The Online Investing AI Blog

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If you notice some of the terminology of investing, you’ll see a connection.

Bet. Hedge. Loss. Long-shot. Odds. Risk.

All of these terms are interchangeable with gambling parlance. There’s a connection between the two — and while most investors will tell you that they aren’t gamblers, the words they use give them away. If there is a connection between gambling and investing, it follows that investing can have some addictive features, just like gambling does. Gamblers, after all, can go to Gambler’s Anonymous. Should there be an Investor’s Anonymous?

Investors may want to look at signs of addiction in their own trading behavior. Gamblers who become addicted to game of chance rarely are in it for the money, they are in it for the emotional jolt they get from betting. The rush.  If they win, that money goes into more bets and, usually, bets with much higher risks. Then, the crash.

All investors feel that same sense of exhilaration when a stock they bought starts to soar, or when a stock they shorted starts to drop. But, what do you do after the excitement. Can you take money off of the table? Can you wait until the market settles?

You may also want to look at how your emotions have fluctuated through the years. Do the “good times” of your life also correspond with bull markets — and the bad times of your life seem to be bear markets?

Asking these questions aren’t easy — and it’s hard for addicts to self-assess — but becoming more aware of whether we’re investing for fun or profit, or whether we’re just addicted to the rush of winning and losing, is important.

You may also find that you’re not addicted. But, this can still help you see how emotions can change your outlook on the market and directly influence how you invest — sometimes for good, but mostly for bad.

Automated Trading, Business Strategy, Investing, Money addiction, gamblers, gambling

Entropy by Jef Safi

Entropy has a bad rap.

When you hear about entropy in science class it’s usually described as a messy bedroom, a completely disordered state. It has nothing to do with intelligence, in fact, it looks like the complete opposite of intelligence.

But, according to a Harvard computational physicist, entropy holds the key to intelligence and — defying the bad reputation thrust on it by millions of high school science teachers — entropy is more like a state of exploration, or even play. It’s an insight that could lead to new technologies and has important implications for econophysics and stock trading, believe it or not.

Alexander Wissner-Gross, who is part of both Harvard’s Institute for Applied Computational Science and MIT’s Media Lab, recently published a paper called, “Causal Entropic Forces,” which, using cosmology as its inspiration, seeks to reveal the “deep connections between intelligence and entropy maximization.”

And that gives us a clue to how it works in finances and trading. Wissner-Gross sees entropy as the universe’s way to explore possibilities and to seize future possibilities as possible. As he tells Io9, it’s a lot like playing Go.

Read more…

Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI AI, Alexander Wissner-Gross, entropica, entropy, software

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You are on a hot streak.

Each trade you make is a winner. The money in your trading balance begins to pile up. You reach the obvious conclusion…

You are good. Real good. You have the skills and knowledge to dominate the market. Or do you?

The biggest problem that traders and investors encounter is the difficulty of separating skill and knowledge from plain old luck. And, just as a coin can flip to heads any number of times before it eventually balances out into the 50-50 range, so, too, can trades inconveniently arrange themselves in lucky — or unlucky — streaks. This “streakiness” can lead to over-aggression during lucky bursts and despondency when the trader faces a series of losing positions.

How can you separate your skill from the random nature of the market.

There are a few ways to test — all, of which, take time and patients, which is unfortunate for the get-rich-quick trading set.

Counter-Markets

One way to test your level of skill above luck is to measure your performance in poor trading markets. As the saying goes, all ships rise in the tide. But, during bear markets can you find winning stocks?

Significant Results

While there are always going to be lucky streaks and unlucky streaks, if you consistently out-perform the market, you can be more certain that you’re not just the beneficiary, or victim, of luck. This should be measured in years — nor days, weeks, or even months.

Risk Management

This isn’t so much of an indicator of luck as it is a way to manage luck. Traders should use proper position sizing. Both traders and investors should manage their portfolios. Some more advanced techniques including taking short positions to balance long investments.

Read more…

Automated Trading, Investing, Money, Online Investing AI

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The notion that robots are sweeping in and stealing jobs is become an increasingly more virulent meme.

You can check out some of the angst at the Boston Globe and here, at Boing Boing.

It follows a long list of such occupational fears. The Irish, Italians, Japanese, Mexicans, and, more recently, Chinese were all identified as job thieves at one time or another. Robots are just the latest immigrant class who are threatening upheaval in the workplace, although they’re not arriving in boats or on planes, but in labs and in factories.

These robots aren’t quite yet the Jetson type or Lost in Space models. It’s mainly automation that people are worried about. But the anthropomorphic types of robots are right around the temporal corner, as well.

Factory robots are being used to perform precise tasks that humans used to do. This is even a threat to cheap factory labor in places like China.

But the extent of the robots reach doesn’t just stop at the edges of the factory floor. Desk jobs and professional occupations — once thought immune to automation — are drifting into the cross hairs.

Artificial intelligence and machine learning make jobs like writing — Yikes! — and security susceptible to automation.

So what can we carbon-based lifeforms do, but prepare to welcome our new robotic overlords?

