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IBM’s Watson Was Supposed to Change the Way We Treat Cancer. Here’s What Happened Instead.

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IBM’s Watson Was Supposed to Change the Way We Treat Cancer. Here’s What Happened Instead.
IBM corporate headquarters in Armonk, New York.

IBM corporate headquarters in Armonk, New York.

STAN HONDA/Getty Images

What if artificial intelligence can’t cure cancer after all? That’s the message of a big Wall Street Journal post-mortem on Watson, the IBM project that was supposed to turn IBM’s computing prowess into a scalable program that could deliver state-of-the-art personalized cancer treatment protocols to millions of patients around the world.

Watson in general, and its oncology application in particular, has been receiving a lot of skeptical coverage of late; STAT published a major investigation last year, reporting that Watson was nowhere near being able to live up to IBM’s promises. After that article came out, the IBM hype machine started toning things down a bit. But while a lot of the problems with Watson are medical or technical, they’re deeply financial, too.

IBM is shrinking: In 2011, when the company first introduced the idea that Watson might be able to one day cure cancer, its revenues were $107 billion. They’ve gotten smaller every year since, ending up at $79 billion in 2017. That presents enormous problems for any CEO, who’s generally charged with growing the company, or, failing that, growing the stock price.

It’s very hard to keep a stock price growing in a company where revenues are falling, because those companies tend to be valued on a multiple of revenues—and that multiple itself will fall. If IBM went from being worth, say, 3 times revenues in 2011 to 2 times revenues in 2017, then its market capitalization would have shrunk by more than 50 percent.

This hasn’t happened, however, because IBM has to some degree counteracted the negative forces and kept its stock price steady through two main strategies. The first is communications: If you can persuade the markets that you’re going to get bigger rather than smaller, then your multiples will grow and your shares will rise. IBM pursued this strategy by hyping Watson long before it was really ready for prime time. If the markets believed that IBM was capable of curing cancer, then they would bid up the shares in the expectation of a major revenue boost in the near future.

The second strategy for shoring up a stock price in the face of declining revenues is basic financial engineering, in the form of share buybacks. If you buy back a large number of shares in the open market, then your share price can rise even as your market capitalization falls. The downside of that strategy is that the more money you spend on buybacks, the less money you have to invest in growth.

As the STAT article put it:

“IBM ought to quit trying to cure cancer,” said Peter Greulich, a former IBM brand manager who has written several books about IBM’s history and modern challenges. “They turned the marketing engine loose without controlling how to build and construct a product.”

Greulich said IBM needs to invest more money in Watson and hire more people to make it successful. In the 1960s, he said, IBM spent about 11.5 times its annual earnings to develop its mainframe computer, a line of business that still accounts for much of its profitability today.

If it were to make an equivalent investment in Watson, it would need to spend $137 billion. “The only thing it’s spent that much money on is stock buybacks,” Greulich said.

It’s not that IBM hasn’t invested boatloads in Watson; it has. But while six years and billions of dollars is a lot of time and money for a Silicon Valley startup, it’s a pretty normal expenditure in the world of medical trials, most of which fail.

What’s more, when it comes to artificial intelligence, IBM is competing with rivals like Amazon and Alphabet—companies that are still growing fast, that see no need to buy back their shares, and that similarly see no need to hype their A.I. achievements before they’re really ready for the spotlight. Watson is great at publicity stunts—no article about it is complete without the requisite mention of the time it won Jeopardy (even, it seems, this one)—but A.I. is a very tough nut to crack, and one where the top computer scientists are in incredibly high demand. Those scientists aren’t going to the company with the best press, they’re going to the companies with the best A.I., and the best science. Ask anybody in A.I. about Watson, and you’ll be told in no uncertain terms that they’re an also-ran in an incredibly competitive space.

The biggest hope for A.I. in oncology, then, is not that Watson is somehow going to get vastly better. Rather, it’s that Alphabet or someone else has been quietly building a game-changing A.I. without over-hyping it in advance. It’s still possible that A.I. might be able to do amazing things in the world of oncology. Just don’t expect those advances to come from Watson.

