Financial Insights

Artificial Intelligence

The future is coming and you’re not in it.
Rear Admiral Cain to Pete “Maverick” Mitchell in Top Gun: Maverick

Source: https://www.foxbusiness.com/technology/chatgpt-ai-lists-jobs-it-can-do-better-humans-millions-could-be-put-out-work

Source: https://www.history.com/news/industrial-revolution-luddites-workers

Uh oh…here we go again.

Easy and accessible artificial intelligence in the form of ChatGPT burst onto the public scene in November, 2022. Quickly gaining more than 100 million users, the new Artificial Intelligence (AI) platform grew its user base at the fastest rate of any previously released internet service. This record-breaking adoption has raised awareness and sounded alarm bells for this “scary” new technology. Headlines abound shouting at the number of jobs at risk to AI.

AI is coming for you! Or is it?

I took the opportunity to test drive ChatGPT, to judge for myself what the hype was all about, to formulate a first-hand opinion of where the threats and opportunities may be. ChatGPT excels at giving long-winded answers to simple direct questions. In fact, ChatGPT excels at giving multiple-paragraph responses to virtually any prompt at all. Further, ChatGPT always offers up more information than asked. In my very enlightening interaction with ChatGPT. I asked a very simple question: “What is the shortest sentence that contains all 26 letters of the alphabet?” A response came back almost instantly:

The shortest sentence that contains all 26 letters of the alphabet is:

“The quick brown fox jumps over the lazy dog.”

This sentence is commonly used as a test to check if a keyboard or typesetting system contains all the letters of the alphabet.

Neato! Right? Wrong. And disappointing. I pointed out to ChatGPT that it was incorrect and it responded:

I apologize if my previous response was not satisfactory. If you have a different answer or opinion, I would be happy to hear it and provide further assistance. However, I am an AI language model and try my best to provide accurate and helpful information based on the data I have been trained on. If there is any specific question you have, please let me know and I will try to provide the best possible response.

I indeed provided a superior example: “Pack my box with five dozen liquor jugs.” ChatGPT replied:

“Pack my box with five dozen liquor jugs” is also a sentence that contains all 26 letters of the alphabet. This sentence is often used as an alternative to the more commonly known “The quick brown fox jumps over the lazy dog” for testing typography and font samples.

I ended my test simply asking “Then why didn’t you provide that answer the first time I asked?” The reply came back with an unsatisfactory explanation:

I apologize for the confusion. When you asked for the shortest sentence that contains all 26 letters of the alphabet, I provided the most well-known and commonly used sentence, which is “The quick brown fox jumps over the lazy dog.” However, “Pack my box with five dozen liquor jugs” is indeed another sentence that contains all 26 letters of the alphabet and is often used for the same purpose as the previous sentence. I hope this clarifies any confusion and please let me know if you have any other questions.

I still don’t know the shortest sentence that contains all letters of the alphabet, but I do know that ChatGPT uses a lot of words to provide factually incorrect responses to direct questions. My example contains 39 characters, 32 letters and 8 words. The “most well-known and commonly used sentence” provided by ChatGPT contains 43 characters, 35 letters and 9 words. This does not inspire confidence. Given ChatGPT’s incorrect answer, I would certainly not base any mission critical decisions on ChatGPT.

So should we worry about AI?

Yes and no. AI is absolutely being adopted by companies and causing disruption. According to one survey (https://www.statista.com/statistics/1246927/financial-services-benefits-from-ai-adoption-2020/), the main benefits expected by financial services firms from adoption and use of AI encompass virtually all business processes, and will:

This comprehensive attack on business processes is not limited to financial services companies, but would apply to any firm in any industry. AI as a tool to drive efficiency and cost savings is exciting and will create measurable advantages (think profit margins) to those companies with successful AI strategies.

From a portfolio manager’s vantage point, this makes it critical to identify companies with clearly defined AI strategies and to track their effectiveness. Is AI delivering on the promise? Are the cost benefits coming through? Are they differentiating themselves from the competition? These are definitely “worry” points.

On the other side of the equation is the “human” element. Trust, emotion, empathy, care: human elements define personal relationships. Firms in financial services are acutely aware of their client/advisor relations. AI is good at many, many tasks, but it is not good at cultivating human contact. Your relationship with ChatGPT is worth exactly what you pay for it. This simple fact should strengthen and deepen relationships between advisors and clients. Firms that offer well-thought out, sensible, appropriate strategies, delivered with emotional intelligence, human connections and trust have nothing to fear from AI. AI cannot replace the human element.

In my colleague David Ruff’s most recent quarterly commentary, he points out that a recent purchase in our International ADR portfolio plays along that theme directly. In writing about the company, he states “a strong private banker/client relationship and custom-client-solution capability lessens the risk of disintermediation faced by traditional banks” and “ultra-high-net-worth clients value the relationship with their trusted private banker.”  These relationships can span multiple generations and these are the ties that AI cannot cultivate.

Alarming reports claiming that 4.8 million U.S. jobs are at risk cause angst. The unasked question is how many jobs will AI create? With output from ChatGPT that is clearly wrong, perhaps even more jobs will be created for verification and fact checking. Who knows? Technological change is not a zero-sum game. The internet and every company based on it is less than thirty years old. These workers weren’t displaced from anything. They filled a void. Artificial Intelligence is an agent of change. That is irrefutable. All technological advances are agents of change. The only way forward is to embrace change, adapt and evolve.

Artificial intelligence is a tool. Teams of oxen don’t go out and plow fields by themselves. A person has to apply the yoke and direct the team. In that way, AI is no different. Somebody has to tell it what to do. After all, we can always unplug the machine.

Your kind is headed for extinction.
Rear Admiral Cain in Top Gun: Maverick

Maybe so, sir, but not today.
Pete “Maverick” Mitchell in Top Gun: Maverick

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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