The double edge sword of AI

Artificial Intelligence (“AI”) has risen to prominence in the early parts of 2023, making headwinds across various industries. The investment sector was no different as it saw artificial intelligence making waves both positively and negatively.

AI has granted investors to process informational data without the emotion element attached allowing for a more objective analysis. It can also ease investors with the automation of repetitive and time-consuming tasks, helping to ensure time is spent both more valuably and efficiently. The benefit of automation is that it endeavors meaningfully to reduce human error.

On the other hand, with AI implementation, there may be a possible increase in the unemployment rate with various jobs now made redundant by AI. Further, the objective data analysis does mean that there is a lack of human touch and intuitive judgment which may have consequential impact on investments. Lastly, there is that possibility of misuse and abuse of AI to create volatility and spread misinformation.

Just a couple of weeks back, we have seen the release of an AI generated image that was virally spread through a verified account on Twitter, “Bloomberg Feed” (unaffiliated to Bloomberg News), which showed a massive plume of thick smoke near what looked like a government building. Together with the image, a click-bait title reads: “Large Explosion near The Pentagon Complex in Washington D.C.”

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As a consequence of the viral tweet, investors started selling off their holdings as worry mounted. The S&P 500 Index (SPX) price dropped 0.63% from USD 4,208.37 to USD 4,181.80 within a span of 30 minutes from 9.40AM to 10.10AM. Throughout the day, however, the market normalised as the validity of the post was disproved, and the SPX ended the day at USD 4,192.63.

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The legendary Warren Buffet once said, “In the short-term, the market is a voting machine but in the long-term, it is a weighing machine,” highlighting the notion that the market moves based on sentiment, emotions, and temporary factors. However, over the long-run, the value of investments is determined by the underlying fundamentals of the assets as investments

Investment markets can be extremely volatile if you view them on a daily basis. This perspective encourages investors to focus on the intrinsic value of investing (fundamentals), emphasizing long-term thinking (strategy) and removing emotions from the decision making process (discipline) rather than being swayed by human sentiment.

In an era where facts can be seen to be manufactured and generated, be it for the purpose of entertainment or malicious intent, it would be all of our duty to stay vigilant and validate information you receive across respectable news outlets before making any corresponding investment decisions.

Artificial Intelligence is one of the humankind inventions that has a profound impact within this generation and looks to disrupt the marketplace with both its benefits and drawbacks. In a world where information comes in abundance, it becomes our responsibility to ourselves as investors to verify and ensure the decisions we make are for our own benefit over the long-term.

Remember, investing is a marathon, not a sprint.