On Money & More – June 2023

This article is not written by a robot. At least, not yet. But we’ve all heard about the coming “artificial intelligence” revolution. ChatGPT, the language model now owned by Microsoft, has in just a matter of a few months exceeded 100 million users. But, unlike social media (which makes us all less efficient!), this fast-growing software is largely associated with productivity improvements. It can be applied to almost every aspect of our lives—last month I planned an entire Cub Scout meeting using ChatGPT!

Any new technology can be exciting. Think back to the onset of the internet, and the incredible investment bubble surrounding this new technology in the late 1990’s. For the last decade, the onset of cloud computing has contributed to gains in stocks such as Amazon and Microsoft. Tesla has been riding the electric vehicle wave to incredible valuations. What should investors make of this latest trend?

Investors and companies are quick to embrace this enthusiasm. Mentions of “AI” on quarterly earnings calls have roughly doubled over the past year (source: AlsphaSense, BofA US Equity & Quant Strategy). Clearly, there are a lot of companies clamoring to be associated with this AI trend. But, as always, there is more to the story for investors. A good word of caution comes from an excerpt in Warren Buffett’s autobiography, “The Snowball.” Mr. Buffett describes the frenzy in the early 20th century surrounding the onset of a new technology—the automobile. Hundreds of entrepreneurs started automobile companies to get in on this explosive growth. However, by the end of the century only three US auto companies remained. His advice? Don’t try to pick which three of the hundreds of companies in a new field will emerge as winners, but let the dust settle and then step in. Yes, this type of investment approach may avoid spectacular gains, but it also may avoid the pain of spectacular losses.

What about the economic impacts of this new technology? Will financial advisors be replaced by robots…a question that hits close to home! What industries will see upheaval as AI replaces former laborious tasks? Fortunately, technology has a great economic track record in this regard. Capitalism is always seeking ways to improve efficiency and managers have been trying to replace labor costs with machines since the creation of the wheel. And yet, our economy sits today at 3.4% unemployment and GDP per capital is at all-time highs. Americans have never had higher income in our history! (Source: U.S. Bureau of Economic Analysis; US. Census Bureau). One of the strengths of the US economy has been in the creative destruction of goods, industries, and yes, jobs—and the embracing of new ones. While those transitions can be painful for those involved, the economy (and ultimately investors) are better for it. Who knows if AI will be as transformative as the prognosticators say? But if it is, that is not something to fear, but to support.

All opinions and data included in this commentary are as of May 10, 2023 and are subject to change without notice. The opinions and views expressed herein are of Cutler Investment Counsel, LLC and are not intended to be a forecast of future events, a guarantee of future results or individual investment advice. Nothing herein should be construed as tax advice. This article is provided for informational purposes only and should not be considered a recommendation or solicitation to purchase or sell securities. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Investing involves risk, including the potential loss of principle. Neither Cutler Investment Counsel, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.