The Rise of AI in Research: Will it Make Analysts Redundant?
The Challenges of Traditional Research
The late Byron Wien, a prominent markets strategist of the 1990s, defined the best research as a non-consensus recommendation that turned out to be right. Could AI pass Wien’s test of worthwhile research and make the analyst job redundant? Or at the very least, increase the probability of a recommendation being right more than 50% of the time?
The Role of AI in Research
Analyst reports are devoted to interpreting financial statements and news, facilitating the job of investors. Large language models (LLMs) simplify or displace this analyst function by simplifying the interpretation of financial statements and news. Additionally, LLMs can predict earnings, as most profits tend to follow a pattern, good years following good years and vice versa.
The Limitations of AI
LLMs struggle to quantify risk, as investors are fixated on getting sure wins. Analysts, on the other hand, are prone to expressing certainty when there is none. LLMs can help by generating insights through understanding the narrative of the earnings release, rather than relying on numerical reasoning. However, LLMs are not perfect and cannot suggest "worth looking into" on the earnings call or anticipate the gyrations of the dollar due to political wrangles.
The Future of Research
While AI can increase our intuition, it is unlikely to produce a "spark of genius." Early studies suggest potential in using LLMs to generate alternative perspectives, but there will be a lot of nonsense to weed out. It makes sense to have a proper research department or follow a star analyst, but AI can automate some processes, enhance others, and provide strategic intuition.
Conclusion
In conclusion, AI has the potential to revolutionize the field of research, automating some processes and enhancing others. However, it is unlikely to make analysts redundant, as human intuition and flexibility are still necessary in the ever-changing market. AI can increase our intuition by generating alternative perspectives, but it is up to us to weed out the nonsense and find the gems.
FAQs
Q: Can AI replace analysts?
A: No, AI is not likely to make analysts redundant, as human intuition and flexibility are still necessary in the ever-changing market.
Q: What are the limitations of AI in research?
A: LLMs struggle to quantify risk, cannot suggest "worth looking into" on the earnings call, and cannot anticipate the gyrations of the dollar due to political wrangles.
Q: How can AI increase our intuition?
A: AI can generate alternative perspectives, but it is up to us to weed out the nonsense and find the gems.
Q: Should we continue to have a research department or follow a star analyst?
A: Yes, having a proper research department or following a star analyst makes sense, as AI can automate some processes, enhance others, and provide strategic intuition.
