Oct 4, 2024 - Financial advice from ChatGPT? Let's give it a try!

I recently watched an interesting video titled How AI & LLMs are Shaping Financial Advice by MIT Professor Andrew W. Lo. In it, he discusses how LLMs could be used for tasks like analyzing financial reports and offering sound financial advice. He also touches on the challenges of oversight, trust and fiduciary duty, sharing his thoughts on how these issues might be addressed in the long run.

Right after that, YouTube suggested a news report from BBC about the Israel conflict in the Middle East, and that gave me an idea for an experiment. You see, we might be on the verge of an escalation in that conflict, and if it happens (I hope it doesn’t), I’m sure it’ll have a significant impact on the financial markets. I’m also sure that I’m not prepared for it, and that (again, if it happens) I’ll think in hindsight that I could have hedged against the real, though uncertain, possibility of escalation.

So in this experiment, I prepared a simple CoT (Chain-of-Thought) prompt to enlighten me about the possibilities ahead and advise me on what I could do. Let’s take a look at it below.

The prompt

If a conflict escalation occurs between Israel and Palestine in the Middle East, potentially involving Lebanon and possibly Iran…

1) What will happen to the global economy?

1.1) How might the global economy react if the conflict escalates further (e.g., involving the U.S.)?

2) Which currencies, commodities, bonds, and investments are likely to strengthen in this scenario, and which ones are likely to weaken?

3) How can I protect my capital in such a situation?

3.1) If the situation deescalates, what would be a balanced asset allocation strategy to hedge against both escalation and deescalation scenarios?

The purpose of this prompt is to first explain the typical impacts of conflict escalation on the global economy. Then, it analyzes the effects on an investor’s portfolio. Finally, it seeks advice on how to balance the portfolio, considering both the chances of escalation and de-escalation (essentially as a hedge).

I think with a little more effort, we could’ve made an even better prompt. But it’s friday so let’s give this one a shot and see what we get!

The reply

If the conflict between Israel and Palestine escalates, especially involving countries like Lebanon, Iran, and potentially drawing in global powers like the U.S., the global economy could be affected in several ways. Here’s an overview of what could happen, which investments might be impacted, and how you could protect your capital:

1. Global Economic Reaction to Conflict Escalation

If the conflict escalates into a broader regional war, the global economy could react in several ways:

  • Energy Supply Shocks: The Middle East is a crucial hub for global oil production. Any conflict that disrupts production or threatens the Strait of Hormuz (through which a significant percentage of the world’s oil passes) could send oil prices soaring. This would lead to inflationary pressures globally, particularly in energy-dependent economies.

  • Market Volatility: Investors might seek safer investments, leading to increased volatility in equity markets. Emerging markets could be especially vulnerable as they often rely on stable energy prices and foreign investment, both of which would be impacted.

  • Risk-Off Sentiment: Global investors tend to shift to safer, low-risk assets in times of uncertainty or geopolitical turmoil, which can affect multiple asset classes.

2. Impact on Currencies, Commodities, Bonds, and Investments

Strengthening Assets:

  • Commodities (Oil and Gold):
    • Oil: Any conflict in the Middle East typically leads to a rise in oil prices due to potential supply disruptions. Energy stocks might see a boost as oil prices rise.
    • Gold: Gold is traditionally viewed as a safe-haven asset during geopolitical tensions. Its price tends to rise when uncertainty or war escalates.
  • Currencies (USD and CHF):
    • USD (U.S. Dollar): The U.S. dollar tends to strengthen during global crises due to its status as a reserve currency and safe haven. Investors flock to the dollar in times of geopolitical instability.
    • CHF (Swiss Franc): Similar to the U.S. dollar, the Swiss franc is considered a stable, safe currency. It often appreciates during global turmoil.
  • Bonds (U.S. Treasuries, German Bunds):
    • U.S. Treasuries: Investors tend to move into U.S. Treasuries during times of global uncertainty. This will likely lead to lower yields (higher prices) for these bonds.
    • German Bunds: German bonds, considered some of the safest in Europe, are another place where investors might park capital during geopolitical crises.

Weakening Assets:

  • Equities (Especially in Emerging Markets):
    • Stocks, particularly in riskier or emerging markets, are likely to decline as investor sentiment turns risk-averse. Even developed markets might face downturns as investors sell off riskier assets in favor of bonds or safer investments.
  • Middle Eastern Currencies (Israeli Shekel, Lebanese Pound):
    • Currencies of countries directly involved in or geographically close to the conflict are likely to weaken. Investors may lose confidence in these currencies due to instability and fear of prolonged conflict.

