The OLD AI: Absolute Intention

#investors #applyingprocess

AI regimes are certain to change how we do the business of markets.  They will not, however, preclude us from generating alpha by doing the work with rigor and intellectual honesty.  Let’s review how.  

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The investment world, like all the other many worlds, is about AI up the wazoo.  It can do our models.  It can ask our questions.  It can take our notes.  It can study our data.  It can build our portfolios.  It can trade our holdings.  It can do it quickly and without manual errors.  It can…is there anything it can’t do now or won’t be able to do soon, (like by next week?).  Jeez Louise.   

We should spend time at first being intimidated by it and then simply embrace it, not only out of necessity, but to survive.  We should accept that the trade we ply as investors in these markets is going the way of the buggy whip, and fast.  Humans are over.  All this technology is just too good and getting better.  Active management, my tuccus. Yep, just go out in the garden (someone still needs to work the dirt), play your bad golf (video versions are no substitute for hitting that $5 ball in the water), and enjoy a nice cold beer.   

Hmmm.  Rather defeatist, no (except the beer)? The cynic in me steps back from this whining occasionally, as I hear some or all versions of it steadily promulgated with increasing cogence and conviction by everyone. He notices that there are more than a few big tech leaders with extremely high valuations that stand to gain quite a bit by continuing to push this narrative of being bested.  And then, the stubborn analyst in me wakes up, and jostles, “should we always believe what management says?”  All the other cynical (read: credible) analysts suddenly get the conceit.   

Enabling technologies are a good thing, but they can’t replace the caliber of analysis that derives from good practices done well.   

New AI should replace some of the shitty analysts and PMs, but the ones that act with traditional absolute intention (aka OLD AI) as they do the work required to solve problems and identify the markets’ (thankfully!) many imperfections on the price discovery side are probably going to be just fine.  They might even thrive if they continue to embrace the newer technologies available to improve processes and productivity. Hard as it to believe, analyst spreadsheets in the ‘80’s took a quantum leap forward by moving from paper to Lotus 123, and on to Excel.  We got charting software, Bloomberg, a consolidated analyst estimate service, red-line for filings, algorithmic trading, and of course Grubhub and Uber eats to deliver lunch and dinner at work, to name a few of the better technology wins.  Come on Daenarys, you can conquer more worlds riding the dragon.  But before you do, some focus and some practice, done deliberately and consistently, may help.  Maybe the thing that distinguishes you now – the power of a variant idea derived intentionally - will keep working too.  Here are some ideas on that front, or as I like to call them, Fundamental Research.  

Fundamental Research.  

Thomas’ English Muffins had a tv commercial once where a slab of butter ran over the top of a hot toasted muffin as the voice-over talked up “all the nooks and crannies” the butter rolled through.  Never had an English Muffin looked so good. Not when it was wrapped in plastic as one of 6 in a paper box.  Not when you touched the rubbery goodness before splitting it to make toast.  And typically, while tasty enough, the first bite did not live up to the picture on TV either.  It was just a muffin, mere sustenance.  The perfect muffin is an ideal, an aspiration.  Same thing for good process doing fundamental work.  We are trying hard to find nooks and crannies for that butter to roll through.  We look everywhere, or at least that’s the goal.  Most of the time, the picture on tv is better and there is not much to do but eat the ‘only okay’ muffin.  But if we stick to it, every now and then, here and there, just enough times to keep us motivated, out pours a little butter from a nook.  We love to see and taste it.  Or, more properly for the analyst, out pours a gorgeous little nugget of alpha that you find where nobody else is looking.  And yet, it does not have to be a random event.  It can – even should - be the result of a good, consistent process done well and with intention.  

Start by making a plan.   

Be intentional.  

PUT THE PHONE DOWN. Seriously, get it out of the room.  Commit to following the order and process you have outlined for yourself.  Schedule it.  Make sure the schedule allows you some flex to go deep in topics that look like nooks and crannies.  For example, if you have 8-10 hours in a day to do the work, schedule 5-6. Give yourself time to step back and assess.  Allow time to do all things that are bound to come up.  Net, don’t overschedule.  Looking at a checklist at the end of the day with only half of the things checked is not a sign of low productivity.  It reflects an over-estimation.   Correct for it.  A backlog of responsibilities is overrated and not intentional.