Should Investors Say Aye To AI?

Imagine you are driving down the freeway and you hit a patch of black ice. Your car starts to spin out of control and you panic. Suddenly, your car's AI kicks in and safely guides you out of the danger. Sounds like a scene from a sci-fi movie, right? Well, this technology is already available and changing the game in various industries including finance.

What is AI and Why is it Important in Finance?

AI or Artificial Intelligence is the development of computer systems that can perform tasks that would usually require human intelligence like visual perception, speech recognition, decision-making, and language translation.

In finance, AI can help to process vast amounts of data faster than any human ever could, which makes it easier for investors to make informed decisions. The technology behind AI can be classified into three categories; Machine Learning (ML), Natural Language Processing (NLP), and Robotics Process Automation (RPA).

Here are some quantifiable examples of how AI is transforming finance:

• AI-based hedge funds outperformed the S&P 500 by about 7% in 2016 and by 4.5% in 2017.
• The AI-based portfolio management system at Japan's Nomura Securities increased productivity by 30%.
• Citi Group is currently using an AI-based system to help its investment bankers' pricing decisions. It has reduced pricing timeframes from four days to just 30 minutes.

But Should Investors Say Aye?

For investors, the thought of entrusting their money to machines can be overwhelming. However, AI is not here to replace portfolio managers, but rather to help them make better decisions. To help you decide whether to say 'aye' or 'nay', here are some pros and cons:

Pros:

• AI reduces human error. Unlike human beings, AI systems have no emotional bias or fatigue, which makes it less likely to make mistakes.
• AI enables more thorough analysis of data. With AI's ability to process large amounts of data, it is possible to make informed decisions based on historical trends and patterns.
• AI is always learning. Machine learning algorithms enable AI to learn from its mistakes and become more efficient over time.

Cons:

• AI is not perfect. AI systems can make mistakes, and it is essential to keep in mind that these algorithms are only as good as their creators.
• AI is not a replacement for human decision-making. There is still a need for human intuition and creativity to make critical business decisions.
• AI is expensive. The cost of developing and implementing AI-based systems can be high, which may be a barrier to adoption for some companies.

Conclusion:

Investors should not shy away from AI, but rather embrace it as an essential tool in the finance industry. Here are three simple pointers:

1. Understand what AI can and cannot do. The benefits of AI can be enormous, but it is essential to have realistic expectations.
2. Partner with the right AI company. It is crucial to partner with a reputable company experienced in implementing AI-based systems.
3. Stay informed. As with any new technology, the world of AI is ever-evolving. It is essential to stay up-to-date with industry news and developments.

AI technology is only set to grow, with more and more companies seeing the benefits it can bring. As an investor, the power of AI lies in its ability to turn vast amounts of data into valuable insights that can benefit your bottom line.

References:

• towardsdatascience.com
• analyticsinsight.net
• emerj.com
• bloomberg.com

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#Investing #Finance #AI #ArtificialIntelligence #PortfolioManagement

Article Category:

Finance / Artificial Intelligence