Special Feature: Stock Analysis in the Twenty-First Century and Beyond by Thomas E. Berghage
While the global economy has recovered from the last financial crisis, the specter of another similar collapse still looms, and investors and analysts can’t forget how the world just sleep-walked towards monetary catastrophe. For all those asking "why?" with regards to the crisis and "how?" similar incidents can be prevented, Thomas E. Berghage offers a possible answer with his opus, "Stock Analysis in the Twenty-First Century and Beyond."
Berghage draws from the new field of Behavioral Finance, which has spent the last decade documenting the limits of human investors and makes a bold proposal in light of the field's findings. He reports that the security analysis process' weakest link is the human element. Humans need help, and new intelligent computer technology may be able to provide it. Artificially Intelligent (AI) systems can be the next approach to investing, a "black box process" in which the nature of what goes on within the box is unknown even as the apparatus delivers results.
At the same time, for those leery of offloading pivotal processes to machines, Berghage suggests that this may not be as risky as it sounds. The real black box, he argues, is the human mind. We can never tell what's going on in another person's head. Whereas the most sophisticated AIs can still be bound by their code, the rules with which they operate. So an AI will be more stable and reliable, its functions can be tailor-coded; while at the same time it can handle more computations, simulations, and predictions than any single human mind could ever hope to fathom. AIs are the future of analysis and humans are nowhere near capable of matching the machines' level of sophistication and performance.
This advanced level of operations is crucial in separating Security Analysis from Financial Analysis. These processes require logic and rationality, and objectivity derived from known facts. They must be impervious to misperception, misunderstanding, preconceptions, and bias, as well as ulterior motives or alternative competing objectives.
The future of stock analysis is here. Berghage is a herald of “Stock Analysis in the Twenty-First Century and Beyond.” And he is quite qualified to make this prediction as co-founder and CEO of NeuWorld Financial, a San Diego-based money management firm. His financial know-how is supplemented by his experiences in a wide variety of fields, such as his time in the US Navy where he served as a Commander and a Navy Research Psychologist. His understanding of the human mind, of how people operate, and of the market, were pivotal in leading him to his conclusions and embracing the future.
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Thomas Berghage is co-founder and CEO of NeuWorld Financial, a San Diego-based money management firm. A naval officer for twenty-four years, Commander Berghage was a member of an elite group of navy psychologists working on advanced military systems. Upon retiring from the navy, Mr. Berghage joined the financial community in San Diego. He is a past president of the CFA Society of San Diego and has served on its board of directors in various capacities. He has an undergraduate degree from Minnesota State University, Mankato, an MA degree in research psychology from Western Michigan University, and an MBA degree from Central Michigan University and has completed all coursework for a Ph.D. at the University of Louisville. Prior to establishing NeuWorld Financial, Berghage was vice president/director of research of two West Coast regional brokerage firms. He also served two years as an independent consultant to Lawrence Livermore National Laboratory. Berghage has written more than twenty scientific journal articles, thirty technical reports, and three books: Perception and Performance Underwater, Decompression Theory, and Beyond Human Comprehension: The Limits of Human Security Analysis. He has also served on the editorial board of the Journal of Undersea Medicine and contributed to the National Geographic book on exploring the deep frontier. His books have been translated into several foreign languages, and he is widely recognized for his original contributions in the field of human performance and undersea exploration. Commander Berghage has served as an invited lecturer and presented numerous papers both here and in Europe. Since entering the world of finance, Berghage has continued writing and has published countless corporate evaluation reports and several articles in Artificial Intelligence in Finance. He has presented his work at the Institutional Investor Institute and many CFA Society chapters around the world.