Steer clear of artificial intelligence penny stocks and instead profit from the new technology through these kinds of stocks
It may seem contradictory to use the terms “investment quality” and “penny stocks” in the same sentence. However, there are even wider disparities in the investment quality of penny stocks than in the more-established companies that meet our Successful Investor criteria.
While it’s hard for any new company to grow into a profitable business, it’s even harder in pioneering fields, which is where most artificial intelligence penny stocks operate.
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Avoid pure artificial intelligence penny stocks and invest instead in businesses with a sound base of other operations
Artificial intelligence is essentially the merging of today’s big computing with big data.
The highest form of AI, known as “deep learning,” involves inundating a powerful computer system with labelled information, and waiting for it to make connections, and categorize and sort data. In theory, it can then put new data in context using that information. Such a model is designed to replicate, to a lesser extent, the connectivity of the human brain.
This has resulted in breakthroughs in everything from creating machines that can recognize faces with more accuracy than a human, to building cars capable of driving themselves.
Some of the most practical advances have been made in relation to speech. Voice recognition is still far from perfect, but millions of people are now using it—think Siri, Alexa, and Google Assistant.
AI is being used by the cyber-security companies to detect viruses and malware, and by PayPal to prevent money laundering.
Computers with artificial intelligence can improve over time using different algorithms (a set of rules or processes), as they are fed more data. AI machines learn by recognizing trends in data that allow them to make decisions. For example, designing autonomous vehicles involves building machines that learn to navigate. A system may use pattern recognition algorithms from which it learns, for instance, to distinguish pedestrians from vehicles from animals. That signals to the car when to brake if it encounters a cat or a zebra, even if it has never encountered the latter.
Our view is that if AI-verging-on-human-intelligence is coming, it will appear gradually, and in stages. Some of today’s AI start-ups may evolve into profitable companies. But the biggest winners from AI will be those companies, now in the middle of the risk spectrum, who use AI to find better ways to serve their human customers. Furthermore, we think that the best way to invest in AI is through companies that already have a sound base of profitable business.
Be wary of artificial intelligence penny stocks in the tech industry to protect your portfolio from risk
Penny stocks have appeal for some aggressive investors who aim to get into fast-growing stocks at what they describe as “the ground floor.” They think the best way to profit in stocks is to buy them when they are just barely starting out on a growth phase that can last for years if not decades. Ideally, they want to buy the future top performers when they are still near or close to the penny stock range and have yet to be discovered by the broad mass of investors.
Here are four risks to watch for when investing in artificial intelligence penny stocks:
High-tech shams are common: It’s easier to set up a company and sell stock to investors than to perfect a technological breakthrough. Be especially wary when tech penny stocks splurge on elaborate websites and glossy investor brochures.
Marketing is as hard as inventing: Even a great new product or computer programs may fail to overcome the skepticism of retailers and consumers.
Major tech stocks also make mistakes: Tech penny stocks often trumpet their deals with major firms such as Apple or IBM. And it’s true that Apple and IBM have much more knowledge and bargaining clout than any individual investor. But they still invest in products that fail.
Acquisitions can bring “time-bomb” risk: Companies sometimes grow quickly by buying other companies. But it may also be the case that those selling the companies simply want to bail out of a losing situation.
Invest in high-quality stocks rather than low-quality artificial intelligence penny stocks to cut your portfolio risk
Investors looking to add to the aggressive portion of their portfolios may turn to the higher-risk strategy of buying speculative penny stocks.
However, there are several potential risks when investors venture into penny stocks.
Buying low-quality penny stocks is one of those things that can appear to be successful before it goes badly wrong. Some get hooked on it, since low-quality stocks can be highly profitable over short periods. That’s because they are generally more volatile than high-quality stocks.
In penny stocks, as with games of chance, the odds are against you. So, time works against you. The longer or more often you play, the likelier you are to lose.
Avoid speculations like artificial intelligence penny stocks and instead use our three-part Successful Investor approach to profit in the stock market
Invest mainly in well-established, mostly dividend-paying companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
Avoid or downplay stocks in the broker/media limelight.
What has been your experience, if any, with AI penny stock investment?
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