Everyone wants to make a buck and many believe the real money is made on the stock markets.
Warren Buffett is one of the most successful. A part of his success may be that he lives in Omaha, he lives modestly and tends to not invest in speculative ventures.
His company’s profits are made mostly thanks to the success of US firms selling to US consumers. Living as he does allows him to spot the trends among the people that drive his firm's profits.
A typical Wall Street investor could not be further from reality. Their high-flying lifestyles are shared by less than 1% of the population yet they make calls about what the future holds, whether in the US or elsewhere.
Buffett feels strongly enough about it to have wagered $500 000 with a hedge fund to see which could get a better return over 10 years. Buffett chose a single index fund, his hedge fund challenger choose an index of five hedge funds. After nine years, Buffett can’t lose with 7.1% growth versus 2.2%.
If Wall Street is shaky and Buffett is nearing retirement, who will be the next super investor?
Artificial Intelligence (AI) is being used more in all types of situations and so its use in finance and the behaviour of the stock market is no surprise.
Richard Craib, a South African, was using it too to improve his company's investment choices. When his request to share his data with others working on more sophisticated systems was declined, he opted to create a new way to run a hedge fund: Numer.ai.
Combining the use of AI, and opening the modelling to anyone who would like to use the data, is the kind of collaboration that is not possible now. There would be nothing to stop someone using his datasets and making their own trades, killing the co-operation.
To prevent that he uses homomorphic encryption. His collaborators can work with the data without knowing what the data is about.
They run their models and upload their results. The site ranks the models, posting those results into a leaderboard.
Each collaborator is rewarded according to the success of their model. They receive payment in the form of Bitcoin in a weekly tournament and an additional cryptocurrency Numeraire.
Numeraire is build on the Ethereum blockchain and is given to collaborators to use to indicate their confidence in their models. If their confidence was correct they will be rewarded with cash and get their currency(tokens) returned. If wrong the token is destroyed.
This is an ambitious experiment; it may well be akin to the experiment from 2009 to create cryptocurrency in the first place. One thing that does seem to make very good sense is that data science and AI is improving. Getting a fund with a growing pool of gifted minds that can see good returns is likely to impress investors more that a slick suit and a presentation.
The odds are good that he and his data scientist collaborators, and definitely rivals, will seek to replicate his idea and improve the current means for investing.
It may well see Richard Craib and his teams become the future oracle of investing, unless Buffett simply buys the company to make up for his misses on Google and Amazon in the past.