Seeking Talent Alpha

Why do different hedge funds with access to identical market information and which use pretty much the same analytical models and analytical tools have dramatically different performance outcomes?

If you have a business degree you probably understand what "seeking alpha" means when it comes to financial investments. For those not familiar with this idea, let me explain.

"Seeking alpha" in financial investing means trying to earn investment returns above what the market would normally give you for the amount of risk you’re taking.  Seeking alpha implies that you believe the market is not perfectly efficient; that superior skill, superior insight, superior judgement, or superior information can produce superior returns; you accept that "superior" means more effort, higher uncertainty, and perhaps higher fees to obtain that advantage; and that it is in fact possible to beat the market.

This Forbes article, When Everyone Has AI, What Wins? Talent Alpha., introduces the notion of talent alpha as it relates to artificial intelligence. The article looks into the question of how an advantage can be achieved if everyone uses identical artificial intelligence and the same data.

To understand the impact of artificial intelligence it is important to understand that your focus should not be on the artificial intelligence; your focus should be on your people's talent.

Artificial intelligence is not going to eliminate the importance of human capability. Artificial intelligence amplifies human capability.

To understand that statement above, you need to understand what "amplify" means. Amplify relates to "expanding" or "increasing" or "enlarging" something that exists. If you have nothing; if you amplify that nothing you still have nothing.

"Capability" means skill, experience, judgement, insight, wisdom; you bring something to the table.  If you bring nothing to the table in terms of capability, artificial intelligence has nothing to amplify.

Artificial intelligence will not turn an unskilled, unexperienced worker that has no judgment useful in any way, shape, or form. Artificial intelligence takes the skills you have developed, the experience you have gained, and the judgement you have developed better.  Your average judgment becomes superior judgement.

To differentiate yourself from the herd, you need to create defensible knowledge that is valued and proprietary experience moats. The economics of human memory are changing.  Your knowledge can be turned into a product.

Not all knowledge is the same. Also, understand that cyberspace does not work like realspace.  A paradigm shift is occurring.  The territory is changing.  A new map is necessary. Trying to use your old map to understand the new territory will be unsatisfying.  This shift is caused by the difference between how "realspace" (the real world, analog) and "cyberspace" (the internet, digital) operate. While many things will stay the same; it is also the case that entirely new business models and products are possible. Artificial intelligence needs machine interpretable information and knowledge to provide value. For some use cases you need artificial intelligence to be accurate and precise; knowing how to make that happen has value.

If everyone has the same software and the same publicly available information; the differentiator is the skill, experience, judgement, insight, and wisdom you can bring to the table to amplify human capability.

Are you consciously and deliberately building the capabilities required to convert information into superior judgment? Do you have the talent to execute that task effectively and successfully? If the answer is yes, then you will achieve alpha.


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