Artificial intelligence (AI) is going to change the world—this is true beyond a shadow of a doubt.
It will make some businesses better and kill off a few others. The impact on financial markets is going to be enormous.
However, it will be nothing like all the ads and come-on promises we see in the media and online. All those ads about having an artificial intelligence system to pick stocks and predict where the stock will trade in a few days are leading you down a primrose path—they all have a close relationship to the southern leavings of a northbound horse. At best, these systems have a basic machine-learning algorithm that has been around for years.
Most of these so-called AI systems are just repurposed technical indicators that did not work the first time someone tried to package them for sale. And when it comes to the stock market, artificial intelligence resembles the E-Trade baby.
Here’s what I mean.
Like any baby, AI is going to make some mistakes (which when it comes to investing, will mean bad news for you).
Remember that the best generative AI programs routinely spit out incorrect information despite having access to massive amounts of data. There is still a massive “garbage in-garbage out” component to what passes as artificial intelligence. AI will cause market crashes when one program triggers another program, etc., and the selling begins to cascade.
Remember the crash of 1987 that was caused by a form of program trading known as portfolio insurance?
Now, imagine a program trading with much greater computing power and speed that operates without much human supervision. Add to that that everyone will insert the same factors and triggers into their own AI trading systems. It will be Flash Crash: The Quantum Version.
At least once (and probably much more frequently), we will see someone hack an AI system and make it do a computerized version of…
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