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An AI-focused ETF can offer a real investor advantage in this new technology environment
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Dr Howard Rankin writes about "Psychological factors that influence investors’ ETF preferences "
Michael Hentschel explains "IntualityAI’s simulated AI ETF has been smartly outperforming"
"The Intuality AI ETF since 2022, simulated", by Grant Renier
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TRADING PERFORMANCE RESULTS OF THE INTUALITYAI SYSTEM HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN REPORTED PERFORMANCE RESULTS AND RESULTS SUBSEQUENTLY ACHIEVED BY THE SYSTEM OR PORTFOLIO. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF THE SYSTEM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF REPORTED PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
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Psychological factors that influence investors’ ETF preferences
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As mentioned by my two colleagues ETF trading allows for investors to focus on general sectors rather than specific stocks within a sector.
The psychological factors that influence whether people make very specific or very general decisions can vary depending on the context and individual differences. Here are some key psychological factors that play a role in this decision-making process and potentially influence investors’ preferences for a particular type of trading.
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Information Overload: When people are faced with an overwhelming amount of information, they may be more inclined to make general decisions as a way to simplify the complexity. This can be driven by the desire to avoid the cognitive effort of processing extensive details.
Cognitive Load: Individuals have a limited capacity for processing information and making decisions. When people experience high cognitive load, such as stress or fatigue, they may opt for general decisions because they lack the mental resources to engage in detailed analysis.
Risk Aversion: Risk aversion can lead people to make more general decisions because they perceive them as safer options. Specific decisions often involve more uncertainty, which can be intimidating to risk-averse individuals.
Time Constraints: When people have limited time to make a decision, they may opt for a general decision because it is quicker and requires less deliberation. Specific decisions often require more time for research and evaluation.
Decision-Making Style: Some individuals have a natural inclination toward making specific decisions, while others prefer general decisions. This preference can be influenced by personality traits and cognitive styles. For example, individuals who are highly analytical may be more prone to making specific decisions.
Perceived Importance: The perceived importance of a decision can influence its specificity. People may put more thought and detail into decisions they consider highly significant, while being more general in less critical decisions.
Framing and Context: The way a decision is presented or framed can impact its specificity. If a decision is framed in a way that emphasizes broad outcomes or consequences, people may lean toward general decisions. Conversely, a narrow or specific framing can lead to more detailed decisions. More research needs to be done on whether people with general investing goals would be more general in their approach.
Emotional State: Emotional factors can sway decision-making. Strong emotions, such as fear or excitement, may push individuals toward quick and general decisions rather than taking the time for detailed analysis.
Decision-Making Experience: Past experiences with decision-making can shape an individual's approach. People who have had success with specific decisions in the past may be more inclined to use a similar approach in the future.
Social Influence: Social and peer pressure can impact decision-making. If a person's social circle tends to make specific or general decisions, they may be influenced to align with that pattern.
Goal Orientation: The goals individuals are trying to achieve can affect decision specificity. Specific goals often require specific decisions to be met, while general goals may allow for more flexibility in decision-making.
Information Availability: The amount and quality of information available can shape the specificity of decisions. If detailed information is readily accessible, people may be more inclined to make specific decisions.
It's important to note that these factors can interact and vary from person to person. In many cases, individuals may employ a mix of general and specific decision-making strategies depending on the context and their current circumstances. Effective decision-makers often adapt their approach to suit the situation and their goals.
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by Howard Rankin PhD, Intuality Science Director, psychology and cognitive neuroscience
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IntualityAI’s simulated AI ETF has been smartly outperforming
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Introducing the “IntualityAI TOP 20 AI ETF” portfolio. If you had looked for these AI stocks starting even as recently as 2022, you would have invested in these as a series of technology stocks which as a group and almost without exception would have lost an average -33% of your money. Tough year, not a great start. Holding this through September 2023 would have experienced a strong recovery, but still a net loss of -7.6% for 21 months. (See IntualityAI's new AI ETF results for this same bundle, in Grant Renier's column, below.)
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In tests since the beginning of 2022, when AI companies had a bad year after much rather chaotic hype in prior gestational years, IntualityAI’s simulated AI ETF has been smartly outperforming both the average percentage growth of the individual stocks in the ETF, as well as the S&P500 index against which we tend to measure ourselves.
