Using AI to automate investing


Part 2

In this three-part series, we will explore AI-powered investing, how it works and how you can leverage this cutting-edge technology to diversify your investment mix and improve your investment returns.

Emotion dominates decisions

As investors we like to think that all of our decisions are rational. While that is often the case, spend enough time in the markets and you’re bound to make a mistake. As Mike Tyson once said: ‘Everybody has a plan until they get punched in the mouth.’ Though a brash point, Tyson’s quote carries with it a very important investment lesson: when the stakes are real, when there’s actual capital at risk, our behaviour can change dramatically.

If you’ve traded or invested in the past, you’ve likely sold at a loss at one point or another. Even worse, maybe you sold a stock only for it to skyrocket a month later. It’s hard not to kick yourself in this situation.

Market volatility, fear of investment underperformance and difficulty identifying the best companies are the three most common challenges that Australia’s individual investors struggle with. That’s hardly surprising. With so much data to consider, even the most successful asset managers rely on
AI and other technology solutions to identify attractive opportunities.

Overconfidence – the enemy of investing

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 Jaaims, the first fully automated AI investing app.

“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 having implications on mental health.”

A combination of inexperience, nerves and unrealistic expectations can result in investment regrets. Through the power of AI, Jaaims simply navigates the financial landscape, separating the signal from the noise. Using AI, it analyses 10 million pieces of data from over 250 different news, financial data and social media sources in real-time, updating its stock recommendations every 15 minutes. In this way it transforms the deluge of market data into an abundance of opportunities. The track record of its automated trading portfolios drives the point.

The Model Portfolio, for instance, employs a high- growth strategy that targets trending sectors during periodic growth cycles. From its inception on 1 July 2020 through 31 March 2021 the portfolio realised a return of 14.7%. Over the same period, the Smart Portfolio, which focuses on stocks that demonstrate strong growth potential supported by high human emotion conviction, realised a return of 26.5%. By contrast, the S&P/ASX 200 rose 14.4%, the FTSE 100 rose 9% and the DAX rose 22.4%.

Taking the emotion out of investing is one of the key benefits of Jaaims’ automated trading app. Our system, for example, handles all buy and sell decisions, as well as calculating optimal position sizing. This not only potentially helps you maximise your returns, but it means you don’t have to worry about your emotions cutting into your trading performance.

Trust, simplicity and transparency

Trust and simplicity are central to Jaaims. Once the solution is plugged into your brokerage account, it automates trade execution, constantly refining your portfolio using AI to maximise returns. Your money never leaves your brokerage account. You can use Jaaims to manage a portfolio of your favourite stocks or take a set-and- forget approach with one of its own portfolios, which currently boast double-digit percentage returns.

All of this is not to dissuade you from trading or investing yourself. There are benefits of AI investing as well as more traditional approaches. Rather, the point is to illustrate how Jaaims can perfectly compliment what you are already doing, whilst reducing the emotional overload and human error in investing.

Article featured in the Australian Financial Review (AFR) June 5 2021.
*All returns are net of fees and in AUD. Calculations are based on our monthly Professional subscription using our smart portfolio trading all markets covered by Jaaims with a starting fund of AUD$250,000, average position size of $5,500 per trade or 2.2% of funds. Trades fees are calculated utilising retail brokerage rates and multi-currency accounts provided by Interactive Broker. The calculation is from 1 July 2020 to 30 June 2021. Distributions are reinvested, after ongoing fees and expenses but excluding taxation. Actual performance will vary depending on broker selection, position size and stocks selected by the user. Past performance is not a reliable indicator of future performance and will be subject to investment risk as returns are derived from share markets.
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