The Dunning-Kruger effect in social psychology describes a tendency for people with low abilities at a task to overestimate their skill in performing it.
This hypothetical effect becomes quickly apparent to a novice trader in an environment where such overconfidence can soon empty their account.
“Without professional help, data shows that a novice will typically blow up their account in a few weeks, if not days,” says Tui Eruera, CEO and founder of fully automated AI trader, Jaaims.
“Essentially 76 per cent of first-time retail traders lose their money. And that’s the biggest problem at the moment – young people are getting into investing, and losing their money, which is obviously causing mental health issues and many other things.
“With our platform, we remove that emotional side away for you because we decide when to buy and sell and then automate execution of those decisions.”
The Jaaims platform analyses 10 million pieces of data from 250 different sources across the internet, including news and social media as well as fundamental market information, and uses an AI algorithm to process that data to come up with buy and sell recommendations for top equities across the US, Australia, the UK and Germany.
It can be connected to your online broker to make the trades, which can effectively remove the emotional link from the equation – the human.
Eruera, who successfully exited digital travel start-up Livn in 2015, built Jaaims when he became more active trading and realised his own limitations.
“I realised I knew very little about it – and since there were no automated trading apps available, I decided to create one and, in the process, democratise access to AI trading algorithms,” he says.
With more people than ever entering the market over the past year – CommSec’s customer base alone has risen by a third since the pandemic started – more people are trading for the first time and the need for quality advice has never been greater, says Investment Trends head of research, Irene Guiamatsia.
“Our financial advice research shows only 1.8 million Australian adults actively use a financial planner, down from 3 million 10 years ago,” Guiamatsia says.
There is a huge middle ground between the 1.8 million using financial advisers and the 1.2 million “self-directed equities online investors”, who are currently not well served, she says.
“The past year saw an unprecedented and sustained disconnect between equities market performance and the real economy,” Guiamatsia says.
“The 2020 Investment Trends Online Investor research reveals that 400,000 people started investing online for the first time and one in six of that pool are under 25 years old.
“The challenge for new to market and those generally less experienced investors is how to identify good trading opportunities. This has increased the pressure on industry participants to deliver tools and education that resonate with this new demographic.”
Jaaims is one such tool which ranges from a signal service to a professional platform that can help manage and trade a portfolio worth up to $25 million for slightly heavier hitters.
“With the professional package, we pick stocks for you, as well as executing,” Eruera says. “So that is the fully automated version. And that’s the easiest way for them to get exposure to our algorithm.”
The Bondi father-of-two says mastering emotional control is just as vitally important for full-time professional traders as it is for first-timers: “They say that investing is 20 per cent strategy, 80 per cent execution. And it can take years to master your emotions when investing. It’s a continual battle even for top equity strategists.”
He says Jaaims – which goes live in the UK in July and enters Europe in September- fills a gap in the market.
“Hedge funds and wealth managers can manage your money, but they require $100,000 to $150,000 minimum before they will look at you.
“So, there is definitely a gap in the market – people who have $40,000 in savings that want to get a better return. Just by downloading an app, Jaaims gives traders access to the same AI and algorithms that the big end of town has and levels the playing field for the little guy.”