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

David Booth, founder and chairman of Dimensional Fund Advisors, believes artificial intelligence may bring significant advancements, but it will not fundamentally alter the way investors allocate their assets. He likens AI to an "ice block to refrigerator" scenario, where it improves efficiency in everyday tasks, from creating workout routines to planning vacations, and may even lead to breakthroughs in healthcare, transportation, and work. However, he remains confident that AI will not change how prices are set in stock and bond markets.

Booth argues that the stock market functions as the world's largest information processing machine, where buyers and sellers come together to agree on a trade price based on belief. He points out that professional stock pickers can't consistently outperform the market, as returns have averaged around 10% a year over the past century. He also notes that using AI to buy and sell stocks would only add anxiety and random noise to individual investors and that investing in "AI stocks" might lead to disappointment.

Booth believes that many companies will leverage AI to improve efficiency and productivity, but targets of AI-driven stock investments may not yield successful results. He uses the analogy of telecom companies during the Dot Com boom, where only a few stocks survived the test of time. Similarly, he suggests that today's market leaders may not be the winners of tomorrow, as entirely new companies will emerge.

Instead of trying to pick a winner, Booth advises owning a broadly diversified portfolio that includes AI stocks and other companies to participate in the future's growth. This approach allows investors to benefit from the long-term wealth creation and on aggregate advantages of public markets without wasting time trying to predict which company will be the next big thing. By embracing uncertainty and managing it, investors can navigate the complexities of tomorrow's market landscape.