AI v/s Humans: Who Can Give Better Returns In Financial Markets?

Artificial Intelligence has come a long way than most have thought it would a few decades back. Today, AI has its presence in almost every sector of importance. There has been a rapid emergence and growth of AI in the financial technology (fintech) industry.

The phrase, ‘AI making money in the financial market’ is not from a science-fiction movie but a reality. With the progress AI has made in the financial world, the question arises – Can AI do better than humans and give better returns on stock investment? In this article, we will look at this question in detail and try to answer it for you.

Understanding the shortcoming

Before analyzing which is better, it is essential to understand the shortcomings of both – AI and humans. You do not have to look at the positives of two people to conclude who is better between the two. Based on the shortcoming of both, you can decide which gives a better return in the financial market.

Human shortcomings: Major human limitation is their tendency to be driven by emotions. For every investor, fear and greed are impossible to overcome. These emotions cloud human thinking and lead to cognitive biases. 

For example, cognitive biases make us stick with an investment because we have put our time and money into it. Though we see our stocks going down, we tend to stick to them.

Another human shortcoming is related to decision-making. Many investors do not realize that decision-making is a skill that can be worked upon. They continue to make decisions assuming they are doing it right and improving since decision making comes naturally – we have been doing it since birth. However, it is not the case. 

Assume you start playing badminton. If you don’t learn it and keep playing it – you will still improve with time. However, if you take the trainer’s help and learn how to service, take a shot, smash, etc, you will improve faster and play better. To sum up, humans tend to think they are improving with their investment, but it may be far from the truth.

Machine shortcoming: Even machines have shortcomings. They are better at making cold calculations, but they have a significant drawback – they cannot understand or simulate human thinking. Human thinking is a drawback in some cases when it comes to investment. So this shortcoming is not a major shortcoming. 

How can AI compete with humans?

The first thing you need to understand is how AI can compete with humans. Artificial Intelligence uses powerful computers to crunch almost countless data pointers in a minute. AI can detect historical patterns and replicate them for smart trading that a human mind cannot do. The key here is the quality and amount of data fed into the system. Machine Learning can learn faster than any human using the data input and improve the AI system.

Which is better in investing – AI or Humans?

The performance of an AI system depends on the data quality you have made available to the machine. Each human is different from the other, and they learn from their mistakes at their own pace. You must understand that even though we are comparing humans and AI here, we are making a general comparison. 

Now let us get straight to the answer. We surveyed around 100 investors and asked them the top reason – why are they unable to make returns from the market? There was a common answer, and we have already discussed it. Can you make a guess? 

More than 64% of investors said their returns are lower because of their emotions. 

Based on everything we have said and discussed and the returns we have seen AI giving investors, we can say that AI can give better returns to investors today. It does not mean that there is no place for human traders or investors. Humans have efficient mental shortcuts that they can take when they have to make rapid decisions under uncertainty. Humans too have a role to play in this ecosystem.

AI is improving every passing year, and we see it doing better in the future. For now, the hybrid model of AI and humans is here to stay. Instead of pinning humans against AI, we should combine the two – humans should work on feeding the right and all the available data to the machine for learning and trust its decision-making to make gains in the stock market.

What should you opt for?

Investing in the stock market involves risk, and there is always the potential of losing money. Before investing, consider your investment objectives and know your risk profile. If you think you are well equipped to invest in the stock market and have some mastery over your emotions, you can continue your investments. If you want more from your equity portfolio and want to explore the potential of AI in investing, there are platforms available that can take care of your equity investment. 

You can check Jarvis Invest and start your financial journey. It is an AI-driven platform that helps you create your equity portfolio based on your risk profile and investment horizon. Download the app now.