Chapters

Abstract

Greg Jensen, CIO at Bridgewater, elucidated his vision for the future of investment strategies: a fusion of artificial intelligence (AI) and human intuition. Having applied this principle in activities like stratomatic baseball cards and poker since his childhood, Jensen envisions the power of machine learning to translate human intuition into algorithms for predicting market trends. From pioneering expert systems in the 90s to utilizing advanced AI techniques today, Jensen shares how Bridgewater navigates the evolution of AI, aiming to revolutionize the investment management industry.

A key part of Jensen’s journey is his exploration into the intersection of machine learning and strategic thinking. Drawing inspiration from his experience of winning the World Series of Poker, Jensen reflected on studying how machines learned to play poker and how this knowledge could translate into intuitive investment strategies. His ambition is to develop a reasoning engine that overlays statistical models, foreseeing a potential revolution not only for the investment industry but across various knowledge industries.

Bridgewater has been embracing this vision by integrating machine learning techniques to bolster its understanding of the world and improve its investment strategies. Jensen leads a team of 17 members dedicated to this mission, and they believe that the weaknesses of AI, such as inaccuracies and hallucinations, can be mitigated by combining AI with statistical models. In essence, AI will generate investment theories which will then be evaluated and refined using statistical models.

Despite the promising future of AI, Jensen did not shy away from discussing its potential pitfalls, particularly in complex, data-rich environments such as financial markets. He used Zillow’s misjudgment of the housing market as an example of how reliance on AI can backfire. While recognizing the vast potential of AI, he stressed the importance of understanding the limitations and weaknesses of machine learning, especially in areas where data can be misleading, or the environment is adversarial.

The discussion ended on a contemplative note, as Jensen noted AI’s current inability to predict major turning points or structural changes in market regimes. He shared how the shortcomings could be potentially addressed by effectively utilizing AI’s capabilities in combination with statistical tools.

Shifting the focus to the current economic landscape, Jensen noted the strength of the economy over the past year, attributing it to the robust fiscal response to the 2020-2021 period. He expressed surprise at the Federal Reserve’s rapid rate hikes and their relative ineffectiveness in cooling down the economy. While Jensen predicts a more inflationary environment moving forward, he acknowledges a level of uncertainty about growth. He concludes with a cautionary note on the market’s overly optimistic perspective and the challenges ahead in bridging the inflation-growth disequilibrium.

In the end, the insights gathered from the conversation with Greg Jensen provide a fascinating glimpse into the future of investment management, where AI’s vast capabilities and human intuition find common ground.