Can Humans Understand How Bots Invest?

A new ETF buys stocks picked by artificial intelligence. That requires a leap of faith

- Sarah Ponczek

For a guy who built a robot he hopes will banish human emotion from the investing process, Chida Khatua spends a lot of time trying to figure out how it thinks.

Khatua is chief executive officer of EquBot, a San Francisco company that’s built an artificial intelligence system for investing. In October, a day before the launch of an exchange-traded fund that uses EquBot recommendations, his team was going over stocks the computer wanted to buy. One name popped out: Brookdale Senior Living Inc., which operates retirement communities and nursing homes. This was when wildfires were burning parts of California, where some of Brookdale’s facilities sit.

The trade looked off to Khatua, a former Intel Corp. engineer. But on a second look, it wasn’t hard to put together what the computer might have been thinking. News reports and press releases— all fed into the system—showed how Brookdale was responding to the threat. “We found, hey, that senior living facility—they have a very good, organised setup” and could provide backup housing, Khatua says. The ETF bought the stock and made a small profit on the trade. Scanning news wires may not sound like a human equity analyst’s idea of deep research, but for a computer it’s all data that can be combined with other information to make statistical predictions.