In this article, I pull back the curtain on my entire personal portfolio — at least the portion I actively manage — to give some insight into portfolio construction, my 2023 mistakes, and where I most see opportunity for 2024 and beyond.

Let's begin.

Inside my share portfolio

Despite it being another eventful year full of trials and tribulations, equity markets are in the green as we approach the home stretch. The enticing proposition of 5% interest, or more, on cash savings has failed to put a dent in the S&P/ASX 200 Index (ASX: XJO) — returning 3.3% year-to-date at the time of writing.

Ironically, the tech and consumer discretionary sectors have been 2023's breadwinners — creating some juxtaposition with the ongoing economic tightening. Investors looking ahead to future interest rate cuts might have supported the buoyant optimism in these sectors.

Nonetheless, it meant a much rosier year for my share portfolio, recovering from a rough performance in 2022. As of 7 December 2023, my collection of companies had returned 30.1% YTD, exceeding the Vanguard MSCI Index International Shares ETF (ASX: VGS) by approximately 10%.

While the result is good for the ego, I'll hold off until the 10-year or 20-year return before I go chalking up a win in my books. Still, I'm pleased with the refinement of my share portfolio this year — now holding the following companies:

The 10 largest equity positions in my portfolio constitute approximately 65% of my holdings. This is intentional. These positions are my highest conviction investments, the ones I'm most comfortable having large sums of money in.

During my almost seven years of investing, I've come to learn that time is your most scarce resource as an investor. As such, I dedicate the majority of my time and money towards the top 10 largest holdings in my share portfolio.

If I were to try to know all 22 companies intimately, I think I'd risk being stretched too thin. I still know the nuts and bolts of the remaining 12 companies, but not enough to warrant larger allocations of my wealth to them.

Biggest mistake of 2023

I was taught an expensive lesson this year by an investment in Unity Software Inc (NYSE: U).

Heading into 2023, the game development software company was one of my largest holdings. Due to its robust revenue growth, I was willing to look past the lack of profits. Unfortunately, I also overlooked a few red flags.

The first bright red flag… the company made an enormous US$4.4 billion acquisition at the end of 2022 before refining its own business — funded completely by issuing stock, no less. Secondly, the CEO, John Riccitiello, had a poor track record in making customer-friendly decisions.

Unity announced plans to charge game developers per game download, a move that reportedly would have bankrupted some. The move, since canned, was reminiscent of Riccitiello's proposition to charge Battlefield players to reload in-game.

I eventually sold out of Unity Software in May after learning the hard way how costly poor management can be.

Stock buying plans for 2024

As noted earlier, 14.5% of my share portfolio is sitting in cash. I plan to put this money to work as opportunities arise next year.

For example, Resmed is a relatively recent addition, getting added amid the Ozempic-driven sell-off. I still think the medical device maker trades at an attractive valuation. While weight-loss drugs are expected to reduce the sleep apnea market somewhat, I think the size of the forecast reduction is overblown.

Another ASX share I'm looking to add to is Sonic Healthcare. The chart below shows that Sonic is an insignificant holding in my share portfolio. The paltry position doesn't align with my level of conviction in the medical services provider — it should be much larger.

Lastly, several companies on my watchlist could find their way into my portfolio next year. I'd argue companies such as Kone Oyj, Trane Technologies PLC (NYSE: TT), Super Retail Group Ltd (ASX: SUL), and Nick Scali Limited (ASX: NCK) are high-quality and attractively priced.

The post Rare reveal: A glimpse into my complete share portfolio heading into 2024 appeared first on The Motley Fool Australia.

The technology is the hot talking point at the moment after the spectacular rise of generative engine ChatGPT.

But for stock investors, is AI just a fad or a fair dinkum theme that they need to pay attention to?

Montaka chief investment officer Andrew Macken had some thoughts:

1. 'Last problem humans will ever solve'

Although the tech isn't quite there yet, eventually the real value of AI will be its "general problem-solving capabilities".

