Saturday, October 21, 2017

How to Win in the Stock Market playing against AI machines

AI machines can teach themselves to play go and defeat all human opponents. In fact, AI can defeat humans in every cognitive competition. I am sure this capability has been applied to investing, so a human has zero chances of winning in the investing arena. The effect of the introduction of very high intelligence players must have had several effects, and the immediate one is the death of the day-trader business. Second is the inevitable death of trading programs, as AI discovers them in no time and invents effective strategies and out-games them.

In fact, we may have reached a point where AI machines are playing themselves in the stock market and acquiring increasing intelligence and experience leaving no space for the human investor.  This is the end of all fund managers and strategists. The overall effect of AI machines playing themselves taking over the stock market is increased rationality and intelligence, fewer mistakes and panics (which are consequence of human/animal cognitive failures) and  after a while, greater stability and less volatility. I think that the current bull market is a reflection of AI machines gradually taking over the trading in the markets, and the bull market has at least one or two years to go. In this scenario, the optimal strategy for a human player like me is to hold a diversified, balanced, index-based portfolio and wait with patience that the market rises its worth.

I think that the only space left where that strategy may be improves is the complex, special area of mergers, liquidations, bankruptcies, political revolutions, Brexits and wars and so. How to find them, how to discover what is going on and what will be the outcome is very time consuming. I don't have the time to research those special situations. I am getting old and lazier than used to be.

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