Artificial Intelligence is and continues to change the way we see things and the way we do things. For much of our lives there has been conventional wisdom, there are strong elements why conventional wisdom has lasted, but is it the best approach? In a recent book written by Nick Polson and James Scott titled AIQ published by St. Martin’s Press, NY, 2018, the authors examine artificial intelligence – what it is, how it works, where it comes from and how to harness its power for a better world. Note the optimism in the authors expectation, AI can help make the world a better place.

Finding lost objects in deep water is a challenge and the leading expert for the Navy is Dr. John Craven. Their are multiple methods – ideally machines that go in the water have GPS type signals, however Dr. Craven’s preferred strategy is Bayesian search.

the essence is Prior Beliefs + Data = Revised Beliefs.

Start with what you know through plotting on a grid.

Add data – what is known to your search and you have narrowed your field.

Do work, if you come up with nothing, start again by moving to another square in the grid. Repeat until you are successful.

Dr. Craven was tasked at finding a submarine which went missing somewhere between Spain and the US without a single clue. He caught a break, the government had spent $17 billion on listening devices in the Atlantic. He examined the records and found an unusual series of sounds. He had the ability to narrow down the scope of the task. Next came adding multiple scenario and running simulations to see how the submarine should have responded. After the research they put together a grid and while no one publicly knows what happen to the submarine – it was found within 260 yards of Dr. Craven’s team best estimate.

The author’s examine whether it is better to do index investing or be influenced by great marketing? The authors use Bayes’ rules and determine while great managers do exist, they are very rare. If you try to follow Warren Buffett remember he is buying profitable companies with a near monopoly position which implies they will remain profitable for a number of years. Through his insurance holdings cash position he is able to leverage his purchases and he loves cash generating companies.

Linking to dividend paying stocks, you may not call what you do Bayes’ rules but it is always important to continually educate yourself or add data to what you know and do not know. Try to understand how companies earn their income and can leverage the data they collect to continually earn profits. The more you understand, then you can find a price the stock looks attractive to you. If you buy dividends you are thinking long term which allows patience in your decision making.

There are more questions than answers, till the next time – to raising questions.