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Sound Advice: June 14, 2023

Make a fortune with AI?

Not surprisingly, there has been a marked upsurge in promotional activity for the impact of artificial intelligence on forecasting future movements of individual stocks and the stock market as a whole.  Gee whiz, where have I heard that kind of thing before?

Whether it’s AI or some other brilliant scheme, what are always part of the pitch are references about the powerful computers that have developed these miraculous techniques, which (for a hefty fee) can be yours to outsmart all the other people with Ouija boards and similar mystical devices for seeing the future. 

This kind of situation reminds me of my years with the Value Line organization, which was periodically contacted by would-be Super Investors who had come up with “extraordinary” breakthroughs that would lead the way to great wealth. Often, we’d respond by inviting the folks up for a meeting, which seemed interesting until we asked for results over the last five or 10 years.  The inevitable response was silence and the meetings then ended.

The current bombardment of get-rich-quick schemes is online and in the media.  Many include claims of extraordinary gains in relatively short periods of time.  One of my favorites is the fellow who said his gains were on the order of 5% a month.  I’m guessing that he used 5% so it would sound reasonable and it might well have been if the period discussed was a year, not a month.

The reality is that no system, however clever, can be prepared to deal with the impact of changes in investor psychology.  There is certainly a significant difference between dart throwing and sophisticated professional investment analysis and that difference may provide a reward of increased returns.  The cost of the reward, however, may largely erode the bottom-line advantage.

If, indeed, someone came up with a startling breakthrough, it would make more sense to keep it a secret and make a ton of money, rather than hawking it as the greatest invention since indoor plumbing.

N. Russell Wayne, CFPÒ

Any questions?  Please contact me at nrwayne@soundasset.com

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