Editor’s Note: Nowadays, we’re so inundated with opinions and commentary from so many different voices that it can be difficult to know who to trust.
As Chief Investment Strategist Alexander Green writes below, the simplest solution is likely the wisest one: trust the consensus.
Like what you read? To get more insights from Alex, check out Wealthy Retirement‘s sister e-letter, Liberty Through Wealth.
– James Ogletree, Senior Managing Editor
In a recent column, I noted that “the experts” have wildly divergent views about the kind of future AI will usher in.
Some are utopian. Some are dystopian. Some are a bit of both.
It’s hard for those of us who are not AI engineers or scientists to know what or whom to believe, especially since the folks on the cutting edge of this technology often disagree among themselves.
Yet everything flows from an investor’s basic stance. Should you be fearful and defensive about the future, and position your portfolio accordingly? Or positive and opportunistic?
The stock market, which is on pace for its fourth consecutive year of double-digit returns and sits a stone’s throw from its all-time high, is saying the latter. Loud and clear.
Why should you trust the consensus of millions of investors over the world’s foremost scientists and researchers?
Track record, for starters.
Rational, self-interested men and women consider all the known and potential economic, technological, and social factors that will affect the future and incorporate that information into share prices every day.
These investors aren’t just offering an opinion. They are taking risks that will result in significant losses if they are wrong and significant profits if they are right.
That’s why markets are often described as efficient. Everything that can be known is quickly reflected in share prices.
If you’re skeptical that “greedy,” risk-obsessed investors could possibly know better than highly trained scientists and policymakers, consider the space shuttle Challenger.
At 11:38 a.m. on January 28, 1986, it lifted off its launch pad at Cape Canaveral. Seventy-three seconds later, and nine miles higher, it blew apart.
The launch was televised live, so the news spread quickly.
Within minutes, investors began bailing out of the four major shuttle contractors: Rockwell International, which built the orbiter and its main engines; Lockheed, which managed ground support; Martin Marietta, which manufactured the external fuel tank; and Morton Thiokol, which built the solid-fuel booster rockets.
All four stocks were hit hard initially.
But by the closing bell, three of them were down only slightly. Morton Thiokol alone closed sharply lower.
Not a single news report that day singled out Morton Thiokol as the guilty party.
And it would be more than four months before a presidential commission concluded that the company’s O-ring seals were the culprit.
Yet the stock market identified Morton Thiokol as the responsible company before the closing bell.
How could investors know something that even NASA scientists did not?
Author James Surowiecki calls it “the wisdom of crowds.” What all of us know is far greater than what any individual or elite group can know.
Evidence of this is all around us.
Remember the old TV show Who Wants to Be a Millionaire with Regis Philbin?
When a contestant phoned an expert of his choosing, that expert gave the right answer 65% of the time.
But when the contestant polled the audience – a random group of people with nothing better to do on a weekday afternoon than sit in a TV studio – they picked the right answer 91% of the time.
(This was before the advent of smartphones, which is how we all cheat nowadays.)
We prize and honor the intelligence of experts. Yet, counterintuitive as it may seem, crowds are smarter.
Experts don’t like that, of course. But who cares?
Our goal is to achieve and maintain financial independence by getting on the right side of big trends, not to help know-it-alls feel good about themselves.
The AI doomsayers tell a gripping story. Runaway machines, civilizational collapse, the end of everything. It makes for great reading.
But let’s remind ourselves what it isn’t: science.
Look for a peer-reviewed, replicated body of research behind their claims and you’ll come up empty.
The pessimists prefer other formats: blog posts, TV interviews, essays, and dramatic posts on X.
That doesn’t mean they’re wrong. But it’s hardly evidence of rigor.
Look at the financial markets instead, including stock returns, volatility, and other measures of risk.
Consider, too, the share prices of insurance companies, whose entire business is pricing catastrophe.
And include what prediction markets are saying about the value of Anthropic and OpenAI, the leading AI labs.
The picture isn’t just stable. It’s rosy.
Try as you might, you won’t find market-based evidence of impending doom.
That matters. Because there is a big difference between airing science-fiction fears and putting real money behind your views.
Yes, history shows that markets can be wrong. And so can science.
But taken together, open information and free-market prices have been civilization’s most reliable guides to what is actually true.
My advice? Accept that the AI build-out is inevitable. Realize that there will be consequences both good and bad. And position yourself to participate in the upside.
If you use The Oxford Club’s proven risk-reduction techniques – asset allocation, diversification, position sizing, and trailing stops – you will have unlimited upside potential with strictly limited downside risk.
That’s a much better approach than worrying about the end of the world. And, not incidentally, a lot more lucrative.