No. of Recommendations: 5
[* lexrex2 8/15/00]:
Does anyone have experience with "neural network" investment software? These software programs claim to be able to extrapolate near-term future results from past data and issue buy/sell/hold signals accordingly. For an example, see DeepInsight.Com. (I'm curious about this, though it's not exactly buy-and-hold.)

Sounds like snake oil to me. They charge $299 for the standard edition and $399 for the "professional" edition.

Observations: if they really could accurately predict near term movements in stock prices using their software, why wouldn't they simply keep it to themselves and become gazillionaires?

If they were legitimate and lived up to their claims, why have their products not been reviewed or mentioned in any major magazines/newspapers, such as the NY Times, CNNfn, TMF, etc. ?

A neural network is an attempt at mimicing the human brain and thought process using a computer. And because I'm avoiding some unpleasant assembly programming at work, you get a free basic AI and human physiology class today. :)

The basic building block of the human brain and nervous system is the nerve cell. Billions of them are interconnected and by sending signals throughout the system, you can think and move and do other things generally associated with human behavior. Nerve cells have multiple inputs and outputs.

Imagine a set of scales with a 10 lb. weight on one end and empty on the other. Normally, the side with the weight will rest on the table. You must put at least 10 lbs. on the other side to move it even a little bit - if you only put on 5 lbs. or 9 lbs., the other side simply won't move. As soon as you put on 10 lbs. though, the sides will start to move.

The 10 lb. weight represents a nerve cell's threshold - inputs come in and are added up. If there aren't enough inputs to equal or be greater than the threshold, then the nerve cell will not send an output. As soon as you get enough inputs to be greater than the threshold, the nerve cell will send its signal. This behavior is known as "all or nothing".

The basic element of a neural network is called a "perceptron". It also takes inputs and gives outputs, and it also has a threshold. The only difference is that since humans design the perceptron, we get to control the threshold level and the various types of inputs and outputs.

A neural network is made of many thousands of perceptrons all hooked up in some manner. Let's imagine an artificial hand. We'll put weight onto the hand and when it gets to a certain level, let's say 10 lbs., we'll send a signal called "this is heavy" to the brain.

Thousands of perceptrons are built into the hand, and each can detect 1 gram of weight. If you put a 1 gram weight onto the hand, a single perceptron will turn on, but the "this is heavy" signal doesn't get sent, since only a single perceptron is turned on.

If you put a bunch of weight into the hand, more perceptrons will get turned on, but the "this is heavy" signal still won't get sent until enough perceptrons to detect 10 lbs. have been turned on.

It's a simple example and I've glossed over a bunch of points, but hopefully you get the idea. So what does this have to do with short term investing, you wonder? Well, so do I! As you just saw, a neural net is a clumsy attempt by man to imitate something that nature has done very elegantly and efficiently. The company selling that software is selling something that by definition isn't as efficient or perceptive as your own brain. And there's no reason to be using a neural net when other mathematical formulas would work just as well.

In conclusion? That product is tripe. Save your money. Or send it to me. :)

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