Later this month (October 26th to be exact) I’ll be in Frankfurt, Germany to speak at the NextGen Alpha Artificial Intelligence Investors Conference. I’ve been asked to present about how BUZZ uses AI to harvest investor sentiment from online content including news articles, blogs and social media data for the purposes of security selection and alpha generation.
The event’s theme is about what lies beyond our current milestone of having fully autonomous AI fund products: the machine as the ultimate decision maker.
I wrote last month on this theme in the form of an open letter to Quilter Cheviot’s David Miller, who had used his blog, Diary of a Fund Manager, to ask a number of questions about AI that I answered. (I’ll be sharing the conference stage in Frankfurt with Mr. Miller, who will be among the panel of experts presenting their views, opinions, and experiences.)
My talk in Frankfurt will focus on the current BUZZ NextGen AI US Sentiment Leaders Index in order to illustrate how the investment industry is changing because of what’s happening at the much-discussed intersection of Wall Street and Silicon Valley.
In early November I’ll post a summary of my presentation and share my impressions of the conference—what AI trends are emerging in the industry, what people are talking about, and how investors are preparing for the future.
The metrics of measured sentiment
We’re on the cusp of what Wired magazine calls the “Third Wave” of investing—a radical and irreversible Artificial Intelligence change that’s about to disrupt the industry. At BUZZ we’re already surfing this Third Wave. AI is built into our business model because with the technology, we can finally isolate investor sentiment as a factor.
Academic studies have shown that sentiment has predictive capabilities. It can influence asset price movements in the short and medium term.
As investors, we have been trained to think of sentiment as a contrarian indicator, but intuitively, and academically, we know that sentiment has an important impact on equity valuations. In the short to medium term, it is widely agreed that sentiment is a key determining factor as to whether, by way of example, a stock trades at a 15 times multiple or a 20 times multiple.
The problem, historically, was that there was no way to measure sentiment, especially at the individual stock level. We relied on our intuition, opinions of so-called experts and even polling results to give us a window into investor sentiment.
Over the past year, we have seen surprise results in the US Presidential elections and the BREXIT vote. We’ve watched these events expose the flaws of traditional polling techniques and expert opinions.
People have been talking about stocks with each other since the first days of trading. Emotions and sentiment have always been a part of markets. That isn’t new. What has changed is that millions of people are now sharing their views across online platforms and in doing so, they are leaving a digital trail that is ripe for analysis.
The sentiment factor, which was always present and which can now finally be measured, is indeed a source of Alpha generation.
The BUZZ Index is proof. BUZ has outperformed other active large cap equity strategies and has performed well versus passive benchmarks. The index beat the S&P 500 by nearly 3% in the third quarter of 2017 alone.
My talk at the NextGen Alpha Artificial Intelligence Investors Conference will delve into how we do what we do at BUZZ. I’ll explain our process and strategy for monetizing the sentiment factor.
If any readers are in Frankfurt for the event on October 26, I hope we get a chance to meet. For those unable to attend the conference, watch the BUZZ blog in early November for my presentation synopsis and insights from the meeting.