Too often beginner investors make common mistakes, potentially ruining their appetite to participate in the wealth-generating wonders of the share market. One mistake is confusing a company's nature with automatic success.
Could buying BrainChip Holdings Ltd (ASX: BRN) shares today be one of those mistakes? We all know that artificial intelligence (AI) will be one of the defining technological advances of the 21st century. But that doesn't mean all companies that operate in the AI arena will be automatic winners.
Let's rewind two decades. It was obvious that mobile phones were going to take off as a popular consumer good. But that didn't mean that investments in Nokia or BlackBerry were a good idea.
Branchip is a company that uses neuromorphic computing. Neuromorphics is a division of AI that attempts to simulate neurons that are found in the human body.
Now, this might be a promising and fascinating branch of AI. But it takes a huge degree of expertise to understand this technology, let alone make a determination of how to successfully monetise it.
The legendary investor Warren Buffett likes to say that investors should stay within their circle of competence, and not invest in businesses they don't understand. It's why Buffett himself stayed away from investing in technology companies for so long – even as he was watching other investors get mighty rich from tech shares.
I think that investing in businesses that are easily understood is a good idea for most investors, but particularly for a beginner. Companies with relatively simple business models, perhaps a Coles Group Ltd (ASX: COL) or a JB Hi-Fi Limited (ASX: JBH), might be a good place to start. But a neuromorphic artificial intelligence company? Not so much.
Why Brainchip is the perfect ASX share for a beginner… to avoid
What's more, Branchip isn't even a profitable company. The AI share reported its latest earnings just last month. And they showed that Brainchip delivered a loss after tax of US$22.1 million for the 2022 calendar year.
So we have a loss-making company that operates in a niche of the AI world. Not exactly a great share for a beginner investor to cut their teeth with, in my view.
Brainchip may be a great business with a bright future. AI might even turn out to be one of the most important technological advances of the century. But it's not a business that I personally feel qualified to invest in. Nor do I think anyone but an expert investor with a deep understanding of AI is.
So my humble advice for a beginner would be to stay away from complex tech shares like Brainchip, at least until they have some experience and runs on the board.
