Day Traders Beware: Jeopardy’s Watson Win Proves Humans are Losing Their Edge

Like most day traders, I tasted my first excitement during the dotcom boom. But Times They Are a Changing. And if there’s one rule on Wall Street, it’s adapt or be killed.

Although IBM (NYSE:IBM) set out to create artificial intelligence to dominate trivia on Jeopardy, the computer Watson is yet another example of why get-rich-quick dreamers should think thousands of times before throwing their hard earned cash into investment exchanges looking a lot more like a battle scene in The Terminator than the human crowds shouting across Wall St.

I know guys who are great day traders. I’m not sure how well they are doing as artificial intelligence technology (e.g., black boxes, high frequency trading, etc.) continues to improve quarter over quarter, but they have to be feeling a pinch. In my profession of journalism and media, we’re seeing similar encroachments by content farms Demand Media, foreign outsourcing on Odesk and Monster.com (NYSE:MWW), and an increasing use of artificial intelligence.

I write this because a few weeks ago I was invited to give a few talks to eager undergrads and grad students at my alma mater Duke University. In addition to an overwhelming ignorance of how investment bankers truly spend their days at work, these excited youngsters also had a very huge misconception about careers as traders on Wall Street. I crushed some starry-eyed dreams, but outsiders must understand the game has changed. (See James Altucher’s “8 Reasons Not to Daytrade“)

I’ll leave you with an anecdotal example that Watson’s brethren are canvasing Wall Street and gaining ground. I’ve become good friends with one of the top traders on Wall Street. And despite his incredible track record as a skilled human trader, his team is increasing their reliance on quants and other technological tools. IMHO, I wouldn’t be surprised if in 10 years he’s less like an NFL quarterback ripping up the field and more like an NFL head coach directing his orchestra of engineers and artificial intelligence programs. That’s what the cutting-edge trading desks (NYSE:XLF) already look like.

Alex, I’ll take The Robots for $100,000 …

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