Skip to main content

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

Comments

Post a Comment

Popular posts from this blog

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...
Post a Comment
Read more

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: June 17, 2020

Rock and a Hard Place Regardless of your age, impressions from childhood linger.  As the first days of summer approach, we all remember the feeling that accompanied the end of a school year.  Yet as much as many of us would like to believe we again have the summertime freedom to do as we wish, the reality is quite the opposite. Although months of confinement and limitations on social interaction have increased our personal discomfort and severely impacted the business community, our current situation is not analogous to the end of any school year.  It’s quite the opposite. There is every reason to continue wearing face masks, social distancing, and avoiding close contact with others.  Nothing suggests that we can modify our behavior significantly or resume patterns of daily living we enjoyed only a few months ago. There are no meaningful advances in medical treatments.  At best, there are attempts to combine different approaches...
Post a Comment
Read more