The final countdown
After 12 monthly bouts between Man and Machine, the Battle of the Portfolios is finally over. “Man” is represented by Warren Buffett’s Berkshire Hathaway and various global indexes like the DJIA and the S&P 500 Index. We added our own AI-powered Aggregate Value Fund (AVF) just for benchmarking. The Machine is represented by Deep Deep, Aggregate Asset Management’s proprietary machine learning AI, developed by Eric Kong together with the team of analysts comprising Cheen Wee Kiang, Dr Chai Woon Huei and Lam Ji Ming. This contest was greenlighted by Aggregate’s founding director Kevin Tok and we are extremely grateful to
for managing this contest, particularly the editorial team who helped us with the great storytelling.
The quick summary is this: Berkshire won the battle but Deep Deep beat the indexes after factoring all relevant transaction costs and dividends. It is a laudable achievement but what is incredible in this 12 months of digital blood and human toll, Deep Deep managed to beat Berkshire six times. Not too bad for a silicon brain.
Deep Deep has also beaten AVF (lest our own investors are perturbed) because Deep Deep is an extremist thought experimentation using 15 stocks in 15 different countries and we asked Deep Deep to pick the No. 1 stock in each country based on our AI.
In line with my use of science fiction references, we will make this and the coming two articles a trilogy paying homage to (Episodes 4–6).
In this article, I will focus on the performance metrics; in the November article, I will talk about all the lessons we have learned in this journey and in the final article in December, what plans Aggregate have.
Just like in in which we have introspective episodes where Rey and Luke Skywalker jumped off their respective X-wing fighters to meditate and reflect on what they have learned as Jedis, we hope to bring the saga to a climatic conclusion of what is in store for Aggregate.
Since its inception on Oct 17, 2022, Deep Deep, after hitting a high of 26.03% in August, is now at 21.43% return after 12 months, with the decline in line with markets. Deep Deep has demonstrated in our rigorous back-testing that it can achieve an average of 6% outperformance above market but the AI is not powerful enough to reverse market trends. Deep Deep is impressive but not Godlike, at least in its current iteration.
As mentioned previously, 46.66% of Berkshire’s listed holdings are in just one stock: Apple, which surged in recent months, and helped Berkshire return 26.12%. This bet on Apple cannot be the only reason Deep Deep was beaten but it is nonetheless a key. In other words, Deep Deep cannot beat concentrated bets that turn out right. You may be the smartest computational guy in the room but you can’t beat a lucky Stephen Chow or what Hollywood calls “having a plot armour”.
Now, once we factor in dividends and trading costs, Deep Deep outperformed all the indexes. Here is a gem of information worth exploring. Had we not rebalanced the portfolio and simply held on to the first 15 stocks, Deep Deep would hit 22.98%, just a shade below Berkshire’s. As one data point is not a trend, we will not speculate further but it is an interesting factoid. Perhaps Lin Yutang, a philosopher who preaches the art of stillness (and Eric Kong is an avid reader of his books) is right, doing nothing sometimes has merits.
The Good, Bad and Ugly
Let us look at the individual markets and returns. Korea achieved a stunning 75.35% since inception. This is due to the NEOOTO’s 39.99% rise and till now, we are unsure what Deep Deep saw in the stock and that is perhaps worth exploring in the future — the case for explainable AI. US stocks came in second and Germany, third.
Next, the performances of the top 10 stocks are not the usual suspects widely recommended. They are neither FANGST stocks nor the equivalent in Asian markets. It is like a lowbudget indie movie
costing just US$110,000 but made around US$30 million. Conversely, if you look at the 10 worst stocks, nothing really stands out.
Now, if you do a simple average return of the top 10 stocks (28.42%) vs the bottom 10 (–12.11%), Deep Deep has shown an impressive ability. Sure, it is not flawless and it will pick some duds but they are not so explosive as to cause irreparable damage to the portfolio. When we bought Home Bancorp just before the US small bank crisis in March, we suffered a 14.66% loss. As the portfolio consists of 15 equally weighted stocks, we managed to scrap through that month with a positive 1.09% return. Diversification is still relevant in the age of AI-powered investment. We must never forget that!
This brings us to the end of this well-fought battle between Man and Machine. Deep Deep has not said goodbye to our readers yet. And we want to use this opportunity to thank our readers who followed us throughout this journey. Deep Deep, if it has a heart, would have said a big heartfelt thank you to all of you.
Harry Huo is head, special projects, at Aggregate Asset Management
This article is a product advertisement. The Edge does not directly or indirectly make any endorsement and cannot verify the performances of the Deep Deep Machine Fund, which we understand is not an independent, dedicated, segregated fund. The Deep Deep Portfolio’s US$500,000 capital is a part of the AVF fund, which is, in turn, a part of Aggregate Asset Management’s AUM of approximately $550 million. While the AVF fund is audited yearly by EY and reports to MAS, this does not mean that the Deep Deep Portfolio is independently audited
Much like the saying “one swallow does not make a summer”, one Golden Week cannot single-handedly bring about an economic recovery. However, just as a swallow is an early sign of the spring thaw, the rise in tourist activity during China’s recent Golden Week holiday hints at a gradual recovery of the country’s economy.
