Morning Notes: The warning signs of AI for investors

Morning Notes:

05/09/2023

7:30 AM

During the past two weeks, I have received calls about Artificial Intelligence and whether investors can enter these stocks.

First, I want investors to slow down, look back in history, and remember the Dot com era.

At the time, I was with PaineWebber, which today is UBS. Our firm and others were bringing Dot com companies to the market through IPOs like candy.

I remember buying Amazon one Monday morning at the opening and selling after 1:00 the same day for a 70-point run-up. The next day it would be up another $35 a share. This was typical of names like AOL, eBay, Ubid, Lycos, and countless other names that are not around today. eBay is still one of the few, but it's not the powerhouse it was in the dot com era today.

Companies were changing their name so they could catch the trend. During the Dot com era, I watched more companies add “.com” to their name than I remember.

When the industry imploded, billions of dollars were lost, and investors had no idea what they owned or what they did, but they were a .com. Finally, however, they understood the massive losses they had taken.

Today, we have Artificial Intelligence (AI), and outside of a basic understanding, many investors don’t know there are different types of AI and how it is used.

I asked one person asking me which stock he should put $10k. I asked him what he knew about Generational AI. He asked what they do. He never heard of them. My response was to do some research since it was a primary driver behind the central part of AI and understand the technology before investing. I shared with him that ChatGPT is one type of generational AI.

Existing technology companies are the main drivers behind different types of AI. Some new publicly traded companies have not made any money yet, but these can be a hit or miss.

Finally, there are the companies that are still private companies that do not trade on the market at the moment, but I know some of them are looking to come public under either a SPAC or traditional IPO.

Before investors start licking their chops over making a killing on AI, I recommend they understand all the different variables of investing in AI. If they don’t understand the industry, please speak to their financial advisor, who should have additional knowledge of the sector.

Any new technology can benefit investors but should only represent a small portion of a portfolio. In addition, there should be a clear understanding of a “buy and exit strategy.”

We have a saying on Wall Street, and here in farm country, I know everyone can appreciate it. Bulls and Bears get rich, but pigs get slaughtered. So never let greed cloud your judgment…

Have a great day!

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