Editor's note: Last month, our friends at TradeSmith unveiled a brand-new, artificial intelligence-powered stock-picking software. The response has been incredible. In today's essay, our friend and TradeSmith CEO Keith Kaplan talks about the hottest story on Wall Street today – and how to protect yourself from blowing up...
Artificial intelligence ('AI') is the hottest story on the planet right now...
Maybe the hottest tech story in a decade.
And it's the place folks want to invest.
But here in the early going, there's a "smart" way to invest in AI... as well as a "smart" way to invest with AI.
Today, we're going to show you both paths.
My friend and colleague Jason Bodner, who runs the Quantum Edge Pro trading service, has this advice: If you want to invest in AI stocks, avoid the "moonshot" plays – the tiny firms that entice investors with huge upside potential but that also pose the biggest risks.
Some of these tiny firms will make you money. Some will be buyout targets for bigger firms. But most could end up as "lottery tickets" that you scratch off, lose on, and throw away.
It's the companies that have decades of expertise, a war chest of cash, and the most-sought-after minds in all of tech that will likely be the biggest early "needle-movers" with AI products and services.
And the revenue infusions they reap from these revolutionary products and services will juice their stock price even higher.
It's a message TradeSmith's experts have been hammering home in recent months: In the face of paradigm-shifting change and massive uncertainty, invest in quality companies.
Companies that have visionary leadership, that are making products and providing services that people love or can't live without, and that are generating money in the here and now.
Buy businesses, not stocks...
And think about your moves as "money," not "shares."
I get the struggle: You've got $1,000 to invest, and you're torn between AI players Microsoft (MSFT) and AI speech-recognition firm SoundHound AI (SOUN).
The hangup is that this $1,000 will get you three shares of Microsoft – but more than 300 shares of the AI speech and recognition company.
On top of that, there's the added psychological barrier that to double your money, Microsoft has to go from $300 to $600, while all SoundHound needs to do is reach $6.
But consider this: If you invested in SoundHound 12 months ago, you would have lost more than 65% of your investment today.
Let that sink in. Two-thirds of the money you put in... Poof. Gone.
Meanwhile, as of this writing, shares of Advanced Micro Devices (AMD), Microsoft (MSFT), and Nvidia (NVDA) would have returned 19%, 22%, and 117%, respectively.
Simply put, owning shares of those companies would have turned your money into more money... which is the whole point of investing.
Now, a long time ago, a $300 stock price may have been a real barrier for retail investors, as there were a lot of fees associated with investing, and you may have even had to buy 100 shares of a company at one time.
But all that has changed...
And for stocks like AMD, NVDA, and MSFT, I'm going to show you how you can own shares of high-quality AI companies on any investing budget.
Previously, online brokerages could charge large fees and offer limited investing and trading options because there were few alternatives.
There was little incentive to innovate or put the investor first.
Now, investors are in the driver's seat, as online brokers are in a constant battle of one-upmanship to provide new beneficial features.
One of those is fractional investing.
Charles Schwab, Fidelity, Interactive Brokers, and Robinhood are just a few of the platforms that offer some sort of fractional investing program.
Fractional investing lets you invest whatever amount you like – even as little as $1, depending on the service – into high-quality stocks.
You'll own a fraction of a share, and that fraction of a share will go up in value when the stock price goes up.
You can set that up as a reoccurring investment each week or month, or you can manually put more money into a stock when you have it.
But no matter how you do it, you have more control than ever before, and you can also leave everyone else behind who says something like "Microsoft shares are too expensive."
Because that idea is the result of flawed thinking.
People may have said Microsoft was too expensive at $17 per share in 2003...
And at $52 per share in August 2016:
And at $201 per share in July 2020:
At $300, some people may still view Microsoft – and other big-name players in AI like Nvidia and Advanced Micro Devices – as too costly.
But you have an investing "hack" at your disposal that lets you own shares of these companies on any investing budget through fractional investing.
The takeaway from this bit of insight: Own quality companies.
We're in the very early innings for AI – but Microsoft has been one of the select few companies that has been able to cash in on big new opportunities, over and over again.
Picture two scenarios...
In the first, you look at a stock and know, with a high degree of certainty, that it'll be 15% higher a month from now.
In the second, you look at a different stock and know that it's going to take a 15% haircut sometime in the next month.
You'd buy the first stock, knowing a profit is headed your way.
And you'd avoid the second, feeling sanguine having dodged a painful loss.
Well, you don't have to imagine that happening.
With incredible computing power and AI at our fingertips, our team embarked on the most important research project in our company's history... one that could help you make much bigger stock market returns than you're making now, while taking less risk.
It's not an exaggeration to say that our newest product, a breakthrough A.I. predictive algorithm, is a new edge most investors have been lacking – and desperately need in today's volatile, uncertain, and risky markets.
If you hold on to stocks our system sees a higher move for, you could withstand volatility with confidence and earn better returns.
On the other hand, if you dodge the stocks that are expected to take a hit, your portfolio could avoid punishing losses.
Combined – building your gains, avoiding losses – you'll watch your wealth grow faster. And you'll do this with substantially less stress and uncertainty about the future.
Regards,
Keith Kaplan
June 3, 2023
