Introduction
Throughout business school, we have touched on multiple aspects involving markets, the economy, and business worldwide. One of the main and more important takeaways is the fact that technology is growing at an exponential rate more so now than it has ever before in the past. As a result, businesses have had to adapt to the new terrain caused by technological advancements and capabilities. Technology is in the process of forever altering business, investing, and personal finance.
Why should you care? If business is transforming and you are an employee at a corporation, you are indirectly affected in some way. It is important to be aware of technological shifts within our business world to be able to plan, adapt, and execute long-term. You should also care because advances in technology, AI, and machine learning are currently altering the way investors spend their capital and how individuals can manage their personal finances. The exciting thing is that these advances in technology have never made things easier for individuals to execute investing and sound personal finance practices. Let’s dive in!
So what is AI (artificial intelligence) and Machine Learning?
- Artificial Intelligence (AI): the theory and development of computer systems able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.
- Machine Learning: Machine learning is an application of artificial intelligence (AI) that provides systems the ability to automatically learn and improve from experience without being explicitly programmed. Machine learning focuses on the development of computer programsthat can access data and use it to learn for themselves. The process of learning begins with observations of data in order to look for patterns and make better decisions in the future based on the examples that are provided. The primary aim is to allow the computers to learn automatically without human intervention or assistance and adjust actions accordingly. (Acquired from Expert System website).
Transforming Business
One of the best classes I’ve taken at JHU Carey Business School was my information systems class. We actively discussed technology, AI, and machine learning and how business in today’s modern world is adapting to such abrupt change. At the highest level, various large corporations are investing capital into AI and machine learning in order to produce tangible results to act upon. We are seeing innovation throughout various industries regarding machine learning. Please see below for basic examples.
Manufacturing
- Predictive maintenance or condition monitoring
- Warranty reserve estimation
- Propensity to buy
- Demand forecasting
- Process optimization
- Telematics
Retail
- Predictive inventory planning
- Recommendation engines
- Upsell and cross-channel marketing
- Market segmentation and targeting
- Customer ROI and lifetime value
Healthcare and Life Sciences
- Alerts and diagnostics from real-time patient data
- Disease identification and risk stratification
- Patient triage optimization
- Proactive health management
- Healthcare provider sentiment analysis
Travel and Hospitality
- Aircraft scheduling
- Dynamic pricing
- Social media-consumer feedback and interaction analysis
- Customer complaint resolution
- Traffic patterns and congestion management
Financial Services
- Risk analytics and regulation
- Customer Segmentation
- Cross-selling and up-selling
- Sales and marketing campaign management
- Credit worthiness evaluation
Energy, Feedstock, and Utilities
- Power usage analytics
- Seismic data processing
- Carbon emissions and trading
- Customer-specific pricing
- Smart grid management
- Energy supply and demand optimization
In 2017, machine learning start-up companies were beginning to be acquired by tech giants such as Google, Apple, and Facebook. In addition, tech giants including Baidu and Google spent between $20 – $30 billion on AI in 2016. Top performing corporations are understanding the need for such an investment. Please click here to understand the role of the corporation and the board. 2017 was the first year we started seeing tangible impacts from machine learning technology. Organizations began to move out of the acquisition stage and into the implementation phase. In addition, “deep learning”, which is a sub category of machine learning, creates efficient algorithms to model high level data. Deep learning is becoming extremely popular.
Within 2018, we are already starting to witness the tangible evolution of machine learning and business. More specifically, four industries will be transformed in 2018 by machine learning including automotive, manufacturing, finance, and retail.
Automotive
Driverless car technology is the real-deal. Elon Musk and Tesla are changing the game. The idea of fully autonomous (self-performing) cars is on the horizon. The real test will be whether these fully autonomous vehicles will be able to respond to situations in real time to enforce safety. The sensors must react in real-time in order to operate the vehicle. Machine learning will be central to the car’s digital infrastructure, which would allow the car to learn from the conditions observed.
Manufacturing
The manufacturing sector processes massive amounts of data from various sensors placed on different production lines. Various data from different segments are collected from complex systems. The most profound usage of machine learning within manufacturing would be the detection of rare items or observations. We will also see the implementation of collaborating robots throughout factories. These robots will be more effective and efficient than humans in observing and executing production item processes.
Finance
As we all know, the finance industry is polluted with massive amounts of data and we shouldn’t hope for any indication of a decrease. The finance sector has already used machine learning for statistical analyzation but the hindrance is transforming this analysis into useable information efficiently. Finance organizations will continue to use machine learning to develop new business opportunities, deliver customer service, and detect bank fraud. Moreover, robo-advising organizations are being born that use algorithms to produce and monitor investment portfolios for clients (more on this later).
