Kensho: Democratized Investing
Kensho’s $550M acquisition by S&P Global is largest in AI space
The stock market right now is on a bull run fueled by retail investors. What is the first thing that happens when a first-time retail investor steps into day trading- the stock market collapses, and he ends up losing all his money. This is probably the reason all of us have heard at least one story of a relative of hours who had piles of money but is now bankrupt because of a stock market crash.
Now, Imagine this what if you can invest money after taking Warren’s expertise. Sounds great! Isn’t it? You could end up owning fortunes as his keen eyes allow nothing to go unnoticed. But there’s a catch, the Warren we are referring to here is not the legendary investor Warren Buffet but Kensho’s software named after him. It attempts to make investing simplistic by allowing the software to do the number-crunching.
Workings in detail
Let's try to understand how it works:
- Takes historical stock price movements and millions of significant events happening across the planet: For example, terrorist attacks, cyclones, floods, drought, gold price movements, ship wreckages etc.
- It attempts to normalize the data in order to make the events comparable.
- Uses unsupervised machine learning to differentiate between signal and noise. Key factors are identified in this stage out of the millions selected in step 1. The selection is done based on the contribution to stock price fluctuation.
- Unsupervised machine learning is used again to cluster similar days together. Kensho calls this feature “Days like this”.
- Based on similar days/events fetched from the past, Kensho tells the stock price movements once the event was unfolded based on which investor can take a calculated decision.
Workings simplified
Kensho simplifies investing decisions attempting to look at the stock price movements triggered by events in the past. For example, you may request a search query, “Which companies benefit the most when a cyclone strikes India?”. The software will give you a result such as 200 “days like this” have been found and using Moving averages this is the list of stocks with highest positive increment in their stock prices.
So, how does it democratise
Kensho has the potential to disrupt the retail investments the same way, Google disrupted the Internet by reducing the huge information asymmetry gap. A google search allows you to get an information that someone having a Phd with years invested in the field might not be having.
But the journey for Kensho for universal adoption is likely to not be as smooth as it was for google. Reason- an asset purchase is a high involvement process compared to a google dictionary search. In order to make this happen Kensho will have to maintain the trust that investors will be putting into it. The S&P Global acquisition has given Kensho access to deep pockets that will help to make its software more robust reducing the vulnerabilities. And as is the case with most machine learning softwares and investors, with time Kensho will emerge as a better investor.
