G studios
Artificial intelligence is not the future of trading, it is present. In the United States, Europe and some Asian stock markets, up to 70% of transactions are now performed through the algorithm -based trading on artificial intelligence. This has led to a fundamental change in stock rate behavior. Fast and huge financial flows have occurred Increased fluctuations and the size of price movements in the short term. The algorithms are binary: either buy or sell until the order is executed, regardless of the price or value of the action.
The algorithms interact with the news. They do not care about “something vision.” What matters is fixed facts, and we usually look back. The company’s disappointing profits report leads to immediate sale orders, even if the profit is low due to opportunistic investments or unusual expenses for one time. Small value growth shares are eliminated due to news of high interest rates, regardless of the strength of its secular growth expectations. It seems that computers are not yet programmed to look forward or To understand short-term pain for long-term gain.
This brave new world is confused at best, but also provides opportunities for the patient investor.
The last fluctuation in Mercadolibre (Meli) is an example. The leading e -commerce and financial technology company in Latin America is growing very quickly. In the fourth quarter of 2023, revenues increased by 42% and operational profits by 77%, bypassing even the most optimistic estimates. However, the stock decreased by 10 % on the day of publication due to one -time tax allocations. Long -term and disputed tax obligations in Brazil caused a temporary decrease in the published profits.
A time has passed – not long ago – as it was easy for investors to accommodate such temporary expenses. But instead, Meli fell another 15 % during this quarter due to the lack of new news. It is not surprising that the profits will bounce again after three months, which led to a sharp rise in the share price.
This is just one example among many. Artificial intelligence is still in its beginnings and it seems that it lacks accurate thinking. As a result, the market seems to have lost the price detection function. It often interacts with non -strained reactionary numbers.
Over time, artificial intelligence machines may become more sophisticated, but nowadays, the current mechanisms tend to strengthen themselves. And with the arrows of excessive or rewarding shares through short -term thinking, many are frequently visited by the following news cycle. Here lies the opportunity in the long term, but the fluctuations in the short term.
Algos is programmed to interact with the news, either partial news during the total profit or events season, such as interest rate movements. If interest rates rise, computers learned to sell growth shares in all fields. If interest rates are expected to decrease, the opposite occurs immediately. The algorithms are directed, up or down, regardless of assessments.
The market price discovery mechanism is further hampered by index ETFs. Large stocks use an inconsistent manner from the flow to the circulating indicators. The more the index weight, the more money allocated to it. This money pushes the stock higher, increasing its allocation to the ETF even further, thus creating a virtuous circle.
Even when arrow colleges refrain from buying these large shares when they are richly evaluated, traded investment fund funds continue to support the arrow in an impartially blind. The purchase is done automatically and has a long way to explain the concentration of performance in a few selected shares. There was Magnificent Seven at first, but today, it seems that all the money was concentrated in one arrow: NVIDIA. There is one certain thing, which is that the small hats have been excluded.
History teaches us that music stops in the end and traders are reminded after that that the arrow is an arrow in a company, not a tool in some computer games. Do you remember the “computers insurance” “of the 1987 collapse? Computers are programmed for sale whenever the correction reached a certain percentage. It was a smart way to reduce the negative aspect of the individual investment. Unfortunately, it ended on the contrary when a very large number of people joined. Then he fed himself and raised the first collapse in the digital age. The Long Term Capital debacle is just another example of a computer-based strategy that ended up falling victim to its own success.
And when dust calms down, the basic investment will be overwhelmed again. Despite AI-driven cash flows, companies that have lagged behind long-term growth become cheaper over time. The more profits, the cheaper.
