AI is the latest and greatest craze in the finance industry. The old hedge fund model is dead: for decades a bunch of salesmen managed to convince investors that “absolute return” was the way to go. “Make Millions in Up and Down Markets”.
Presumably the Masters of The Universe were sincere. Presumably they believed they had achieved the equivalent of turning base material into gold. The alchemists of the modern age.
Unfortunately for investors, the Masters of The Universe turned out to be Wizards of Oz to a large degree. By and large those who made money over the decades were the great Wizards themselves who creamed off ludicrously large management fees before their funds crashed and burnt. Leaving the said Masters to close down and start up all over again free of high water marks.
True, some Masters have had long track records and still manage untold trillions. But the curtain has been drawn aside and even the survivors seem mostly to have achieved disappointing returns over the last five years. Perhaps their time is up.
Fear not! The Masters are turning Artificially Intelligent!
Machine Learning is the latest gig. Despite the fact no one has a clue whether it actually works to predict stock values any better than technical analysis or simple stock picking, the marketers know when they are onto a good thing. Every Master of the Universe is now recruiting arcane little men with spectacles like the bottom of milk bottles sporting degrees in anything “artificial” from the University of Utam Bongo and touting a new paradigm.
Some would be masters are even touting the “democratisation” of Wall Street which involves encouraging thousands of geeks all over the planet to waste their time cooking up algos in the vague hope that they will receive an allocation of funds to manage.
Artificially Intelligent salesmen are everywhere. You can lease artificially intelligent trading software, subscribe to artificially intelligent trading signals, buy artificially intelligent hedge funds.
The only common thread so far seems to be the artificiality.
I have absolutely no doubt in the efficacy of AI and Machine learning. I have no doubt that it will enable humanity to do great things.
I have equally no doubt that it will enable a lot of “Artificially Intelligent Salesmen” and hedge fund “wizards” to sell a lot of useless product to a lot of gullible investors. It’s the new Tulip Mania.