AI's Influence on Investing: A Balance Between Data-Driven Decisions and Human Judgment

Artificial intelligence, or AI, has had an influence in the way we invest in stocks. While it helps you narrow the list of opportunities, it has not reached a point where it can replace wealth managers, points outShankar Sharma, founder, GQuants, in a fireside chat withA K Bhattacharya.To what extent is your investment philosophy data- and AI-driven?My needle of investing has moved from being very traditional to becoming 80-90 per cent data- and AI- driven. That has been my transformation as an investor.So, I was an early adopter of AI and quant-driven thinking. And again, to clarify, it’s not that I use only AI but where it comes into play. It is giving me a breadth and scale of opportunity seeking, which I would not be able to do humanly, or even with a team.So, in a sea of 10,000 companies, for example, how do you find five, 10, 15, or 20 good ones? AI is giving me that today. Now, after that, the human part of me kicks in to further refine it down to the best five, or the best eight, or the best 10. But getting to that, it was a needle in a haystack. Now, the haystack has become much easier for me to understand. That's how I am using AI. Thus, my investment philosophy is simply that instead of taking a small number of large bets, as I would when I was a human being, because of AI, I can take a large number of small bets and a small number of large bets simultaneously.Also ReadBS BFSI Summit: GIFT City achieving key milestones, gaining global tractionBuilding foresight capability to anticipate risks a priority: Sebi ChairmanBS BFSI Insight Summit: Broking industry sees high growth on digital pushEquities less than 12 months? Good luck, says Morgan Stanley's Ridham DesaiInvestor awareness becomes more important than ever: Ananth Narayan GWill AI replace humans in investing or in financial services?I think it will not happen because we human beings will prevent AI from becoming that important because it will take away our jobs. For example, if a mutual fund chief investment officer gets too much AI into his firm, tomorrow his job is in danger.AI will have a natural check because of our vested interests and balance embedded in it. It will have a role, but to expect that everything will go from human beings and go to AI … I don't think that will happen.You are perceived as a contrarian. Will that change with the advent of AI?I don’t think AI will change who you intrinsically are. But here is where the danger lies and I am mindful of that. And I try to limit the use of AI in my day-to-day life.After using AI tools in the past one or two years, I have realised that for getting perspectives or getting data, I find you can but it (AI) will learn what you want the answer to be. So, on a topic it will start giving you answers that it senses you want.It reads your mind on that topic and then starts feeding you answers that support your thesis. This is exactly what you don't want when you are trying to think differently and be a contrarian.We have not been able to get that right mix of AI and our intelligence to help navigate this difficult, complex world. How should the financial sector use AI?AI is too new for us to form conclusions on whether it will reshape financial services in a big way. I mean, computers came and they reshaped it. AI will also reshape it. How much we have no idea, nobody can tell.What I do know is that AI is reshaping itself. Even AI doesn’t know where it will go five years from now. There are many flaws in it. It gives you wrong information and sometimes fabricates it. This destroys confidence.Why were we looking at AI? Because it is better than a human in giving me correct data. But I find it gives me rubbish most of the time. So, now the process I follow is I check the same information on four different platforms.I think it is imperfect right now. In fact, vastly imperfect. In some cases, dangerously imperfect.In addition to how one should deal with AI, what are the other things investors should bear in mind?Returns in global markets this year have been off the charts. It’s been one of the best years of my life as an investor because I invest globally. And I have been spoilt for choice this year, which is, on a policy basis, supposedly the most tumultuous year. So, clearly there is something markets are reading and I think markets are reading it right.Earlier, in investing, America was the only game in town. If you missed the American bull market, you were pretty much dead. Today, that’s not the case.I am happy that America is slowing a bit because of its policies. The rest of the world is restructuring, reshaping. It is opening up more opportunities for me as an investor.I do not see that as a negative at all. If anything, it is better from a portfolio management standpoint to have 15-20 good markets rather than have just one.Any other learning from this world of uncertainty?I think the biggest uncertainty for an investor today should be the fact that if you (the investor) are exposed only to a single market and that market for whatever reason might have a very uncertain situation, you then have a genuine problem. Therefore, diversify your investment beyond just the comfort zone. Fortunately, tools, including AI, are available to help you do that.The Indian economy is still predominantly dependent on oil import. What’s your view on how oil will impact the Indian financial sector, Indian stocks, and Indian markets?Exploration can reshape our oil and gas situation over the long term. In the interim, I don't think it’s in anybody’s interests, not even producers’, to have high oil prices. I think there is a consensus in the producing world that this is a good, happy price that generally keeps the world satisfied. We love bull markets in equities, gold, silver, and real estate. What is the bull market we hate? A bull market in oil. Only seven or 10 countries love it. But even at $60, I think they are pretty well prepared.What are the reasons for the bull market in gold and silver and your advice for investors?We can attribute and ascribe reasons to the bull market in gold. But as regards silver, I don’t think there are good reasons. Now people say that it is for industrial use. But that has always been the case. Gold is in a good place right now. But I am not saying the reason for that is people are de-dollarising and moving away. I think the opposite is true.As gold is going up, people are moving from the dollar to gold. It’s not the other way around. That’s my view.Other than oil, I am generally bullish on commodities. And I think there are plenty of reasons. But the reasons will change at some point in time. So, I am not a big believer in making long-term forecasts on commodities.