Contributed by Andrew Jaeger, Managing Partner, Director of Strategy, Silver Leaf Partners, LLC
Andrew will be presenting at Hedge Connection’s Deal Ring event in Chicago on June 27th.
Augmented Intelligence: The challenge is finding the delicate balance of investment intelligence using traditional investment wisdom
Traditional investment wisdom needs to reinvent itself in this age of technology, almost any investment strategy can quickly and easily be codified and backtested to discern its efficacy. Many investment managers are still adhering to the thinking of old and aren’t taking full advantage of the different ways that they could enhance their strategies and returns.
On the opposite end of this spectrum are the managers that are too overly reliant on technological strategies that they don’t fully understand. The application of new technologies, most notably in this space Artificial Intelligence, can frequently result in “Overfit” data, or strategies that are overly tuned and modified for a specific set of time. These strategies would often be rejected by a human gut check, for instance, I don’t think any one of us would willingly allocate money to a strategy that only buys stocks “from 1:17pm – 2:04pm, when the RSI indicator is < 27.62, and the correlation between Corn Futures and the Ruble is > .7”. However, this is something that an AI could come up with, because perhaps over a certain period, this strategy could have resulted in a significant return.
This is why we advocate for something called Augmented Intelligence. This is when Artificial Intelligence and Machine Learning is applied in tandem with Human Intelligence and traditional knowledge. This is what we believe to be the perfect middle ground between classical knowledge, and cutting-edge technology, bridging the gap between young and old. Augmented Intelligence can be applied by setting certain boundaries and conditions on an AI program. For example, if you were attempting to find ideal sector weightings based on a market timing indicator, you could use an AI program, but place sensible restrictions such as diversification rules, and required cutoffs to keep the program in a realistic setting.
The use of Augmented Intelligence can bring about significant optimization and improvement to existing strategies, without running the risk of becoming “overfit”. The false front provided by an overfit strategy eventually lead to the creation and development of our intellectual property base and the foundation of our investment and business model used today.
Silver Leaf Partners, we believe, is the 1st pure charitable hedge fund within the community impact investing space. Our South Carolina Charitable Subsidiary, The Charitable Edge, is comprised of 5 Charitable Board Members that receive and distribute 50% of our profit- incentive allocation which is fueled by the implementation of augmented intelligence.
Silver Leaf Partners is a South Carolina Fund Manager and was created to address impacting investing through a Charitable Profit Share model which is complimentary to donor-advised funds.
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