investment strategy Archives - Page 2 of 5

A New Vision for Artificial Intelligence

Jul 9, 2022Nicholas MitsakosAdvanced Technology, Article, Class Material, Transformative BusinessesAlgorithms, Artificial Intelligence, Big data, Cognitive architecture, Financial technology, investment strategy, Machine learning, neural networks, risk

A new vision for artificial intelligence is using smaller more relevant data sets for dynamic learning generating more effective outcomes and better predictions.

This model uses cognitive architecture, learns, transfers learning, and retains knowledge – enabling more valuable and compelling artificial intelligence applications. This approach is more closely related to the brain’s actual structures and much more effective than “neural networks,” which is a catchy name but the similarity to the brain’s actual functioning is in name only. Real advancement in artificial intelligence must live in reality, not theoretical marketing.

Hope Over Experience

Jul 1, 2022Nicholas MitsakosArticle, Investment Strategy, Public Policy, The MarketFed policy, inflation, interest rates, investment strategy, public policy, the Fed, volatility

The Fed’s latest projection was for annual inflation to fall from over 5% at the end of 2022 to about 2.5% by the end of 2023. At this point, we’re not taking the Fed’s projections seriously, and for good reason. They were spectacularly wrong when a depth of understanding and insight into critical future events was essential. In other words, the understanding of how the economy works, the Fed’s ability to predict the effects of economic shocks, and its policy actions have gotten no better over the last 50 years. More specifically, price stability doesn’t seem to be coming anytime soon because people simply don’t think it will. If we look at the combination of rising wages and inflation expectations for both consumers and businesses, it is these expectations that drive inflationary pressures more than central bank policy. Inflation levels will be stickier than first theorized by the Fed, and the time to resolution is likely longer. Expect more “surprises” that will be no surprise.

Where Does the Market Go from Here?

May 31, 2022Nicholas MitsakosArticle, Investment Strategy, Predictioncycles, investment strategy, investments, markets, prediction, risk, Uncertainty, volatility

The illusion that one can either predict or get ahead of cycles, or predict when they will end is why most investors underperform the market. Markets are driven by human emotion, and it is human emotion combined with the supply and demand dynamic that determines price. Therefore, pricing is independent of anyone’s perspective about “intrinsic value.” Markets are based on price, price is based on supply and demand, and that dynamic is subject to abrupt changes based on the whims of small numbers, and sometimes exceptionally large numbers, of investors. Human behavior controls the markets. Optimism, pessimism, psychology, fear, conviction, and resignation all play a role in adding to volatility and uncertainty. Frequent and intense volatility is here to stay. Market movements really can’t be predicted unless they are at extremes when prices are at absurd highs or lows. But, picking the high or the low is a fool’s errand. Understanding and profiting from volatility, managing risk, and believing in a sustainable investment model is still the best strategy.

Reality and the Crypto Crash

May 21, 2022Nicholas MitsakosAdvanced Technology, Article, Investment Strategy, Transformative BusinessesBitcoin, investment strategy, public policy, risk, volatility

Cryptocurrency staying power has certainly been challenged these last few weeks. There is been a general market drop (even correction), but crypto has been collapsing in value and, to many, is in a death spiral. Of course, reality is more nuanced, and with more detailed analysis, a broad brush hardly seems appropriate. Certainly, the weakest and, honestly, craziest portions of the crypto world have been exposed to be nothing more than silliness. But some components remain resilient. The market is quite effective at sorting the specifics of an otherwise overgeneralized sector. There is no such thing as “crypto.” There are stable and valuable digital assets, globally exchangeable and disruptive. Others have nothing but fluff. Of course, government should insist on more reliable information, and institutions should guard more effectively against fraud. But, there is wheat among the chaff, and it continues to have the potential to be disruptive, create substantial value, and enhance global prosperity.

Disruption and Nonsense

May 2, 2022Nicholas MitsakosAdvanced Technology, Article, Book Chapter, Investment Strategy, Life Sciences, Transformative BusinessesArtificial Intelligence, biotechnology, digital assets, digital currency, innovation, investment strategy, investments, life sciences, risk, technology

Transformation, or euphemistically, “disruption,” creates great opportunities to capture newly created wealth. But, as industries are transforming and strategic disruption is occurring, quite a lot of absurdity and certainly enough terror are associated with some of these extraordinary opportunities to require much greater analysis and understanding. There are extraordinary risks associated with anything disruptive and transformational. The first disruptor isn’t always the one who creates the most value or is even a sustainable competitive entity. Innovation does not mean competitive sustainability. Digital platforms, ranging from the internet to digital assets and cryptocurrency are transforming industries globally. But, along with that comes a lot of hyperbole and typically that is followed by very little substance. Great companies use technological disruption, innovation, and transformation to establish themselves and thrive. But they rarely last. Every company, even the most valuable companies such as Apple, Apple, Amazon, Facebook, Netflix, etc. must dynamically transform to stay competitive and valuable. Transformations are certain. New entities will become very valuable, legacy companies will diminish, and a handful will transform and thrive. Transformation and sustainability create and capture great wealth, but are far more challenging to identify, and even more challenging to sustain.

