“Some people call this artificial intelligence, but the reality is this technology will enhance us. So instead of artificial intelligence, I think we’ll augment our intelligence.”- Ginni Rometty, former CEO of IBM

Artificial intelligence (AI) is the rage right now.  The superlatives are off the charts…

AI is going to replace every job on planet Earth.

AI is going to end civilization.

And so, it goes.

In fairness, most companies would do well to understand how AI can help boost productivity, operate more efficiently, and streamline operations.

Pure Portfolios is no exception.  We use AI in several capacities (more on that later).

Turning to financial markets, a popular question is…

Can AI pick investments?

We asked Pure’s AI tool Jasper that very question (edited for clarity and brevity)…

The short answer is yes, AI can be useful in investment selection. AI is now being used by some of the world’s largest investors to monitor markets and identify trends. By analyzing vast amounts of data, AI algorithms can help investors generate insights that human analysts may not be able to spot.

It is important to note that AI is not a magical tool that guarantees returns in the stock market; rather, it is a tool that can help investors make better-informed decisions. AI relies on complex algorithms that analyze vast amounts of data, identify patterns, and make predictions about future market trends. It can help investors make sense of the often-overwhelming amounts of financial data and provide insights that a human analyst may not identify.

One of the advantages of using AI in investing is that technology can eliminate human bias. Human traders may be influenced by emotions, current events, or other factors that can cloud their judgment. AI is free from emotions or personal biases and can make investment decisions based purely on data and metrics.

However, while AI can provide valuable assistance, it should be noted that it operates based on historical data and trends. AI systems may not be capable of predicting unforeseen events or sudden shifts in market sentiment.

While AI can be a powerful tool for investors, it is important to note that it is not a replacement for human analysis. AI tools can provide useful insights, but they lack the judgment and intuition that a human analyst can bring to the table.

In conclusion, while AI can certainly help investors become better at selecting investments, it should be used as a complement to human intelligence rather than a replacement. With the right balance of human and machine intelligence, investors can leverage AI to gain a competitive advantage in today’s ever-changing financial markets.

Scrub reams of data.

Filter information.

Eliminate or reduce human bias.

The right mix of human investment expertise and AI computing power could be a winning combo.

This is consistent with my personal view on AI and investing.

In my opinion, AI is perfect in fixed environments with clean and reliable feedback. For example, if I’m playing chess, it’s easy to draw a line between the cause and effect of each move. We get accurate feedback on our strategy and can use the information for future decisions.

AI is sub-optimal in complex environments with noisy and misleading feedback i.e. financial markets. It’s nearly impossible to draw the line between the cause and effect of each trade outcome. We get false feedback on our strategy which can lead to incorrect conclusions. This can cloud future decisions or lead us down the wrong path.

This is where human intuition, experience, and the ability to connect the dots comes in.

This Twitter post from Billy Oppenheimer, writer of the “Six at 6 on Sunday” newsletter, tells the story of how an architect saved Nike…

In 1985, Nike held a 24-hour shoe design contest. Nike was struggling. Their stock dropped 50%. They had to lay off people.

In a panicked attempt to find creative talent, Nike held a shoe design contest. The winner was a corporate architect named Tinker Hatfield.

As he got to work on his first official shoe design, he thought about a building he had studied in architecture school: The Centre Pompidou in Paris.

The Centre Pompidou is an inside-out building, meaning that the structural, mechanical, and circulation systems are all exposed.

And I thought, ‘Well why not do that with a shoe? Let’s cut a hole in the side and show what’s in the shoe.’”

Tinker designed an inside-out shoe: The Air Max 1.

The Air Max 1 was a massive success, and it steered Nike’s design direction. “To this day,” Tinker says, “Phil Knight says I saved Nike.”

Had he not studied that building in Paris, Tinker says, he couldn’t have created the Air Max. Creativity, he says, is a function of the “library in your head.” “When you sit down to create something…what you create is a culmination of everything you’ve seen and done previous to that point.”

Tinker Hatfield went to architecture school and then he was a corporate architect for 4.5 years. Literally overnight, he became one of the best shoe designers in the world. Expertise gained through specialization is transferrable. The cognitive and creative abilities cultivated as an architect could positively correlate with being a shoe designer.

Hatfield’s success is a perfect example of what humans are good at; seeing the big picture, connecting the dots, and using skills in one domain to solve problems in another.

On the softer side, we provide empathy and human connection. I tend to scoff at the “AI will replace everything” narrative. The pandemic proved how much we need each other. Humans are social beings.

AI is great at completing mundane tasks that we don’t want to do. At Pure, we use AI to write marketing copy, generate blog & podcast ideas, and proofread.  Eventually, we will use AI to scrub economic & market information to supplement our investment process.

To summarize AI’s role in investing…

• AI can scrub large data sets for important information.
• AI can eliminate or reduce human bias.
• AI lacks the ability to see the big picture, connect the dots, and transfer advanced concepts across disciplines.
• The ultimate combo is humans leveraging AI to improve the investment process.

In my opinion, AI probably won’t replace the human investor. It’s likely to replace the parts of the investment process that are mundane and time consuming.

How is AI affecting your business?  Shoot us a note insight@pureportfolios.com