Mr. AI or Mr. Market
By MortazaviBlog on Nov 24, 2006
So, has Mr. AI any advantages (other than speed, which may cause some self-defeating dynamic instabilities) in comparison to Mr. Market when it comes to voting for stocks? Or will it be any better than a good investor when it comes to weighting the value of stocks?
In general, Mr. Market represents the leveled investing masses roaming the market. There is nothing they do that has any special upside. The good, contrarian investor takes care to stand judiciously apart from such masses.
A given AI algorithm can hardly be said to be any better than any other (composed with the same level of parametrization). If anything, a large number of these algorithm, including neural networks, Baysian belief nets, Markov models, Guassian classifiers, fuzzy ones, etc., are intelligence-equivalent for most practical purposes. Their marginal advantages (in speed and parametrization) when used for leverage can amplify value impact of common investment risks and "errors" just as they may find interesting points in the market for leverage.
So, in the final analysis, while Mr. AI may even choose random rules for analzsis, it will most probablz remain an unrully side-kick of the good investor.