A.I. Stock-Picking October Gross Realised Results: 0.83%

Jan17- Oct19 net cumulative return 39% & sharp ratio 1.03 against it’s ACWI universe 35% & 0.81.

Trade, FX, Ticker, Holding Period, Position Return, Portfolio Contribution

Short, CAD, CPG, 16Jul-10Oct, -18.20%, -0.20%

Short, GBP, DRX, 16Jul-10Oct, 4.40%, 0.04%

Short, GBP, INTU, 16Jul-10Oct, 52.40%, 0.53%

Short, GBP, TED, 16Jul-10Oct, 41.75%, 0.46%

Immediate transparency, 3 day full liquidity, 3rd party custodian.

The A.I. assesses Econometric, Fundamental, Qualitative, Quantitative, Technical and Traditional data and, sentiment from documentation and news flow.

Our A.I.’s Stock-Picking September Realised Results

Trade, FX, Ticker, Dates, P&L, Contribution

Short, EUR, APAM, Jun27-Sep24, 6.29%, 0.21%

Short, EUR, VAS, Jun27-Sep24, 17.89, 0.46%

Long, HKD, 3968, Jun27-Sep24, -9.16%, -0.07%

Long, HKD, 688, Jun27-Sep24, -13.32%, -0.24%

Long, USD, EBR, Jun27-Sep24, 11.21%, 0.09%

Long, USD, LKOD, Mar22-Sep24, -6.32%, -0.04%

Gross Month Realised Return: 0.41%

Net cumulative return 36% (Jan17-Sep19) and Sharp Ratio 0.98 against it’s ACWI universe 31% and 0.74.

Immediate transparency, 3 day full liquidity, 3rd party custodian.

The A.I. assesses Econometric, Fundamental, Qualitative, Quantitative, Technical and Traditional data and, sentiment from documentation and news flow.


Between Wednesday 28th August and Wednesday 11th September (the last 10 bars in the charts below) the S&P 500 Index had a mild recovery to near record highs on light volume.

However over the same period the DJ US Thematic Market Neutral Momentum index fell steeply, in it’s most violent move ever.

Whilst the DJ US Thematic Market Neutral Value index recovered strongly.

Further during the period we incurred several security specific news items that were detrimental to our positions.

Securities in our AI selected global equity strategy have a minimum holding period of three months and profitable positions suffered from this rapid reversal. The AI does however assesses both momentum and value and will adapt (over time) to changes in thematic rotation whilst not suffering behavioural issues of short term misfortunes.

Broker statements are always available for inspection.

Our A.I.’s Stock-Picking August Realised Results

The A.I. assesses Econometric, Fundamental, Qualitative, Quantitative, Technical and Traditional data and, sentiment from documentation and news flow.

Trade, FX, Ticker, Dates, P&L, Contribution

Long, USD, AMZN, May28-Aug9, -1.18%, -0.03%

Long, USD, ESNT, May28-Aug9, -2.1%, -0.02%

Long, USD, LRCX, May28-Aug9, 8.73%, 0.09%

Short, USD, MAC, May28-Aug9, 23.57% 0.69%

Total Month Realised Return: 0.73%

Net cumulative return 39% (Jan17-Aug19) and Sharp Ratio 1.1, MSCI ACWI universe 29% and 0.69.

Immediate transparency, 3 day full liquidity, 3rd party custodian.


Bitcoin has a market capitalisation of approximately US $200bn with 24 hour trading 7 days a week, making it the perfect TRADING instrument.

At present the value of mining a bitcoin, is sustained by the price of bitcoin, which is sustained by net new money into the market, which is sustained by……(insert your own ideas).

When all 21m bitcoins have been mined or by 2140, miners who verify transactions will no longer be rewarded for mining but only by the transaction fee they can charge.

However the cost in electricity to do one transaction in bitcoin is the same as approximately 400,000 Visa transactions.

For bitcoin use as a transaction medium to be valid when the last coin is mined requires huge productivity falls from Visa to equate the two systems.