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My 20 Best Trading Books & Stock Market Books Of All Time – Timothy Sykes

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My 20 Best Trading Books & Stock Market Books Of All Time – Timothy Sykes

The ability for Investimonials members to create their own lists is coming soon, but for now, check out all my various Investimonials Lists ranging from best stock brokers, to my favorite investing books/movies etc.

Here’s my latest list, I even made a video a few months back when I was having a bad hair day and now all these stock market books are ranked nicely by 4,000+ members!

(in no specific order, just read em all you lazy degenerate gamblers!)

1. Read this oldie already, it’s required

2. Very complete trading rules

3. Know thyselves fair traders, know thyselvessss

4. Definitive for learning technical analysis

5. Confessionals are usually pretttty useful

6. Pre-clowning

7. and 8. Two specific books on shorting HERE and HERE

9. Solid trader autobiography

10. Learn stock market history

11. 101 lessons for wannabe traders

12. This strategy has created many billionaires

13. Chart Your Way To Profits

14. Classic for value investing

15. My all-time favorite trading book

16. Hedge funds, trading, sex, Japan

17. Honesty above all else

18. Basic but required reading for all smallcap traders and investors

19. Interviews With Top Traders

20. Make millions, get that money

supernova placement

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Crisis and Opportunity: The Top 3 Ways to Protect from Market Collapse

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Crisis and Opportunity: The Top 3 Ways to Protect from Market Collapse

In 1929,  the Dow Jones exploded 300% between 1923 and 1929, as investors poured billions into the market, creating unjustifiably stretched valuations.

Then, between 1929 and 1932, the Dow Jones lost 86% of its value.

In 2000, the dot-com boom sent the Dow Jones to nearly 11,750. Again, investors poured billions into the market, creating unjustifiably stretched valuations.

The Dow Jones would crash not long after.

In 2008, the Dow Jones exploded to 14,038 on the heels of a housing boom.  Again, investors had poured billions into the market, creating unjustifiably stretched valuations.

The Dow Jones would sink to 6,500 not long after.

Even today, stocks soared on high levels of optimism and unjustifiable valuations, as investors poured billions into the market.  

However, just as we saw in 1929, 2000, 2008, and today, the good times couldn’t last.

All because investors don’t pay attention, only to be blindsided by a monster sell-off. 

History told us the good times couldn’t last

Fundamentally, the Shiller P/E ratio, which examines company valuations over 10 years was higher than it was dating back to Black Tuesday 1929 at 33.

Price to sales ratios sat at highs. Price to book ratios were well above 2008 levels.

“Historically our stock market is fundamentally connected to corporate earnings and the overall GDP, with typical stock price ratios of 15 times earnings and an overall market capitalization of about 0.9 times GDP. Lately, we have been running at 22+ PE ratios and two times the GDP,” said Norm Miller, University of San Diego, as quoted by The San Diego Union Tribune. 

“Low interest rates explain part of the higher ratios, but we were due for a correction and the coronavirus provided the trigger,” he added.

Kelly Cunningham, San Diego Institute for Economic Research, added, “Simply comparing the stock market to size of the economy or U.S. equity market cap-to-GDP ratio was at an all-time high. Average price-to-earnings ratio of 18.4 times had also not occurred since the “dot-com” bubble of 2000. This indicated the bulk of increase in stock valuation came not from earnings growth but investors unrealistically valuing or speculating on future growth. If the stock market was not overvalued, the coronavirus would not have as much effect.”

The Coronavirus and Oil Simply Provided the Trigger

Global cases of the infection are now up to 109,000 with at least 3,801 deaths.  

And there’s little hope for containment.  

“We’re past the point of containment,” Dr. Scott Gottlieb, former commissioner of the Food and Drug Administration said, as quoted by MSN.  “We have to implement broad mitigation strategies. The next two weeks are really going to change the complexion in this country. We’ll get through this, but it’s going to be a hard period.”

