How the AI Boom Could Expose Investors' Natural Stupidity

Meet John, a young investor just starting to dip his toes into the market. John has been hearing a lot about the potential of artificial intelligence (AI) and is eager to invest in companies that specialize in this rapidly growing field. He pours over financial reports and consults with financial advisors, confident that he has found the best opportunities.

But as time goes on, John becomes more and more disillusioned. The companies he invested in don't seem to be performing as well as he expected, and he starts to wonder what he did wrong. Was he not diligent enough in his research? Did he choose the wrong companies to invest in? Or was it simply a matter of bad luck?

What John doesn't realize is that he's falling prey to a common problem among investors: the assumption that they can predict the future.

According to a recent study by Morningstar, active funds that invested in companies that employ AI underperformed passive funds that did not. In fact, over the past five years, AI-centric active funds had an average annualized return of just 7.2%, compared to the 14.5% return of passive funds.

Similarly, a report by Bank of America Securities found that less than 10% of the companies claiming to use AI in their business models actually demonstrated any financial improvement as a result.

These examples underscore the fact that investing in AI is not a guaranteed path to success, and that many investors may be overestimating their ability to predict which companies will be successful in the long term.

An

How to Avoid Being Exposed as an Idiotic Investor in the AI Boom

1. AI is a rapidly growing field, with many companies touting its potential benefits.
2. Investors may be overestimating their ability to predict which companies will be successful in the long term.
3. Investors should be cautious when investing in AI-centric companies and consider diversifying their portfolio.

When I first started investing in AI, I was convinced that I had discovered the key to financial success. I poured over reports and talked to experts, confident that I had found the best opportunities. But as time went on, I realized that my investments weren't performing as well as I had hoped. It took me a while to realize that I was overestimating my ability to predict the future and that I needed to be more cautious in my approach.

Ultimately, I diversified my portfolio and invested in a mix of AI-centric and traditional companies. While my returns have been more modest than I initially hoped, I've been able to weather market downturns and avoid the pitfalls of investing too heavily in any one sector.

Practical Tips

• Diversify your portfolio to avoid overexposure to any one sector or industry.
• Be cautious when investing in companies that tout AI as a panacea for all their problems.
• Consult with financial advisors and do your own research before making any investment decisions.

References & Hashtags

• References:
  • https://www.morningstar.com/articles/911072/ai-doesnt-assure-outperformance-yet
  • https://www.cnbc.com/2019/10/10/bofa-says-ai-doesnt-work-for-most-companies-and-those-that-use-it-have-to-manage-this-risk.html
• Hashtags: #AI #Investing #FinancialAdvice #PortfolioDiversification
• Category: Finance