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Artificial intelligence (AI) in investments: investor computer reads along

2021-01-20T08:43:27.110Z


Hardly any other business is as suitable for the use of artificial intelligence as financial investments. Computers are now reading annual reports - companies are adjusting to it.


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Tiring reading

: There is a great deal of information circulating in the investment business - computers can have an advantage here

Photo: REUTERS

Investment amounts, price developments, corporate profits and sales and much more - hardly any other business is as numerical as investing - and hardly any other business is so suitable for using computers and smart software to increase the chances of success.

In fact, computing power and artificial intelligence have already found their way into many areas of the investment business.

Professional investment houses such as hedge funds, for example, have been increasing the effort they put into quant investments for years.

The investment decisions are largely left to computer programs that process vast amounts of information, recognize patterns and identify trends and, above all, trend reversal points.

Because these programs have to be written first, mathematicians are among the most sought-after people in the financial industry.

The importance of such quant investments for professionals became clear as early as 2017, when the proportion of funds invested by quant funds on the US stock exchange exceeded that of conventional hedge funds for the first time.

High-frequency trading is also closely related to quant or algo investment concepts.

The idea is the same: where humans act fallibly and hesitantly, the computer makes clear decisions at much greater speed (also because the necessary information is available to it much more quickly).

In order to drive this race to the extreme, specialized investment houses are looking for locations for their computers that are as close as possible to the computers and servers of the respective exchange - every millisecond counts.

Just recently the Wall Street Journal reported on a new type of cable that investment houses are using to wire their computers, which the newspaper claims will speed up information transmission by billionths of a second.

But the private investor next door has long been able to use AI software when making his investments.

Robo-Advisor is the keyword: With offers like Scalable, Quirion, VTB Invest or Growney, investors first provide information about their financial situation, their investment horizon, their risk appetite and other information relevant to the investment.

The software behind it then rotates this information through its algorithms and generates an investment proposal, which usually consists of a bunch of index funds that are supposed to provide an appropriate spread and potential return.

The investor's computer also usually takes over the acquisition of the securities in question and the further administration.

Computers read business reports

A study that was recently published in the USA shows how far the use of artificial intelligence in the investment world is now.

According to this, financial houses are already making massive use of computers to read the annual reports of companies in which investments may be made.

Specialized programs have looked no less than 165 million times within a year in the reports that are published by the US Securities and Exchange Commission, according to the investigation, about which the "Zeit" recently reported.

The background is the same as that already outlined at the beginning: At its core, annual reports are gigantic figures - and who could handle them better than a computer program.

However, the AI ​​is already much further: The company documents are not only searched for sales and profit developments, but also for certain key terms that allow conclusions to be drawn about the situation of a company or the optimism or pessimism of management.

According to the study, the latter in particular has already triggered a reaction on the part of companies: companies are now designing their annual reports in such a way that they can be easily read by computers, according to the study.

They also formulate in a language that is well received by artificial readers.

Words that seem harmless, such as "maybe" or "could", should be avoided - they are interpreted as signs of a lack of self-confidence, as "Zeit" notes.  

The question remains, what does all this bring?

Does the use of computers and AI actually improve an investor's return prospects?

Of course, there cannot be a simple answer to this, if only because it would be unfair to compare, for example, a quant hedge fund from Wall Street with a field-forest-and-meadow robo-advisor for private individuals.

What is certain, however, is that there is still no clear evidence that software always brings better investment results than humans.

So this competition will continue for a while.

cr

Source: spiegel

All news articles on 2021-01-20

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