Betting against "AI".

aroominyork

On the point of a value tilt, and given the high level of crossover between AI and the Mag7, it's worth noting that the value-tilting PSRW includes Apple, Microsoft and Amazon in its top ten holdings. XDEV, which has a stronger value tilt, does not includes any of the Mag7 in its top ten although does have other tech firms (I have no idea now much Cisco, Qualcomm, Intel etc. are engaged in AI) .

Hoenir

gm0 said:

The cataclysm of a US megacap bubble popping will roll around the world and as a consumer I will find out too late and be too slow to do much about it.  

US retail investors are the ones most exposed. Less than 10% of their portfolios are in international holdings. American Exceptionalism at it's finest.  Pump the economy with free money and 30 year fixed low rate mortgages. Then party like there's no tomorrow. While dismissing the ever growing unpaid drinks bill as not a problem.

prowla

Calling the current pattern matching and rule-based systems "AI" is a bit like calling cruise control a driverless car.

I'm wondering when the bubble will burst.

Eyeful

gm0:
So your using the "Looking for the pin in the haystack" approach.
Many bight fund managers with large recourses behind them, over many years use that method.
After changes, they do not consistently beat a simple major global index.
So I wish you the best of luck, when trying to do so yourself.

masonic

Eyeful said:

gm0:
So your using the "Looking for the pin in the haystack" approach.
Many bight fund managers with large recourses behind them, over many years use that method.
After changes, they do not consistently beat a simple major global index.
So I wish you the best of luck, when trying to do so yourself.

If you are just concerned with achieving the best possible long term return, come what may, then I'd tend to agree. But that isn't always the objective. I don't think it can be said that those trying to preserve capital in priority to growing it cannot consistently beat a simple major global index in metrics such as peak-to-trough losses, volatility, etc. Adding bonds to serve this purpose is not a panacea. Gold is not even remotely tempting at its current price. So other means of hedging risks, often at no additional cost in terms of fees, is worth exploring at least.

coyrls

I asked Chat GPT: "How can I invest in a way that will avoid exposure to AI companies?"  Its answer was:

1. Avoid AI-Heavy Sectors

• Stay Away from Tech: Avoid investing in technology sectors, as many companies in this space heavily integrate AI.
• Watch for Cross-Sector AI Use: Be mindful that many non-tech industries like finance, healthcare, and retail are also increasingly adopting AI.

---

2. Focus on AI-Free Sectors

Look for industries that are traditionally less affected by AI advancements:

• Agriculture (Traditional): Small-scale farming or organic farming operations that rely on human labor and natural methods.
• Construction: Smaller, locally-focused construction companies.
• Hospitality (Non-Tech-Driven): Small businesses like bed-and-breakfasts or boutique hotels.
• Arts and Crafts: Businesses that focus on handmade goods or artisan production.

---

3. Invest in Actively Managed Funds

• Work with fund managers who can actively screen and exclude AI-involved companies.
• Look for thematic ETFs or mutual funds that focus on non-tech industries and explicitly avoid AI exposure.

---

4. Screen for Non-AI Investments

Use tools like ESG (Environmental, Social, and Governance) filters or specialized platforms to exclude companies investing in AI:

• Ethical Investing Platforms: Some platforms allow you to filter companies or funds based on specific exclusions like AI.
• Custom Screening: Research the holdings of funds or ETFs to identify and exclude those with AI exposure.

---

5. Invest in Local or Private Ventures

• Consider local businesses or private equity opportunities in sectors like local retail, food services, or manual trades.
• Direct Investments: Invest in non-AI startups or co-ops that align with your values.

---

6. Use ESG and Exclusionary Criteria

• Look for funds that prioritize social impact, local economies, and manual labor, as these are less likely to involve AI.
• Focus on SRI (Socially Responsible Investing) strategies, and specify your avoidance of AI.

---

7. Monitor and Research

• Keep up with company reports and developments to ensure they aren't pivoting toward AI.
• Use online tools like MSCI ESG Ratings or Sustainalytics to track AI involvement.

aroominyork

masonic said:

Eyeful said:

gm0:
So your using the "Looking for the pin in the haystack" approach.
Many bight fund managers with large recourses behind them, over many years use that method.
After changes, they do not consistently beat a simple major global index.
So I wish you the best of luck, when trying to do so yourself.

If you are just concerned with achieving the best possible long term return, come what may, then I'd tend to agree. But that isn't always the objective. I don't think it can be said that those trying to preserve capital in priority to growing it cannot consistently beat a simple major global index in metrics such as peak-to-trough losses, volatility, etc. Adding bonds to serve this purpose is not a panacea. Gold is not even remotely tempting at its current price. So other means of hedging risks, often at no additional cost in terms of fees, is worth exploring at least.

That’s fair enough… but how do you generate an X axis of performance against a Y axis of other metrics to assess whether you “consistently beat a simple major global index”? Is 10% less volatility at the cost of 2% worse performance a win?

We recently discussed US smaller companies and mitigating reliance on the Mag7 (which I recognise is not equivalent to AI). I am increasingly shaping my portfolio so the tilts from a global index will be nice if they profit me but, if they do not, I will not feel I did anything silly. That is why, masonic, although like you I am underweight US I decided not to buy smaller companies because that felt like a double tilt and, if the Mag7 continue to outperform, that could trigger the ‘silly’ button.

masonic

aroominyork said:

masonic said:

Eyeful said:

gm0:
So your using the "Looking for the pin in the haystack" approach.
Many bight fund managers with large recourses behind them, over many years use that method.
After changes, they do not consistently beat a simple major global index.
So I wish you the best of luck, when trying to do so yourself.

