Is AI going to help us invest better?
There is a lot of talk about AI assisted investment tools, but how would that work?
An AI is trained by data to find patterns, and then follows new data to find indications of those patterns replicating, I know that it is a simplified description, but pretty much what is going on under the hood.
So for predicting startup investments we would take data from VCs and maybe Angel investors and we would generate some models from the training data, the models would all have a pattern the lead to unicorns and be based in categories as Med-Tech, Fin-Tech, and so forth, and then as we get an investment deal flow we could use these models to predict what investments should have the best outcome.
Here are a few problems with this, look at the fact that Google could not raise money at it’s start. They where struggling with not a single investor, VC or Angels, believed that their search engine would make any difference, as “Altavista was good”, and look at the game industry that blindly followed internet data that told them that first-person shooters were what to invest in as that was what the customers wanted, and along came Sims and became the worlds most selling game ever.
I believe the market, per se, doesn’t exist, human psychology does exist, there are of course parts of what we buy that is need driven, but most things we buy are not, and the price we pay is not based in need. The psychology of that the grass is greener, or if I own that thing, life will be good is the driving force behind most sale, and an investment is a sale of a promise for a better future, in most cases that is translated into monetary gain.
So AI for investments is just like following an other guy’s recommendation about what horse to bet on, do your own research and never bet more then you can afford to lose.