"AI will likely represent something like a 'skeleton key' that will unlock the solutions to the world's scientific, medical, and engineering problems," Macken said on the Montaka blog.

"This is why some experts much smarter than myself believe that 'solving' artificial general intelligence (AGI) – that is, building a model, or collection of models, that are general problem solvers – will be the last problem that humans ever solve."

Macken has no doubt AI will "unambiguously increase the productivity of humans".

"Already, tools around content generation – whether in text, images, or code, such as transcription and translation, just to name a few obvious ones – are drastically reducing the time and cost associated with many tasks."

2. Universal basic income might be necessary

As for AI's impact on the economy, inequality might impede potential gains.

"In the hypothetical extreme (just as a thought experiment), if [labour] is essentially no longer needed for most professional tasks, then we end up with most of us being unemployed with no source of income," said Macken.

"And the bulk of the economic spoils of this new economy will accrue to a small number of companies which own the AI models."

Economic inequality is a headwind for consumption growth, thus economic growth, and, by extension, earnings growth for ASX companies.

"While most people spend the majority of their earnings on goods and services which keeps the economy growing, the wealthy few simply can't spend enough of their wealth – especially as it expands."

This is why an idea that's been previously consigned as too radical could re-enter public discussions.

"Many experts who have been thinking about this future scenario for a long time believe that societies will need to adopt some kind of Universal Basic Income (UBI) over time," said Macken.

"Such an idea may sound really strange at first, but empirical studies are showing lots of counterintuitive benefits around greater risk-taking and entrepreneurship."

3. AI could trigger another dot-com boom

Could AI push some stocks into the stratosphere, as the internet did 25 years ago?

Macken reckons there's absolutely potential for that, but "it will probably look and feel a bit different" to the late 1990s.

"So, today, for example, we see some AI-related stocks that look overvalued due to the hype," he said.

"And we see lots of business[es] – in nearly every industry – that are going to be impacted by AI in a meaningful way. Some positively and some negatively."

Thus it could be a polarising effect. Not a pure boom because some companies and sectors will go bust.

"Our sense is that this transformation is going to split winners and losers in a much more definitive way than the dot-com boom did 25 years ago."

4. The losers to avoid

Which are the stocks and sectors that could be punished by the rise of artificial intelligence?

According to Macken, one big group of losers will be businesses that make their living from "charging a lot of money for services that can now be performed by AI models at negligible costs".

"Last month, for example, a business in the US called Chegg Inc (NYSE: CHGG), an online educational platform that assists students with their homework, told investors they now believed ChatGPT was having 'an impact' on new customer growth – and not in a positive way," he said.

"The stock basically halved in a day. There will probably be a lot more of these situations over time."

Then there are companies that are too slow, or even stubbornly refuse, to adapt to new intelligence tools.

"One way to think about it is something like this: if my competitors can all deliver the same product at a greatly reduced cost thanks to AI-based applications, then I had better reduce my costs too, or else the inevitable price deflation that's coming will wipe out my profits."

5. This is how investors can use AI

While no one would recommend leaving investment decisions to artificial intelligence just yet, there are ways to deploy the tool to assist your stock picking.

Macken breaks down the investment process into two distinct phases: "production" and "insight crystallisation".

Production is the research — "all the required reading, writing, and analysing" of potential ASX shares to buy.

Insight crystallisation is "all about thinking deeply and creatively about implications", calculating the likelihood of different outcomes and then deciding on "high-probability perceptions" that could be investment opportunities.

Right now, AI can assist investors in performing the production phase.

"It will allow investors to go much wider and deeper in a much shorter amount of time," said Macken.

"My recommendation would be to go wider and deeper, for sure, but also reinvest some of those time savings in more insight crystallisation. Ultimately, I believe this is where the value-add will remain for human investors for the foreseeable future."

The post 5 things you should know about investing in artificial intelligence right now appeared first on The Motley Fool Australia.