Artificial Intelligence, Investing, and the Meaning of Life

“The task we have designed you to perform is this. We want you to tell us…The Answer.”

“The Answer? The Answer to what?”

“Life! The Universe! Everything!”

“Tricky…”

***7.5 million years later***

“All right….The Answer to the Great Question…Is…Forty-two.”

Fellow science fiction fans may recognize this dialogue from Douglas Adams’ book The Hitchhiker’s Guide to the Galaxy in which two programmers, and later their descendants, converse with Deep Thought, the most advanced supercomputer in existence.

I couldn’t help but be reminded of this fictional event during my first interaction with ChatGPT, an artificial intelligence powered, large language model chatbot released in November of 2022. Here, at my fingertips, was access to a volume of information that would take a thousand lifetimes for an individual to digest. All I had to do was ask.

Artificial Intelligence - AI for short - or at least the idea of it, has been around for a long time. Google Maps, for example, could reasonably be considered a form of narrow AI. It analyzes possible routes accounting for a variety of inputs and then decides the traveler’s optimal directions. Very useful, but not revolutionary. ChatGPT, however, made the broader potential of AI real in a way that other, more limited applications had not.

Much like PCs in the ‘80s, the internet in the ‘90s, and the smartphones and social media we use today, AI is poised to change the way we live and work and is sure to bring new investment opportunities along the way.

So, the natural question to ask is, how can investors take advantage of these opportunities? Which brings me back to the conversation with Deep Thought. Upon hearing ’forty-two,’ our programmers’ descendants are understandably frustrated and express their displeasure with the supercomputer. 7.5 million years of advanced calculation only to deliver an inconsequential response. Something must be missing. Deep Thought chides the descendants, suggesting that the real problem isn’t its reply, but that the original inquirers didn’t truly understand what they were asking for.

I think there’s an investing lesson here. One that highlights the importance of not just finding answers to our questions but asking the right questions. Take our current challenge of investing in an environment that could be rapidly changed by AI. An obvious first question is, which businesses and industries are benefiting? There are already several seemingly clear winners that investors have rewarded with surging share prices, but buying into popular narratives is rarely a profitable long-term strategy. Market history is littered with the remains of companies once preordained as guaranteed victors.

To avoid this outcome, we need to dig deeper. A sampling of questions our Investment Committee is grappling with include: What has the market already priced in? Are future growth expectations too high? How might the competitive environment evolve and what does that mean for profit margins of the incumbents? What firms or sectors that aren’t directly related to AI will benefit most from incorporating it? How might we change portfolio allocations while adhering to appropriate risk management guidelines? And that’s just scratching the surface!

So, while the enthusiasm regarding certain companies and industries is likely justified to some extent, in the opinion of the Linscomb Wealth Investment Committee a more broadly diversified investing strategy is the right long-term approach. The aggregate benefits of AI on profits and productivity are unlikely to accrue solely to the companies currently creating its underlying infrastructure. We think many other industries stand to benefit. It could be pharmaceuticals, or biotech that can now create new drugs for rare diseases at a much faster rate. Or traditional fossil fuel firms may be able to find and drill for oil more efficiently, reducing the cost of production. Precision agriculture could yield even more effective farming practices. Cell towers and data centers will be even more crucial as the need for data storage and connectivity increases. Software providers big and small will be competing to offer leading AI applications for mobile devices, PCs, and potentially headsets in the future. The rate of factory and warehouse automation should only accelerate.

In short, the possibilities for adoption are vast, and we can and should structure investment portfolios in a way that reflects that wider set of opportunities. But, at the same time, I think it’s more important than ever to stick to tried and true investing principles. Ask the right questions. Tune out the noise. Focus on what’s important. Manage risk. Stay diversified. This is the plan for sustainable success.

As for the meaning of life…I’ll save that for another day.