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A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.
Justin Dyer: Hey everyone.
Welcome back to another
episode of a WM Insights.
Uh, we're gonna approach two
very specific questions today.
They've come up in conversations a couple
times in a, in a, a couple different ways.
So we thought we'd, we, we'd pull 'em
together and, and a consolidated question
and, and address each one head on.
Um, we love doing this.
It's great.
We, we, we are actively hearing from
clients via the team and the team's
relaying this stuff back to us.
So, so keep doing that.
Um, it really helps us make sure.
We're talking about things that you,
you all are interested in as opposed to
things that, that we, we only care about.
Uh, sometimes there's overlap there.
Hopefully there's overlap
More often than not, but yeah.
Anyway, when we, when we know about
a question or a set of questions,
it's great to, to hit those head on.
So without.
Mena Hanna: without
Justin Dyer: Any further ado,
let's jump right into it.
Um, two basic questions we're
gonna jump into today are, uh,
can AI really trade for us and,
and quote unquote beat the market?
That's a, that's an
interesting one for sure.
Get why that's, uh, that's
floating around there.
And then second one, and these aren't
really related, but what does it
mean to strike out on an investment?
Um, very important.
And that one actually
has, uh, some nuance.
So, um, let's, let's address
AI first and foremost, um, and.
And really, I'm gonna start the,
the good old a WM Insights way
and ask what does the data say?
Right?
Let's go there.
We are data driven, as you all know,
and we, and we want to dig into it.
Um, AI is still very new, at least
I would say in the, in the, in
the common understanding of it.
But it's.
A version of it, you could say,
has been used in trading and
investing for, for quite some time.
I mean, maybe 10, 15 years
through algorithmic trading and
reinforced learning, et cetera.
Certainly with the models that are
available to us today, it's changed
quite a bit, but, um, it's been
something we've been able to look at
for, for a, a, a little while and.
Mena Hanna: Um,
Justin Dyer: If you do, go look
into the data, look into studies,
and actually AI helps us with that
and really consolidate information.
You look, go look at those studies and
the short answer is, uh, it's a mixed,
mixed picture, which in, in our opinion,
is something that is not robust or
not strong enough to really act upon.
Really interesting to look at the data.
It's not strong enough to say like, oh
yeah, there's compelling evidence here
that we can use AI to really outperform.
So that's cutting through the noise,
cutting through the data and looking at
a, a wide range of reports and basically
Mena Hanna: Okay.
Justin Dyer: cutting through
it and saying, oh, actually.
Mena Hanna: AI
Justin Dyer: dedicated.
Usually hedge funds are deploying
some sort of trading like this, AI
oriented hedge funds perform super
similarly to the, the broader market
and in, in many cases, un underperform
the s and p 500, um, and MSCI world.
So why is that, uh, is the next
question, but even maybe we can
relate the, the general process.
General topic here to
some, some great analogies.
Mena Hanna: Yeah.
I think why is that?
It goes back to one of our core principles
and that's markets are efficient for.
For all of these big companies, you can
think about an Apple, a Microsoft, you
have millions of people actually looking
at companies, researching these companies,
acting on news, trading them every single
day, and essentially what you have.
Is a human operated AI trading system.
That's just the collective market.
SO'S Yeah.
Yeah.
Market is ai, right?
The market is ai.
So yeah, we're sort of entering this, uh,
this inception kind of, uh, paradox where
you're kind of trying to do something
that's already being naturally done.
And I just wanna highlight
exactly what you said in terms
of this isn't a new concept for.
Markets or trading.
Algorithmic trading has been going on
for decades and those tools are a lot
more sophisticated than chat GPT or, or
anything else that, you know, a consumer
might be using on, on a base level.
So this isn't really a new concept.
I think where you see the application
actually working when we're looking
at the, at the data is it works
on smaller applications, so some
European stocks, some micro cap US
stocks like AI has been shown to.
Uh, return a higher rate, um, than
the general asset class if you're
really looking at a small picture.
But that in and of itself
kind of reinforces the idea
of markets being efficient.
Those are essentially like,
those returns are crumbs that
the market isn't looking for.
Um, that.
Really would be hard to, to implement
or to gain at a large scale.
If you really increase the scale of
any of these applications, they're
not going to have an excess return.
So it's something that you, you
kind of have to look at in a little
bit more depth with a grain of
salt and understand that, you know,
this has existed for a long time.
Trust me.
If there was money to be made in
something like this, we would not
be finding out about it right now.
It would, it's already been made in a way.
Justin Dyer: Well, and I think
it's a, it's a great reminder,
like kind of what you were going
through of how markets work, right?
Hm.
People find.
Inefficiencies in the market all the time.
We say markets are efficient, but actually
inefficiencies in people searching
for inefficiencies are part of that.
It's a function of the
market where you find, hey,
something's worth trading for x.
I think it's worth Y, and I have
really strong conviction in that.
That's an inefficiency, and if you're
willing to put money behind that, great.
Good for you.
That happens all the time.
Some people get it right,
some people get it wrong.
And some people get it right spectacularly
and really knock it outta the park,
but by doing so, that collapses
that arbitrage opportunity or that
opportunity really, really quickly.
And the, the piece that's really as, as
we'll wrap on this topic that's really,
uh, important to remember is, yeah, maybe
it works in, uh, some part of the market
or, uh, different co countries, et cetera.
It works for so long and then it
might go away instantaneously,
and then you're stuck chasing.
Your tail or looking for the
next little edge, and some
people want to invest that way.
