While artificial intelligence continues to create sharp upswings and downswings in the global market order, veteran American investor and mutual fund manager Peter Lynch remains away from the nascent technology as he believes in investing in what he clearly understands.
Since last year, stock markets around the world saw an increasing frenzy around AI, with hyperscalers increasing their investments in the technology. The increased optimism sparked a sharp rally in the AI stocks, before things began to go down. Analysts soon began sounding the alarm over the massive AI spending and rising debt of the tech giants, questioning if they will actually bear fruit in the future. The worries sparked a sharp selloff in the tech stocks.
In this environment, investors often remember what the legendary investor Peter Lynch had said last year when the AI boom was at its initial stage. Despite the unprecedented market optimism around AI prevailing during the time, Lynch said he has zero AI stocks. “I literally could not pronounce Nvidia until about eight months ago,” he said while speaking at 'The Compound and Friends' podcast with Josh Brown, as reported by CNBC.
What happens when investors invest in what they don't understand
In the podcast which was released in October last year, Lynch said he does not invest in AI as he does not understand the technology enough to have an informed opinion on the market’s optimism toward AI. "I am the lowest tech guy ever. I cannot do anything with computers. I just have yellow pads," he said.
Lynch has consistently advocated that investors must have a proper understanding of what the companies do before investing in them. It is in fact one of the core principles of his popular book 'One Up on Wall Street'. "I have this expression: 'Know what you own'. If you don't understand what you own, you are toast," he said.
The market veteran quipped that people spend hours researching flights to ensure they get the best price. But when it comes to investing, "they will put $10,000 in some crazy stock they heard on the bus".
What other market veterans feel about AI
Earlier this year, Michael Burry, who is popular for correctly predicting the 2008 housing crisis, wrote on a Substack post that he sees many indicators, both technical and fundamental, lining up for the same conclusion as the Dotcom crash. "1999 went where no market had gone before, and I would say so can this one...It is already there on a number of indicators," he said, arguing that massive venture capital flows, rising AI debt issuance, and extreme market optimism are creating conditions where valuations may detach from economic reality.
Legendary investor Warren Buffett recently said he initiated Berkshire Hathaway’s bet on Alphabet. “I would say that I don’t like it as well as at least four or five other businesses that we own. The real question with Google and all of its competitors now, because they are all laying out hundreds of billions, and that is real money. That is the game they are playing now. They weren’t playing that game with computer software,” he told CNBC during an interview.
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