- This Year Could See A Massive Cull in Finance and Investing
- The “Great A.I. Awakening” at Google
How will the vocation of investing change in 2017?
It’s one of the most interesting questions we can ask right now, especially as robo-analysts outperform humans, tech giants colonise financial services and money, investment and markets become rapidly codified, setting the scene for a machine learning invasion in the year ahead.
Machine intelligence has exploded in the last year, with $5 billion in venture investment.
And in the background we’ve seen Google probing financial services, looking to see where it might make the biggest impact with its mysterious, deep learning Google Brain — more on that story below.
AI is obviously not a new threat in finance. Jim Simons and his Medallion Fund have been capitalising on rapid-fire algos for decades.
The interesting question now is: in what areas can AI replace humans?
There are quite a few as it happens. The evidence is that AI is beginning to outperform humans in a multitude of tasks and the ability for machine learning algorithms to learn from their mistakes is simply staggering.
- Better, cheaper predictions — deep learning is far better than us at mapping complex spaces and predicting outcomes. So on the daily grind, we’ll increasingly apply it to anything which requires predictions: pricing risk, trading, valuation. In prospect: high level and fast learning AI available as a service from the big platform companies.
- A massive cull — algos have already colonised trading in almost every security and asset class. This year, we’ll see more robo-advisors, more robo-managers advising hedge funds (and also the escalating risk of cascading error, flash crashes and algorithmic mayhem).
Another interesting question in this area: who has the best AI?
Because whoever dominates this industry will require a great deal of scale. Big data. Big servers. Big and fast learning AI. Will that be Goldman Sachs or Google? Or will the more interesting developments come from China?
Lots of moving parts and conflicts to flesh out in these briefings in the coming weeks and months. So I have three interesting articles for you today — just to set the scene for a more full and frank analysis.
1) AI and the evolution of the fractal economy
Robo-advisors, bots and lost jobs…this article gives a snappy summary of how AI is disrupting finance and investment…
“As AI becomes ubiquitous through powerful mobile devices with integrated AI platforms at the hardware level, we will see more controlled and close-system applications. Real power will be built in, and the code will be updated continuously. Through billions of users’ behaviors and generated data feeding the learning, we will see great advances in what can be automated and what can deliver value to the user on a daily basis.
There will be a shift in the financial-services workforce toward specialist developers, data scientists, infrastructure architects, coding ethicists and AI trainers stepping up into more central and critical functions. Advisors, tellers and customer-service jobs will be greatly affected, and there will be less of a need for people to fill those positions.”
2) Financial Industry will hire Nerd Nation in droves
For a glimpse into how investing might change this year, take the fascinating example of NumerAI.
“Under the banner of a startup called Numerai, Craib and his team have built technology that masks the fund’s trading data before sharing it with a vast community of anonymous data scientists. Using a method similar to homomorphic encryption, this tech works to ensure that the scientists can’t see the details of the company’s proprietary trades, but also organizes the data so that these scientists can build machine learning models that analyze it and, in theory, learn better ways of trading financial securities.”
3) The “Great AI awakening” at Google
This deep dive into Google’s recent AI efforts reveals just how fast the Google Brain is learning.
The article points to applications in healthcare and the legal industry. Finance: watch out.
I wonder what headwinds this great gate keeper of the Web will face from politicians, regulators and customers as the full scale of its AI ambitions become apparent.
And just how will the financial behemoths neuter or compete with this intelligence?
I’ll dig deeper into this and the urgent implications for investors in the coming weeks.
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