In today’s Liberty Through Wealth article, Nicholas Vardy urges readers to stay away from AI-driven investing when looking for opportunities.
This not-so-cutting-edge technology isn’t where you want to look when it comes to finding the one stock that could be the cornerstone of your retirement.
But Alexander Green knows exactly where readers should look.
He recently uncovered a brand-new investment opportunity with REAL cutting-edge technology.
– Madeline St.Clair, Assistant Managing Editor
Artificial intelligence (AI) isn’t as new as its image would suggest.
I was still a teenager when Carnegie Mellon University built its Robotics Institute across the street from my high school. It was then that I first heard the words “artificial intelligence.”
Yet AI has impressively maintained its popular image as a cutting-edge development.
Those who have boarded the AI hype train believe that it is different from all previous technologies.
They believe AI will revolutionize all aspects of human endeavor – ranging from healthcare and finance to law.
In contrast, critics of AI are scared.
They argue that AI will eliminate the need for human labor and put vast swaths of American workers on the streets.
Others warn of an even more ominous AI superintelligence that will threaten humanity’s entire existence.
As Elon Musk dramatically put it, AI is “more dangerous than nukes.”
The reality is quite different.
Scratch the surface, and you’ll see that AI has rarely delivered on its overhyped promises.
Yes, AI has beaten chess masters and Jeopardy! contestants. But outside these parlor tricks, it has rarely met success.
Watson: A Cocktail of Hype and Hubris
Today IBM‘s (NYSE: IBM) Watson supercomputer stands out as a sobering example of the pitfalls of technological hype around AI.
A decade ago, Watson was all the rage. It had just trounced Ken Jennings, the best human Jeopardy! player ever. Watson was a showcase of the power of AI.
Its arrival marked the beginning of a technological revolution that would sweep through society.
“Already,” IBM declared in an advertisement the day after the Watson victory, “we are exploring ways to apply Watson skills to the rich, varied language of healthcare, finance, law and academia.”
Fast-forward 10 years and IBM quietly threw in the towel and sold its flagship Watson Health to a private equity firm for $1 billion.
That was far less than what IBM had invested in the project.
Even after billions of dollars had been invested in it over a decade, Watson had failed to help improve healthcare outcomes.
Oncologists at the University of North Carolina School of Medicine, one of IBM’s partners, had seen Watson’s Jeopardy! performance. They had assumed Watson was an answer machine.
But Watson was overwhelmed by the complexity and messiness in the genetic data at the cancer center.
Manoj Saxena – a former general manager of the Watson business – said, “The challenges turned out to be far more difficult and time-consuming than anticipated.”
The average investor has always struggled to outperform benchmark indexes. And beating the market is now more challenging than ever.
Computers can sift through millions of sources with lightning speed. Compare that with a room full of financial analysts sifting through balance sheets and regulatory filings…
And it’s no wonder some believe that AI is the key to developing an investing edge.
Alas, history has shown that investing fads rarely pan out. AI-driven investing is not proving much different.
Consider the example of the AI Powered Equity ETF (NYSE: AIEQ).
AI Powered Equity uses IBM’s Watson technology to scour the news, social media, analyst reports, financial statements and even job postings to drive its investment decisions.
Then its AI algorithms analyze and identify U.S. stocks believed to have the highest probability of capital appreciation over the next 12 months. They also recommend how much of the portfolio to allocate to each stock.
It turns out that while Watson can beat the best Jeopardy! champions on the planet…
Beating the stock market is a far tougher nut to crack.
AI Powered Equity’s total return in 2021 was 19.5%. That was far below the S&P 500’s return of 29.2% over the same period.
So why did AI Powered Equity lag the market?
The short answer is that – like much of the real world – investing is far more complex than chess or Jeopardy!
AI is great at crunching numbers and finding patterns. But it bases its decisions mainly on historical data.
And the past does not always mirror the future.
In the investing world, rules are not static. Instead, they continuously change – even as you are playing the game.
In spite of AI’s computing power, it may not be able to keep up. Reality is just too complicated.
Second, AI-powered investing contains the seed of its own destruction. Factors like value and momentum become far less valuable as AI identifies and invests in them.
By making markets more efficient, AI reduces its own likelihood of outperforming over the long term.
The bottom line?
AI can undoubtedly provide insights that a human stock picker may overlook. And companies that rely on AI to innovate their current technologies can make for great investments.
But, no, AI is not the key that unlocks the door to profitable investing.
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