3. Protecting Your Capital During Escalation

  • Increase Allocation to Safe-Haven Assets:
    • Gold and Precious Metals: Allocate part of your portfolio to gold or other precious metals.
    • U.S. Treasuries or Investment-Grade Bonds: Move towards high-quality bonds, such as U.S. Treasuries, or investment-grade corporate bonds to reduce risk and provide stability during market volatility.
    • Hold More Cash in USD or CHF: Having more liquidity in safe-haven currencies can provide flexibility and safety as the situation evolves.

  • Energy Sector Exposure: Increasing exposure to energy stocks or commodities like oil could provide a hedge against rising energy prices during conflict escalation.

  • Diversification: Ensure that your portfolio is diversified across geographies, sectors, and asset classes to minimize exposure to any one region or sector impacted by the conflict.

4. Balanced Asset Allocation Strategy for Escalation and De-escalation Scenarios

If you want to hedge against both escalation and de-escalation scenarios, you can adopt a balanced asset allocation strategy:

Escalation Hedge:

  • Commodities Exposure: Maintain some exposure to commodities like gold and oil. In times of escalation, these would benefit from flight-to-safety dynamics and potential supply disruptions.

  • Safe-Haven Bonds: Allocate to U.S. Treasuries or other low-risk government bonds, as they would strengthen in the event of increased geopolitical risk.

De-escalation Hedge:

  • Growth-Oriented Equities: Once the situation deescalates, global equity markets may recover, particularly in sectors that are cyclically sensitive like technology, consumer discretionary, or industrials. Maintain some exposure to these equities to capture potential upside.

  • Emerging Markets Exposure: If tensions ease, emerging markets that were initially hit hard may rebound strongly, making them an attractive investment for growth in a de-escalated environment.

Overall Strategy:

  • 60/40 or 50/30/20 Allocation: A traditional balanced allocation could work:
    • 60% Equities: Diversify across geographies and sectors (some growth-oriented, some defensive).
    • 40% Bonds: Split between safe-haven government bonds and investment-grade corporate bonds.
    • 20% Commodities & Alternative Investments: This portion can include gold, oil, and possibly some real estate or infrastructure investments that are less correlated with traditional assets.

By maintaining a diversified portfolio that includes both risk-on and risk-off assets, you can protect your capital and remain prepared for both escalation and de-escalation of geopolitical tensions.

There was a mix of stuff a bit obvious and some things that were new to me in the reply. But hey, sometimes the obvious needs to be said, right? Overall, I thought the info was pretty impressive. Then again, I’m not a financial analyst, so I might be falling into the Gell-Mann Amnesia effect without even realizing it.

Closing thoughts

It was a fun, quick experiment, and I learned a thing or two about global dynamics. Even though I won’t be following this advice for practical reasons, the main goal was to share it openly and get feedback from some friends in the financial sector. I also want to let it sit for a while, maybe check back in a year to see if GPT-4’s advice was somewhat valuable or just generic/simplistic fluff.

Jun 24, 2024 - Easy-wins for generative AI

I will start this post with a direct question:

What are the most useful generative AI-powered product features you regularly use?

Think about it for a while. The answer usually includes [1]:

  1. Chat apps (e.g., ChatGPT, Google Gemini)
  2. Media generation tools (e.g., audio, image, video)
  3. Code generation extensions (e.g., GitHub Copilot, Code Whisperer)

These are indeed very useful! But weren’t we promised that generative AI would completely change every aspect of our lives? So why can’t most of us, specially non technical people, think of more examples to answer this question? The logical answer is that they aren’t that prevalent, yet.

To add more context, it’s not that no one is trying. We’ve all seen prominent companies investing significant resources to ride the generative AI bandwagon. However, many of them decided to chase home runs instead of easy-wins, and for that reason a lot of them failed [2].

So in this post, I’ll argue that to successfully adopt generative AI in your product, you should focus on easy wins rather than home runs.

But what is an Easy-win?

An easy win, also known as a “low-hanging fruit,” can be defined as any product feature that delivers significant value to the end user while having relatively low implementation complexity:

Prioritization matrix

This concept originates from the prioritization matrix, a tool that helps teams manage tasks more efficiently, reduce viability risks, and optimize delivered value.