Or the protocols of bitcoin can be changed by 95% support from the last 2,016 miners, to lower the cost of validation. Either by increasing the amount of bitcoins, i.e. a reduction in the value of a bitcoin or, they could change the method for validation (the highly praised algorithm).

Further approximately 80% of mining pools are in China, making bitcoin protocol susceptible to that countries political system.

Whilst we have been a huge successful INVESTOR in the Chinese economy it has been with companies that ADR list, therefore providing transparent and recognised reporting. Unfortunately for us, bitcoin remains an instrument too far.

Steven J Cohen CFA, August 26th 2019.

How AI will help you live forever then eat your lunch.

First Published In FOTT Family Office Magazine Beijing – June 2019

The Turing machine that broke the enigma code during WWII was the birth of Artificial Intelligence (AI). However since then, the adoption of AI has mainly been confined to the manufacturing, transportation and distribution sectors; with the rise of robots that build Japanese cars and stack Amazon warehouses. But now AI is moving leaps and bounds into the service sector including: game playing, self driving vehicles, facial recognition, customer service chat bots, language translation and even medical surgery.

AI consists of two strains: machine learning and deep learning. Deep learning seeks a statistical inference from a small part of the data and then apply all that it has “learnt” upto that stage to the next small part until all parts have been examined, similar to the way a human will adapt from experience. Machine learning seeks to extract a statistical inference intermediately from the whole data. Your preference would depend on whether you believe the way humans learn is superior, although there are statistical methods of measurements that provide a guide as to which gives the best results based on the PREVIOUS data. The resources to develop both deep and machine learning are: free, open source and available on-line to all who wish to utilise.

The benefit of AI is that it can provide: repeatable results, irrespective of the behavioural bias of humans and with unimaginable productivity. Repeatable results allow an amount of certainty as to performance in the future. A lack of behavioural bias provides results without human failings such as: hangovers, partner disputes, career pressure, saving face and emotional attachment to incorrect decisions. However where AI comes into its own is handling exponential growing amounts of data and choices, that our 10,000 year old brain design is not equipped for.

An early adopter of AI in investment management was the Medallion Fund of Renaissance Technologies with spectacular results for over 30 years. However the majority of adoption has been on the sell side with automated customer service departments and robo-advisors that provide asset allocation portfolios to retail markets. The downside of the recent adoption being, data scientists and computer programmers extract the most perfect result from the available data without any understanding as to whether the input data is correct or relevant to the result (“garbage in garbage out”) or, if the model has any intellectual rigour. Leading to failure once the program goes “live”.

Market participants can either accept or reject the relevance of AI on the investment industry, I can only give you our story……

Way back in autumn 2016 as CIO of a Swiss based multi-family office it was out of scientific curiosity that I attended a seminar on AI coding (computer programming). It was given by a former CERN employee, who discussed how they discovered “The God Particle” or “Higgs-Boson”, the smallest sub-atomic particle for which I still have a still have an early edition of the same named book. However as someone steeped in investment education and not quantum physics it appeared easier to utilised these techniques in my chosen professional field, any by the end of that year we were ready to go live.

Initially we had a macro model for the US economy that provided basic asset allocation. Our model accessed the limitless information provided by Federal Reserve Banks and the rest of the internet. The trick was knowing which information was relevant to use. In the last thirty years we already had two “new paradigms” called by the economic community. And as someone who skipped his undergraduate econometric exam due to never getting beyond being asked for a password on the university computer, this could have been a show stopper. However in 2008 our office had already delivered a 23% investment return against the 45% fall in the S&P 500, that was the result of: experience in several previous economic cycles, admitting and learning from mistakes, strong outperformance of managing a multi sector portfolio for a big four UK bank, and actually attending and getting some decent grades in international, monetary and fiscal economic undergraduate exams.

