Upside AI: Where artificial intelligence is the new stock market expert

Trading and investing in the stock market is for the brave. RIP Rakesh Jhunjhunwala.

However, new times bring new trends and the stock market is no exception. Young people these days have found a new passion – investing in stocks through digital channels. But trading the stock market is a risky business, even if you think it’s a quick way to make some money. This is why experts and even disclaimers are advising people to remain cautious when investing or trading stocks, stocks and mutual funds. Even small investors always seek professional advice before investing in something.

Advisory and brokerage firms have long employed experts to offer early investors advice and direction on where to invest their money. And also for advice on investments, stocks and other investment portfolios. Her personal experience, built on both wins and losses, has always been the foundation of her mastery.

However, the advice sometimes doesn’t work. Various factors such as the current scenario in the stock markets, an advisor’s strategy and their emotional biases and affinities can cause certain predictions to fail. To avoid stock market failures, a three-year-old fintech start-up has started using artificial intelligence to generate accurate forecasts.

Upside AI claims to have revolutionized the trading industry with its AI-based investment services. SME Futures spoke to Kanika Agarrwal, one of its three co-founders, to gain a better understanding of the dynamics of AI-based trading patterns and curated portfolios.

What creates trust?

An American economist once said: “The investor’s main problem and even his worst enemy is probably himself.”

In a country like India, where investments have always been considered a private matter and people often lack the knowledge of how to invest money, this sentence fits like a glove. Now the question is, will machine learning and its algorithms ever replace human experts? How will the investors of India accept this technology versus human expertise?

Well, enough data shows that people, even experts, tend to underperform the existing benchmark over long periods of time. According to a recent report by S&P Global for India, it was found that 80 percent of mutual fund managers have underperformed the benchmark over the past 5 years.

“Even Warren Buffett has said publicly that after his death he would prefer the Berkshire funds to be invested in index-tracking ETFs rather than active management,” says Agarrwal.

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She further adds: “The consequences of human inefficiency are visible in a mature market like the US. The top 5 hedge funds are all quant funds. Additionally, there is now more private money in passive funds in the US than in active human-led mutual funds. We will also see this trend in India.”

Where-Artificial-Intelligence-is-New-Börsenexperte_Inside_Image

machines over people

The founders of Upside AI believe in the saying of the “Oracle of Omaha”, also known as Warren Buffett, who once said: “A lifetime of successful investing doesn’t take a stratospheric IQ, unusual business insights or inside information. What is needed is a solid intellectual scaffolding to make decisions and the ability to keep emotions from disintegrating that scaffolding.”

And that’s exactly how this investment platform performs AI-based calculations to curate a database of stocks available in the market.

Agarrwal explains that their AI is trying to solve the two-sided problem of supply and demand. There is an abundance of fundamentally sound companies out there. The system analyzes the financial ratios of all listed companies and determines which of them are fundamentally sound.

“On the other hand, there is demand for shares. Even if a company is solid, there may not be a demand for its stock in the market at any given time. As such, the system also determines prevailing market conditions and determines which portfolios perform best at the intersection of perceived and actual value,” she adds.

That’s how it works

When asked how exactly their app works, the founders say that it is based on the simple input and output mechanism.

The financials of all NSE stocks are fed into the algorithm, after which the algorithm, through millions of iterations, learns how to select the companies that are not only fundamentally good financially, but also have demand for their stocks, Agarrwal said.

After that, the app suggests a stock portfolio based on its analysis and the portfolios are created. Later, Upside AI analysts conduct manual reviews of corporate governance to ensure these companies are reporting their financials correctly. Finally, the app suggests a portfolio of 10-25 stocks to buy to start investing and then re-evaluates the chosen portfolio every quarter.

A Board game marathon gave birth to this start-up

Launched in 2017, Upside AI believes that technology will make better investment decisions than humans in the long run. Because machines are unbiased, unemotional and unaffected by market euphoria and panic.

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This three-year-old start-up was founded by three childhood friends who became business partners through playing board games. “Nikhil Hooda came up with the idea of ​​developing Upside AI while we were participating in a board game marathon,” recalls Agarrwal.

Kanika Agarrwal is leading sales and Nikhil Hooda is also handling sales while Atanuu Agarrwal is managing the investment part. Kanika claims her app scans the entire stock market 50 million times to discover the best investment portfolios.

A smooth journey

Since its inception, Upside AI has launched three products targeting HNIs (High-Net-Worth Individuals) – a term used for super-wealthy investors – as well as conducting research and advice for various ticket sizes and geographies. Kanika claims that in the last 18 months they have seen a 5x growth in the assets they manage and are already expanding their team.

She tells us that her Mumbai-based setup originally had just three members, ie the three co-founders themselves. But little by little, they’ve grown into a team of 12, working from three different cities.

Agarrwal talks about their performance and revenue model and tells us their start-up has received an extremely positive response since its inception and they have served nearly 200 clients to date. “We have two types of clients, the first type are those who have multiple PMS (Portfolio Management Services) investments and want to diversify away from human bias and apply investment rules. And the second type are first-time investors who already believe that machines will beat humans in the long run. Our business model is based on a mix of fixed salary and profit-sharing,” she informs us.

Kanika also tells us that her company was initially bootstrapped. “For our business we had to get a PMS license. And the capital required for the license is crores. So, as middle-class kids, our first investors were friends and family who believed in us and our vision. And I’m proud to say that we’ve been profitable from day one,” she assures.

They received a seed round of venture capital last year from Endiya Partners, Dr. Vijay Kedia and some other angel investors. “The main reasons for raising this capital was to grow faster and hire the right team to develop our products and expand our distribution,” she says.

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Will AI be the future of investing?

In today’s globalized world, artificial intelligence has permeated everything and is an integral part of every type of technology, and the stock market and fintech are no exception. While the target audience of fintech companies like Upside AI is niche today, Agarrwal believes there will be an influx of such tech-enabled equity portfolio curators in India over the next decade.

“If you think about our stock market in 10 years, do you think there will be more businesses like us or fewer? The answer to that is clear, more and more investment firms will start adopting technology and the practice of using rules for investing will become mainstream,” she says.

Agarrwal says of their future, “Given that we have an early mover advantage, we will have the longest time to build a track record of improving and bringing new products to market and understanding the market better.”

“In the next decade, we hope to build an asset management company where the products and processes are embedded with technology,” she adds.

Crypto: Uncertainty Encrypted!

While most of the world has wholeheartedly embraced and actively trades cryptocurrencies, there is still uncertainty about it in India.

“As an asset class and emerging technology, we believe crypto can be extremely powerful in the decades to come. However, as with any emerging technology, it comes with a lot of uncertainty and volatility that should be considered before investing in it,” stresses Kanika.

“Therefore, we recommend our investors to invest a very small portion (less than five percent) of their wealth in crypto. They also need to be aware that given the volatility in this area, there is a chance their investment could suffer deep losses,” she suggests.

Agarwal goes on to say, “Investing in crypto in India has the added complexity of taxes and uncertain regulations. Also, since you are required to store your coins and tokens with the Indian exchanges and cannot transfer them to another wallet, there is an additional risk of something happening to your investment at the exchange level.

“Considering all of these factors, we should be extremely cautious about investing in crypto in India today,” she says before saying goodbye.