Growth Investing

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  • 1.  Contrarian Indicator is back

    Posted 21 hours ago

    Hello AAIIers,

    I am a contrarian indicator. Whenever I take interest in investments the market goes down. But this time is different. Because it is AI. And AI is right in the middle of AAII. How are we supposed to navigate this market? Looks like AI has tremendous potential. And there is a lot of hype too. How do we pick the right stocks for investment? Or do we take the ETF route? What ETFs are best suited to cover global firms which can profit from the boom? More importantly what to avoid? 



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    CA|Investor-NV
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  • 2.  RE: Contrarian Indicator is back

    Posted 4 hours ago

    Here is an answer from AI

    This is a very good question. AI may be real, but "real technology" and "good investment at any price" are not the same thing. Railroads, the internet, fiber optics, and smartphones all changed the world, but investors still had to watch valuation, competition, balance sheets, and timing.

    My own view: do not start with "Which AI stock will win?" Start with "Where in the AI value chain is the profit likely to be durable?"

    AI investing has several layers:

    1. Infrastructure - semiconductors, memory, networking, data centers, power, cooling.
    2. Platforms - cloud providers and large software ecosystems.
    3. Applications - companies using AI to improve productivity, customer service, security, design, research, health care, finance, etc.
    4. Adopters - non-tech companies that may benefit from lower costs or better decisions.
    5. Speculative "AI label" companies - firms that add AI language to their story but may not have real earnings power.

    For most individual investors, I would be careful about trying to pick only one or two winners. The ETF route is probably more sensible, but even ETFs can be risky because many AI funds are concentrated in the same large stocks. Morningstar recently warned that many AI ETFs have roughly half their assets in their top 10 holdings, and their average valuation has been above the broader market.

    Some possible ETF categories:

    Broad AI ETFs:
    AIQ, BOTZ, ARTY, WTAI, IRBO. These give targeted exposure to AI, robotics, software, and related technology. For example, AIQ and BOTZ both charge 0.68%; BOTZ has global robotics/AI exposure and about $3.7 billion in assets. ARTY charges 0.47% and holds about 50 companies tied to AI technology. WTAI charges 0.45%.

    Semiconductor / AI infrastructure ETFs:
    SMH, SOXX, SOXQ. These are more direct plays on chips and AI infrastructure. SMH has done very well recently and charges 0.35%, but it is also more concentrated and cyclical.

    Broad market ETFs with AI exposure:
    VTI, VOO, QQQ, VT, ACWI. These are not "AI ETFs," but they already own many AI leaders. This may be the simplest route for someone who wants AI exposure without betting everything on the theme.

    What to avoid:

    Avoid funds or stocks that are too narrowly concentrated, especially if the valuation assumes years of perfect execution. Avoid companies that only talk about AI but cannot show revenue, margin improvement, or customer adoption. Be careful with leveraged AI/semiconductor ETFs unless you are trading, not investing. Also avoid assuming that every AI winner will be a stock-market winner; sometimes customers benefit more than suppliers.

    My practical answer would be:

    For a conservative investor, use a broad index fund as the core, then add only a small satellite position in an AI or semiconductor ETF. For example, 80–95% broad diversified funds, 5–20% AI-related exposure depending on risk tolerance. For a more aggressive investor, split the AI portion between a broad AI ETF and an infrastructure/semiconductor ETF. Rebalance regularly, because this area can become overweight very quickly after a big run.

    So yes, AI is important. But the investing rule is still old-fashioned: diversify, watch valuation, avoid hype, and do not confuse a great story with a great price.



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    WU ZHENG
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    Original Message


  • 3.  RE: Contrarian Indicator is back

    Posted 4 hours ago

    My answer is: if it is too late for the long, wait for the opportunity to short.  When the "Contrarian Indicator" is asking for how to long, may be the time to short is near. LOL. 



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    WU ZHENG
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    Original Message


  • 4.  RE: Contrarian Indicator is back

    Posted 3 hours ago

    Vinod

    First of all, there's a huge difference between being a "Contrarian Indicator" and being "contrary."

