Eric Marais
Artificial intelligence may give investors access to more information and greater processing power than ever before, but it could also amplify herd behaviour and make markets less efficient, according to global contrarian investment manager Orbis Investments.
In its latest whitepaper, New Tools, Old Habits: Investing in the Age of AI, Orbis argues that while technology has transformed how investors access and analyse information, the human behaviours that drive markets haven’t changed.
Eric Marais, Head of Investment Specialists at Orbis Investments, said AI could accelerate those behaviours by allowing investors using similar tools and data to reach the same conclusions faster.
“AI has the potential to be genuinely transformative, and we are embracing it ourselves. But better tools don’t necessarily make better investors,” Mr Marais said.
“If investors are using similar tools trained on similar data, their conclusions may increasingly converge. Instead of making markets more rational, AI might just make the herd move faster.”
Orbis’ research shows that despite decades of improvements in investment technology, the dispersion between the most and least expensive stocks remains close to some of its widest historical extremes – challenging the assumption that better technology and more information will necessarily make markets more efficient.
Getting the technology right isn’t enough
Orbis argues that the key investment question is not whether AI will be transformative, but whether investors are paying the right price for the companies expected to benefit from it.
The whitepaper points to the experience of Zoom during the pandemic. In 2020, the video-conferencing company was briefly worth more than ExxonMobil as lockdowns transformed the way people across the world worked and oil markets collapsed. In the years that followed, Zoom’s shares lost 90% of their value, while ExxonMobil rose more than five-fold.
“The lesson isn’t that the technology was wrong. Zoom was exactly what a suddenly remote world needed,” Mr Marais said.
“The mistake was allowing an irresistible narrative about the future to become detached from what investors were actually paying for it. AI may change the world, but that doesn’t mean every price attached to the AI story will prove justified.”
“The question today isn’t whether AI is real. It’s who ultimately captures the value it creates and what price investors must pay to participate,” Mr Marais said.
The opportunity may be away from the herd
AI is also arriving at a time when global equity markets are increasingly concentrated, with a handful of mega-cap companies dominating headlines and benchmark weights.
Orbis argues this makes independent thinking particularly important. For investors prepared to take genuinely differentiated positions, it sees potentially greater opportunity away from the most crowded parts of the market – including ex-US developed markets and emerging markets, where indices can be less efficient proxies and analyst coverage thinner.
“When everyone is looking in the same place, the competition for an investment insight is naturally much greater,” Mr Marais said.
“The payoff to skill and judgement can be greatest where fewer investors are exercising it. That doesn’t guarantee success, but it can provide a more favourable starting point.”
Independent thinking becomes more valuable
As AI tools become more widely available, Orbis believes the technology itself will become less of an investment edge. Independent thinking will matter more.
Orbis is itself using AI to interrogate more than three decades of proprietary investment research and decision-making data. But investment decisions remain firmly in the hands of its investment professionals.
“When everyone has access to increasingly powerful tools, simply having the technology isn’t an edge,” Mr Marais said.
“AI can make investors more productive, but if everyone has access to similar tools, that advantage quickly becomes table stakes. The enduring edge is the ability to challenge your own conclusions, think independently and recognise when the herd might be wrong.”