Retail
We are witnessing it now with the sheer dominance of Amazon. E-commerce is now quickly becoming the normal way to purchase general merchandise. However, e-commerce sites will be able to compute buying trends and customer data in order to accurately reflect consumer behavior. In addition, we may see machine learning applied within actual physical retail stores. As a result, owners will be able to articulate customer purchasing behavior.
Transforming Investing
Market Portfolio Investing
Investing is becoming extremely effective and efficient thanks to the implementation of AI and machine learning. “Robo-advisors” are coming to fruition. Robo-advisers are a class of financial adviser that provide financial advice or investment management online with moderate / minimal human intervention. More specifically, robo-advisors create and monitor investment portfolios for clients. The clients are prompted to initially answer various questions and as a result a portfolio is generated. All the client has to do is fund the portfolio and the algorithms in place monitor the re-balancing of the portfolio as well as dividend and capital gain re-investment. In fact, the algorithms are so sophisticated that the dividend and capital gains re-investments are re-invested based on portfolio construction and low price-to-earnings (PE) ratios. So, your portfolio will stay balanced and your proceeds will purchase investments (usually ETFs) that are the cheapest at that point in time. The services are often cheap and examples of robo-advisors include “Wealthfront” and “Betterment”. Both of these robo-advisors create passive portfolios (index funds) for the consumer. Please click here to read about how passive investing is more effective than active investing.
Real Estate Crowd Funding
Real estate crowdfunding is becoming a popular investment source. Frankly, this is probably a multi-decade investment trend that is just starting to come into fruition (much like robo-advising). Essentially, investors have the capability to invest capital into portfolios of real estate in various locations that appeal to them. Such portfolios usually seek valuation, strong job growth, and higher net rental yields. From the investor point of view, it is a way to invest into real estate without having to come up with a large down payment or having the responsibility of owning a home. Examples of real estate crowdfunding platforms include “RealtyShares” and “Fundrise”. New AI and machine learning solutions are integrated throughout these platforms in order to effectively generate results for investors. Such platforms bring additional insight, transparency, and options into the real estate market. Please click here to read my post on why I max out retirement accounts as oppose to purchase traditional real estate. Chatbots, investor analytics, predicting loan defaults, deal matching, construction automation, and property management are all examples of AI and machine learning integration within the real estate industry.
Transforming Personal Finance
AI and machine learning are altering the business and investment landscape. You can bet that personal finance is also affected. Increases in software technology allow programs to exist such as Personal Capital in order to monitor cash flow (please click here to view post on how important cash flow is), investment performance, and net worth. The utilization of simulation and machine learning come into play through various scenarios that can be run within the program giving the user a painted picture of financial results. Such applications will strongly influence individuals to pay yourself first…which is one of the easiest and effective ways to build wealth. Please click here to read the post.
Obtaining a software program to track your personal finances is crucial. This enables you to adhere to a budget, track spending, understand your investment performance, and visualize your progress of wealth accumulation. I recommend Personal Capital. Please click here to acquire Personal Capital for free!
In addition, financial institutions are developing financial wellness applications that interact and engage the customer. The shift is occurring now, and it is heading from personal financial tools into applications that deliver personalized financial advice that assists the consumer in making decisions regarding their money. These tools will assist the customer in understanding their balance sheet (please click here to read post regarding your personal balance sheet) and assist them in purchasing habits (please click here for post on how to re-think spending your money). In addition, you can bet they will recommend that the customer invest into an emergency fund (please click here to read my post on how important a developed emergency fund is).
In general, machine learning exists within finance / personal finance in the areas of portfolio management, algorithmic trading, fraud detection, and loan and insurance underwriting. In the very near future (some current) we will see it within customer service, security, new analysis, and sales and recommendations for consumers.
Conclusion
It is a very exciting time within business, investing, and personal finance. Technology is now, more than ever, altering the way individuals conduct business and invest capital. In most cases, these platforms and tools make personal finance and investing easier and less stressful. With this new wave of tools coming, it has never been easier to concentrate on the Millionaire Formula (please click here to read the post). Gone are the days of typical banking and stock picking – in are the days of personal finance applications and automation investing.
The truth is…this post only scratches the surface of the referenced topics. AI and machine learning are currently forever changing business practices, investing, and personal finance.
Get ahead of the curve.
Redefine.
-James