The 'Shiny Ball Syndrome' Trap in AI Investing Is Real. Here's How to Avoid It.
The printing press, Mars rovers, and the internet are seemingly random examples of what humankind can create, but they are united by one characteristic: They were born out of human ingenuity.
We have the incredible power to envision an idea, sketch out a plan, and experiment until that idea becomes a reality.
But this rational part of our brains is yoked to another, sometimes less logical aspect of human consciousness: our emotions.
And too often, investors let that emotional side run the show.
When there's an exciting investing sector – like artificial intelligence (AI) – people can fall victim to "shiny ball syndrome." It's where investors start disregarding their risk tolerance and abandoning their investment strategies to chase what's "shiny" and new. We're seeing this happen right now for a lot of reasons, including the fear of missing out (FOMO), an urge to find that golden-ticket investment that can erase losses from 2022, and the fact that relatively unknown AI stocks seem "inexpensive" compared to more established companies working on AI projects.
Emotions come with the territory of being human, so this impulse to jump into the "next big thing" is understandable.
However, you can't let emotions impact your reasoning and push you into buying shares of a company that has a limited or nonexistent track record of success.
Quantum Edge Pro Editor Jason Bodner warns about falling into the trap of "shiny and new" AI stocks:
AI is an amazing technology. It's finding its way into more and more products and becoming a bigger part of our daily lives. I am incorporating it into my existing quantum system to boost my data-analysis capabilities and improve even more our ability to identify the best opportunities in the market. You can't do that based on one corporate announcement or the latest hype. You need data, and some of the newer AI stocks out there just don't have it yet. That makes them 'bets,' not investments.
Jason says that some of these early-state companies don't have enough "history" for investors to calculate the probability of their success or failure.
He cautions that stocks that are white-hot today can just as easily be abandoned tomorrow and "turn into the equivalent of an investor ghost town."
But we tell you this to keep you on your guard, not to scare you off from AI investing entirely. Because for scrupulous investors, there is a big opportunity to make money by investing in and with AI.
While the company we're about to discuss is not one of his official Quantum Edge Pro recommendations, Jason does like it for the long haul and has it on the top of his list of potential AI investments right now.
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More Than a Spreadsheet – Excel Was an Early AI Super Tool
When Microsoft Corp. (MSFT) released Excel in 1985 for Apple's Macintosh computer, it was a game-changing moment for anyone who had previously been stuck keeping track of sales, organizing budgets, or crunching numbers to create future projections by hand in some kind of written ledger.
Source: VersionMuseum.com
Microsoft followed that two years later with a new version that was also the first version to run on its new Windows operating system.
The rest is history, with over 730,000 businesses using Excel in the United States alone.
Today, Excel's time-saving and productivity-enhancing capabilities are often taken for granted, as it's viewed as just a spreadsheet application. But by taking a step back and thinking about what Excel was designed to do – taking inputted information and automatically organizing it through commands – we can see that Microsoft didn't just launch a productivity tool; it launched an early AI super tool.
You can even see Microsoft hinting at this in its early ads:
Source: RareNewspapers.com
The ad above is saying that if you input the commands and parameters you want for analyzing and organizing information, Excel will give you exactly what you asked for – automatically.
Now, 38 years after the app's initial release, Microsoft CEO Satya Nadella is giving Excel and other suite apps and services an "AI makeover" for 2023.
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On March 16, Microsoft announced the launch of Copilot, an AI-powered enhancer for its Microsoft 365 suite of apps and services, which includes Excel, Word, and PowerPoint.
Using Copilot in Excel, you won't need to know the exact formula you should use for a particular scenario; you can simply ask Copilot questions and receive formula recommendations. Copilot will also share correlations it finds throughout the data you have and suggest what-if scenarios.
Say that you have all of your sales organized by quarter but that you sell hundreds or thousands of products.
Well, instead of having to dig through that information yourself, you can ask Copilot to do it for you.
Source: Microsoft 365 YouTube Channel
Copilot will also be able to gather information from one document and use it to create content in another.
All of these features help remove some manual tasks and make it even easier to visualize, analyze, and present data.
Microsoft says it is currently testing Copilot with just a handful of customers to receive feedback, but in the months ahead, it will be bringing Copilot to Excel, Word, PowerPoint, Outlook, Teams, and more, at which point it will reveal pricing.
Early results from GitHub, a hosting service for software development that Microsoft acquired in 2018 for $7.5 billion, show that 88% of developers who are using GitHub Copilot say they are more productive and 77% say it helps them spend less time searching for information or examples.
Jason says to focus on the companies with the deepest pockets that can develop technology and incorporate it into their products today – and Microsoft easily fits that mold.
"Microsoft is just a really well-run company," he says.
And you can see from his system that Big Money has been gobbling up MSFT stock lately, triggering two buy signals in the past 30 days.
Bottom line: It's easy to fall into the trap of chasing what's shiny and new, but as Jason noted earlier, companies without a track record are "bets," not investments. A company with deep pockets like Microsoft not only has the ability to invest and build out AI, but also already has products in place that it can enhance with new AI developments. Big Money has been scooping up MSFT lately, and Jason says it's a company to like for the long haul.
Take care,
Team TradeSmith
The Simple Solution to "Shiny Ball Syndrome"
As the AI revolution rages on, dozens of investment opportunities will continue to pop up and clamor for your attention, each promising to be the next big thing.
Which means it's more important than ever to protect yourself from the impulse to dive into the next hyped-up hotshot stock.
Fortunately, helping investors single out the strong opportunities from the bad bets is Jason's specialty.
He's engineered a system that captured 98 triple-digit winners in one of his model portfolios — during the worst bear market since the Great Recession.
And that's only the beginning.
Technology moves fast, but the markets move even faster. If you don't want to be left behind — and you do want to avoid the perils of "shiny ball syndrome" — learn more about Jason's revelatory system here.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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