Collective Intelligence

At our trading desk, we employ a revolutionary style of idea generation, which we call collective intelligence trading.  Each person at the desk plays a role in the process of finding new investments to research.  In order to better understand the power of collective intelligence, the freshman traders and the trainees were asked to recount a successful utilization of collective intelligence. 

Jeff T. - Freshman

The concept of Collective Intelligence dates back to 1911, when William Wheeler noticed Ants could work together as one single organism.  He described the Ants as a single beast with a collective mind and described the colony they formed as a “superorganism”.  As time has passed and we have moved into the 21st Century the concept of Collective Intelligence has evolved with technology.  The internet has given individuals an outlet to share information with each other at a rapid pace which has helped to significantly grow CI. 

One example of Collective Intelligence found on the internet is is the largest online physician community in the U.S. allows free access to any registered physicians and provides them with a social community to share ideas and provide feedback on various products and procedures.  Sermo’s goal is to provide physicians the ability to share ideas and find potentially life – saving solutions that have yet to be identified.  Sermo believes that no one physician is as knowledgeable as the collective and that they can harness this knowledge through the site and use it for the greater good.

There was an article recently published, “Forget IQ, Collective Intelligence is the New Measure of Smart”.  The article discusses that in the new age of technology individual intelligence will become old news as the collective will become the focus.  Sites such as Google allow you to access collective records of the world while Wikipedia allows a community to come together and share their knowledge as one unit.  The major advantage CI has over the IQ is that CI can grow exponentially.  Due to the Flynn Effect the individual IQ only moves at 3 points per decade, this cannot compete with the effect caused by millions of people sharing knowledge through the internet every day.  Another benefit of collective intelligence is that an average person can have just as much of an impact on the group as a genius.  Collective Intelligence helps the group filter out average ideas while saving the best.  The group can then take the best ideas and leverage them with one another to obtain the best results.

Collective Intelligence is also starting to pop up in art, creativity, and entertainment.  For example, take the video games World of Warcraft, Halo, and Call of Duty: Modern Warfare. In these specific games millions of users come together to share the experience through a virtual environment.  Users from all over the world come together to work as one trying to defeat the other users.  Years ago people would sit in a basement and play one-on-one, now people all over the world and work as one to complete a common goal. 

At HedgeFundLive we are working to use multiple examples Collective Intelligence to run our Fund.  We sit around a large oval shaped trading desk, connected to one another through headsets, that you notice people wearing when playing Xbox.  There are multiple Wall Street veterans on the desk: a longer term portfolio manager, a technician, a momentum trader, a short term portfolio manager, an analyst, a futures expert, and a Risk Manager.  Throughout the day these market professionals go back and forth discussing what they are seeing from their area of expertise.  Every trade is looked at from a technical, fundamental, and market analysis before being put on, and allows the collective to make rational and probable decisions.

Zach G. - Freshman

In the short story Leiningen Versus the Ants by Carl Stephenson, a plantation owner in the Brazilian Rainforest faces a swarming colony of army ants threatening to decimate his crops.  To save his livelihood, Leiningen devises a system of levees and moats intended to draw the raiders away from his prize.  He orders his unskilled yet loyal workers to aid in the construction of these defenses.  While at first the moats effectively repel the hoards, the ants begin to build a bridge composed of their fallen comrades.  Some ants choose to sacrifice themselves to ensure the bridge’s completion.   Frustrated, Leiningen outfits his crew with gasoline canisters and leads a head on assault designed to reduce the enemies numbers and confuse their pheromone communication system.  When the gasoline ultimately runs dry, a reduced ant population lingers, still capable of wreaking considerable damage.  Unwilling to admit defeat until he has exhausted every possible option, Leiningen chooses cross the swarm of ants himself to reach a dam.  By opening the floodgates, he manages to wipe out the ant colony at the expense of his entire crop.

The struggle between Leiningen and the ants demonstrates a combative engagement of two opposing strategies.  The army ants worked as a cohesive group with each member of the colony serving a specific role to benefit the greater unit.  The ants utilized their collective intelligence in order to organize their attack and overcome setbacks.  In nature, army ants are capable of using complex pheromone signals to organize and direct their raids.  Furthermore, there is no hierarchical structure in the colony; instead, observations of individual ants or groups of ants are disseminated throughout the swarm and their attack is altered based on constant new information.  On the other hand, Leiningen relies solely on his own intelligence to overcome his foe.  He does not utilize his crew for their ideas, but rather for their brute strength.  Although no clear victor emerges, Leiningen’s inability to ward off the ants with conventional methods costs him significant physical and financial distress.

At TFG, we are a colony of army ants.  Our success is derived from our ability to combine our collective capacity for market thought and idea generation into one, unifying force.  Like the swarm of ants, this combined force becomes frighteningly powerful and seemingly unstoppable.  When circumstances change, a constant occurrence in the market, we use our collective intelligence to react to our new environment in the most appropriate manner.  For example, when the news on Goldman broke, our chief market strategist was the first to read the headline and immediately posted the information to the desk.  In response, the traders provided color on the price action they observed in various sectors.  Our portfolio managers digested this information and decided to alter their long/short books to suit the new climate.  Without the strength of the entire team working as one, this impediment may have caused devastating results.  Our continued utilization of collective intelligence will allow our colony to march forth through dangerous territory and allow us to reach the fields of gold.

