Artificial Intelligence (AI) is the hottest concept around.
This truly feels like the late 1990’s all over again with the birth of the internet and how it did indeed change almost every aspect of our lives. At this stage it’s nearly impossible to picture a world without the internet.
Same will prove true for AI.
Gladly there are already profitable applications of AI in the investing space. That includes its inclusion in our proprietary Zen Ratings model.
The background story is that the data analytics firm we hired to create the Zen Ratings has been developing market beating investment strategies for over 20 years.
All that knowledge and wisdom was packed into their AI model which took over 2 years to develop.
Here is what matters…it works!
More specifically the ratings model without the AI factors produced an annual return closer to 28% for the A rated stocks.
Adding in the AI factors boosted those annual returns to +32.52%.
Even better is the improvement in the returns from the past few years.
That’s because AI is meant to get smarter over time. Learning what works…and what doesn’t work to find more outperformance as it moves forward.
Indeed that is proving to be the case with the AI packed inside the Zen Ratings and believe it will only get better over time.
For those who want a deeper understanding of how the AI works in our model, I will share with you how our data analytics partner explained it to us:
“(The Zen Ratings model) leverages cutting-edge machine learning technology to enhance its rating system, using a Neural Network model trained on over 20 years of historical fundamental and technical data. This model analyzes patterns and relationships in vast amounts of data that would be impossible for humans to detect, offering a more comprehensive and nuanced view of stock performance.
The AI model incorporates advanced cross-validation techniques, ensuring the system isn’t just optimized for past performance but is robust enough to adapt to future market conditions. Cross-validation helps avoid overfitting, which means the AI isn’t just learning how to excel in specific historical periods—it’s learning to generalize across different types of market environments.
What sets AI factor apart is the ability to combine numerous variables (such as earnings, cash flow, stock price movement, and industry trends) into a singular, actionable insight. For retail investors, this means accessing insights that are grounded in years of data and refined by advanced algorithms to provide a forward-looking perspective on potential stock performance.”
Again, here is what matters…it works!
How to Use AI Ratings
The AI rating is the most actively changing element of the Zen Ratings model. Meaning it can go from bad to good (or good to bad) much faster than other measures like Growth, Value or Financials.
This means it is a tool well suited for active traders looking to make ample short term gains (that includes options traders where timeliness is so vital).
To be clear, step 1 in your stock search process is to find companies that are A & B rated overall. This means that the full 115 factor analysis of the stock shows they are primed to outperform.
That is what you will find in the top half of the info shared on our quote pages. Here is the example for Horizon Bancorp (HBNC):
Next scroll down to the bottom of the Component Grades section to see how it stacks up for AI.
“A” means that it's in the top 5% of all stocks for that category. Truly cream of the crop. Whereas “B” is still pretty impressive as that denotes a stock in the top 20%.
What to Do Next?
+32.52% annual return for A rated stocks
-8.02% annual return for F rated stocks
Note that today there are 915 A & B overall rated stocks. 216 of those stocks also have A or B ratings for AI.
For those who want to simplify this stock research process, you may want to skip to step 4 below…
Plus 2 new picks packed with the best Zen Ratings will be unveiled in early January.
Discover the Zen Investor & 16 Top Stocks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
Editor-in-Chief of WallStreetZen
What to Do Next?
Want to get in touch? Email us at news@wallstreetzen.com.