Being a human right at this moment in time is equal parts lucky, exciting and possibly a bit spooky.
Within the next few generations (all going to plan) we will be growing human organs for transplants, getting around in automated vehicles, robots will be doing the majority of repetitive tasks, we will be ducking into virtual realities for entertainment and training, computers will begin talking to us with more and more clarity and there is a pretty good chance humans will be headed for Mars.
We are all going to have to adapt to the new world/s we are quickly creating for ourselves. There will be much change and it’s anyone’s guess exactly how it will all unfold.
As an investor all of this uncertainty will create as much potential downside as it does potential upside.
The Two ‘Next Big Things’
In the 1820’s Michael Faraday discovered the fundamental principles of electricity generation. In 1879 Thomas Edison first patented the incandescent light bulb. Since then the benefits of electricity have continued to be added to just about everything: washing machines, refrigerators, toothbrushes and even small portable foot spas. The same is now happening with Artificial Intelligence.
AI will also now be added to everything: washing machines, refrigerators, toothbrushes and probably even small portable foot spas. We are just at the very dawn of commercial AI and it is going to be a massive industry. Many jobs will be lost, many new jobs will be created. Many products and services will fall behind, many new ones will be created.
As humans our main strength is the ability to share stories and experiences. This is how we continue to come together and grow as a collective race. We’ve told stories around fires, painted on stone walls, scribed on paper, transmitted voice via radio waves, taken photographs, made motion pictures, shared our lives via social media platforms and we are now at the beginning of the age of ‘Walking in another’s shoes.’
Virtual Reality may seem like a goof to many, but it will change the world we live in. We are going to be able to learn, visualise and test experiences in Virtual Reality before we go and try something in ‘reality.’ There will be virtual history classes, training courses, yoga retreats, corporate conferences, cooking shows, poker games, dance studios… you name it, we are going to make it virtual. We will even begin planning for and building empty ‘virtual’ rooms into our homes and offices.
What to do next as an Investor
First thing I personally always try to do when analysing any investment situation is to not get too excited or too fearful. If you can avoid either of these two emotions taking over you can usually avoid making pre-mature, knee-jerk reactions. As these emotive reactions will usually be costly.
There is already, and is going to be many opportunities to invest in AI and VR, so how do you make the right decisions?
For me, it’s all about sticking to my rules.
My 9 Rules For Avoiding the Downside of AI and VR
- Stay away from ‘Start-ups.’
- Stay away from big promises.
- Stay away from that which I don’t understand.
- Don’t try to make predictions.
- Don’t try to chase momentum.
- Don’t get sucked into the fear of missing out.
- Avoid businesses with management teams that are in denial or trying to delay new technology.
- Avoid companies that are fuelled by excessive debt and high hopes.
- Avoid companies running at a loss or generating no earnings.
My 9 Rules for Finding the Upside of AI and VR
- Invest in businesses with ‘sticky’ customers and proven products and services.
- Invest in businesses with a vision they have a track record of achieving.
- Invest only in businesses that I can understand the dynamics of.
- Stick to fundamental analysis of individual businesses.
- Stick to purchasing investments at a discount to their intrinsic value.
- Focus on finding great businesses with the intention to hold long term.
- Focus on companies that have dynamic, open and personally invested management teams.
- Focus on companies that have low debt and plentiful earnings to re-invest into their businesses.
- Prefer companies with at least 5-10 years of consistent earnings growth.
If there is any one thing in life that is true, I believe it is, ‘If you can find the fundamental principles of a subject you can find the truth.’ I definitely believe this is true in the dynamic worlds of business, economics and share market investing. Yes, AI and VR will rapidly change our world, but that doesn’t mean the fundamental principles of sound investing will change. It may change how we research, how we learn, how we buy and how we sell, but the fundamental rules of investing will remain.
Enjoy the ride!