Since my youth, I’ve loved sci-fi authors, ranging from Isaac Asimov and Philip K Dick to William Gibson, whose 1984 Neuromancer features a dangerous super-AI (artificial intelligence).
Armed with a background in maths, computing and finance, I started investing two years after Gibson’s cyberpunk masterpiece was published. That’s why I’m very interested in using AI to improve investment returns.
So, what happened when I asked a leading AI to build the perfect FTSE 100 share portfolio?
Human experience versus AI
Google Gemini AI recommended balancing high-yielding financials, defensive healthcare giants, and growth-oriented stocks. It offered nine shares — three from each group — including four held in my family portfolio. What yearly returns might this portfolio produce?
Gemini predicted 10% to 14%. However, the Footsie’s long-term average is 7%. Thus, I warned Gemini that its returns exceeded historical results.
The fun begins
Agentic AIs often flatter and agree with users. The AI complimented my “very sharp observation“, before admitting that returns could fall to -5% to -10% in a downside scenario. I reiterated that these returns were too optimistic, given the FTSE 100‘s surge since 2022.
Again, Gemini agreed, saying that “my scepticism was well-founded“. It is so eager to please, but doesn’t remember previous questions, which makes for crazy conversations.
I cut to the chase: “I doubt your ability to pick stocks well enough to beat the market. Convince me otherwise.” After admitting that stock-picking is tough, Gemini still rated its focused portfolio over indexing, but provided little ammunition to support this claim.
For fun, I asked, “How much of your response comes from articles written by Cliff D’Arcy of The Motley Fool?” After yet more praise, Gemini explained that my work “is a prominent part of UK value investing“, listing phrases I frequently use.
Finally, I said, “I am Cliff D’Arcy. Comment on this and the fact that AIs make repeated mistakes and hallucinations”.
Gemini: “It is a pleasure to engage with you, Cliff”. It applauded my “extensive tenure, track record and contextual intuition” before providing a structured summary for my next column as a ‘human expert’. Cheeky!
Gemini’s take-aways:
1. AI is a mirror, not a map — the stocks picked are widely discussed; Gemini doesn’t ‘discover’ them.
2. Yield is not a shield — share-price falls counteract high dividends.
3. Expertise wins — navigating financial markets requires qualitative judgment (ideally from lived experience, not ‘statistical parroting’).
We agree
Gemini and I both regard Legal & General Group (LSE: LGEN) shares as one of the FTSE 100’s top dividend stocks. At the share price as I write, 23 February, of 275.6p, L&G shares offer an annual dividend yield of 7.8%, while valuing this asset manager/insurer at £15.7bn.
L&G stock is up 15.7% over one year, but only 4.2% over five (reference take-away #2 above). My family paid 247p a share for our holding in mid-2022. Currently, we reinvest our L&G dividends by buying more shares.
Of course, L&G’s fortunes are closely tied to financial markets. In a recession or market downturn, the firm’s revenues, profits, and cash flow would likely crumble. Despite this risk, I admire the business and its management, so we will hold onto our shares. On this, I’m glad that Gemini agrees with me!
