David Booth: AI may change the world. It just won’t change how you invest

At one point, you could make a living by sawing off a block of frozen river, transporting it to the city, storing it in straw and selling it to people to keep their food cold.

Now we have bluetooth refrigerators.

This is an example of what I like to call human ingenuity – the collective capability of people all over the world to solve problems and make the future better.

Artificial intelligence may represent an “ice block to refrigerator” level of advancement.

It already helps people complete everyday tasks more efficiently – from creating a workout routine to planning a vacation – and it could ultimately lead to breakthroughs in health care, transportation, and even the nature of work.

But one thing I’m confident it won’t do is change how prices get set in stock and bond markets.

I constantly hear speculation about how AI will impact the financial industry.

Can I use AI to pick stocks? Should I invest all my money in the stocks of AI giants? Will AI change everything we know about markets? To me these types of questions reveal the importance of appreciating how public markets function.

Think of the stock market as the world’s largest information processing machine.

It’s where buyers and sellers come together and agree to a trade; both sides have to believe the price is fair.

If stock prices are too high, people won’t buy (they want a fair return).

If they’re too low, people won’t sell.

When this process is repeated millions of times a day, the result is that stocks seem to settle at a reasonable price.

During my graduate school days at the University of Chicago, I was fortunate enough to be a part of the data revolution that helped the investing world understand that markets were efficient.