Italy just locked down 16 million people – more than a quarter of its population to help halt the spread of the virus.  Its death toll is now up to 366. Saudi Arabia just imposed a temporary lockdown on the eastern Qatif province. Germany just topped 1,000 cases.  

With regards to oil, “The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus. This is the equivalent of a 1Q09 demand shock amid a 2Q15 OPEC production surge for a likely 1Q16 price outcome,” Goldman Sachs oil strategist Damien Courvalin said, as quoted by Yahoo Finance.

“This completely changes the outlook for the oil and gas markets, in our view, and brings back the playbook of the New Oil Order, with low cost producers increasing supply from their spare capacity to force higher cost producers to reduce output.”

All thanks to a new oil price war between OPEC and Russia.

With Russia’s unwillingness to cut its output, the Saudis are preparing to open the spigots.   Reportedly, Russia is refusing to go along with OPEC’s proposal to rescue coronavirus-battered oil markets by cutting more production.  Because of that, the Saudis cut its April oil selling prices to $8 with hopes this will bring Russia to the table. 

If not, ″$20 oil in 2020 is coming,” Ali Khedery, CEO of U.S.-based strategy firm Dragoman Ventures, as quoted by CNBC. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.”

The Top 3 Ways Investors Can Prepare for Chaos

ProShares Ultra VIX Short-Term Futures ETF (UVXY) 

The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. Since Feb. 27, UXVY jumped from $19 to $47.35. 

VelocityShares Daily 2x VIX Short-Term ETN (TVIX) 

This ETF  tracks an index of futures contracts on the S&P 500 VIX Short-Term Futures Index. TVIX traded around $85 on Feb. 27.  It’s now up to $265.

iPath S&P 500 VIX Short-Term Futures (VXX) 

The VXX ETN provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return.  On Feb. 27, the VXX traded at $22. It’s up to $37.50.

A Recession Hasn’t Arrived (Yet). Here’s Where You’ll See It First.

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Staff Reports
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A Recession Hasn’t Arrived (Yet). Here’s Where You’ll See It First.

For a few weeks last summer, you would have been forgiven for thinking the United States was racing headlong into a recession. Financial markets were in turmoil, once-confident business leaders were suddenly jittery and seemingly every financial news outlet was warning that the economy was in trouble.

As the year comes to a close, the fever seems to have broken. The stock market has rallied. Job growth has remained strong and consumers have continued to spend. Forecasters still think the economy will slow next year, but for now, at least, they expect the longest economic expansion on record to continue.

What happened? One possibility is that we dodged a bullet: The economy really did come close to the brink, but then the Federal Reserve cut interest rates, President Trump toned down his trade rhetoric (at least temporarily) and the risks of a recession abated. It is also possible that those risks were never as great as they had appeared.

Back in July, I highlighted several indicators to watch for signs that a recession was imminent, or even already underway. As is so often the case in economics, they told a complicated and not altogether consistent story. Still, it is worth checking on each of those indicators to see what they are saying now.

The bottom line: Things look better now than they did in the summer, but there is still cause for vigilance. (For more information on all of these indicators and why they are important, see our original story.)

What it was saying in July: All clear.

What it is saying now: All clear.

Discussion: The unemployment rate was near a 50-year low back in July. It is even lower now — 3.5 percent in November, according to the blockbuster jobs numbers that came out last week.

Historically, a falling unemployment rate has been a near-certain sign that the economy is still growing. In other words, it is highly unlikely that a recession has already begun. But while the jobless rate is excellent at detecting recessions, it is not much good at predicting them — the labor market can change directions quickly in times of trouble.

What it was saying in July: Storm warning.

What it is saying now: A break in the clouds? Or the calm before the storm?

Discussion: More than any other single indicator, the yield curve was responsible for the outbreak of recession fever over the summer. The curve “inverted” earlier this year, meaning that interest rates on long-term government bonds fell below rates for short-term bonds. When that has happened historically, recessions have tended to follow in short order.