It's a very, very, very,
very hard game to play.
We talk about the data, it shows.
Data in strategies like that, or
data, looking at strategies like
that show that the persistence,
the repeatability, another way to
say it, it's just really not there.
And so, yeah, maybe you get lucky doing
it once, or maybe you don't, right?
It is almost, it's probably the
odds are less than a flip of a coin.
Um, but if you do get it right,
getting it right again and again, and,
and again is very, very difficult.
And compounding wealth, which is
effectively again and again, and again,
and again, is incredibly powerful.
To your long-term plan.
So, uh, let's switch gears a little bit.
Address the second question, what does
it mean to strike out on an investment?
Great question.
I think, you know, a lot of people
probably have some ba really
basic understanding or definitions
of what this means, right?
Obviously making an investment going
to zero underperforming, um, et cetera.
Those are certainly ways of striking out.
Although in, if you're
properly allocated, guess what?
You're gonna have investments that go to,
to, I should say properly diversified.
Excuse me.
You're going to have
investments that go to zero.
They should be very small relative
to the entire portfolio and not
really have meaningful impact.
Um,
Mena Hanna: our
Justin Dyer: definition builds upon
that and adds a layer of nuance
to it, which is striking out to us
when it comes to investing is your
inability to meet your priorities.
Money is a tool to accomplish
what's important to you.
Mena Hanna: if
Justin Dyer: you make a mistake or
are not disciplined or follow these
tried and true methods of long-term
wealth accumulation, multi-generational
wealth accumulation, and you miss
out on your investment that is.
Mena Hanna: that
is
Justin Dyer: Striking out
in our definition, right?
We think money is a tool and if you are
disciplined and stay true and, and keep
the long term in mind, the odds of you
missing out should be exceptionally low.
And so, great.
Great question here.
And certainly, like I said, there's
the, the normal concept of of missing
out or, uh, excuse me, striking out
going to zero something underperforming,
et cetera, but really failing to
meet your investment goals are.
How we would define this, uh, number one.
Mena Hanna: Yeah, I think that makes
sense on a high level, I think on an
investment level too, it, it makes sense
to look at it from a strikeout basis.
You are expected to strike out, like
Shhe walks up to the plate and he knows
that there's a chance that he might Yeah.
Strike out.
That's not, it's not the end of the world.
He's not going to be cut
or, you know, designated for
assignment if he strikes out.
But if you walk up to the plate and you
strike out a hundred times in a row.
You know, you might be
more on shaking around.
He might not be, but some
other people might be.
So it's also you, you have to qualify
and quantify what, what striking out
means and how far away it can move
you to not being able to meet your
priorities and, and what the loss
given a negative outcome might be.
Making sure that you do have
a diversified pool of at bats,
you can just call 'em that.
And that if one at bat goes terribly
wrong and you miss swinging on three
pitches is not the end of your career.
Is is the only way to approach this.
Like you cannot have too much skin in
the game on any one pitch, one play.
You're always gonna have a bad
play sometime everyone does.
Um, it's just making sure that
you don't have a ton of those
and they also don't wipe you out
and take you out of the league.
Because they happen way too often.
Um, right.
There's so many analogies here.
Right.
Shots on, you want enough shots
on goal, you want enough at bats,
you want, you know, keep going
down the line in every sport.
And it's the same idea exactly.
What you're talking about.
Yeah.
And even tying it back to like AI
trading, well, let's say you invest your
money a lot, large chunk of your money
in this new AI tool that's illiquid,
that's promised to, you know, find
some market efficiency inefficiency.
It doesn't work like you could be
striking out for five to 10 years where
the market's doing great and, and you
can't afford that, and now you've lost.
A ton of purchasing power, and that's
wealth that you can never get back.
So making sure that your at bats
are, are focused, they're reasonable,
you're following the game plan in
general is extremely important.
Justin Dyer: Yeah, and then I, I
mentioned it earlier, but compounding
wealth is incredibly important.
So not only do you want enough at
bats, you want them consistently
kind of spread across games.
You don't want 'em all in, in the
beginning of the season when you're
going through a, a funk or, you know, uh.
Or even later in the season,
maybe when you're, you're,
you're absolutely killing it.
You want to, you wanna spread those
things out so you have consistency,
predictability, and you, and, you
know, you can compound on success
and results for the long term.
Um, awesome.
Okay.
Well, hope, hope that was all
super helpful for you all.
Again, thanks for, uh, flagging some
questions, uh, for those of you out there
who did it, um, just to kind of wrap
here, so cover two different topics.
Does AI trading.
Work, does it beat the market?
And then how do we think about,
um, or what, what does it mean to
strike out in, in an investment?
On an investment?
AI really ironically, makes trading
more efficient, makes markets
more efficient, and, and in a way.
Makes it more, even more
difficult to outperform.
And certainly the data kind of shows
that, um, and then striking out, right?
There's all sorts of different ways
to thinking about, think about it.
You should expect to strike out in
some capacity when you're investing,
but make sure you're getting
enough at bats so those strikeouts
really don't move the needle.
You're actually getting enough
at bats so you can build and
compound on success on unsuccessful
investments more often than not.
Um, so hopefully, again,
those were helpful.
Keep 'em coming.
If you have any questions,
Mina's your man.
He's going to drop his number
Mena Hanna: Yeah,
shoot me a text.
Be reasonable.
Uh, 6 2 6 8 6 2 0 3 5 5.
Always here to help.
Justin Dyer: And until next
time, own your wealth, make
an impact and always be a pro.