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AI 1.0 – the next frontier, friend or foe for the investment world?

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By Charles White Thomson, CEO at Saxo UK

Before we start, I should declare that where AI is concerned, I am a specist.   

AI has the ability to do great good but also great harm. I heed the warnings of Elon Musk, ‘AI Godfather’ Geoffrey Hinton and the notable figures who declared the importance of ‘mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war’. There should be pragmatic and inciteful regulation of AI so that we grow and encourage the good part but manage and control the bad part. The AI genie is out of the bottle and therefore trying to delay it (as is being seen in Italy), is wishful thinking at best – the aim now is to channel and support the good and manage it. Some of the more frightening AI scenarios that are being currently discussed are useful in that they super charge the regulatory debate, especially around cut off or the ability to ‘pull the power plug’.  

Back to the financial markets. The turf war for AI will continue and will include both hype and fact. We see this in the recent stella share price performance of AI related technology companies – most notably Nvidia. Investors should be wary of the hype and not get sucked in to dramatically overpaying for these assets. Consultants and management teams will also be flexing to determine how AI and chatbots can enhance the productivity of businesses, and shareholders will surely ask this question where management teams are more reticent. A good AI strategy is now a must with a dual track focus on how to harness and how to defend where business models are vulnerable. There will be casualties at the company level where AI starts to make businesses obsolete or severely challenged. The Kodak / Apple scenario is one that comes to mind as I consider this. Building a short basket of these companies is one idea.   

AI will impact, if not already, all areas of the financial world. This will include investment strategies, including passive and active investing, compliance with a focus on analysing large amounts of data, client services and a 24/7 service, KYC and general client analysis, onboarding and ongoing due diligence to name but a few. The justified hype around AI will ensure that wealth managers and asset managers who include and promote it within their investment process to varying degrees can benefit from its ability to manage huge amounts of data and conclude – stock picking, scenario testing and modelling extraordinaire. At the more passive level the demand for Robotics and AI ETFs is and will be there – it is worth watching the concentration risk within these vehicles.  AI is an enhancer but is not the holy grail or the ultimate instrument and as with most things, the key to synthetic intelligence is how you use it, the questions you ask and the parameters you give it. 

It is AI as the enabler that I am focusing on and not the tool to replace all biological thinking with the never sleeping and all-seeing synthetic intelligence. In fact, I believe that AI and Chat GPT/equivalents cannot mimic or replicate a lifetime of experiences and wisdom. That is why I am embracing and calling out my Chat GPT busters. They are investors and people of the Greatest and Silent generation, the Boomers and Generation X. Their wins, losses and pyrrhic victories used well – collected under the banner of experience – have the ability to outwit AI. This would include the likes of Warren Buffet, Charlie Munger and the 75 year old taxi driver, Chris, who drove me home yesterday. Black Cab drivers in London are required to take The Knowledge which is an intensive immersion in all the street names of London. I posed Chris this question, how does The Knowledge compete with online versions that monitors traffic flows and recommends more efficient routes? Chris explained that they do not capture a lifetime of driving in London – the ebb and flow, time sensitivities, the ability to cut through Chelsea Harbour, forward looking when streets close for a demonstration or event.  This is about recognising and deploying the value of Real Intelligence. 

It is not all rosy for humans. Without doubt, AI and chat bots have the ability to replace human led roles. In the hands of ‘bad actors’ it can manipulate and deceive. Geoffrey Hinton noted that he does not think that AI chatbots are more intelligent than humans but thinks they soon may be. Darwin comes to mind here. Roles that will be at risk include those that involve large amounts of data processing or communicating where heavy lifting is prioritised over diligent skill. This has been going on in different forms for hundreds of years and is not just about AI – this is harshly called productivity enhancements.  We should also be open about the carbon footprint of AI – the energy required, the raw material usage, the infrastructure requirements and not just limited to the Cloud, data centres and servers. Stand alone, this is not a boost to our global green credentials.

It is interesting to be alive at the birth or coming of age of a ground-breaking technology. AI/AGI/chat bots will develop fast and will have a profound impact on the world and the financial industry. It is difficult to fully comprehend its long term impact. To answer the question – friend or foe? As with many things it is somewhere in the middle. Used well it is a wonderful source of information, analysis, computing capability and more. Inspired regulation is a key part to ensure this grows well and does not turn into the execution or delivery system of the dark side. It is a revolution that will be very difficult to ignore. I also know that the ‘Chat GPT busters’ with their lives well lived and experience are well equipped to prosper and thrive in an AI obsessed world and are especially powerful if they add AI to their armoury. Have faith.

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