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AI Revolution: Managing Market Exuberance

July 4, 2024

AI Revolution: Managing Market Exuberance

There is a sense that Artificial Intelligence (AI) is poised to define the next decade. Its impact on industries, societies, and daily life may be profound, reshaping how we work, communicate, and innovate in ways that were previously unimaginable. 

In our newsletter of summer 2000, we had this to say about the impact of the internet on investing in the decade to come; 

The staggering quantity of instantly available financial information, and the speed with which the investor can act on it, has captivated whole new generations of internet traders. Many people do not see that trading is speculating rather than investing, and that they do not know that portfolio turnover correlates negatively with return over time, are subjects for another day. It will tell you facts which, properly used, may lead you to wealth, and which, used badly, will help to destroy your wealth.  Garbage in, garbage out. “

On the surface, we can’t help but draw similarities to what we’re seeing now with AI. While the technology will no doubt provide a boost to many aspects of life, it also has the ability to work the other way around. Consider the complexity of using AI to impersonate, scam, breach data, etc. 

Yes, most professional investors believe AI is a significant development but it’s also important to recognize that throughout history, stock markets typically reflect the benefit of those technological advances many, many years later.  Here are two examples;  

Image by freepik [https://www.freepik.com/free-photo/view-vintage-radio-station_40464433.htm#fromView=search&page=1&position=36&uuid=fa166bf1-d03e-4321-b3d5-3d3c3316a4d8]

Take the invention of the radio. In 1926 a share of Radio Corporation of America (RCA) cost $43. By 1929 it peaked at $568, and by 1932 only cost $15. 

From 1941 to 1985 RCA was a steadily growing company that was instrumental in developing the television…but getting caught up in the early days presented a significant risk to investors…

Take the internet in the late 1990s.  In 1995 Cisco could be purchased for $4/share. By March 2000, at the height of the dotcom bubble, Cisco became the most valuable company in the world by market cap ($80/share). Two years later and it was listed around $9/share.

Since then, the company has continued to grow, increasing revenues, and trades for around $50/share today…. but getting caught up in the early days presented a significant risk to investors. 

We could go on and on with examples, but I’m sure you see the point here. The artificial intelligence craze is all over today’s market.  Our job is to not get caught up in the exuberance of market cycles, but rather help clients mitigate unnecessary risks and act rationally towards their long-term goals. 

We understand the trust our clients place in us, and work hard every day to be worthy of it. We are not saying that today’s environment is a prelude to bear markets like those just mentioned, but it is important to recognize the possibility of that occurring and to tame our exuberance as we navigate this journey together. 

Sources:

https://globalfinancialdata.com/rca-and-the-roaring-twenties

https://finance.yahoo.com/quote/CSCO/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAIeTjAif-QaZHEuWY8OZQLG_HbTr78uwZ4qu9xkBd1bb5dZgqNgEi-x7p2BsbndGeaKp33lD0ZAsJOr4eXn9RVSIkovmvzdWrn_q4b2tdLke74wDXxSAtDiywJvAxezADAK2NnRUDm_ulyv-5Cd103QxEg9JHUNDfLoTSL8DoIj2

It is our strong belief that to be successful in reaching your goals it is necessary to have a plan in place and to follow a process. That is, to make your life and financial decisions not by accident but by design.

Remember, successful people ACT towards the future they want!

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