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Equity Valuation (AI Augmented Diligence using BayesDB)

Presentation by Kripa Rajshekhar for DARPA's PPAML'17 workshop in Washington D.C. It outlines the importance of AI in the area of investor diligence, using an equity valuation case study.

Kripa is the founder of Metonymy Labs, one of the few commercial firms that have decided to double-down on Third Wave Artificial Intelligence. With the right interdisciplinary expertise and a proprietary natural language processing (NLP) enabled tool-kit, Metolabs is the first-mover in AI augmented diligence (#ADAI). Looking ahead, we believe #ADAI is essential for the coming investment regime where the sources of risk and value are almost entirely intangible, invisible and harder to quantify (85% of the market value in the S&P 500 index is classified as intangible today).

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Equity Valuation (AI Augmented Diligence using BayesDB)

  1. 1. (+ Diligence AI) DARPA PPAML July 28, 2017 Equity Valuation (AI Augmented Diligence using BayesDB) Kripa Rajshekhar (Metonymy Labs)
  2. 2. With thanks to DARPA and the MIT ProbComp Team In particular, the MIT team at PPAML’17: Feras Saad, Christina Curlette, Ulrich Schaechtle, Veronica Sara Weiner & Vikash Mansinghka
  3. 3. Traditional accounting misses most of the value in firms
  4. 4. www.metolabs.com Metonymy Labs: AI augmented diligence (#ADAI) can help
  5. 5. For references and data: http://pages.stern.nyu.edu/~adamodar/ CURRENT FUTURE? Valuation today trades the big picture for price benchmarking
  6. 6. Except at some Hedge Funds, Multivariate Normals rule valuation Source: Prof. Damodaran’s estimate of PE as of January 2017, http://pages.stern.nyu.edu/~adamodar/
  7. 7. But financial metrics are neither Normal nor linearly composable Source: NYSE data, Analyzed using BayesDB
  8. 8. A more principled way to relate 80+ variables from 1400+ firms? Source: NYSE data, Analyzed using BayesDB
  9. 9. A reasonable estimate of the joint probability distribution is key Source: NYSE data, Analyzed using BayesDB
  10. 10. Why? Correlation is not causation, it may not even model relation Source: NYSE data, Analyzed using BayesDB
  11. 11. Inconvenient Truth: Correlation often misses essential connections
  12. 12. Future: Intuitive and statistically grounded notions of connectedness
  13. 13. 2000-02 Dot Com Bubble Burst 2007-08 The Great Recession #ADAI can help The stakes are high, S&P 500 Index (1996-2016)
  14. 14. “It was inevitable that meaning would force its way back in” Jean-Pierre Dupuy www.metolabs.com Cause:#ADAI Tweet:@metolabs LinkedIn:kripar

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