Every generation there are new developments in the fabric of civilization that fundamentally changes the way we live our lives, be it socially, structurally, or economically. With the very real advancement of artificial intelligence (AI) in seemingly every industry and facet of life, it seems an almost inevitability that AI will come into the world of investing, be it in public market equities, private, real estate, cryptocurrency, etc. Let’s examine the short history that AI has had so far in investments, then draw up some theories and conclusions if it could work. After all, if I can sit back and click a button and have AI generate the most profitable decision, this makes investing seem like a piece of cake.
In the housing market In February 2021, one upstart new company with Zillow decided to use its own AI, Zestimates. It was designed to help aid in the house flipping by identifying what homes to buy and sell and when to do so. Well, after just 8 months, Zillow shut it down with a $304 million loss, and laying off 25% of staff in the process. The company sited difficulty in being able to forecast supply and demand into the future, as well as house pries. That’s odd, those are the only things that would be needed to be forecasted correctly in order to succeed. I guess it wasn’t easy as it looks. How would AI be able to forecast population growth, and population exits and entrances into a given market, considering both domestic and foreign movements? Even getting the top data would only show you a historical trend, not a futuristic trend. And taking out the fancy calculators to do projections is nothing more than fancy looking guesses where a monkey throwing darts could end up faring better. For your entertainment purpose, check it out below:
Zillow’s home-buying debacle highlights that how its hard to use AI to value real estate | CNN Business
Back in February, Zillow displayed a high level of assurance in its capacity to employ artificial intelligence for estimating home values…
On the stock market, a ticker AIEQ, an AI run ETF, started in October 2017. Imagine taking a machine that could scour the internet for all available public data and then make an informed decision accordingly? Well, it turns out that more information may just lead to analysis paralysis. As to date, AIEQ has returned half of what the S&P 500 has. Seems like doing nothing will do twice as well compared to doing something. The majority of active fund managers, after fees, cannot beat the S&P 500 index either. Even active stock pickers who do the work and research, it seems more and more what’s written in the reports aren’t even true anymore. CEOs run around making all sorts of claims and visions, only to screw up the company and then resign, suffering no consequences in the process. To see more, take a look at the US banks holding unrealized losses both on balance sheet and off-balance sheet that could end up unraveling the entire economy. So much for banks being safe. Seems like buying the index and then coasting in the stock market is better than AI, hedge funds, or individual stock picking.
Cryptocurrency apps that have sprung up that offer automated trading is taking it to a whole new level. Crypto is inherently risky with the lack of regulatory oversight. That said, there is plenty of speculative value, even though whales, aka large holders, control most of the supply and can drastically change prices with just one trade. Not only does crypto bot training not work, there are straight up scams that take your money away. Case in point I earn Bot, customers who bought the bots would use the companies AI programming to make high returns. However, withdrawals were restricted to a 30% fee, and even after payment, withdrawals didn’t happen. It seemed to operate more as a Ponzi scheme, looking to take new investor money and then running off once the amount got big enough, millions of dollars. And this happened in March 2023. Not a great situation when the bots either don’t work, lose money, or the company itself altogether is a scam.
Thousands may have lost out to crypto trading apps
Thousands of peoples are believed to have lost their savings after investing in a crypto trading apps called…
Seeing the results in some of the more popular asset classes, how could this work in the world of startup investing? There is even less data available, and VC firms typically will meet with the founder, be it in person or online. How will an AI be able to account for this, and notice personality traits that could indicate success, strong strengths, vision, business plan, execution, culture, conviction, character, etc? Maybe one day technology gets to the point that a machine can somehow read a person’s inner qualities such as these and make decisions.
With AI, frequent trading occurs, touting the classic buying low and selling high. But each buy/sell transaction involves both a buyer and a seller. So, if all AI bots are amazing, what happens when two AI make opposing trades, one buying and one selling? Are they both right somehow? If everyone uses AI bots, does everyone make money, any trade you make, and the trade the other person makes, you are both simultaneously right and make money? This doesn’t even make logical sense. The application of additional analytics being the selling point on top seems coated in an underlying desperate attempt to selling something that doesn’t work or add value for the end user. As NBA analyst Charles Barkley would say, analytics is primarily guys who never got into the game, and they never got the girls in high school. They just use the fancy term analytics as a way to attempt to get into the game.
So, my end conclusion will be no, AI will not take over investing, due to too many uncontrolled variables both in the present, and even in the future. And additionally, we have not yet considered the quality of said AI itself. Just because one has the tool of AI, doesn’t mean it’s good. With technological advancements, it may become stronger in the future. Or it could just become stronger in its convictions that then ultimately make an even more incorrect decision. AI currently seems like a tool that may aid in decision making, but should not necessarily be used as the main decider in decisions itself, since it only considers past oriented analytics and does not consider real life trends and the most important quality of the founders themselves that are running the company.
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.