Over an 84-year career, Warren Buffett has seen pretty much everything the stock market has to offer. So there’s no better place to turn for advice when it comes to investing.
Right now, the rise of artificial intelligence (AI) is making investors unsure about where to put their money. But while you can’t buy experience, you can benefit from it.
Chewing gum
One of the biggest technological developments of Buffett’s time was the emergence of the internet. That was a tech revolution and it had big effects on a number of businesses.
There’s a story about Bill Gates telling Buffett about the internet. Buffett reportedly asked whether it would change the way people chew gum and Gates said that it wouldn’t.
In response, Buffett suggested that he should stick to the chewing gum business and let Gates focus on the computers. And the results – in both cases – have been spectacular.
Microsoft was obviously a huge success, but when the stock market crashed in 2000, there were some big casualties. Buffett’s chewing gum business, though, wasn’t one of them.
Surviving and thriving
The point isn’t just that Buffett’s approach of sticking to predictable businesses kept him out of trouble. Staying out of the stock market entirely could have achieved that.
Importantly, Buffett’s approach generated some outstanding returns. Over time, this has been a far better strategy than trying to hide from falling share prices.
Fast-forward to today and there are concerns that the rise of AI might lead to another huge crash. But investors have already seen how to survive and thrive in this situation.
Just like in 2000, some industries are clearly likely to be more immune to disruption than others. And Buffett’s approach might again be the way to go.
AI immunity
AI isn’t going to change the way people chew gum. It’s also not going to change how willing people are to put up with rats, which is why I own shares in Rentokil Initial (LSE:RTO).
In fact, I think demand for pest control services in general is likely to go higher over time. Warmer summers and wetter winters make better breeding conditions for these creatures.
AI isn’t a risk, but regulation can be a challenge. This changes over time (often as a result of shifting political sentiment) and can create higher costs as companies have to adapt.
This is a potential issue for Rentokil. But the firm’s scale – especially in the US – means it has a natural cost advantage over its rivals, which is something I think is very valuable.
Resiliency
The stock market is a bit wary of Rentokil at the moment. One reason is that it’s recently announced plans to pay off part of its debt early.
The firm had a lot of leverage on its balance sheet as a result of a big acquisition a couple of years ago. And that – along with integration challenges – have been holding it back.
Improvements on both fronts, however, are starting to emerge. As a result, I think it might be an interesting time to consider buying the stock.
AI might be about to change a lot. But I don’t think it’s going to revolutionise the pest control industry and Rentokil is a firm I expect to do well even in a stock market crash.