Our US economic model actually gives us an eighteen month forward forecast, which allows us adjust the portfolios in a timely manner, and back in early 2017 we were still very bullish. Due to our very strong stock picking abilities (long and short) the next stage was to utilise the AI to assist in this task. We took the universe of stocks with a US, ADR, Canadian or UK listing and a market capitalisation of over $1billion, that is over 6000 stocks. Again the challenge was to choose the relevant input data, be it: fundamental, technical, industry, company or independent news, as well as the multiple other sources, for example, outperformance against Google “usual customer attendance” matrix. Our limiting factor was the intel i5 core processor that our AI was using (we wish to avoid the cloud due to security issues), which again meant that we could only choose a few most relevant inputs. This resulted in the very strong appearance of Chinese stocks, some of which produced returns of nearly 200% over the year. It was an obvious step to develop an AI macro model of the Chinese economy, which by coincidence was the second largest. However during 2017 our US economic model started to flash recession meaning we would soon need to move to fixed income and so also developed an AI model for the US 10 treasury.

Despite our massive risk adjusted performance of 2017, in 2018 we had a little underperformance as we transitioned to the cautious portfolio, caused mainly by the poor performance of our individual stock positions. We reprogrammed our stock picking AI to allow it to make better decisions given the stage in the economic cycle and this year it is producing absolute returns on a monthly basis whilst being net short the market. Our biggest problem is what to do with all our cash, especially given our AI US 10 treasury view is not positive (in contrast to our traditional methods), so we are investing in 3 month corporate bonds.

After the initial success we had an obvious capital requirement to invest in internal hardware, purchasing the top of the range “gaming” computers with the best CPU and GPU. In AI the CPU is used for the machine learning software and the GPU is used for the deep learning software. We have further developed, “natural language processing” AI to provide sentiment analysis on news flow especially transcripts, reading and deciphering in a matter of seconds as opposed to the hours a human would take.

So what is my job as the CIO of an AI driven MFO? It is both master and servant; as servant it is to ensure that the data the AI receives is not garbage and, as master it is to reprogram the AI to take account of changing computing, economic and investment circumstances. Can the AI do these spare roles? As servant certainly, for us it’s a matter of cost effectiveness, will the time taken writing and testing the code be recouped by using the code, at this moment we are happy just to run our human eye over the data to ensure accuracy and suitability. Can the AI learn from its own mistakes and take over the master role? The beauty of deep learning is that it is unsupervised (it can choose its own inputs) take for example the champion Go program developed by Deep Mind (also UCL alumni) after given the rules it taught itself strategy or, Google language translation that no longer needs a Rosetta Stone, it can understand just by word structure. Unfortunately we don’t have the resources to develop these high level creative solutions, whilst undoubtedly some of the larger houses do, their decision makers are steeped the fear of losing their jobs and, their indecisiveness provides us with an alpha to harvest.

So what have I done, I’ve cloned myself as a senior level analyst to live forever but instead of eating my lunch it is eating the lunch of the 2000 other analysts I would have had to employ to get the same level of productivity.

Whilst it will be very difficult for AI to capture the creativity of genius (“thinking outside the box”) it can certainly do the hard-work.

Suffice to say there is very little genius in the top professions: law, medicine, engineering, architecture, hairdressing etc. so the service sector is not immune to disruption.

In fact, where the is enough data on any successful person decision making in an professional industry, AI can isolate the factors that made them successful, and then apply these factors to opportunities for eternity.

Steven J Cohen CFA is the principal and CIO of a Zurich based multi-family office. He gained his BSc Econ from UCL, spent several years in Chartered Accountancy and had established a retail clothing firm in central London. He was in-house counsel to the wealthiest family in the UK and managed a multi billion dollar portfolio for a big 4 UK bank. After a very successful 2007 & 2008 he established his family office and today develops artificial intelligence generated investment strategies for an increasing Asian client base.

Duke & The Donald.

Originally Published Dec. 15, 2016

Was he sensitive, was he hell? Did he ride to the rescue…..more times than you’ve had hot dinners. And boy could he walk, talk & shoot straight. If he starred in a modern political feature his usual “can-do”character may have got into the following minor scraps and righting of wrongs.

Fiscal Reform:

Simplifying and reducing tax rates, encouraging: investment at home, employment and, rewards for success in business and career.

