David Booth, founder and chairman of Dimensional Fund Advisors, says the rise of artificial intelligence will not rewrite the basic rules of investing. He argues that markets already function as the world's most efficient information-processing system, and that AI will add little to the task of price discovery.
AI's growing role in everyday tasks
From personalised workout plans to vacation itineraries, artificial intelligence is already helping people complete routine tasks more efficiently. The technology promises breakthroughs in health care, transport and many other sectors, much like the shift from ice blocks to modern refrigerators.
Why market pricing stays the same
The stock market acts as a massive information hub where buyers and sellers agree on a price they consider fair. If a price is too high, demand falls; if it is too low, sellers retreat. Repeated millions of times each day, this process tends to settle prices at a level that reflects all known information.
Booth recalls his graduate studies at the University of Chicago, where the data revolution revealed that markets are remarkably efficient. Over the past century, US equities have delivered an average return of about ten per cent per year, a figure that most professional stock pickers cannot consistently beat.
"One thing I am confident AI won't do is change how prices are set in stock and bond markets," Booth said.
For an AI system to outperform the market, it would need to identify mispriced stocks and predict when those mispricings will correct, a feat no human or model can reliably achieve. Even if AI improves information gathering, that advantage would be shared across all participants, merely adding noise rather than creating a lasting edge.
Investing in a diversified future
Booth warns against concentrating portfolios in so-called "AI stocks". History shows that targeting the next wave of technology can be a gamble; many telecom firms that led the internet boom in 1999 have since disappeared. Instead, he recommends holding a broadly diversified portfolio that includes AI-related companies alongside a wide range of other sectors.
Public markets channel capital to thousands of competing ideas, allowing the most successful to thrive while the rest fade. With projected capital spending of over $1.2 trillion in 2027 on data centres, chips and other technologies, the winners could be in big-tech, renewable energy or an entirely unforeseen industry.
What comes next?
Booth remains optimistic that AI will solve big problems and improve everyday life, perhaps even making better refrigerators. However, he believes investors should focus on managing uncertainty through diversification rather than trying to pick the next AI champion.
By spreading risk across a wide array of stocks, investors can participate in whatever future unfolds without the anxiety of trying to predict which company will dominate the AI revolution.