I am sure you would be tired of my vague posting and how I am getting the benefit of AI in finance doing maintenance research of public equities companies. Since I no longer plan on monetising this, I might as well just spill the beans.
It began as a way to keep track of quarterly reports. I am an optimistic person, and I wanted to have a pessimistic partner to counter-balance my optimism. You see, once you have invested in a company, you want to see them do better, and sometimes that can cloud your judgment as to what's actually happening. Having a pessimistic partner can help you see the same information from a different perspective, allowing you to gain a new understanding. There's one downside to this, though: it bashes the management teams way too much, with only less than 10% justified, and the rest, even if true, have to be ignored. Unfortunately, it's not easy to figure out which ones are justified and which ones are supposed to be ignored. AI can't take those judgment calls; it can only surface information, which is fine by me.
I showed a demo to Savi Jain from 2point2 capital saw him use it for a few hours in his office. He, too, found the pessimistic response a little irritating after a while and remarked, "There's no balance in this". You see, as long-only investors, we believe the companies will do extremely well, and we have faith in them. Then I met Amit Mantri, his partner, and he showed me an interesting article by Digant Haria on JM Financial. It's interesting for multiple reasons. I was invested in it around 2020 2022, saw firsthand how they had screwed up real estate lending to developers. Their ARC business was also sluggish, and the pessimistic response captured such things extremely well. The problem was that it completely ignored the good things happening in business. That's not okay either. If you're long-only, you want to be able to identify when the business is at a critical juncture (an inflexion point), figure out the good parts and ride it.
This was the moment I realised, okay, let's have an optimistic personality.
Built an optimistic personality. Sometime around that I had watch a video on "attention sinks" and how some words make the attention "mellow" just like we use water/yogurt in cooking, they "drain" out the excessive taste. It really clicked and then I built an "Informational personality" who's sole job will be to note things down specifically numbers. And then the "judge personality" who is going to take all the opinions of these personalities, check the ground truth and form a balanced take.
Pani puri mai sirf theeka pani ho toh maza nahi aayega, thoda meetha pani, thoda dahi, moong se aacha swaad atta hai 😂
I have never been able to track the quarterly reports of so many companies before, just takes too much time, now I can get 95% of the benefits with like 5% of the time. Pretty solid deal. With the companies I invest in, I still have to go through stuff manually, also helps in evals. When I was building this out, I spent hours trying to benchmark myself with AI a.k.a what can I find manually that I should be knowing which AI couldn't. That's how I built trust in this system.
I think the real moment this whole thing came together this: I am invested in Aptus Housing Finance and on a conference call at the very end, management had a slight slip of tongue and mentioned that they are doing direct assessment so that they can optically boost RoE and make them "comparable" to peers. Well, their loans are a lot more profitable than their peers, so it makes more sense to hold them on their balance sheet. This is something I completely missed which AI had caught very well. Then I emailed management around this, had a discussion.
The personality prompts are kind of funny you know, let me just paste some here.
Pessimistic one:
You are an expert financial/business analyst who is shrewd and has trust issues.
You have to figure out what and who to trust and who to not.
You are deeply skeptical about numbers and you always verify them thoroughly.
You have to uncover what's actually going on in the business especially when management teams are inclined to be tell you optimistic things and hide the problematic parts.
You have to understand how management teams think and what their incentives are.
You are an expert at reading between the lines, cross-checking all facts through different sources, figuring out the people involved, the things they are sharing and not sharing, the stories they are trying to tell and things they are avoiding.
Optimistic one:
You are an expert financial/business analyst who is an optimist and glass half-full kind of person.
You are energetic, encouraging, visionary and charismatic.
You are a financial cheerleader, a believer in human ingenuity, and a master at finding the silver lining in any situation.
You keenly track important points of inflection in the business direction.
You meticulously collect proof to make a bullish investment report by highlighting the important changes which makes the business better.
You will discuss the catalysts that will propel the company forward.
You believe the future is going to be better than today and every company represents a story of ambition and progress.
You focus on the grand long-term vision, ignoring quarterly issues at times, focusing on mission, total addressable market (TAM) and it's potential to revolutionize its industry.
You figure out a company's core advantages (technology, brand, leadership, moat) as undeniable forces for good and growth.
You see risks as opportunities.
You report everything good that is happening with the company and any inflection point/catalyst in the business.
You will include any questions asked by analyst that show the good parts of the company/business.