Everyone from Hollywood moguls to high-tech executives assumed that AI would go right to the head of the class — every class, every profession, every industry.
And for a brief moment in time, that did appear to happen: AI was proactively taking on a wide array of responsibilities, from writing term papers to eulogizing non-functioning humans. Gifted with massive talent, AI was accelerating toward the singularity, solving complex puzzles, broadening our understanding, and making extraordinary new discoveries.
It was exciting, and sometimes disquieting, to imagine what it might do next.
More than a few stock traders were at the head of the line. As AI technology advanced, it seemed inevitable that this new form of intelligence would crack the code for well-timed investments. Like a modern-day alchemist, AI would mine gold from the sums of billions of equations.
“So far that hasn’t happened,” Bloomberg News reported in October. After an extensive review of AI’s track record, Bloomberg writer Justina Lee concluded: “The irony of investors’ piling into AI is that the technology has for years struggled to crack the actual business of investing. Machines get bamboozled by noisy markets and can be caught off guard by fickle trends, and finance — surprisingly — sometimes lacks the oceans of data that underpin the technology in other domains.”
The author noted: “A Eurekahedge index of 12 funds using AI has trailed its broader hedge fund index by about 14 percentage points over the past five years. According to Plexus Investments, an asset manager that tracks the returns of boutique AI funds, only 45% outperform the benchmarks they measure themselves against.”
Canada’s Anson Funds is an example of a hedge fund that routinely proves what remains a fundamental rule of investing: The wisdom, insight and intuition of an experienced portfolio manager is the key to investment success. Anson Funds, which has been named a top-performing fund by Bloomberg, achieved a 32.17% compound annual return from April of 2019 through March of last year with its Anson Investments Master Fund. That success earned Anson Funds a top spot on Barclay Managed Funds Report’s 2022 list for long/short equity investing.
AI’s most fervent believers see this as a temporary state of affairs. The day will come, they say, when AI programs will capture the market, making even the best portfolio managers redundant. With AI plugged into market matrices, human intuition will sleep in pods of irrelevance.
In light of these high expectations, AI seems to be behind the curve. In fact, researchers at Stanford University and the University of California, Berkeley have discovered something startling about the best-known manifestation of artificial intelligence, ChatGPT: It is losing proficiency, precision and perhaps even the will to learn.
As Popular Science reported in July, the team found that, “ChatGPT appears to be getting less accurate over time.” Even more surprising: “No one has a good explanation for the troubling deterioration.”
Popular Science described the behavior that led to AI’s poor report card: “To examine the consistency of ChatGPT’s underlying GPT-3.5 and -4 programs, the team tested the AI’s tendency to ‘drift,’ i.e. offer answers with varying levels of quality and accuracy, as well as its ability to properly follow given commands. Researchers asked both ChatGPT-3.5 and -4 to solve math problems, answer sensitive and dangerous questions, visually reason from prompts, and generate code. … GPT-4 in March 2023 identified prime numbers with a nearly 98 percent accuracy rate. By June, however, GPT-4’s accuracy reportedly cratered to less than 3 percent for the same task. … When it came to computer code generation, both editions’ ability to generate computer code got worse between March and June.”
Given this development, leading investment firms can breathe easier, at least in the short-term. But the day AI changes the channel and plugs into Jim Cramer’s Mad Money … well, all bets are off.