Since then, the yield curve has un-inverted — it once again costs the government more to borrow money for longer periods. That could be a sign that investors are less worried than they were about the direction of the economy. A measure from the Federal Reserve Bank of New York, which translates fluctuations in the yield curve into recession probabilities, shows that the chances of a recession beginning in the next year have fallen to about one in four, from one in three in August.

But just because the yield curve has returned to normal does not mean we can all breathe easy. As my colleague Matt Phillips wrote last month, “Once the yield curve has predicted a recession, one usually follows even if that signal changes later.”

What it was saying in July: Mostly cloudy.

What it is saying now: Mostly cloudy.

Discussion: Back in July, the Institute for Supply Management’s closely watched manufacturing index was hovering just over 50, indicating the sector was still expanding, but barely. A month later, the index slipped below 50, meaning manufacturing was officially contracting. It has stayed below 50 since, weighed down by tariffs and a sluggish global economy.

But while the manufacturing sector is definitely struggling, it is not yet in bad enough shape to suggest that a recession is on the way. And the much larger service sector is still expanding, albeit slowly.

What it was saying in July: Partly cloudy.

What it is saying now: Mostly cloudy.

Discussion: With manufacturing in a slump and business investment falling, the economy is relying more than ever on consumers to keep the expansion on track. So it is a worrying sign that consumer sentiment is the only indicator on this list that has grown unambiguously gloomier since July.

Consumers are not panicking by any means: Confidence is still relatively high by historical standards. But it has fallen over the past year, which has historically been an early warning sign of an economic slowdown. The Conference Board’s confidence measure was down 8 percent in December from a year earlier; economists at Morgan Stanley have found that a 15 percent drop is a reliable predictor of a recession. (Another closely watched measure, from the University of Michigan is also down but not by as much.)

The indicators above have historically been among the most reliable canaries in the economic coal mine. But there are plenty of other measures that warrant attention. Here are four that I highlighted in July:

Temporary staffing levels: Companies hire and fire temp workers quickly in response to fluctuations in demand, making temporary staffing a good measure of business sentiment. Employment levels fell for three straight months in the spring and summer, but have since rebounded.

The quit rate: The rate at which workers voluntarily leave their jobs has been holding steady at a near-record level for more than a year. That is a sign of confidence, since people are generally reluctant to quit if they are worried about the economy.

Residential building permits: Housing construction has picked up in recent months, buoyed by low interest rates. But while housing has historically been an important indicator of the health of the economy, the sector is smaller today than in the past, so it may be less meaningful as an indicator.

Auto sales: The picture here has not changed much since the summer — or since 2016, for that matter. Car sales have been holding more or less steady for years.

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These 16 money wasters are why so many Americans can’t save for retirement

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These 16 money wasters are why so many Americans can’t save for retirement

From the lofty perch of old age, and after a lifetime of thrift, I declare that I am qualified to comment on how not to waste money.

We’ve all heard the reports: Most Americans live paycheck to paycheck, a large number can’t come up with $400 for an emergency, and there’s no money to save for retirement and other goals.

Most of that data comes from surveys where people are, in effect, saying they don’t have enough income. My curmudgeonly reaction: Stores, fitness centers and entertainment venues are packed with shoppers, many of them buying unnecessary goods and services. If three-quarters of Americans are living paycheck to paycheck, how can they afford to spend like this? It’s a funny thing: I have yet to see Warren or Bill in one of the many local spas.

Most Americans live like no other people on earth. We have more and bigger stuff: Larger houses, bigger vehicles, more shoes. And, in my not so humble opinion, we can’t tell the difference between needs and wants, between necessities and desires—and we sure can’t defer gratification.

All this leads me to one conclusion: We’re unable to control our spending or manage our money. Here are 16 things that this 75-year-old considers big money wasters:

1. Tattoos. They’re an admitted obsession of mine. What will they look like when you’re my age? From what I’ve heard, a good tattoo artist charges $200 an hour.

