spot-on.Look at the rightmost circle. An-E said Vontier would go up 14.7%.It went up 13.5%.It’s not an exaggeration to say that this is a new edge most investors have been lacking.
While the potential of this is extraordinary, there’s a dark side of AI and investing to watch out for
Younger investors might not recall this, but in the late 90s, the term “Dot Com” was magic. It promised vast riches from companies that had found a way to leverage the power of the internet.Any company possessing even the faintest scent of “Dot Com” in the late ‘90s was investment gold.There are countless stories of companies that added “Dot Com” to their name purely for the stock-price tailwind.For example, in January of 1999, MIS International hadn’t seen one dime of profits, and its stock traded well below $0.50 per share.But MIS saw the “Dot Com” frenzy and changed its name to Cosmoz.com.From less than $0.50 a share, Cosmoz.com – which again, had never turned a dime of profit – soared nearly 1,000% to $5 a share.Get ready for history to repeat itself.As just one example, back in March, VERSES Technologies decided to trumpet its exposure to AI.It did this by changing its name to VERSES AI.Here’s a chart of its stock price for the month of March.
Now, I’m not saying VERSES AI isn’t an authentic AI company, but this underscores the need for investors to be aware of the impact of branding.Are you investing in real AI stocks, or just AI-branded stocks?But that’s only half of the problem…
The other issue is that you’re about to be inundated with claims from countless investment services that they’ve incorporating AI into their market approaches
Be skeptical.How have they done this? How much money have they invested into their technology? How does it work? It is based on human inputs or does machine learning optimize the inputs/parameters themselves?Bottom line: The opportunity presented by the synthesis of AI and investing is enormous with the potential to create lifechanging investment wealth – but it’s also an opportunity to get duped.To learn more about TradeSmith and its An-E AI tool, click here. Keith’s team just gave a free presentation about the technology. Give it the same rigorous analysis I’m suggesting you do for all such AI-promoted services.The reality is that AI has arrived and it’s about to change the investment landscape. The investors who harness it correctly are going to have an enormous advantage over everyone else who’s still relying on yesterday’s market approach.AI is revolutionizing our entire world. Should we not expect it to revolutionize investing?If there’s one trend you want to be ahead-of-the-curve on, this is it.Have a good evening,
Jeff Remsburg
