QUIZ 1 - FINTECH

Estimize

- CEO: Leigh Drogen - uses earnings forecast to seek companies that will be able to consistently achieve earnings surprise and acceleration - entered a research partnership with McKinley Capital - reliability algorithm keeps bad data out

What are some companies that use crowdsourcing?

- Estimize (Leigh Drogen) - Earnings Scout (Nick Raich) - New Constructs - LikeFolio (uses social media to gather info + AI to analyze) - Quantopian hedge fund

Some New Frontiers that include machine learning and big data

- Fractional investment (ex - RallyMD lets you purchase part of a collectible) - NFTs - Decentralized finance

Independent Research Firms

- LikeFolio (analyzing customer buy intent) - Estimize (Drogen w/ crowdsourcing) - Earnings Scout (Nick Raich)

What is significant about millenials and finances?

- Millenial's spending power will hasten consumption shifts (video consumption and mobile device use) - crowdsourcing will go both ways (ex - uber drivers will rate you too) - automation will replace many jobs

AI progress from 2000s and beyond

- Moore's Law (doubling microchips at decreasing costs) - math - algorithms integrated into larger systems - deep learning

Proprietary financial models are used by...

- Researchers to create reports using past financial info and interviews from CEOs and CFOs

Early AI predictions

- Simon and Newell (1958) - a digital computer will be world chess champion in 10 years and discover a math theorem - Simon (1965) - machines will be able to do any human work - Minsky (1967) - creating AI will be solved in a generation - Minsky (1970) - in 3-8 years a machine will have general human intelligence

Why is there an upward bias in analyst reports?

- There is an upward bias in the reports analysts put out because they have to be favorable to companies to get information from these companies - CEO and CFO have the incentive to say the numbers are not that amazing then they have the potential to overperform; talk down the future then benefit by overperformance and get a raise etc.

Disruptive forces in financial systems

- alternative payment systems (ex - Apple Pay) - consumer finance (ex - Rocket Mortgage, Zillow, Redfin) - wealth management/trading - financial media (Benzinga, Yahoo! Finance)

New Constructs

- company estimates should include info from MD&A and footnotes that Wall Street may leave out - investment research powered by AI - human oversight - CEO: David Trainer

Some connectors and disruptors of finance

- digital banking - financial services - insurance - payments - regulation - wealth management - blockchain (related to crypto)

Bitcoin

- founded on the blockchain - founded by Satoshi Nakamoto

Roadblocks to Innovation (3 R's)

- regulations - resistance to change - pre-existing relationships

Fintech

A portmanteau of financial technology

Why is crowdsourcing interesting?

All started from millennial preferences during financial crises 70% of consumers prefer to interact with their bank online 40% of people do their own research on stocks to inform their trades

In 1997, IBM made...

Deep Blue, the machine that won chess against the reigning champion

What are some other words for Innovators and Disruptors

Incumbents (incoming) vs Entrenched (old)

What happens in an investment bank like Goldman Sachs?

Investment banks get a paid percentage on an investment's value (usually around 2-5%) The bank would have around 200 or so clients and make billions of dollars in profit

What does Research consist of?

Market analysis and write reports/give their opinion (proprietary models) - The people doing the work normally get paid on salary Their biggest customer is the investment banking unit - Oftentimes research analysts may know the CEOs or CFO of companies in order to write their reports, which could be helpful.

1956 Dartmouth Workshop

Marvin Minksy, the guy who termed AI and a bunch of guys got together to talk about computers

People who work in wealth management...

Paid by percentage of the assets under management Thousands of clients and 60-120 basis points

Leigh Drogen/Estimize's initial business model? What changed from 2013-2018?

They sold large amounts of raw data to hedge funds - Now they have more stocks and more users There's now a marketing person in the company trying to bring more people in; Labeling this as the democratization of information so that individuals can have more access and have info that historically only popular hedge funds had access to. - You can't see current consensus without giving an estimate.

What does sales and trading (S&T) do? (Investment Bank)

Trying to get marketplaces to trade stocks and bonds with each other - typically sales get paid by commission; For example, maybe a client wants to buy 1000 shares but not move the market by $5 so they'll have the person to do it over the course of the day; small commissions, a lot of transactions

Blockchain

a decentralized public ledger of transactions that uses cryptography to record and share data securely - database were info blocks are linked together in a chain

Henry Blodget

a former financial reporter who was banned for over-inflating estimates; Attorney General Spitzer was not a fan

ICO's (Initial Coin Offering)

a way for a company to raise money for a crypto-related project (basically initial public offering for crypto)

Quantopian Hedge Fund

aimed to create a crowdsourced hedge fund through freelance analysts - People could put forth their algorithm creations and if chosen by the company they'd get 10% of net profits - CEO: Fawcett - Quantopian did not end up working

deep learning (AI)

attempts to mimic how our brains work (ex - satellite analysis with startups, anti-money laundering systems)

1st iteration of Early Finance

back office processing - a business process that supports a company's operations without directly involving customers

Commercial Bank

consists of making loans and: - personal lending - deposits - mortgages - payment settlement (Could be the two banks clearing ownership and passing it through the federal reserve)

Investment Bank

consists of: - wealth management: wealth of families - investment banking: wealth of corporations - sales and trading - research

Types of crowdsourcing

crowd contests - Having a contest opens up the problem to brilliant minds outside of your company crowd collab communities - Opening it up to outside of your company to create a group of people who can contribute to you; example would be Wikipedia crowd complementors - Innovation that enables a market for goods or services to be built on top of your core product or technology (Example, app store) crowd labor markets - Labor markets match buyers and sellers of services and employ conventional contracting for services rendered; it's kind of like a curated contest. Ex: Upward, Fivver, etc

Finance

describes the study and system of money, investments, etc. Can be public, corporate, or personal

Technology

development and use of basic tools

Crowdsourcing

listening to a crowd to obtain better information

Hedge Fund

pooled investment vehicle that combines money from many investors to make investments in a variety of assets

When did the birth of artificial intelligence start?

started with the ancients while they tried to understand how the brain worked

3rd iteration of Early Finance

straight to consumer (mobile usage, cheap computing power, cloud storage, APIs-software development)

2nd iteration of Early Finance

the dumb terminal - it relies on a central computer, like a mainframe, to process data and commands. Dumb terminals are often made up of a keyboard and a display screen. 1980s PC full front office - typically composed of customer-facing employees such as the marketing, sales, service, and client consulting departments

The wall street consensus is biased but media still follows it

true

Alan Turing

wrote a 1950s paper "Computing Machinery and Intelligence" - The Turing Test: "Are there imaginable digital computers which would do well in the imitation game?"