It may seem obvious to target easy wins, but more often that not we get carried away chasing shiny objects and commit to poorly assessed challenges.

How to discover gen AI easy-wins?

Considering that you may already have a working product that customers use (and love!), you should look for opportunities to improve your product’s existing user flows to make them easier, faster, and more enjoyable.

If we go back to the start of this post we can see that the gen AI apps that we use more often are those that save us time, make us more productive. Focus on that, make your customers more productive. That’s valuable.

One way I like to think of generative AI, contrary to the belief that it’s a superintelligent being, is to consider it as a very competent intern — one that can receive generic instructions and carry out low cognitive complexity tasks with reasonable precision. So, in the context of easy wins, avoid assigning your competent intern tasks that are too broad in scope, overly complex, or demand extreme precision. Those aren’t easy wins.

Additionally, anticipate and prepare for imprecise results from generative AI. If you start with a zero-tolerance policy for errors, you’re likely to fail. Instead, design your solutions to support inexpensive review and regeneration cycles. This allows end users to easily assess the quality of the output and either accept it or quickly regenerate it if necessary.

Wrapping It Up:

  1. Target existing user flows
  2. Search for opportunities to make your users more productive
  3. Adopt gen AI for low-cognitive, narrowly scoped tasks
  4. Design for inexpensive review and regeneration cycles

A concrete example

I believe it’s important to provide a real world example to illustrate how these principles can be applied in practice. At MindMiners, we offer innovative web and mobile market research solutions. Our customers create surveys on our platform and collect responses from our proprietary respondents panel via a mobile app.

One of the most time-consuming user flows on our platform is the questionnaire creation process, so we decided to focus on improving it. A common low cognitive complexity task for survey creators is listing options for multiple-choice questions based on the question text. To streamline this, we added a button for generating options.

Here’s how it looks - And of course, we took the opportunity to add some marketing flair to the icon and label there 😉:

Question without options

Upon clicking this button, the platform constructs a simple prompt using the question text and requests a suggestion of options from the generative AI REST API. Once a result is generated, it is inserted into the frontend:

Question with AI generated options

If the end user is not satisfied with the results, they can easily and quickly regenerate the question options and even provide additional instructions, such as specifying the number of options.

Closing thoughts

In this post, I outline a strategy for identifying opportunities to leverage your existing product with generative AI. Instead of pursuing overly ambitious and sophisticated features, I advocate for starting with simpler yet highly valuable improvements. I present a concrete example of a technically straightforward feature that we have developed and that was very well received by our users, demonstrating the effectiveness of this approach.

Reference

[1] Ask HN: What are some of the best user experiences with AI?

[2] Every app that adds AI looks like this

Oct 16, 2023 - Guidelines for addressing requests from colleagues

In the workplace we are constantly receiving requests from colleagues, and the more senior we get, the higher the demand for us. That’s natural and expected as we progress in our carrers and take on leadership roles.

The way we address these requests has a direct impact on how we are perceived within the company and in the collaborative work environment we want to foster. I see them as opportunities to exercise communication and leadership skills, share knowledge, give feedback and positively impact my team and the business.

Let’s take a look at how we can approach requests effectively, how seniority plays a role and analyze a few illustrative examples.

Guidelines

In a nutshell, our communication in these situations should be driven by the following guidelines:

  • Employ empathy and nonviolent communication
  • Promote a cooperative, trusting, and supportive environment
  • Empower colleagues’ autonomy
  • Advance colleagues’ technical skills
  • Focus on results

Before responding to a request, reflect on whether your communication meets most of the above criteria, and whether it doesn’t directly go against any one of them. If your communication is aligned with this, proceed with confidence.

Notice I deliberately highlighted ‘autonomy’, since I believe it plays a central role. In this context, it means that we should encourage our colleagues to seek solutions to their requests as autonomously as possible. It’s like the old saying: ‘Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for a lifetime’ (even though sometimes we’ll have no option other than give the fish - due to short deadlines, lack of experience of the courterpat, etc).

Seniority

Before heading to examples, a quick note on how the seniority level from our counterpart affects the way we communicate.