If you are just concerned with achieving the best possible long term return, come what may, then I'd tend to agree. But that isn't always the objective. I don't think it can be said that those trying to preserve capital in priority to growing it cannot consistently beat a simple major global index in metrics such as peak-to-trough losses, volatility, etc. Adding bonds to serve this purpose is not a panacea. Gold is not even remotely tempting at its current price. So other means of hedging risks, often at no additional cost in terms of fees, is worth exploring at least.

That’s fair enough… but how do you generate an X axis of performance against a Y axis of other metrics to assess whether you “consistently beat a simple major global index”? Is 10% less volatility at the cost of 2% worse performance a win?

We recently discussed US smaller companies and mitigating reliance on the Mag7 (which I recognise is not equivalent to AI). I am increasingly shaping my portfolio so the tilts from a global index will be nice if they profit me but, if they do not, I will not feel I did anything silly. That is why, masonic, although like you I am underweight US I decided not to buy smaller companies because that felt like a double tilt and, if the Mag7 continue to outperform, that could trigger the ‘silly’ button.

There are ways to do so, see https://www.investopedia.com/ask/answers/072915/what-utility-function-and-how-it-calculated.asp

I wouldn't go to those lengths personally. But sentiments have been expressed for example that long term investors in our exemplar CGT and PNL have expressed a preference for those relatively steady returns over the wild ride of a global index, even without a 2000s style lost decade.

That's not me, but I'm more comfortable "only" having about a third of my net worth invested in US equities, along with a third world ex-US equities and a third bonds/cash. I've increased the bonds from 0-20% in recent weeks. Back to approximately where I was before I ditched them. That's not a move I made to attempt to beat the market, rather I have to begin to consider tail-risks as I reach my goals earlier than anticipated. 

It's early days, but my small tilt to smaller-US is doing ok. I doubt I'll ever give up having a little fun with a few percent of my portfolio.

aroominyork

masonic said:

aroominyork said:

masonic said:

Eyeful said:

gm0:
So your using the "Looking for the pin in the haystack" approach.
Many bight fund managers with large recourses behind them, over many years use that method.
After changes, they do not consistently beat a simple major global index.
So I wish you the best of luck, when trying to do so yourself.

If you are just concerned with achieving the best possible long term return, come what may, then I'd tend to agree. But that isn't always the objective. I don't think it can be said that those trying to preserve capital in priority to growing it cannot consistently beat a simple major global index in metrics such as peak-to-trough losses, volatility, etc. Adding bonds to serve this purpose is not a panacea. Gold is not even remotely tempting at its current price. So other means of hedging risks, often at no additional cost in terms of fees, is worth exploring at least.

That’s fair enough… but how do you generate an X axis of performance against a Y axis of other metrics to assess whether you “consistently beat a simple major global index”? Is 10% less volatility at the cost of 2% worse performance a win?

We recently discussed US smaller companies and mitigating reliance on the Mag7 (which I recognise is not equivalent to AI). I am increasingly shaping my portfolio so the tilts from a global index will be nice if they profit me but, if they do not, I will not feel I did anything silly. That is why, masonic, although like you I am underweight US I decided not to buy smaller companies because that felt like a double tilt and, if the Mag7 continue to outperform, that could trigger the ‘silly’ button.

our exemplar CGT and PNL

You might need machinery to extract your tongue from your cheek, esp. re CGT.

masonic said:

I've increased the bonds from 0-20% in recent weeks. Back to approximately where I was before I ditched them.

And now you are channeling Hoenir.

masonic said:

I've increased the bonds from 0-20% in recent weeks. Back to approximately where I was before I ditched them. That's not a move I made to attempt to beat the market, rather I have to begin to consider tail-risks as I reach my goals earlier than anticipated.

And finally, do you mean head-risks/winds?

But great you have got there early. That presents a very interesting inflection point where, instead of seeking growth, you start to look at preservation. The way to approach that, psychologically, is not something that happens overnight.

masonic

aroominyork said:

masonic said:

our exemplar CGT and PNL

You might need machinery to extract your tongue from your cheek, esp. re CGT.

CGT has had a bit of a wobble during 2022/23, but still outperformed vs the likes of VLS40 and HSBC GS Cautious over 3 and 5 year periods around that time, and knocked their socks off in terms of long term performance. Its performance during the Dotcom crash and subsequent lost decade speaks for itself. I held a mix of CGT, PNL and RICA during the post-Covid period as I wanted to de-risk a bit after the bounce-back, typical bond funds were uninvestable at that time, and savings rates were still in the process of normalising. I wanted to diversify against manager risk and that would have been helpful if I'd continued to hold. But savings rates became really attractive, so I didn't end up holding for very long. And now I am in the process of rotating back from cash into bonds, with the recent gilt yield woes being a catalyst. I am up 2-3% on my individual gilt purchases in the space of a few days. Other than going 100% equities a month or so into the Covid crash, I have maintained some defensive assets, but have been gradually increasing them ever since the US election result.