There are two aspects to this recovery. The first aspect is the domestic tourism numbers. The second is the surge in international tourism. Domestic tourism represents domestic consumption in more ways than one because these raw figures fail to appreciate the larger discretionary expenditure involved when the increase in international travel is considered.
This signals a resurgence of confidence in China’s economic future. Individuals concerned about the future tend to limit their discretionary spending as they save for unexpected challenges. The domestic figures consistently improved compared to previous years, notably exceeding those from 2019, just before the Covid-19 lockdowns.
It is estimated that 826 million domestic trips were taken by train, car and plane over the eight-day holiday. This is up 4.1% from the last preCovid-19 Golden Week in 2019. Also, domestic tourism revenue increased by around 1.5% compared to 2019. That may sound like a low figure, but remember, this is a 1.5% increase over the last pre-Covid-19 period, so it represents a steady resumption of growth.
calculated that the individual tourists’ spending on domestic trips during the holiday also beat the pre-pandemic spending levels. The characteristics of domestic travel also changed. Of course, the traditional tourist spots remained popular. Shanghai welcomed more than 21 million visitors. However, the more remote regions of China — the adventurous frontier — saw more significant increases in tourism numbers. The Inner Mongolia grasslands had around 14 million visitors, and Gansu and other outer provinces saw similar increases. As living standards and economic outlook improve, Chinese tourists seek richer travel experiences.
China’s outbound trips surged during the Golden Week holiday, surpassing pre-Covid-19 levels. This spike represented an 85.1% increase compared to the same period in 2019, nearly quadrupling the 2022 average. Data from the travel booking site Ctrip indicates that year-on-year growth in outbound travel bookings has reached nearly 20 times the previous figures.
After introducing a visa waiver programme, Thailand was the preferred choice for international travel. Booking platforms like Ctrip and Qunar say Chinese tourists looking to go abroad favour cheaper Asian destinations and those with less restrictive visa requirements. The most significant change in international tourism was the growth of individual or smallgroup tourism. There was no return to the large group tour business that characterised the market before the pandemic.
While large group tours are expected to make a comeback, it is evident that post-pandemic Chinese travellers are seeking international experiences that are unique and adventurous. This
Shanghai Composite Index closed at 3,104.36 on Oct 12
Shanghai Index Daily desire highlights their willingness to spend on discretionary items. Thus, the most significant takeaway from the Golden Week travel period is that the Chinese economy is clearly on the path to recovery.
Technical outlook for the Shanghai market
The Shanghai Index is testing the support level near 3,080. This is an important feature. If support is successful and the market rebounds, this sets up the conditions for a double-bottom rebound. That is a bullish development, although the index must overcome resistance from the value of the downtrend line and the resistance level near 3,160.
If support near 3,080 fails, the next downside target is near 3,000. This is not a strong support feature, so the market may dip lower towards 2,900 as it did in October 2022.
The downtrend is a sustained pattern that makes breaking difficult with a quick rally. A sideways consolidation pattern using the 3,080 as a support floor is more likely to develop. This sideways pattern may be trapped in a sideways trading band between support near 3,080 and resistance near 3,160.
A sustainable long-term uptrend must move above the long-term downtrend line with a current value near 3,130 and a historical resistance level near 3,160.
Investors will also continue to watch for the development of a 1-2-3 Guppy Multiple Moving Average (GMMA) breakout pattern. This behaviour pattern shows investors gradually becoming convinced that the rallies created by traders are evidence of a trend change.
The 1-2-3 pattern starts with a failed rally where the short-term GMMA cannot move above the upper edge of the long-term GMMA, as we see on the current chart. A rebound from support may form the next part of the pattern.
If this rally develops, the short-term GMMA should move above the upper edge of the long-term GMMA before the rally collapses again. This is also when the long-term GMMA begins to compress and change direction. Currently, there is no evidence of compression in the long-term GMMA. In this pattern of development, the second rally fails and then retreats.
The third stage of the 1-2-3 pattern is where the index retreat uses the lower edge of the long-term GMMA as a support feature. This third rally confirms the breakout and the beginning of a longer-term uptrend.
Two Additional features were developed. First, the short-term GMMA moves completely above the long-term GMMA. Second, the long-term GMMA turns upwards as it first compresses and then begins to expand.
The primary signal for the development of an uptrend is for the index to move above and stay above the value of the downtrend line.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia-China Business Council. The writer owns China stock and index ETFs