AI, Will It Improve Investment Performance?
Who is selecting your stocks? In today’s world of investing, that could be a tricky question. Are humans picking your stocks or is it a machine that has been programmed to mimic human thinking or search for patterns in data to find new ideas for potentially higher returns? Whether it is man or machine, stock picking still comes down to the fundamentals of investing. Machine learning and other forms of artificial intelligence (AI) are starting to become popular as a means of stock picking, but the question still remains, can machines outperform human stock pickers? Unfortunately, if artificial intelligence truly works and machines are able to think like humans then they might suffer from the same psychological flaws as humans. Although machines have no emotions, they are being programmed by humans which can include all of the emotional shortcomings and other baggage that humans carry.
The use of computers as a means of automating the stock picking process can reduce the amount of work necessary to find stocks to include in a portfolio but humans still need to determine what is important. In the end, for all fund managers, cost or fee reduction will be a major driver of performance, specifically for larger funds. If AI can be used as a means of reducing staff and therefore cost, AI might be useful if the appropriate factors can be identified that increase investment performance relative to the desired benchmark. At Investoristics the use of computers is limited to computer-based research tools that allow us to customize simple formulas to identify characteristics or factors that are indicative of future outperformance relative to all market indices.
Unfortunately, pension funds, mutual funds, and advisor recommended products will continue to be at a disadvantage given the restrictive nature of investment policies and other oversights in place to protect investors from significant losses. In addition to the aforementioned restrictions, the duplicitous nature of hiring in the industry results in the same stale ideas replicated across firms, including hedge funds. As a result, finding new and creative idea generators has become increasingly difficult. This would explain the amount of turnover at some large hedge funds as portfolio managers fail to live up to expectations.
For retail Investors, there are advantages to not being bound by the over burdensome constraints of traditional investment choices. Unfortunately, for retail Investors, escaping the confines of the traditional choices comes with risks as most may not have the time to do the proper due diligence and research. If you are looking for a unique partnership that allows you to escape the shackles of traditional investment choices, then consider joining our investment collective. At Investoristics, we only use fundamental factors in the stock selection process which are highly effective and cost efficient. If you are looking for lower risk and a significantly higher investment return relative to any comparable index, then look no further than Investoristics. We look forward to your call.