Annie F. - Freshman

If you ask a man to find his way through a jungle by himself or with a companion, he will likely opt for the company. Dr. John Craven, Chief scientist of the U.S Navy’s Special Project division was faced with a similar predicament, as he was in charge of navigating the vast sea for the missing nuclear submarine USS Scorpion. His ultimate decision came down to two options: search the seas as he knew how to with traditional deep-water tactics or to employ innovative search methods, which would introduce an entirely new methodology to searching.  Dr. Craven chose the latter and employed a team of experts from various fields of study to pioneer the use of Bayesian search techniques in a never-before-seen way. The story of the lost USS Scorpion and its discovery highlights a new path toward achievement known as collective intelligence.  

Ordinarily, a Navy search team would target the area in which a ship was last seen or in the direction it was heading. The Scorpion was heading west from the coast of Spain back to its home base of Norfolk, Connecticut before the sub exploded. Craven was skeptical. He teamed up with a group of mathematical consultants, hired an acoustics expert, and an unknown Naval Research lab assistant to apply their knowledge to the Bayesian search theory. This team spent many months constructing a probability distribution in a contour map and used a hydroacoustic “search box” and a “towed camera sled” to narrow down the 20-mile wide area where the explosion occurred.  By using Bayesian probability methods, the team continually made revisions to their map and pinpointed higher probability areas.

After five months of working at odds with the rest of the Navy, Craven finally convinced the Navy to look east. The USS Scorpion was found within 220 yards of where Craven’s team had bet it would be.  Despite working unconventionally, Craven successfully unified his team in the pursuit of a shared goal. This concept of collective action revolutionized the way lost objects are found at sea. More importantly, the story of the USS Scorpion epitomizes the infinite potential of a multifaceted team effort. This precise collective intelligence is mirrored at TFG Trading Matrix.

At TFG Trading Matrix, unique talents are brought together and to life on a trading desk. CEO Jeremy Frommer had a vision for the first-ever fully transparent hedge fund where every trade is openly discussed and played out by team members broadcasted live over the web. Collective intelligence is being achieved by having a desk full of members with varying backgrounds including technical traders, fundamental analysts, and risk management and futures experts. Innovative and abstract ideas are generated through round table discussions and feedback. Goals are set as a team. Desk members work together for the greater good of the fund. The desk is a place for learning and not competition.

Psychology theories such as Groupthink and Bandwagon have created a bias among investors that group work in the stock market is inefficient and less profitable. This is an outdated and static belief. Similar to how the team leaders of the USS Scorpion search team proved to the world they could succeed as a team comprised of diversified skills at sea, the trading desk at HedgeFundLive will rise to the top through the power of collective intelligence in the stock market. We have entered a new era of technology and transparency in which the collective will triumph over the individual. 

Betty L. - Freshman

Before I delve into the topic of collective intelligence, I want to first explore collectivism in general, particularly in the context of culture.   The United States is an individualistic society.  Our education and social system value individualism.  This notion should not come as a surprise though because America was in fact founded upon this very concept, termed “rugged individualism” (also referred to as “frontier culture”).  Think rugged, self-made cowboys, Daniel Boone, the pioneers who explored the frontiers of America leaning on self-reliance to overcome whatever hardships came their way.  An entire essay could be written on this philosophy alone, but my point here is that the element of individualism was embedded in the American culture from the start.

On the opposite extreme, there is collectivism.  The collectivistic society, which is more characteristic of Eastern cultures, values acting in the best interests of the group.  In these cultures, attempting to differentiate yourself and be independent is discouraged, even viewed as shameful.  Emphasis is placed on the common good of the group, whether it is of an organization or a family, which is considered more important than the individual’s views and preferences.

When it comes to collective intelligence, I find that viewing it in the context of culture is more effective.  In its general definition, collective intelligence can be applied to the popular example of the internet network.  However, I would like to ensure that there is a distinction made between a collection of intelligences (like what is found on the internet) and a collective intelligence.  An individual can benefit in both scenarios, but it ends there in the former case.  When you’re in a pool of valuable information, the individual can benefit from it, but that does not mean the group does as well.  There is a lack of the collectivist culture element.  I would argue that most of the American corporations out there function in this way.  The “every man for himself” individualistic mentality of Americans has seeped into the corporate culture.  They stress teamwork in which each employee is given a deliverable.  When these deliverables come together, yes, projects get completed and progress is made.  I don’t think there is anything inherently wrong with this type of teamwork (then I would just be calling the operating models of all American companies a failure).  But my point is that building a company on a collective intelligence model is without a doubt a unique vision in the corporate world.  Leveraging the collective intelligence means the entire group benefits and gains an edge as part of an interactive process.  Individuals feed off each other’s thoughts and contributions to further the firm.  It is this interaction among individuals along with the leveraging of collectivism, which is not a distinctly American concept, that separate our business philosophy from other companies’. 

I’m not trying to promote our firm.  I just want to dismiss the myth that most American corporations employ collective intelligence because they do not.  Even my limited experience in other institutions was enough to instantly show me upon my arrival at TFG (see my old blog for proof) that the way in which the individuals work together here is definitely a novel approach to moving a business forward.