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    A "contrarian indicator" is a metric or data point that signals investors to do the opposite of the prevailing market sentiment. The core principle is that when the majority of traders or the public become overly bullish or bearish, the market is often primed for a swift reversal.

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    Your post does NOT sound like a you are seeking "Contrarian" advice as much as it sounds like a statement of "belief" about the direction of the market -- "Looks like AI has tremendous potential."

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    "AI is right in the middle of AAII " would indicate that AAII is "stuck in the middle" and may be indifferent or indecisive whether its mission is to serve "AAs" or "IIs. " I would data on the AAII membership to make Venn diagrams to sort this conundrum out.

    If we take your lead to parse hidden messages in words related to AAII, we can get really confused about subliminal messages – "AmerICAN" "Association" "IndiviDUAL" "InVESTors" "mARKet" "SenTIMEment" "gROWth" "diviDENd" -- and if we try parsing AAII staff member NAMES we have an instant party game for the AAII Christmas Party.

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    AI is may be a blessing and a curse. Like any new technology, there will be winners and losers both in market outcomes and implementation.

    In times of great opportunity and risk, I turn to Charlie Munger's advice to Warren Buffett, "The man with the most models wins."

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    You may want to build a model and a plan based on the knowledge prior models provide.

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    The BRK model would be a "good" model we could use to profit from AI.

    Turn an AI portfolio into a mini model of the BRK corporate portfolio –

    + a "good" company generating cash flow (insurance)

    + a portfolio of "good" companies

    + an investment portfolio of "good" companies.

    Find an engine to provide cash flow. WB chose insurance.

    Then add an investment portfolio of "good companies." The asset selection rules he used are outlined in several AAII Guru portfolios.

    Then read up on Munger's philosophy to educate yourself on the models Charlie relied on to educate and guide WB and BRK.

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    What I have done so far to "model" BRK as a balanced AI investment portfolio is to use ...

    (a) an existing business model already generating large cash flows to support AI investment capex needs and has AAA or better credit worthiness; and

    (b) has an existing foundation to YOY and QOQ persistence in AI development, deployment, and marketing and selling AI tools, and 

    (c) use a invesment portfolio modeled on bogleheads.com, MEF.com, and 20+ related gurus in "Jack's Army."

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    Jack Bogle's life story is a great model on how to build a "minimax portfolio" that minimizes transaction costs and maximizes the capability to match market performance. Jeff Bezos has a business adaptation of Bogle's famous corporate maxim for Vanguard's success: "Your margin is my opportunity."

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    Thus, I split my portfolio into 3 "buckets" -

    Bucket  1  (25%):  Cash reserves in an MMF at 3.5% to invest as needed.

    Bucket  2  (25%):  A Total AI Market ETF (see below).

    Bucket 3 (50%): Specific AI stocks that I have deemed as "good" companies based on published descriptions and analyst reports on their business models.

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    To anchor my AI portfolio, Bucket 1 as a "cash generator,"

    I bought shares in SWVXX MMF, the Schwab Value Advantage Money Fund.

    It is an actively managed, taxable (ugh) money market mutual fund primarily used by Schwab clients to park idle cash or hold emergency funds while earning a competitive yield.

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    To anchor my AI portfolio Bucket 2 as a "market maximizing model", I researched AI ETFs, and I bought an ETF that had ... 

    (1) an AI market tracking strategy that had the best model (in my opinion) for

    (2) tracking Total AI Market performance,

    (3) provided the lowest cost ERs and fees, and

    (4) was marketed by a reputable company where I already have an account and have experienced their customer experience.

    that (1) minimizes transaction costs, and (2) grounds itself in building a Total AI Stock Market portfolio.

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    I am in the process of selecting specific AI-related stocks to anchor my AI portfolio, Bucket 3. I am waiting for the results of pending IPOs and following the ongoing 10-Qs of the 6-10 companies with the largest analyst coverage (an indicator of market standing).

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    In all this mishigas makes me meshugana. Oy vey! What's causing exasperation today?

    Feedback and critiques welcomed,

    Regards



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    BARRY JOHNSON
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    Original Message