Show notes
Researcher, data scientist, and founder of a FinTech program, Arnav Sheth, started working as an economist with Deloitte Tax on September 15, 2008 (also known as the day Lehman crashed). Since then, Sheth has worked as a tenured professor, startup advisor, and director of a finance program. Now he’s using statistical and machine learning techniques to make predictions about financial markets.
Key Takeaways
STATUS QUO: People believe that mathematical models and machine learning tools will be able to predict everything, including financial markets.
Right now, the financial markets are being disrupted by rising interest rates, fears of a recession, COVID supply chain issues, and war. None of these are conducive to smoothly functioning markets.
Tiny changes within a big machine have secondary and tertiary effects that change the whole machine. Over time, the entire machine becomes new.
The current war affecting the markets is unlike other recent wars we’ve experienced. Ukraine is strategically located, and the world depends on key commodities that come from the country. Every war is different, but this one is a little more disruptive and has precipitated other fears.
Most asset managers fail to perform. A small number of people can truly beat the market consistently over long periods of time.
The U.S. markets have generally returned around 10-12% depending on how it’s measured—and that’s amazing. Some years it’s up 40%, while some years it’s down 40%, but few people can do better than that.
The markets are what they are and imposing our own views on them makes us bad investors. Just because something is successful in one area doesn’t mean it will have the same success in another area.
One current question is whether it’s possible to predict where we are in a business cycle. Twenty years ago, Microsoft was a growth stock, while today it’s a value stock. Knowing where we are in the business cycle may help people know what to do with investments.
Everybody has a system for beating the market, but they can only do it for a short period in a specific area. Once the genie is out of the bottle, it’s not a profitable opportunity anymore.
Quote of the Show
13:36 – “People had this belief that these mathematical models, these machine learning tools are going to predict everything. They’re going to change the world. They’re very powerful tools. We have computational power that we’ve never had before, but it’s not magic because of the human element. We cannot predict the way humans will behave in large groups.”
Links
LinkedIn: https://www.linkedin.com/in/arnavsheth/
Twitter: https://twitter.com/arnavsheth
Website: https://www.arnavsheth.net/
Ways to Tune In
Amazon Music - https://music.amazon.com/podcasts/eccda84d-4d5b-4c52-ba54-7fd8af3cbe87/disruption-interruption
Apple Podcast - https://podcasts.apple.com/us/podcast/disruption-interruption/id1581985755
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