Beyond Human Comprehension by Thomas E. Berghage & Scott T. Berghage

…for the free enterprise system to work, investors must understand and believe in the effectiveness of the market place…

…these new technologies are not meant to replace the human role in stock analysis, but to complement and improve upon it.

They begin by providing an overview of the volume of information that is made available to the financial analysts of today and the dilemmas they face in accurately and objectively processing those facts and figures into sound financial judgments. The crux of the problem, the Berghages argue, is that humans are incapable of doing so. They contend that “for the free enterprise system to work, investors must understand and believe in the effectiveness of the market place;” however, the popularity of Index funds indicates a potential threat to the validity of the market place as a means of gauging a company’s worth.

Using various mathematical formulas, psychological study findings and scientific theories, the authors devote a good deal of their book to expounding upon the limitations of the human brain and the growing superiority of the computer. Why, they question, are we so willing to accept that computers are better equipped to handle certain physical tasks than us, but so many of us cringe or scoff at the idea of a computer doing our thinking for us? Like the Luddites of two centuries ago, money managers are stubbornly holding fast to the technologies and financial theorems of yesteryear — and investors, and our capitalist market system, are suffering for it.

The Berghages argue that it is imperative that money managers adopt the use of computerized intelligence, or “Cybernetics.” Forget the futuristic portrayal of it in the popular media, AI is here today. But don’t fire your money manager just yet – these intelligent systems need to be used in conjunction with their human counterparts. The authors stress that these new technologies are not meant to replace the human role in stock analysis, but to complement and improve upon it.

Unfortunately, everything is theory; the authors offer only a generalized account of the use of AI in their own company and only one specific theoretical scenario – selecting investments for the Social Security System. Overall, the authors present a sound introduction to the idea of using computerized intelligence in money management, but further investigation and study would be required to get a full grasp and opinion of the subject. Luckily, they provide a valuable reference section for further exploration.

Reviewer: Lesley Williams