Being in the banking industry, I have seen a lot of changes over the past 30 years. But the speed at which things are changing now is truly staggering. New technologies and the world of finance/investing are joining forces, and this combination is shaking up the way we invest. It's time to take a hard look at what's going on.
Let's start with a topic that not many people know about: artificial intelligence (AI) and machine learning (ML). These powerful tools are no longer just science fiction, they're a reality, and smart investors are jumping on the bandwagon. A recent survey revealed that a staggering 71% of young investment professionals are actively seeking AI and ML expertise, recognizing the potential for refining portfolio allocations, generating alpha, and discovering insights buried in vast amounts of data.
But here's the catch: these technologies are a double-edged sword. While they offer unprecedented analytical capabilities, they also carry the risk of amplifying cognitive biases and overconfidence. Investors need to tread carefully to strike the right balance between the tactical application of AI and a thorough understanding of its broader business impact.
And speaking of new territory, the blockchain revolution has captured the attention of retail investors, who are diving headfirst into the world of cryptocurrencies and initial coin offerings. While blockchain technology offers exciting opportunities, the volatility of new investments in this space poses significant risk factors that investors need to carefully consider.
But the disruption doesn't stop there. The influence of “financial influencers” on social media platforms has emerged as a key factor shaping investment behavior, especially among younger investors. These digital gurus are shaping investment decisions in ways that don't necessarily align with long-term financial goals. We also mustn't forget that investment tools have been democratized thanks to cloud-based platforms. These tools have empowered retail investors, allowing them access to professional-grade analytics and real-time data. But with great power comes great responsibility. This shift has also raised concerns about herd mentality and amplified market volatility. So where do we go from here? As these technological advancements continue to reshape the investment landscape, it is important that investors approach them with a balanced and well-informed perspective. These innovations offer exciting opportunities, but also new risks that must be carefully considered. Thorough research, rational decision-making, and a long-term investment horizon are essential to navigate the rapidly evolving financial ecosystem. But it's not all doom and gloom. Leading venture capital firms such as Sequoia Capital, Andreessen Horowitz and Tiger Global are leveraging AI to analyze vast amounts of data, identify trends and find promising deals. In 2023, global VC investments in generative AI will reach a staggering $21.3 billion, with tech giants such as Microsoft and Amazon pumping in as much as $15.3 billion into companies like OpenAI and Anthropic. And this is just the beginning; investments in the space are predicted to exceed $12 billion in 2024. But as with any technology revolution, a strategic approach is essential. Investors need to carefully evaluate AI's potential to transform target industries and business models, ensure ethical and responsible use, and be aware of the limitations of these tools to avoid overconfidence. ETMarkets.com
And the data doesn't lie: According to CFA Institute, while only 29% of systematic investors currently use AI to develop and test investment strategies, more than three-quarters expect to do so in the future. Additionally, 64% of investment professionals are currently working on or plan to work on developing their AI and ML skills, with that number rising to a staggering 71% among younger generations.
Friends, the signs are clear: the investment landscape is evolving at a breakneck speed, and those who fail to adapt will be left behind. But by embracing these technological advancements with a discerning eye and adhering closely to fundamental investment principles, we can navigate this brave new world and emerge stronger than ever before.
So roll up your sleeves and dive in. The future of investing is here and now is the time to seize the day.
(The author is co-founder and CFO of hBits. Opinions are the author's own)
