For decades artificial intelligence was a dream. In the last couple of years it has become real and also yielded numerous investment opportunities. Nvidia and Microsoft come to mind, one for making complex chips that facilitate AI and the other for providing software (Chat GPT9) that offers AI services. Others include Taiwan Semiconductor, Amazon, Palantir, Alphabet and IBM. The other aspect of investing In AI is not to invest in folks to provide AI products and services but rather in folks who use AI in their businesses thus making them more efficient and profitable.
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How Do You Pick an AI Investment?
Finding the best AI investment for you works that same as finding good investments in any niche. You need to collect and analyze data and then exercise judgement. This typically involves optimizing your investment portfolio, picking specific stocks, analyzing market sentiment, and managing risk along the way. We have had software for algorithmic trading for years. AI is supposed to be step beyond that in choosing and managing trading and investing parameters, predictive modeling, etc.
Analysis of sentiment, management of risk, picking specific stocks, managing and optimizing an investment portfolio, algorithmic trading, predictive modeling, etc. These are all things that AI can do. They are things that are based on past stock and market performance and various types of evidence of market sentiment. This is all a matter of collecting and analyzing data. Where AI beats the old algorithmic trading is that it typically has much more data and is able to develop ways to do these tasks instead of having to be programmed. What AI cannot necessarily do is predict the unpredictable. As an example, the introduction of the Apple computer lead to home computing and a whole new market niche. When Steve Jobs came back to Apple he introduced it iPhone and ushered in the era of smartphone used by virtually everyone. If the current level of AI had been available to investors back in 1980s would it have picked Apple and Microsoft as great investment opportunities or not?
Judgement in Investing
There are successful long term investors like Warren Buffett who stick with a handful of investing rule. For example, the Oracle of Omaha said that you should be greedy when the market is fearful and fearful when the market is greed. He looks at aspects of the economy like the GDP as it is positively correlated with the overall value of the stock market. And, he uses an approach developed by his mentor, Benjamin Graham, the use of intrinsic stock value as a guide.
With this approach one develops a clear idea of the medium and long term prospects of the business in question, learn to judge how well a company will manage its assets, costs, R&D products, and marketing. When the picture is clear an investor makes an informed decision. If the market price is less than the intrinsic value of stock it is a buy and if the market price greatly exceeds the current stock price it is a sell. Successful long term investors like Buffet exercise informed judgement rather than blindly chasing the most recent bright and shiny stock. The most successful AI investing tool will need to imitate Buffett, both by knowing which investments to pick and which to avoid.
Investing Insights
A useful insight from Buffett is that the high tech arena moves too rapidly that it is virtually impossible to know when an idea in a scientist’s head is going to became a viable product or investment niche. So how can you use AI to improve your investing? Use it as a tool and not as something that dictates every single investment!
You can look on the internet and find many stock trading apps. Many are said to use AI but give little proof. These days your products and stocks sell better when you simply add AI to the name. This is similar to the time before the dot com market crash when the same applied to many companies that made no money and simply evaporated when the market crash. Beware of getting talked into buying a dud to help your investing and trading and then seeing your money evaporate when the market corrects.
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