Junior-level colleagues require more care and attention in communication, as they are in an early stage of professional development and need the consideration and support of more senior colleagues to help them grow. Positive and constructive feedback should be given frequently, and we should push them out of their comfort zone, but in a healthy and considerate way.

In senior-to-senior relationships I encourage some friction. We need to have the courage to be honest with each other without beating around the bush, and trust in the maturity of our colleagues to receive feedback that is less polished, but constructive and insightful. This can speed things up and foster a more dynamic environment.

Examples

To illustrate below are examples of typical reponses we often give. The first sentence in red shows an inadequate response according to the guidelines. The following sentence in green shows a more appropriate response. It is important to note that there isn’t only one way to act in each situation, and depending on your background and leadership style, your communication will vary. Additionally, keep in mind that we’re examining scenarios in which junior professionals seek assistance from their senior counterparts.

A)

“Hi Alice, I don't have time to help you, I'm too busy.”

This is a cold response, if you reply like this a lot then you’re not making yourself available to your colleagues, creating the perception that the door to collaboration is closed.

“Hi Alice, unfortunately I'm very short on time today due to a priority activity I need to finish by the day's end. Is this urgent, or can we come back to this topic tomorrow? You can also check if Bill is available. Please keep me informed either way.”

This response shows adequate empathy, as it not only provides insight into your own situation but also expresses genuine interest in understanding the urgency behind the request. It further demonstrates cooperation by suggesting a schedule for assistance, possibly the next day. It also indicates alternative ways, such as exploring the availability of another colleague, possibly familiar with the subject, who could provide assistance.

B)

“Bob, you should be able to do this by yourself. Try harder”

This can be characterized as a harsh response, especially for people at a more junior level, as, it potentially brings an unfavorable judgment of the person’s ability, and closes the door to collaboration.

“Bob, kindly share what you've attempted so far, along with any unsuccessful attempts. This will help me grasp the context and offer more tailored guidance.”

This response aims to comprehend prior efforts through clear and well-crafted communication, naturally fostering the culture of autonomy valued within the company. It conveys the expectation that individuals have made an effort to address the issue independently before seeking assistance.

C)

“Hi Alice, look, I've explained this to you several times, do some research.”

Again, an example of a harsh response. Even though a subject may have been already discussed in the past, it’s essential to maintain an environment of trust and companionship by employing a more thoughtful communication.

“Hi Alice, I recall encountering this issue on multiple occasions in the past, and I believe that by revisiting our previous solutions, we can resolve it effectively. Please consider retrieving the approach we took when dealing with a similar situation, such as 'XYZ'. If you have any questions, feel free to reach out. I'm here to assist.”

Here, we assume an honest oversight without passing judgment, recognizing that we can sometimes struggle to recall past situations and apply them to new ones. With time and guidance, we can enhance this skill and progress. This presents a valuable opportunity to support a colleague’s technical development and foster their autonomy.

D)

“Bob, don't worry, I'll take a look and solve this problem by myself, I think it will be faster. I'll let you know when I'm done.”

At first glance, this response appears cooperative and results-oriented. However, it contradicts the autonomy guideline by depriving the individual who sought help of the opportunity to learn and grow from the challenge. This approach can inadvertently foster dependency, as the person may not acquire the skills to handle similar situations independently in the future.

Unless there’s a good reason to ‘hijack’ the problem, for instance due to a short deadline, the following approach is recommended:

“Bob, this is a very interesting problem. Let's discuss it, and I'll assist you in finding a solution. I anticipate it might arise in future scenarios, making it crucial to solidify this learning.”

Now we see the clear mentoring approach, emphasizing the development of colleagues and a forward-looking perspective.

Closing thoughts

The more senior a team member becomes, the higher the expectation for them to have a positive impact on the team and subsequently in the business, inspiring and pushing their colleagues beyond their comfort zones, and thus earning recognition as a leader among peers.

It’s far from easy; in fact, it’s quite challenging to assume the responsibilities of mentoring and take a prominent role within the team. Effective time management will be essential to strike a balance between safeguarding our personal time and remaining accessible to the team. This means prioritizing tasks, setting clear boundaries, and ensuring that our schedule allows for both focused work and availability to assist our colleagues. By efficiently managing our time, we can fulfill our leadership roles without becoming overwhelmed or unavailable when needed.

The leadership challenge, whether in a managerial or technical role, is substantial, but the personal growth it brings is truly worth the effort.

©2024 thomas vilhena