Fiscal Easing:

Reminiscent of Reaganomics unmet spending, but this time from Debt levels not seen since the end of WWII. With demand from global pension plans to meet cash requirements of the expanding number of retirees, allowing easy adoption of increased issuance, until expanding US growth rates permits increased tax recovery and Debt pay-down.

Infrastructure & Urban Regeneration:

Not talking bridges to nowhere as in the Japanese example, for fertility rates in the US are still reasonable and the legal immigration policy liberal. But improving productivity and bringing previously criminal elements into legal activities boosting growth and tax collection.

Reduced Regulation:

Relaxation of the burden on small business to enter markets and complete against global market leaders, bringing back the local feel. And a return of Caveat Emptor improving the self-reliance and diminishing the hollering in recent generations.

Realigned Foreign Policy:

Requiring Allied nations to meet defence spending requirements that may reduce the need for US foreign bases that have prevented any recent major European wars. Not undermining solid allies with a shared cultural outlook, together with a healthy scepticism of vocal cultural opponents, thereby providing certainty of deterrent. Even the Duke would never call US citizens of Mexican heritage, rapist, murderers and drug dealers and would have found it inconceivable to want to eliminate the Chicano vote. Unless the comments were referring to ILLEGAL immigrants whilst still assuming some of them are good people. Profiling of LEGAL entrants who’s cultures are sympathetic to extremist/criminal activities.

Renegotiated Trade Agreements:

Whilst most country trading surpluses are caused by large savings and productivity gains they are also usually accompanied by a certain amount of xenophobia. Restriction of free trade can be inflationary but may also bring in the huge amount of people not counted as looking for work and an incentive to invest in robotics.

And the fantastic cinematography that usually accompanies Duke’s features? This is being provided by the beautiful and breathtaking capital markets reaction of higher expected growth and a decent yield on fixed income savings of the more conservative.

But what of the plot, of course that would depend on the director of the feature?

Directed by Michael Moore we’ll just get a remake of the Alamo, when the Central Bank returns to its misguided ways of belated and exaggerated action to stifle this hero’s efforts.

But with Quentin Tarantino we’ll get his reboot of the Searchers with the search, discovery but this time, successful reuniting of America with it’s Greatness.

Magna Carta, English Civil War, Y2K…….Brexit.

Originally Published Jun. 27, 2016

“We finally really did it…You Maniacs! You blew it up! Ah, damn You! God damn you all to hell!” Cry the Bremain supporters, EU politicians and FX and equity capital markets.

The departing and presumptive British PMs suggests a period of calm negotiations before any change occurs. EU politicians and administrators continue their disregard for democracy and demand immediate panic, liberal elite demand disenfranchisement of over half the British public, and investors, employers and capital markets bemoan uncertainty.

The benefits of free trade remain: purchasing of goods from the cheapest source allowing allocation of remaining resources to the most relative productive activity.

In the coming re-negotiations Britain approach from a position of strength, it accepts net services and goods from the EU and the rest of the world, any threat to allowing British goods and services into Europe (as long as they meet EU regulatory standards) could be met with even harsher reprisal. Of course as the UK is smaller than the EU the relative effect would hurt the UK more. But both Switzerland & Norway with massive net exports have access to the EU free market for which they pay, on this basis the UK could maintain access and receive a net receipt.

Under free movement of labour Britain again receives net migration from the EU. Britain could limit EU immigration, on a one-to-one basis, to the highest quality and demanded resources without jeopardising British nationals working or living in their homes in the EU.

Britain is also a net contributor to the subsidies and grants of the EU, for that benefit it is allowed access to the decision and law making processes that is shared with 27 other nations. Whilst the direction of political EU and UK may now differ, the UK would be free to adopt any of the best in-class practises from the EU without having to contribute to the EU treasury.

For trade with the rest of the world any existing EU agreements with the rest of the world could also be adopted by the UK and the non-EU blocks until if necessary renegotiation take place.