Timing is everything. Remarkably, had you started with the same technology companies in January of 2023, the collective gains through mid-September 2023 would have averaged over +46% less than the first year.
Given clear productivity gains under any circumstances, an AI ETF should vastly outperform the rest of the market or almost any other group. Markets may get embroiled in a serious correction at the end of September through October this year, with fears rampant of a serious correction that would hit technology and AI stocks as well. As some would say, with good reasoning, we might welcome an opportunity to get in at lower prices. If a correction does happen, our IntualityAI Portfolio Manager may choose to hedge our gains for a time, and has already done so several times, effectively preserving capital.
The technology stocks are now sorting themselves out into true AI-intensive stocks that are outperforming just about everything else, and will do so for the next 5 to 10 years. While “pure” AI stocks are still hard to discern, companies like Google almost have to convert their entire search operations to the more forward-looking and comprehensive monetizable applications of AI. Fortunately, Google has brilliantly anticipated AI for at least a decade with most of the products that they need for the future. Those subtle AI activities are now coming to the fore of a growing group of AI technology stocks that really everyone should own going forward.
IntualityAI of course wants to participate and outperform the best of the AI stocks. Our appreciation for and experience with investor psychology (human intuition) involves a link to behavioral sciences that has not been applied this way to investment analytics before. An IntualityAI AI ETF, an index of the best AI performers going forward, is therefore an idea whose popularity and investor engagement and responsiveness have come.
In the next decade, AI will be a crucial component of a lot of companies besides the technology giants. For a time, it will be hard to separate how much contribution AI makes. But for an investor, the most AI-centric stocks need to be held, and an ETF is a good vehicle, diversified but still focused on this super-growth segment. An ETF should not change too often, but must be a little flexible in this case. For example, newly-public ARM is arguably mostly a chip company, and was not even available in 2022, but it should be part of an index now. Like Nvidia, ARM is increasingly enabling its customers to do serious AI applications. Other imminent IPO’s like OpenAI will need to join the ETF when that listing happens.
This will involve behavioral teamwork of human rationality and machine rationality. Humans will resolve machine weaknesses in making predictions in a probabilistic human world, and machines will resolve human weakness in recognizing certain deterministic elements I deep data. Throughout, our rationality and irrationality are both key dimensions to bring intuition into the domain of decision-making, where experience within uncertainty, and wisdom within contradictions, are at best aspirational for machines alone.
As we have discussed elsewhere, machines are not capable of simply predicting accurately. Managing more data faster is insufficient and misleading. Mathematical logic alone does not lead to higher predictive accuracy. A lot of probabilistic future decisions have almost zero valid historical data to go on, as there is no deterministic certainty that any past series of events will ever exactly repeat. So an intuitive best-fit decision must be forced, just the way humans are forced to survive while lacking the entire picture and the entirety of desirable resources and tools.
Successful Intelligence involves focused multiplexing: the ability to shift attention span and focus on optimization, then work on the next task with the same intensity. While a select few humans have achieved this alone, only the combination of human intelligence plus machine intelligence can achieve this goal consistently. ETF’s are a good vehicle to focus and diversify at the same time within a chosen arena.
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by Michael Hentschel, Intuality CFO, anthropologist, economist, venture capitalist
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The Intuality AI ETF since 2022, simulated
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As Michael explained, above, we established an Exchanged Traded Fund consisting of 20 publicly-traded, large capitalization companies that were categorized, in January 2022, as leaders in artificial intelligence technologies. The Intuality AI ETF Fund was traded forward to present, as a bundle of those stocks, to produce the chart on the left. It is the result of a single pass with no historical optimization.
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(IntualityAI applies $0.02 per share per trade to more than cover commissions and trade execution slippage.)
The ROI to date is 42.8%. This is IntualityAI's continuing valuation of this ETF Fund. The second chart shows IntualityAI's simulated trading of that market valuation, in the EFT public market, since 2022. The ROI to date is 66.4%. It's important to note that no account margin or options trading has been used to leverage this basic results.
Our Intuality AI ETF will continue to be updated in real-time into the future, and we will report it's results in this Weekly AI Magazine.
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by Grant Renier, Intuality Chairman, engineering, mathematics, behavioral science, economics
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This content is not for publication
©Intuality Inc 2022-2024 ALL RIGHTS RESERVED
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