AI is Here. Will it Kill the Small Investor? 

Hello everyone, Rahul Shah here, trying to make investing accessible and profitable for the average investor.

AI or Artificial Intelligence is one of the hottest topics of discussion these days.

Infact, Bill Gates, one of the pioneers of the tech revolution, has termed AI as revolutionary as the mobile phone and the internet.

There's a solid reason behind why Gates feels this way.

You see, the computers that we have used uptill now weren't capable of thinking on their own. Their outputs were entirely based on a set of instructions or the code as they are called in the technical language.

To put it crudely, no matter how fast or how efficient the computer, it is still a calculating machine at its core.

However, AI is a different beast altogether. It is an intelligence that has been inspired by the natural or the human form of intelligence. In other words, it tries to mimic the human brain.

Just as the human brain is capable of taking in tens of thousands of inputs and then processing them to arrive at a decision, something similar is happening inside the machines that are powering Artificial Intelligence or AI.

In fact, Bill Gates has summed it up brilliantly by way of the following paragraph.

• For decades, the question was when computers would be better than humans at something other than making calculations. Now, with the arrival of machine learning and large amounts of computing power, sophisticated AIs are a reality, and they will get better very fast.

Here's another way of putting it.

Imagine that you need to arrange your cupboard and you take help from robots. Now, a robot powered by a simple computer program, will arrange it the same way every single time.

However, it is entirely possible that a robot powered by AI will take your personal preference into account while doing the same. So, it will arrange the cupboard of your wife in a different way than yours and so on.

Ditto for making tea. While the conventional robot will make the same tea for all the family members, an AI powered robot is very much capable of serving you a masala tea and your wife a green tea if that's what it has been trained to do.

Let me make a broad generalisation here. You see, computers have evolved from performing calculations to now learning on a very large data set. This learning is then being used for reasoning and problem solving, very much like us humans.

However, they do not have the limitations of speed and processing power that human brain has and therefore, are proving to be much more intelligent and many times more productive.

Now, just as every coin has two sides, so does Artificial Intelligence. It is not only its benefits and enormous advantages that are doing the rounds of internet and social media. A lot of experts are also talking about the downsides and the disadvantages that come with it.

Foremost amongst these is the fear of job loss across a wide variety of industries. We are well aware that software has already eaten the lunch of a lot of the workforce that was engaged in low level work. Now, its elder brother i.e. Artificial Intelligence, will go after the high level work. And as it keeps becoming more sophisticated, there don't seem to be too many jobs that are safe from the AI onslaught.

I am sure you've heard of ChatGPT, one of the most popular AI applications in the world currently.

We already know how there are reports of ChatGPT coding better than the best coders, writing fiction better than the best fiction writers and even thrashing out arguments better than the best lawyers.

In fact, here's a sobering statistic. A 2013 University of Oxford study found that 47% of US jobs could be eliminated by AI over the next 20 years.

Now, I usually take such studies with a pinch of salt. However, the more I see AI at work and the output it is capable of generating, the more the spectre of widespread job replacements looks real.

What about investing and stock market research though? Is AI likely to give tough competition to the average retail investor? Will earning market beating returns become even more difficult than it is today?

More importantly, should one stop researching and analysing stocks and hand over the entire responsibility to AI?

Well, a question of exactly the same kind was posed to Messrs. Warren Buffett and Charlie Munger at the recent Berkshire Hathaway AGM.

Here's what Munger said in response to a question about whether AI technology would have a positive impact on stocks, the market and society as a whole.

• Well, if you went into BYD's factories in China, you would see robotics going at an unbelievable rate. So, we're going to see a lot more robotics in the world. I am personally skeptical of some of the hype that is going into artificial intelligence. I think old-fashioned intelligence works pretty well.

So, clearly Charlie Munger does not think that AI will kill stock pickers like him and Warren Buffett. He believes that good old-fashioned intelligence will continue to have an edge over AI.

Not surprisingly, his partner Warren Buffett is also skeptical of AI tech's impact on stocks and the stock market.

The Oracle of Omaha opined that AI tech may have the potential to change everything in the world.

However, it cannot change how men think and behave. Let me repeat that. Buffett believes that AI cannot change how men think and behave.

I believe that's a wonderful observation.

Investing is first and foremost about trying to keep your head when everyone is losing theirs.

It is about being fearful when others are greedy and greedy when others are fearful. It is also about not giving in to the herd mentality and having one's own independent opinion backed by facts and figures.

I don't think AI tech is in a position to influence any of these things in a meaningful way nor will it be 10 years from now.

Mr Market is likely to remain a moody, temperamental fellow with or without AI. He will continue to have mood swings. He will continue to keep pricing stocks that either reflect too much optimism or a lot of pessimism from time to time.

AI technology could perhaps smoothen the volatility in the stock market. In fact, for all you know, it can even increase it. But what is certain is that the stock markets will continue to remain volatile, thus providing opportunities to sensible investors of the value investing kind.

In fact, here's another view on the impact of AI on investing from none other than Howard Marks.

This is what the billionaire investor had to say on the subject of AI in a recent interview.

We have thousands of people with high intelligence try to do these things and nobody does it consistently. So that tells me that it's not a matter of intelligence, whether artificial or not.

Some people have insight. Some people can make these qualitative, subjective, distinctions. Most people can't. So, I believe there will still be room left for the few people who can do these things demonstrably better.

There you go. Another value investing guru who believes that AI will not kill the small, retail investor provided he follows a sound framework of investing and does not allow his emotions to corrode this framework.

If you are disciplined, if you always buy with a margin of safety and do not invest in businesses with weak fundamentals, then you don't have to fear Artificial Intelligence.

In fact, you can use AI to speed up your decision making and save a lot of time in the process.

So, to sum up, the AI genie is well and truly out of the bottle. And as an optimist, it is my belief that it will prove to be a net positive for the society.

However, as far as investing is concerned, AI is unlikely to have any significant impact unless it figures out a way to change human gene and in the process, fundamentally change how humans behave.

Until then, keep following a sound framework of investing, pay attention to the underlying business quality and to the valuations and you should be ok over the long term.

Let me know if you have a different opinion on the matter. You can post your views in the comments section.

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I will see you again next time. Good bye and happy investing.