Read more…

Accelerating Technology, Automated Trading, Business Strategy, Internet, Investing, Money, Online Investing AI, Success AI, machine learning, robotics, robots

Our blog talks a lot about using artificial intelligence — or, AI — as a tool for investing and trading.

Trading firms and hedge funds are using AI every single minute of every single trading day to place investments and make trades. Billions and billions of dollars — not to sound too Carl Sagany — are riding on how well AI or machine learning trading schemes work.

We’re also seeing artificial intelligence revolutionize other industries. Pick up an iPhone and ask Siri about AI. She might lead you to several stories on the web about how AI is being used in everything from telecommunications to health care.

But, the perception among many is that we are still stranded in the depths of AI winter — that’s the term for the years of little progress in artificial intelligence. Some experts are saying that this is a misperception. AI has made huge gains in the last few decades, but when compared to the expectations, this progress seems minuscule.

If the perception is that AI is hopeless — and the reality is that AI developers are making great strides in creating artificial intelligence- and machine learning-based products, then wouldn’t placing bets in AI companies add up to a possibly lucrative, albeit contrarian investment idea?

One contributor to Seeking Alpha is seeing AI as a possible investment play.

Over the past few years, we have seen forms of artificial intelligence begin to quietly creep into our everyday lives and become something on which we depend. A very simple form would be something like Microsoft Corporation’s (MSFT) spelling and grammar check in its Word software or the method that Facebook, Inc. (FB) uses to suggest people that you might know.

Seeking Alpha writer, Matt Cilderman, has a few recommendations.

Read more…

Automated Trading, Investing, Money AI, artificial intelligence, machine learning

My interest in artificial intelligence and its potential applications in investing and personal finance led me to people like Ray Kurzweil and the notion of a Technological Singularity.

Image courtesy Steve Fareham

At its most basic level, the definition of the Singularity is the point when machine intelligence reaches — and then quickly surpasses — human level intelligence. The Singularity also promises, at the least, to bring longevity (if not immortality), radical abundance, space travel, and more.

One of the research questions we’ve looked at is how can AI help individual investors.

Michael Nuschke, who blogs at Retirement Singularity, has been exploring a similar question on how the pending Singularity will change our retirement planning. Certainly, things like longevity and new production technology (like 3D printing technologies) will change both our careers and our retirement planning.

I brought Michael in for a conversation about the Singularity and retirement.

How is technological change affecting retirement investing and financial planning?

Read more…

Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI intelligence explosion, personal finance, personal financial, retirement, technological singularity, the singularity

Each day, machines, not humans, are plowing through statistics and crunching numbers trying to devise trading algorithms to make money in stock markets, futures markets, commodities markets, and any other place that traders can turn a dime.

They’ve been successful.

But not totally successful. And not successful for long stretches.

The stories of trading strategies failing are just as common as stories of amazing machine-learning success in the market.

Why is that?

I’ll take a stab. I believe that most machine learning and artificial intelligence programs are essentially created short-sighted. To build an automated trading system, you “train” the program to understand data. This data can be technical or fundamental, or a range of other data sets. The program learns the relationships between the data and the market. When factor x goes up, the market reacts with a y, let’s say.

But, this data is not an object, per se, but is really a shadow of currents in a broader economy. So, the program ends up not be predictive at all. It is reacting to a reactive set of data.

Read more…

Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI, Success AI, artificial intelligence, Automated Trading, failure, human emotion, machines, markets, risk, Success, trading

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I’ve followed the success of 50 Shades of Grey with a mixture of jealousy and indignant jealousy. In case you haven’t heard, this book is the latest literary sensation that’s turned a writer of fan fiction, E.L. James, into an overnight majillionaire.

No. I haven’t read it. In fact, I thought it was about the Civil War. And, in a sense, it is. (Insert bondage joke here.)

But, I’ve heard a few people talk about it. And, it’s not that good, in a literary sense. It’s just fun, in a sick-twisted-kind-of-way… my friends’ words, not mine.

So, I guess those who aren’t inclined to write bondage tales are out of luck when it comes to making money. Right?

James’ success isn’t so much a story of literary success as it is the success of the internet. The book started out online as fan fiction on a Twilight website.

So. Hang on.

Here’s a thought. Maybe there are more ways to make money–more ways that are fun, exciting, and perhaps will not require an inordinate amount of blushing.

Think of it as an easy way to get out of bondage. (Insert second bondage joke here.)

