I'm Changing How I Invest My Money Because of AI

Quick Overview

The investor is changing their investment strategy due to Artificial Intelligence (AI) by reducing exposure to the market-cap-weighted S&P 500, betting more on global markets, adopting a negative momentum approach to avoid speculative AI hype stocks, and increasing gold holdings as a hedge against system instability.

Key Points: The investor is reducing the allocation to the market-cap-weighted S&P 500 because the top 10 companies, heavily influenced by AI valuations, now account for 40% of the index, compared to 2% in an equal-weighted index. The new strategy involves betting more on the global stock market, specifically citing the historical dominance of the US market (61% in 2020) and the need for diversification away from it. The investor is adopting a 'negative momentum' approach, automatically selling stocks that start to lose momentum, which helps avoid companies currently valued on future expectations rather than current earnings (like many AI-related firms). To hedge against potential instability caused by AI hype and excessive debt financing of AI infrastructure, the investor is increasing holdings in physical gold, noting that central banks are also increasing gold reserves. The investor is keeping a large cash reserve (Berkshire Hathaway's Q1 2025 cash pile reached $347.7 billion) to capitalize on market crashes, which Warren Buffett, a value investor, traditionally does. The investor favors small and mid-cap companies in 'Zone Four' (Reasonable Valuation, Small Market Cap) because they are overlooked and not reliant on the AI hype cycle for growth.

Context: The speaker, Mark Tilbury, discusses five significant changes he is making to his personal investment strategy, primarily motivated by the rapid rise and valuation of Artificial Intelligence (AI) related companies and the perceived instability in the global financial system. He contrasts the heavily concentrated market-cap-weighted S&P 500 with an equal-weighted approach to illustrate the dominance of a few large tech stocks, and references historical market shifts, like Japan's dominance in the late 1980s, to caution against overconcentration.