AI Everywhere - What Am I Doing?

 

I remember many years ago, when I learned about the Industrial Revolution in World History class. I used to sit in class imagining what it would be like to move from tilling the soil by hand to machines doing the tilling. I thought, if I could achieve such a feat, then some of my chores would disappear. Of course, that was only in my imagination, as back then, growing up in the village, we still used our hands to plow the land, except for those spoiled by plenty who used animal-pulled plows. If a machine could do ten men's labor in five minutes, it meant those men could sit around and sip some wine or, better still, use the newfound time to venture into other personal goals. Well, that's not entirely how it all panned out. In either case, there was transformation, with some losing and others definitely winning and winning big. I'm seeing and reading a lot about AI. Questions have ranged from "Will it take my job?" to "How can I use it to be more productive?" I'm sure, like me, you have probably asked yourselves these types of questions too. Maybe some of my thought distillation will align with yours, or maybe not. Let's find out.

                                                                   

In 2022, I saw an article on my Google browser landing page about how AI can answer any question and be my personal tutor. I clicked on it, and it talked about ChatGPT. Curious, I opened another tab and tried the web-based ChatGPT. It was fun, and in the first prompt, I asked ChatGPT who I was. It spewed out some fake things about me, and I had a good laugh. But I noticed it gave accurate answers on other topics. Instantly, I was hooked. I later downloaded the app and told a friend about it. Fast forward to today, and the rest is history: you already know what ChatGPT is, and I'm sure you know of other large language models, or chatbots, as they're called, that have found their footing. Gemini, Grok, Claude, just to name a few. They've helped you in some way. Personally, it's been a tutor in my study of finance and economics, and a tool I use heavily in other tasks to boost productivity and save time. To be honest, there's a lot I can do with it, from prompting it to extract details from a report and arrange them into my desired columns and rows for an analysis to doing the analysis properly. That is, it can do what I would have spent hours doing in just a few prompts in a minute or two. Many others are using these LLMs, and corporations are using them at an even greater scale. Before, you could go to Google Search and type whatever you wanted to search, but AI changed that because Google saw its search usage drop and, in response, integrated LLMs into the browser in what is now known as "AI mode". Others like Microsoft, Yahoo, Mozilla, etc., have all done the same. That's an AI effect.

There are several other examples, some of which are quite negative. When cars first came into the scene, all the jobs and businesses that operated around horse carriages gradually went extinct. Regardless, cars ushered us into a new era of how we operate and work. We could name technologies such as dishwashers, washing machines, computers, the internet, planes, and railroads that have been transformational yet disastrous to previous ways of operating. AI is no different, and we'll see the effects materialize in the not-so-distant future. Many are not paying attention, and few feel their jobs are immune to AI shocks. We are gradually approaching that point where I pivot the conversation to markets. Yes! This is where it all goes, whether you are a capitalist, communist, or socialist. Like every technological transformation, the winners and losers become clear once the technology goes mainstream. Now, if you have no shot or odds on your side like the big players, what do you do? I have asked myself this question, and in the next paragraph, I'll attempt to explain what I'm doing.

Like every technology that has ushered us into a new era, there's usually been some craze around who will come out on top. AI has not fallen short of that same energy. Massive companies have sought to see how they can produce the same or more with less staff. Service companies, too, have been trying to automate every process and stop paying salaries. They're racing to generate more profit for themselves or produce the next frontier AI model that can do it all. It is the same pattern around technological advancements where some will win, and some lose. Will the benefits of the winners trickle down, like when most people finally got cars, washing machines, dishwashers, and access to the internet? The pattern shows that it does trickle down eventually, and I have reason to believe AI will too. That notwithstanding, I have something I'm after and another pattern I read about.

Every technological breakthrough has created an insane level of optimism around its potential. This has caused overinvestment in companies promising benefits from the breakthrough, so much so that such companies become too "good to be true". In essence, the belief placed in these companies is no longer justified by basic logic or common sense. Also, another pattern worth seeing is that as a transformational technology breakthrough proceeds to become mainstream (meaning you and me can easily benefit from it), there's always a moment of pain in which these lofty companies fail to deliver on their promises or everyone becomes aware that they are phony or massively not worth what they pretend to be. This usually leads to what economists call a recession (though other factors can come first). That suggests AI investment is currently in that territory. Though I can't pinpoint when such a recession would occur, the pattern suggests that before AI implementations fully materialize into what it promises to be, there'd be a recession. Don't beat yourself up over this fancy word called "recession." It is for economists to sound like they're special. Imagine a situation where these types of companies eventually start crumbling, everyone starts panicking, and investment and economic activity slow down. This is the pattern typically associated with such transformative technologies like AI.

I wrote a post a few months back explaining why I wasn't buying stocks like before. What I explained above is why I dialed back significantly and opted to stay in cash preservation. The majority of us lack the inside information and sophisticated tools to make sound investment decisions. Time and time again, situations like this AI craze show up and offer the opportunity to stay patient and pounce when the opportunity strikes. As legendary Warren Buffett said, he buys businesses at a discount. The idea is not that you know the time when companies will be at a discount, but that you save religiously when the lofty prices of companies seem rather "unjustifiable". A recession usually brings those companies and all other prices down to discounted levels, and this is the moment you want to be a buyer of AI companies that have sound financial health and are either delivering in-demand products or services to the markets. So in a nutshell, I'm sitting on my hands and, though dialing back, it's like still living your life while waiting for the kind of sales that happen during Thanksgiving or "Black Friday deals".

My last post mentioned some factors I'm watching, which, together with what I just explained here, tell me to be cautious. My error margin can be 1, 2, 3, 4, or 5 years from now, or even higher, but I know what I see cannot go uncorrected. In my view, AI investments as they are right now will lead to a recession, and from that recession, sound and reasonable companies will rise, through which AI will become mainstream and be integrated into the fabric of our society. Until then, I accept I could be wrong in my thesis, and if I am, I must have learned a new lesson.

                                        "The man resorted to his mind because it was the only place he found peace".