Here we go…

1. Invest. Seeking Alpha’s a good place to start.

2. Long-term it. Become a value investor. Here’s a good place to learn about it.

3. You can trade options. You can try this book.

4. Trade stocks on the short term. Check out this site for some insights.

5. Follow trend-following techniques for big money. Michael Covel’s an expert.

6. Buy into a great start-up (coming soon) Here’s a post about the details.

7. Win the lottery.

8. How about blogging?

9. How about blogging like a copy writing?

10. You could try autotrading at Collective 2!

11. Make money with Google ads.

12. Make money with Twitter.

13. Make money with Facebook. Check out the video.

14. Make money with Pinterest–a post on Squidoo.

15.  Speaking of Squidoo, here’s a Hubpage about making money on Squidoo.

16. Speaking of Hubpages, here’s a post on how to make money there.

17. Earn cash selling content.

18. Sell your crafts.

19. Hell, sell your art!

20. Make money on Cafe Press. Here are some hints from Noobpreneur.

21. Or, try Zazzle.

21. Sell your eBooks. You can see some ways some successful eBook writers did it.

22. Publish through Createspace.

23. Publish through Lulu.

24. Become a Yahoo Contributor.

25. Become a Helium Contributor.

Read more…

Automated Trading, Business Strategy, Dreams Come True, Great Books, Internet, Investing, Money, Online Investing AI, Success 50 shades of grey, green, Money

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While you go about your day and fret about the latest economic downswing, five fingers are folding into an economic punch that will soon spread across the globe.

This economic punch will not be good, or bad.

There is no defense for the punch.

It’s coming.

A.I.

The first part of this punch is artificial intelligence — or AI. For years, people wrote AI off as hype. Now, robots and super-smart computer applications are getting noticed. From Siri to Jeopardy-winning Watson supercomputer, A.I. can no longer be ignored. More and more factories are utilizing robots to improve production.

3-D Printing

Remember when desktop printers were the rage? They actually revolutionized the office and created entire new industries. Now, imagine a device that can sit in your home and produce objects–real, three dimensional objects. Experts say this will change the way we shop, the way we recycle, and the way we make and save money. There are also plans to create printers that can make pharmaceuticals and revolutionize health care.

Personalized Medicine

Speaking of health care… Today’s medicine is like a shot gun. You take a whole bunch of treatments and pills and throw them at patients and see which ones have the best chances to succeed. The truth is, however, that there are physiological differences between individuals. An effective treatment for you, might be ineffective for me. A pill that causes side effects for you, may not have any problems for me. Personalized medicine will treat people as they are — as individuals. It could save lives. And save trillions of dollars.

Crowd Sourcing, Crowd Funding

Karen Klein was a school bus monitor who was mercilessly bullied by a group of middle school students. She won’t need that job now. A crowd-funded project that was attempting to raise $5,000 so she could take a vacation ended up generating more than $700,000 in donations. This is just one story. More will follow, including new plans to allow people to crowd invest in start-ups.

Augmented Reality

New technology will blend cyber-reality with reality. It’s called augmented reality. One way this works is through glasses and contact lenses that display data for the user. Think fighter pilots and their heads-up display.

Good and Bad

There’s always good news and bad news with technological developments. This five-finger economic punch is no different.

On the one hand, robots will make our lives easier. On the other hand, they may also take our jobs.

3-D printing can usher in an age of abundance. But, during a transition, stores may shutter and businesses could be wiped out.

Despite the bad news, the overall, long-term prognosis is good. With every wave of technological change, there’s been struggle, but in each case, people have found a way to absorb the economic punch of new tech and counter with new opportunities and even better technological solutions.

Accelerating Technology, Automated Trading, Business Strategy, Dreams Come True, Investing, Money 3d printing, AI, crowdfunding, crowdsourcing, economy, future, medicine, punch, technology

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I’ve read quite a lot of articles, blog posts, books, and other forms of financial advice that were guaranteed to work.

But there’s always one word they typically forget to add at the end of their amazing rules for investment success… “Unless.”

There was always an “unless” somewhere in the article, and it’s usually undisclosed. Rules tend to have exceptions and the world of investing and personal finance is certainly not immune to the exceptions.

Some advocates of their investing style will tell you that they’re system is the rule without exception. But, as we’ll see, just about every system has its “unless.”

I’ve collected a few of those.

1. Low price-to-earnings ratios mean the stock is under-priced.

Unless… It just means growth has stopped and the other side of the ratio — earnings — is now falling, before the stock craters to reach equilibrium.

2. Follow the trend.

Unless… You happen to buy (or sell) at the edge of the trend.

3. Buy and hold.

Unless… You happen to buy a great-performing stock that happens to be in an industry that is rapidly becoming obsolete.

4. Charts are predictive. By analyzing these chart movements, you can determine where the stock price is heading next.

Unless… they’re not and you’re simply seeing patterns where there is no pattern. A common human trait. Like seeing a horse in a passing cloud.

5. Cheap stocks have the greatest upside.

Unless… They’re cheap because they’re crappy. A 10 percent move in a $1 stock is the same as a 1 percent move in a $10 stock.

6. Warren Buffett is always right.

Unless… he isn’t. Even Warren admits he makes mistakes.

7. Sell in May and Go Away… And dozens of other clever rhymes and mantras.

Unless… You miss a huge opportunity in a specific sector or stock because these tend to be general rules and can never apply to specific price movements.

8. Bear markets are horrible times to invest.

Unless… the Bear Market becomes a Bull Market.

9. Bull markets are the absolute best time to be in the market!!!

Unless… the Bull Market becomes a Bear Market.

10. Rich investors are savvy investors.

Unless… they’re lucky investors.

Automated Trading, Investing, Money buffett, Investing, p/e ratio, rules, stock