A call for calm rational negotiations by British leaders and the head of the other successful economy in the EU (and provider of the British royal family, maintained after the Magna Carta, reinstalled after the English Civil War as a constitutional monarchy and, possible model for UK’s continued membership of the EU) would lead to a beneficial outcome for both sides (and a similar non event to the Y2K). The rash hysterical shrill for punitive action from the world liberal elite provides the reasoning for British exit, but also evokes uncertainty for the UK, EU and rest of the world.

What’s going on – Are we heading for another Great Recession?

Originally Published Jun. 13, 2016

  • Eight years on from the Great Recession
  • US unemployment rate is reaching pre recession levels
  • But Fed rate hikes could lead to another stock market crash

We are now eight years on from the global catastrophe of the “Great Recession”, but with the US stock market (SPY, DIA, QQQ) banging up against all time highs and global stock market indices (ACWI) recovering to all time peaks reached twelve months ago, can one assume all is swell the global economy?

Unemployment levels in the US are fast approaching levels pre Recession and in Europe it is finally showing meaningful reduction from the peaks of 2013 a story repeated in many of the worlds largest economies.

The policies to get us here have been a mixture of both traditional and extreme. From the US we’ve had traditional government spending unmet by tax collection together with interest rate cuts, to the extreme with the Central Bank purchasing the government debt with conjured money. Europe has avoided expanding government spending but have gone to the far side of extreme with negative interest rates. Japan is using all of the above and China has gone the way of massive relaxation of lending restrictions to the private sector that comically sloshes around.

If all was well with the world it would be time to stop these policies, and indeed the US stopped magically producing money several months ago and have even had an interest rate increase.

However the information content of the developed world government bond markets (BWX) are signalling something very sinister, most are providing a yield around the current inflation rate or, expectations of no inflation usually caused by coming slow growth or recession. This indicates that we are again in the era of potential policy mistakes.

In an appraisal of the policies that have already been installed, US government debt relatively reaching WWII leaves very little room for further support unless in desire of a centrally planned economy. The EU have been late to the party on cutting interest rates and conjuring money but should be applauded for government austerity in the face of a reducing tax base. Japan has morphed into a basket case but China continues to grow at an envious rate for the time being. Unfortunately negative interest rates for retail and corporate banks have not made them lend more but punished pension plans, mainly due to increased financial regulation.

Even more comical than which quarterly bubble private lending is funding in China, is that they have embarked on empowering the private sector, where as the US is empowering the government and the previously failed establishment. It is in fact a shame that the US information technology revolution of the last forty years have passed their rulers and central bankers by. Today “community” platforms (LC, TREE) are enabling borrowing from highest quality risk takers, to increase productivity and create growth, with enviable interest rates and data collection to the lender. Central bankers, however, continue to support their former work alumni and ignore calling for mandates to fund “community” platforms.

In support of the old school at the US Federal Reserve, they correctly watched the stock market or as they call it “data” to help determine when to make their first interest rate rise, but now is the time to start waiting for yields in their unsupported bond market (TLT) to recover. Although employment is at high levels, US central bankers can be relaxed with their inflation mandate, as corporate profitability is very tight, lay-offs are preferable to reduced margins.

There is little room for error but a policy mistake can take us back to the last decade including a stock-market crash.

“Now This Is Not The End. It Is Not Even The Beginning Of The End. But It Is, Perhaps, The End Of The Beginning.”

Originally Published Aug. 25, 2015

We’ve just had the first 10% correction in the US stock market in over 3 years, immediately preceded by a halving of equity valuations in the Chinese stock market, together with most other country stockmarkets moving into bear or correction territory.

This has been driven by two factors; a slowdown in Chinese economic growth and the probability of a September interest rate rises in the USA.

However we believe that the probability of a US September interest rate rise (from near zero) has now been removed and the probability of Chinese interest cuts (from 4.85%) have increased.

This should benefit economic growth and allow many country stockmarkets to recover recent losses.

Put in the context of the USA’s seven year bull market, there may not be many more years left in the bull market, but now is not the end, it is not even the beginning of the end, but it is, perhaps, the end of the middle.