Podcast Channel

May 2, 2022Nicholas MitsakosLectures, Podcastsinnovation, investment strategy, investments, risk, valuation, volatility

The show analyzes emerging economic and social developments, identifying the most critical issues impacting investment success. It looks at globally disruptive changes and strategies to profit from these new market forces. Innovation, advanced technologies, geopolitics, and new interrelated factors are essential components of future investment success. Investment success combines predicting the future, the confidence to make bold choices, and the fortitude to stay with those choices. Today’s volatile and uncertain world requires new knowledge and perspective and assembling relevant facts from many diverse sources to make better decisions and achieve superior returns. Some of the world’s most important industries are being profoundly impacted by new technological innovations and platforms, such as artificial intelligence, digital assets, blockchain-based businesses, gene editing, and DNA sequencing, enabling unprecedented disruption to business and economic models. Stable predictability is increasingly anachronistic. Every company or industry will either be a disrupter or disrupted. The leading growth companies of today stand an excellent chance to be memories tomorrow.

Irrationality, Exuberance, and Bad Decisions

May 2, 2022Nicholas MitsakosBook Chapter, Investment Strategy, Prediction, The Marketinvestment strategy, investments, technology, volatility

The world may appear to be a rational, deductive place if you are a scientist. But not if you are an investor attempting to understand how markets work. Financial markets are human creations, and humans are irrational. Economics, a truly dismal social science, is an attempt to look backward and create explanatory algorithms about what happened and why. They may have some success with this. But as predictive models, they are mostly useless. More often, they destroy value versus conveying any understanding about economic and business functions, and therefore, give not only useless but awful and typically value-destroying predictions. Participating in the markets requires a broader, more methodical and disciplined approach. Since irrationality pervades most activity, markets move dramatically with uncertainty, and investors react with dramatic moves based on even more uncertainty and lack a reasonable level of understanding and longer-term perspective about what is going on. The world now is more dynamic, volatile, uncertain, and unpredictable. Irrationality drives most market decisions and rising above the noise to be more thoughtful, think deeply and slowly to understand what’s going on, and identify the handful of factors (typically very few) that make all the difference to investment success is the true challenge we face today. That challenge takes work and thoughtful strategies in our irrational world. That world will remain fundamentally irrational from now on, and thoughtful strategies are the only way to succeed in this irrational environment.

The Crypto Revolution

Apr 21, 2022Nicholas MitsakosArticle, Book ChapterBitcoin, innovation, investment strategy, investments, public policy, risk, technology, volatility

Super lofty ideas get attention and publicity, but they are not real. Narrow, specific applications are where true foundational value is created. The financial revolution will certainly not be based on a process where someone buys coins or tokens and simply waits for them to increase in value. On top of that, despite the belief that there will be frictionless peer-to-peer transactions, purchasing any cryptocurrency requires a crypto exchange like Coinbase or FTX that charge high trading fees and have questionable security. Blockchain is an evolution for businesses, it is not a disruption or a new infrastructure. It will improve user experiences, regulatory clarity, and interoperability. Crypto proved that digital transfers and settlements were possible, it is the blockchain platform that enables this efficiently and securely. It may be boring and we’re not going to have any stadiums or arenas named after a technology platform, but real change will be driven by a blockchain. The rest is a noisy sideshow.

Folly and the Fed

Mar 21, 2022Nicholas MitsakosArticle, Book Chapter, Investment Strategy, Public Policyeconomic growth, economic policy, inflation, interest rates, investment strategy, prediction, public policy, recession, risk, volatility

The average prices of food and fuel rose more than 16% in February from a year earlier and are expected to rise further by the war in Ukraine. Consumers are paying much more for meat, bread, milk, shelter, gas, and utilities. Only a small amount of food consumed in the U.S. is imported, and most of that is from Mexico and Canada. But Russia provides 15% of the world’s fertilizer and other agricultural chemicals that are now in short supply as planting season approaches. Wheat futures are up 29% since Feb. 25 and corn is up 15%. There is no shortage of wheat in the U.S., but global supply was the tightest in 14 years before the conflict, and dramatic shortages and price spikes are expected. What data is the Fed looking at, and how is it assessing inflationary risks? It’s hard to feel confident that the right hands are on the wheel because the combination of extraordinary factors, such as extremely tight labor markets and wage inflation (at over 6% annually and accelerating) showed inflation was already a significant risk. Yet interest rates were left unaltered. This is even before the crisis in Ukraine. The Fed should do whatever is necessary with interest rates to bring down inflation, including movements of more than a quarter-point, and a rapid reduction of its balance sheet. It also means recognizing that unemployment is likely to rise over the next couple of years. Paul Volcker would not have had to take extraordinary steps, driving the economy into a recession to crush runaway inflation, if his predecessors had not lost their focus on inflation. To avoid stagflation and the associated loss of public confidence in our economy today, the Fed has to do more than merely adjust its policy dials — it will have to head in a dramatically different direction.

Too Clever by Half

Mar 13, 2022Nicholas MitsakosInvestment Strategyinvestment strategy, risk, volatility

Investment models that account for uncertainty, volatility, and failure succeed in the long term.

Events in Ukraine, oil and natural gas markets, commodities, supply chain disruption, and spiking inflation highlight that, while none of these were predictable, all represent increasing uncertainty permeating all markets. The pandemic and war in Ukraine were unforeseen, but that’s just the point, unforeseen events will occur. It is a waste of time to try to predict the specifics, it is an essential investment strategy to manage risk to not only withstand but profit from “certain uncertainty.”

Irrationality, not only in human behavior (with unfortunate, often tragic results) but market movements, investment volatility, and bewildering prices, is another certainty. “Mr. Market” as Benjamin Graham said, “is an irrational schizophrenic.” Investing as if he is not assures an investment strategy that will ultimately fail.

Nicholas Mitsakos

Investor, Entrepreneur, Writer, and Lecturer