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Quarterly Commentary

February 2024

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February 5, 2024

To the friends and clients of the Harvey Investment Company:

The year 2023 produced stellar gains in a handful of stocks as the S&P 500 Index rose 26.29%. Seven stocks in the Index, which came to be known as the “Magnificent 7,” combined for a massive 75% move while the remaining 493 stocks in the Index were up just 12%.  More than half of the S&P 500 gain came in the last two months of the year.  In fact, until late October, the other 493 stocks were actually DOWN 2%.  The “Magnificent 7” advanced 3 TIMES as much as the S&P 500 and 6 TIMES as much as the other 493 stocks in the Index.  Wild times, indeed.

Wall street loves combining the most adored stocks into groups and separating them from the rest of the market.  In 2017 it was “FAANG.”  In 2023 it was the mega-tech “Magnificent 7.”  Most of the members of the high rising group of 7 had some connection to Artificial Intelligence (AI).  AI is now so popular that market pundits are already moving on to a new group called the “AI 5,” proving once again that nothing gold can stay.

It feels like the stock market has effectively bifurcated into AI related stocks and everything else.  So, what is AI?   How does it work?  What is the fuss all about?  We decided to go straight to the source and ask the leading AI start-up OpenAI’s popular ChatGPT online chatbot the following question: What is AI and how does it work in 100 words or less?  The response was as follows:

AI (Artificial Intelligence) is the development of computer systems capable of performing tasks that typically require human intelligence. It works by leveraging algorithms and data to enable machines to learn from experience, adapt to new inputs, and perform tasks like problem-solving, decision-making, and perception. Techniques such as machine learning, where models are trained on large datasets to make predictions or decisions, and neural networks, which mimic the structure and function of the human brain, are commonly used. AI systems continuously improve their performance by iteratively refining their algorithms based on new data, leading to increasingly sophisticated capabilities.

Simple enough, right?  While AI became the “new new thing” in 2023, the reality is that AI, or computers that can “think,” has been around since the Cold War.  IBM’s Watson and Apple’s Siri are both vintage applications of AI.  The most recent fervor is about a new aspect of AI, Generative AI (GenAI).   GenAI turns the cold language of mathematics into language useful to everyone.  Type in a prompt and it creates new content like images, texts, music, and video. In effect, it democratizes AI.

Let’s say you wanted to create an image of a handsome septuagenarian, wearing glasses and a Harvey Investment t-shirt, riding the winning horse in a major race in Kentucky, in black and white cartoon style.  Ask Microsoft’s AI Image Generator and in 5 seconds or less, voila!!

This, of course, is a very simple application and not necessarily what sent the market in a frenzy.  But, say you’re a social media company determining what ads to send to a user based on their likes, or a health care professional that wants to understand the day-to-day patterns of the patients they care for, or a professional sports team hoping to identify what players fit their team’s style of play…AI can assist.  AI is providing insights and analyzing data at a pace never seen before.  Combine that with a seemingly endless use of applications and you can start to see what the fuss is about.  Just how endless and how big the opportunity will be is open to debate.

However, if you’re starting to think AI can do it all then you’d be mistaken.  Sending the technology off on its own with shoddy or too generalized instructions can lead to bizarre outcomes.  Notably, at the bottom of the ChatGPT website reads a disclaimer that says, “ChatGPT can make mistakes.  Consider checking important information.”  Also, what we didn’t tell you is that the image creator often provides you with options including misspelled words, humans with more than ten fingers and horses that look more like dogs.  Mistakes aside, we still had one last challenge for ChatGPT.  We asked what will be the best performing stock of the year 2024.  It’s response:

I'm sorry, but I can't predict specific future events such as the best performing stock of the year 2024. Stock performance depends on a multitude of factors including market conditions, company performance, economic trends, geopolitical events, and more. It's important to conduct thorough research and consult with financial experts before making investment decisions.

And there you have it.  For the time being, humans still have a place in this new AI world.  The great chess champion, Magnus Carlsen, told an interviewer, “I don’t look at computers as opponents. For me, it is much more interesting to beat humans.”  So it is with investing.  Nevertheless, there is no doubt AI will invade Wall Street, but, in our view, until fear and greed are eradicated from the human psyche, opportunities will be plentiful.    

If you have any questions give us a call at 502-339-8270.  We can assure you that your questions will not be answered by virtual assistants or robots.

We appreciate your loyalty and promise to bring real, not artificial, intelligence to the table when thinking through your needs and how best to serve them. 


The Harvey Investment Company Team

Sam Harvey, Hunter Noble, Josh Jevne, Mary Herrmann, Will West