2. Vacations. Hey, everyone needs a break. But you don’t need to go into tuition-level debt to have a good time. Your kids will survive if they never visit the Magic Kingdom.

3. College. Picking a college involves many factors. Affordability is one that’s often overlooked. If the cost of the school you choose will land you in debt, you’d better have a plan for paying it off. Don’t mortgage your future, just so you can have a prestigious decal on your car window.

4. Restaurants. Eating out, or buying $4 designer coffee, is expensive and—wait for it—it’s also a luxury. Skip that daily $4 coffee and after 30 years you’ll have more than $121,000, assuming a 0.5% monthly return.

5. Opportunities lost. We do it every day by failing to grab the employer match on our 401(k) plan, not investing in a tax-free Roth IRA, failing to fund a flexible spending account to pay medical costs with pretax dollars, and withholding too much from our paycheck, so we’re essentially making an interest-free loan to the IRS.

6. Transportation. You don’t “need” an SUV or $40,000-plus pickup truck to get from A to B. My four kids grew up riding in our 1972 Duster. Now they, too, all have trucks or SUVs.

7. Credit cards. When people say they live paycheck to paycheck, does that include purchases put on credit cards that aren’t paid off that month? In that case, they’re spending more than their paycheck—and what they buy will cost them the purchase price, plus a hefty interest rate.

8. Lottery. The lowest-income groups spend the most on lottery tickets, wasting hundreds of dollars a year—about the same as that $400 emergency fund they don’t have. Not to worry: 60% of millennials think winning the lottery is part of a wise retirement strategy.

9. Clothing. My new condo has two bedrooms and three walk-in closets, two of them larger than the bathroom in my old 1929 house. The average adult spends $161 a month on clothing. We are obsessed with keeping up with the latest fashions and ensuring nobody sees us in the same clothes twice.

10. Shoes. Surveys suggest the average American woman owns more than 25 pairs of shoes, which they admit they don’t need. So why buy so many pairs? It seems shopping and wearing trendy stuff makes us feel good.

11. Tchotchkes and stuff. Clean out a house after many years—which my wife and I just did—and you often hear the words, “Where did we get that?” Though relatively inexpensive per item, tchotchkes and similar stuff cost money—and it all adds up.

12. Failing to look ahead. Henry Ford said, “Thinking is the hardest work there is, which is the probable reason why so few engage in it.” I still marvel that people spend so little time thinking about retirement. After working 30 to 40 years, they reach retirement with no plan and are shocked they can’t live on Social Security alone. Planning for retirement early in your career is essential for financial security—and it isn’t that hard.

13. No backup plan. I like to think ahead about “what ifs” and how I’ll deal with them. In my head, I have backups for the backups. I recently took out a large mortgage to buy a condo. Now I’m thinking, “What if I can’t sell the house to cover the mortgage? What if I must do some upgrades to sell the house?” I temporarily stopped reinvesting my tax-free bond interest, so I can build up more cash—just in case.

14. Holidays. Somehow, every December, financial caution goes out the window and we pay for it the following year. But my pet peeve are those inflatable characters on lawns that cost hundreds of dollars. Talk about blowing money.

15. Toys. One study shows that U.S. parents spend $6,500 on toys during a child’s upbringing. The spending is even higher for millennials, who favor “smart” toys—toys that do the thinking for the child. There’s something wrong with this picture. Hey, I’ll challenge anyone to a contest dropping clothespins into a milk bottle.

16. Haircuts. The average haircut reportedly costs $28.30 in a barber shop. Many men pay a lot more. Nowadays, nearly a third prefer a “salon.” I pay $12 at my local barber. But I’m still annoyed: My hair is disappearing, but the price is inching up.

This column first appeared on Humble Dollar and was republished with permission.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Quinn was a compensation and benefits executive. His previous articles include One Last Thing, Over Coffee, Get the Point and Poor Judgment. Follow him on Twitter @QuinnsComments.

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