HAL-Buffett 9000 To Make 50 Percent Of Trades By 2010

Computers will make more than half of all stock purchases by the year 2010, according to Boston-based consultants Aite Group LLC. The perfect system will be a combination of the best human investors (like Warren Buffett) and computer systems that can calculate without emotions like greed or fear (like the fictional HAL 9000 from 2001: A Space Odyssey). Last year (2006), just one-third of all trades were driven by automated stock-picking programs.

(HAL-Buffett 9000 Computer [concept])

Computerized analysis can generate a quantifiable advantage. According to a November, 2005 study big-cap U.S. stock funds run using quantitative investing beat those run by ordinary mortals.

Mathematicians and brokers labor in secret at Wall Street firms like Lehman Brothers Holdings, Inc. Their algorithms spot trading advantages in the patterns of world markets. At the Stern School of Business, Vasant Dhar is trying to program a computer to factor in the impact of unexpected events (like the death of an executive).

The AIs of the future will take advantage of a variety of techniques that are in development now:

  • Extract trends from massive data sets
  • Understanding human language (natural language processing) will open huge new sources of information, like emails, blogs and even recorded conversations (one start-up, Collective Intellect, uses basic NLP programs to look through 55 million blogs for hedge fund tips)
  • Lehman Brothers has used machine learning programs to examine millions of bids, offers, specific prices and buy/sell orders to find patterns in volatility and prices.

Advanced computer trading programs may one day tell human investors to relax and let them do the work, just like HAL did:

"Hal, switch to manual hibernation control."

"I can tell from your voice harmonics, Dave, that you're badly upset. Why don't you take a stress pill and get some rest?"

"Hal, I am in command of this ship. I order you to release the manual hibernation control."

"I'm sorry, Dave, but in accordance with special subroutine C1435-dash-4, quote, When the crew are dead or incapacitated, the onboard computer must assume control, unquote. I must, therefore, overrule your authority, since you are not in any condition to exercise it intelligently..."
(Read more about HAL 9000)

(HAL 9000 in charge)

Via Bloomberg.com.

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