Investing With Artificial Intelligence
The majority of superinvestors believe markets are weak-to-semi form efficient. This means markets are quick to process new information. You won’t see stocks dilly dally in jumping on a good earnings report, for example, but markets are not totally on the money, all the time.
There are overreactions and underreactions. There are market players making errors of judgment, and these inefficiencies represent money left on the table for the Invstr community. We buy stocks that deserve to go higher and short stocks that deserve to go lower, flushing out inefficiencies in the process with our rational, money-making trading.
However, a semi-form efficient market still implies some acumen. The masses are in-tune enough to not give Amazon away for thirty bucks a share, even when it gets bad press. So, the winning investors of the world need some savvy to peel off from the pack. That’s why artificial intelligence and machine learning are being called in by hedge funds.
Volt Capital Management is run from Stockholm and runs over two hundred machine learning models positioned to make the best of a portfolio manager’s beliefs. Patrik Safvenblad is bearish, the fund’s chief investment officer. He expects “continued economic weakness,” so he’s selected models that auto-trade on fundamentals that reflect those core beliefs. His fund is heavily weighted on gold, fixed income, and the greenback.
The fund has blown away its annual performance target, ten percent, in just a single month. It’s no surprise when you see how markets have tanked; Safvenblad got his call right.
Investors want more evidence that machine learning made the difference. Safvenblad did the work and not just that, but a bearish mindset is a losing mindset over the long-term. It doesn’t matter what models you use. Volt Capital Management has huge potential with its differentiated machine learning idea, but do the managers truly realize why?
The Invstr community knows never to take tips from a semi-efficient market, but Safvenblad says, “when the market goes against us, we sell. We increase positions that do work. The market is always right.” If the market’s always right, why try to beat it?