Friends,
There's no doubt that artificial intelligence is changing the way we live. Over the next few years, AI is going to start making a lot more decisions for us. By and large, that's a GREAT thing. We won't have to worry about hundreds of taxing, low-stakes choices.
It's important to remember why that's such a good thing: because it frees our attention up to focus on the impactful, nuanced decisions that make a huge difference.
This is true in both life and investing. Consider my (Stoffel, here) best investment of the past year: buying shares of Duolingo last May at $175 per share (it's tripled since).
AI could have told you lots of important things back then:
- The business was on a roll: At the time, revenue was growing at a 40% clip, while paid subscribers were increasing even more -- up 50%.
- The stock was expensive: The P/E ratio was over 200. And while the P/FCF ratio was over 30 -- no one would argue that's cheap.
- The stock had lost favor on Wall Street: Shares had fallen 30% in just a few weeks.
But this is where the importance of the human brain comes in. The reason shares had fallen was no secret: ChatGPT had just announced a real-time translation service. Many thought it was a Duolingo-killer.
AI wouldn't have been able to decide if that would be true. Only a human paying attention to the world around them could have seen the opportunity. That's because -- in my opinion -- people use Duolingo for two reasons:
- Gamification: Let's face it, we love games. We love addictive ones even more. Learning a language is an afterthought to these people. They aren't interested in ChatGPT at all.
- Connection: Speaking a foreign language is the closest thing to a real-life superpower. The connection it fosters while travelling the world is unmatched. Introducing a ChatGPT-like translator would kill that connection.
Of course, I could have been wrong -- that's just part of investing.
But that's beyond the point of this week's letter: AI is a great tool, but it shouldn't be used to make the most impactful decision.
AI is great for finding & organizing data -- but it's always our responsibility to use that data to make decisions.
After all, it's our money & financial future on the line.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long Term Mindset
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P.S. Are you interested in learning how to use AI to enhance your stock research process? Reply to this email with "AI" to let us know.
