Distinguishing Genuine AI Investment Opportunities from Broker/Media Spotlight
In today’s investment landscape, the promise of Artificial Intelligence (AI) dominates headlines, venture funds, and boardroom discussions. With technological giants like Alphabet and Microsoft pouring resources into AI development, the buzz is undeniable. However, amidst this noise, how does the discerning investor separate genuine opportunities from mere media fanfare? How do you find the best AI companies to invest in? Our time-tested three-part Successful Investor strategy has long provided a compass for such challenges. In this article, we’ll delve deeper into the AI investment wave, cautioning against the siren call of startups and IPOs in the limelight, while shedding light on intriguing, yet potentially flawed, investment strategies like the VanEck Vectors Social Sentiment ETF. Join us as we balance the prospects of AI and AI investments with the principles of wise investment.
Most of our readers are familiar with our three-part Successful Investor investment strategy, which goes like this:
- Invest mainly in well-established, 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).
- Downplay or avoid stocks in the broker/media limelight.
Rule #3 would also apply to investment ideas that are getting a lot of media attention. For example, one of the biggest hits in today’s broker/media limelight seems to be artificial intelligence, or AI. It’s hard to find a source of investment news that isn’t writing about AI investments these days, or proclaiming it has the best AI companies to invest in.
[ofie_ad]
Some of our long-time favourites such as Alphabet and Microsoft are investing vast sums in AI. Both these companies are likely to earn a good return on their AI investments, but there is no way to tell how long they’ll have to wait for that payoff. Still, as far as AI companies to invest in, they are at the top.
In the meantime, however, both these companies are likely to continue to prosper in the fields where they are active, and in which they are leaders. From our point of view, their involvement in AI is a plus.
In light of the attention that AI investments are attracting, you may soon come across startups and IPOs that are trumpeting their plans for AI success. You should downplay or avoid most startups and IPOs. That’s especially so when they launch themselves into a field that’s in the early stages of long-term growth but is already ensconced in the broker/media limelight.
AI Investments That Use AI investment tools
An interesting approach to AI investing is VanEck Vectors Social Sentiment ETF. The fund tracks the BUZZ NextGen AI U.S. Sentiment Leaders Index. That index aims to use computer-based analytics, or an AI investment tool, to harness the collective thinking of millions of investors.
The premise is that investor sentiment has proven to be an important factor in stock performance—and that sentiment can be tracked by monitoring millions of online interactions. At the same time, a consistent track record of online discussions, not short-term bursts, is required for a company’s inclusion in the index.
The BUZZ index, as an AI investment tool, tracks the performance of the 75 large-cap U.S. stocks showing the highest degree of what it sees as positive investor sentiment. This AI investment tool analyzes millions of investment-related messages, news articles, blog posts and more on websites like Reddit, Stocktwits, Twitter, to identify these stocks.
Computer modelling techniques like those used by this fund make for a scientific-sounding investment approach,--an AI investment tool, if you will. However, they may also detract from long-term returns. That happens eventually with many so-called “black box” approaches to stock picking, including, what we expect to see more and more of going forward, AI investment tools. They often work just for a time, or in retrospect. AI investments of this kind seem likely to follow that path.
It seems to me that this particular investing strategy is a little like deliberately investing in stocks that are in the broker/media limelight. Rather than focusing on them, our advice on these stocks is to avoid or downplay them when seeking to find AI companies to invest in. You should invest in them only under rare circumstances, if at all. For example, if you have some special knowledge about them and you feel certain they are headed for accomplishments that are likely to bring months or years more in the limelight.
Anything’s possible in the stock market, of course. But we suspect this approach is more likely to hurt your investment results than help them.
Why We Don’t Invest in the Limelight
Here’s why we believe it’s crucial to downplay stocks that seem to be near-universally recommended by brokers and are getting a lot of favourable media coverage. In investing, familiarity can breed excessive feelings of comfort, security and performance.
After all, brokers get information from the media, investment journalists spend a lot of time talking to brokers, and company managers listen to both. A feedback loop can develop that spurs high expectations, derails criticism, and leads companies (and their investors) to make devastating mistakes.
Needless to say, lots of smart people work in the public relations and brokerage businesses. That’s why it’s a mistake to stuff your portfolio full of stocks these people have publicized. A high corporate profile may provide investors with a feeling of security, but it doesn’t pay them any dividends. Instead, in-the-limelight stocks trade at a premium.
You may get the feeling that these are can’t-miss investments, and that it’s safe to buy and forget them. That’s exactly the wrong thing to do with these stocks. Our investment advice is that your in-the-limelight holdings are the ones you need to watch most closely.
Are there AI investments you like or see as AI companies to invest in? Leave a comment below.