Like it or not, our stocks and the companies behind them increasingly rely on machines. But you don't need artificial intelligence if you want to make smart investing decisions. Plugging into these new digital trends will give you and your portfolio important insight into the future of our economy and world.
Robotic arms rock
Skeptics believe that robots will never be a part of daily life. For these naysayers, humans' clever minds and opposable thumbs will always best bots. But look no further than a progressive (or shaky-handed) orthopedic surgeon to find evidence that robots are useful in performing tasks as delicate as medical procedures. One study found that robotic arms make fewer errors than humans in performing knee replacements:
Source: Orthopedic Research Society.
Mako Surgical (Nasdaq: MAKO ) and its team of robotic arms have been around for almost a decade, performing nearly 9,000 procedures under surgeons' guidance. Although Mako has seen its stock drop nearly 60% in the past six months, both system sales growth and procedures have increased. That means hospitals that made the digital leap are happy with their investment, but robotless hospitals aren't biting like they used to.
I think Mako's current sales plateau is caused by cash-strapped hospitals and tradition-bound surgeons, but sales will pick back up as the economy improves and the advantages of robot-aided surgery become undeniable.
If you're not ready to trust your knee replacement to robots, how about your next package order? Earlier this year, Amazon.com (Nasdaq: AMZN ) purchased Kiva Systems for $775 million to add robots to its shipping centers. Known for its efficient distribution channels, Amazon's new robot army will undoubtedly speed up delivery and cut costs. For a retail company that relies on razor-thin margins to cut out competition, robots are revolutionary and could further boost its already efficient business model.
In an operating room or on an assembly line, mechanized maneuvering is more advanced than ever and can provide companies with unprecedented precision and efficiency.
Robots' physical feats are commendable, but their mastery in the digital world goes even further. My Foolish colleague Matt Koppenheffer recently wrote an article outlining the terrifying takeover of digital stock-trading robots. High-frequency trading is on the rise, but as Matt points out, robots might be canceling each other out rather than interfering with normal trading for investors like you and me.
Machines can make mistakes, too. Earlier this month, Knight Capital's (NYSE: KCG ) trading bots went haywire and accidentally bought $7 billion of stocks. E-oops. Goldman Sachs agreed to buy up the unwanted shares, but it still left Knight with a $440 million loss. Accordingly, investors have pushed Knight's shares down 75% in the past month.
Wall Street learned a valuable lesson: Stock-trading robots are fast and furious, but they make mistakes. For buy-and-hold investors, though, the most important thing to note about high-frequency trading is that it doesn't really affect a company's long-term success or failure.
All clicks are not created equal
It doesn't always seem that way, though. Sometimes, digital bots can distort the statistics we investors use to decide whether a company belongs in our portfolios.
If you thought humans were addicted to Facebook (Nasdaq: FB ) , try keeping robots off your profile. As if this social network site's monetization woes weren't bad enough, online company Limited Run recently analyzed Facebook's advertising system and found that 80% of its ad clicks originated from bots.
Web bots scour Facebook.com night and day, clicking away at anything they can get their electronic digits on. Some are nuisance bots, but many have financial backing. A quick Google search for "automatic facebook bot" churns back 7.2 million search results.
Although they're more prolific than ever, Web bots are not a new invention. In 1999, eBay (Nasdaq: EBAY ) sued several startups that used bots to pull auction item data from its site (and around 300 others) to find the best deals worldwide.
Web bots have been wreaking havoc for at least 15 years, so take heed when your dot-com investment thesis relies heavily on usage statistics.
Flee, fight, or forget?
Despite their bad rap, robots are a lot like humans: They change the world around us, sometimes for better and sometimes for worse. As investors, it's important to understand their growing role and react (but not overreact) accordingly.
Robots affect all the companies named above, but Facebook especially has the most to gain and lose from bot battles. Its accessibility is its greatest friend and worst enemy, and Web bots will determine whether this social network will last in the years to come. Motley Fool analyst Evan Niu has prepared a special report outlining both the opportunities and risks of Facebook. It's available for a limited time only and comes with a full year of updates, so be sure to grab yours today.