On Wall Street, artificial intelligence is all the talk. Although around for years, the release of chatbots such as ChatGPT showed the world the true potential of neural networks. Slowly fading are the days of human predictions, and slowly rising are the guesses of AI.
SwissCognitive Guest Blogger: Theo Darringer – “AI in the Stock Market – The New Age of Investing”
AI in the World of Investing
In the world of investment banking and hedge funds, insightful and effective trading largely involves real people. It was the analysts who looked at profits quarter to quarter and the effects
of one country on another. It took 90-hour work weeks and several teams to make informed investment decisions that, if lucky, barely outperformed the S&P.
The New and Future Wall Street It still takes 90-hour work weeks and several teams to make informed investment decisions. However, instead of looking at linear regression models and manually predicting upcoming learnings, deep learning is used to look at how companies in similar circumstances have performed previously. For example, if company “x” has negative profit and a low P/E, but the economy it sits in has low-interest rates, an algorithm will say, “this has happened 1,000 times before, and 900 times the revenue of the company increased over 20% in the next three years. Therefore, company “x” is a buy.” Of course, in reality, it is much more complex, and it looks at countless factors, such as Chinese deflation and its effects on the American energy sector. The process of coding and training these AI algorithms can take months, so it may be years until these programs are noticeably accurate. This, and also potential government regulations on AI, may slow down the progress investing firms make on this technology. Either way, the ability to use hundreds of previous examples to analyze a current
company is undoubtedly powerful.
Meanwhile, on Main Street
As mentioned before, it takes expensive resources and the smartest quantitative analysts to create such programs. The average person who doesn’t check and update their investment portfolio every waking second certainly doesn’t have the time to create and train artificial neural networks. This is yet another disadvantage Main Street investors face against the giants, but the
development of services that code AI programs and give stock picks helps shorten this gap. Investors do believe in the power of AI, in fact, a new study showed over half feel comfortable taking advice from the technology. People just have limited access to the algorithms.
From writing poems to suggesting medical decisions, AI is on another level of intelligence. A calculator can make faster and larger computations than any human, and AI shares the same
advantage. In terms of the stock market, it has the following capabilities and effects:
- The recalling of several past situations creates highly accurate predictions
- This is slowly replacing the manual predictions made by humans based on formulas and charts
- For better or worse, this gives asset management firms an edge over individual investors due to the complexity of the systems
AI investments will show their superiority in the following years. Unfair or not, the use of AI and deep learning is present on Wall Street, specifically on the quantitative side. It will undoubtedly grow this presence, it is just a question of how.
About the Author:
Theo Darringer, an experienced programmer, is the founder of the AI-powered stock pick service Darringer AI. Seeing the usage of deep learning on Wall Street, he brings the technology to the individual investor.