Can AI Beat The Market?

In the last few years, there is a belief among technology enthusiasts that artificial intelligence (AI) can solve the complexities of the stock market as it has for other fields. Many also believe that humans lack the capacity and capability compared to machines which can beat the market over time. How true is it? Are technologies like AI so advanced that they can outperform the market? We are going to talk about it in great detail in this article. Are you using any technology-driven platform for investing in the stock market?

How far has AI come?

Have you watched the recently launched movie – Attack: Part 1? It is about creating a Super-soldier. You may say what the film has to do with our discussion of AI and the stock market. Well, it does, and we are talking about it for the same reason. 

The movie is fiction, but the concept of a super-soldier is not. 

The Defense Research and Development Organisation (DRDO) is working on creating an Exo-suit for Indian soldiers. What are they? Exo-suits are gadgets that can be worn by soldiers to harness their strength. Interesting, right? These body gadgets are fitted with powerful special devices and Artificial Intelligence (AI) to enhance the capability of Indian soldiers. A soldier wearing an exo-suit or exoskeleton can move faster and will have the extra load-bearing capability.

With this point, we want to highlight the progress AI has made in recent years. Unless you trust the technology, there is no use in considering it for important matters like money. When the army is backing up AI for its soldiers, why can’t you explore it for your equity investment?

AI in investing

Investors over the years have been using simple algorithms for trading and investing. In recent years, Machine Learning has advanced, and now it can analyze large data sets and find patterns in those data. The financial market is generating enormous amounts of data that can be used as input to the AI/ML system – a perfect match.

Applications based on AI for long-term investing and short-term time frames are gaining popularity. There are a few hedge funds that are very active in this field. How are they doing? We have already covered the Medallion fund in one of our earlier articles. You can check it to know the performance.

You may ask- if AI-based investment is good, why not more companies do it. Yes, broad acceptance of this new technology is indeed slow, but there are obvious reasons for it. Creating an AI-driven platform that can help in stock investment or trade requires investment in new tools and human talent. The company will have to work on the product for years before they think of introducing it to the public. Hence, we don’t see many companies in this area. However, it does not mean we will not have them in the future.

How does an AI system work?

Many people believe that AI can give you returns under all circumstances. It is not true – AI-based systems cannot find gold where there is none – if the market is down overall or we are in a bearish market, AI cannot give you positive returns. However, it will try to minimize the risk by recommending your best stocks in the market that have the potential to deliver returns. Also, it will make sure you stay away from companies that are likely to fall most. 

The problem with human investing is that we are not sure when to exit a stock. 

Assume you have invested Rs 1,00,00 in stock A and it is trading 10% lower. You plan to hold it for more time because you cannot analyze the stocks. However, AI-driven will know if the stock price may go down – at least it can predict with higher accuracy. If the system finds the price will go down another 40%, it will ask you to exit. If you exit the stock at the right moment, you gain. Your Rs 1 lakh capital would have been Rs 50,000 if you had stayed invested. With a Risk Management System which sends such alerts, your portfolio returns can vary – on the positive side by large margins. With all this information, we move to the most crucial question. Can an AI-driven platform beat the market?

Can AI beat the market?

Jarvis Invest is helping thousands of investors with their equity investments. Have we beaten the market? In the last 17 months, Jarvis has outperformed NIFTY50 returns 14 times. Check the table below.

C:\Users\abhin\Downloads\IMG-20220616-WA0003.jpg

Has Jarvis been able to deliver positive returns in all these months? No. As mentioned earlier, AI is no magic – it will minimize risk and the potential downside of your portfolio but cannot make equity investment risk-free. Equity comes with a risk – you must be ready for it. Check about the risks associated with equity investment here.

Conclusion

The equity market is through a tough time. You cannot get returns if you are new to investing or don’t have the required expertise. Taking help from the AI-driven platform would be a good idea. We may not possibly get returns as we did in 2020-21 – you need to pick the right stocks in this market.

Make a comparison yourself – how much you would have made (or saved) by investing through Jarvis in the last 17 months. Let us know what stops you from using technology for your stock investment even when you suffer heavy losses?