Artificial Intelligence 101 for Baffled and Bemused Investors

Yesterday, I watched my brother's reaction when he saw ChatGPT for the first time. It was very similar to watching a person engage with a search engine or AOL email for the first time in the mid-1990s.

His first questions were largely functional.

Him: "So you can ask it to give you a 45-minute yoga routine... with step-by-step instructions. It can do that in 15 seconds?"

Me: "Yes. It's like always having a personal assistant."

Him: "You can ask it to summarize the most important 20% teachings of a religious figure, and you'll get 80% of that person's gospel in less than 1,000 words, a cheat sheet?"

Me: "Yes. It's like always having a personal assistant."

Him: "So, if I asked it... to write the outline of a movie idea..."


He couldn't wrap his head around it at first. As I explained, all human knowledge has been at one's fingertips for two decades now. But you really had to seek it. You had to read and watch everything. You had to take notes...

Now, the game has changed. AI can offer you the Cliff's Notes for "The Sum Total of Human Knowledge: 200,000 BCE - 2022" (You read that right - many salient details of 2023 aren't available to ChatGPT yet). Everyone will be a self-appointed expert in everything quickly.

This is Wikipedia... on steroids.

"I'm not sure how to feel about this..." he said, sighing heavily.

My brother is creative. He makes films. He writes books. He needs animators. I showed him MidJourney. It was like introducing a cell phone to a man who had lived in a cave for 100 years. AI will benefit creatives more than it will threaten them. They simply need to know how to scale up and use it as a development tool.

Businesses, however, face different realities.

The Microeconomics of Artificial Intelligence

After my brother caught his breath (from AI's insights on yoga... not the yoga itself) he asked the most important question.

"Where will the money be made from AI?" he asked.

As I explained, the money will be made in the margins. Fewer workers, better supply chains, slimmer costs... all of this improves margins, which improves earnings per share... which helps to drive stock performance. He studied business, so he understood what I was rambling about in the middle of a birthday party for my niece. But let's take a step back here quickly.

What I want to do - for both experts and non-experts - is to simplify this and put our understanding of what AI does to a business in five different buckets. Last week, I covered three American non-tech companies that are already excelling in their use of AI. But let's take a "microeconomic" rewind here. An MBA 101 analysis of what's in it for you as an investor in companies (not stocks). If AI was an employee at the company, here's what would we say its "job responsibilities" are.

1. AI helps companies function better and save money.

AI helps companies operate computer systems to complete repetitive tasks. There is no human help required. By repeating the same tasks in sequence, we reduce human error, improve operations, and keep things organized. AI can analyze customer data, keep track of inventory (instead of human hand counting), and predict when machines require maintenance. This improves efficiency, reduces costs, and makes the business run better.

Yes, AI will have an impact on a company's labor pool. It will likely reduce the need for people to complete repetitive tasks and make some of these jobs obsolete. (More on that at the end).

But AI will also identify needs across the organization for new human labor. We will need people to move away from repetitive tasks and develop skills in maintenance and data analysis. We could also require employees to upskill or transition to different roles... which could create a better-paid, more knowledgeable employee base. It's not just about killing jobs.

2. AI helps humans make more informed decisions.

I don't think a lot of humans like scouring data. I've been doing it for two decades, and even I find it exhausting. But AI doesn't complain or take naps. It can scour data and find patterns and opportunities that we might overlook. We can do things like determine the optimal price at which to sell products. We can improve marketing campaigns. And we can measure various business strategies to determine the one with the highest probability of success and profitability.

3. AI can manage and improve customer relationships.

Without customers, you won't have a successful business. Managing customer feedback is critical to ensuring the best possible experience for them. So, AI chatbots (like the ones employed by Domino's) can give a company suggestions and help answer questions from customers. All this customer feedback becomes critical data that AI will analyze and help businesses better understand how to improve relationships, offer new products, and determine customer behavior. This information will be critical to help manage and improve the "customer journey."

4. AI will help companies create new products and services.

When Chatbots take suggestions from customers (and employees), it can help companies identify new opportunities. AI teaches computers to learn and understand language. With all this data, companies can determine what customers want. They can make new products. And AI can accelerate the development of such things.

5. AI will improve company safety.

Finally, AI can help companies protect themselves. AI will detect strange anomalies and catch bad activities, like fraud.

This helps them keep their money safe, protect their things, and ensure people trust them.

Yes, it is a brave new world. Yes, things will advance at a breakneck pace in the years ahead. I do recommend that people maintain some old skills just in case the robots fail. But remember, this is a revolutionary event that will transform your quality of life, your career and retirement, and your portfolio.

To your wealth,

Garrett Baldwin
Florida Republic Capital (Available on Substack)