- A peek under the hood
- When is an AI company not an AI company?
- Do you like crypto, but don’t like crypto?
As we’ve explored over the last week, the world of small-cap stocks can be a fun and exciting place to invest. When you implement a few tricks and use a few tools to filter down your investment pool, there’s a world of great companies out there with opportunities that can come from unexpected places.
But as promised on Wednesday, I wanted to give you a look into some of the existing companies that we have run the ruler over and currently have sitting in our buy list, right now in Small Cap Investigator.
Below, you’ll see some of the work we do, the dots we connect and how we approach our analysis of the small-cap segment of the London Stock Exchange.
It’s not your typical kind of broker coverage that you might find available online. But then again, as a reader of Fortune & Freedom, you’ll know, when do we ever do things in a typical fashion?
The first one that we’ll let you look at is a company trading on the London Stock Exchange that’s deeply rooted in artificial intelligence (AI), except that you’d never know it unless you knew what you were looking for.
What is AI and why did this overnight success take ten years to reach us?
I have been covering the developments in AI for the better part of a decade now. Some of my earlier work looked at the implications of the (now defunct) BRAIN Initiative funded by the US government’s Defense Advanced Research Projects Agency (DARPA). I also covered work undertaken by Sir Tim Berners-Lee and Sir Nigel Shadbolt, and then looked into the kinds of companies that are pushing forward AI research and development such as IBM and Nvidia.
In fact, it was in November 2013 that I wrote a research report on Nvidia discussing the work that the company was doing with AI, noting that:
… [in mid-2013] Nvidia trumped Google and created the world’s largest artificial neural network.
As a point of comparison, Google used 1,000 CPU-based servers – about 16,000 CPU cores.
Nvidia in collaboration with Stamford Uni created an equally large network with only three servers… that’s right, three. But by the time they’d finished, Nvidia had 16 servers, all powered by Nvidia GPUs. The completed network was 6.5 times bigger than what Google had created.
This was only possible because of the key difference in using GPUs vs CPUs.
The point to all this is as we rely more and more on computing to process information. It’s vital to leading us to a world of more advanced technologies.
It might be in the form of weather simulations. It could be the Google Maps in your sat-nav. Augmented reality through your wearable tech as you walk down the street. And it might even be a key part of machine learning and artificial intelligence…
It was around this time that I was also looking at the relationship between open-source data and its integration into advanced machine-learning technologies.
The conclusion that I drew was that we were entering into a future not necessarily of “artificial” intelligence, but “augmented intelligence”.
That’s where, I believe, we are today and will remain for some time: but therein lies the opportunities for investors.
You see, it’s important not to get too swept up in the noise and commotion surrounding AI. Already, we’ve seen alarmist and fearful reporting on the immense threats that AI poses to the world. The pessimists say that we will see it change the balance between people and computers: jobs will disappear as AI takes over.
It’s very easy to get swept up into the hysteria about it all. And to be fair, that’s in part due to the accessibility of ChatGPT.
However, what the media is seeing with ChatGPT is not necessarily what you’re getting.
The truth is that it’s highly advanced when it comes to the synthesis and analysis of data, and interpreting that into real-world language. It’s a natural form of advanced machine learning. But is ChatGPT intelligent? No.
Is it a fascinating tool that we can use to augment our own intelligence though? Yes.
And when you make the distinction between AI and augmented intelligence, I think that you’ll see ChatGPT for what it truly is: you will see its potential and limitations.
As I see it, it is not necessarily the “pure-play” AI companies that have the real potential for the long term.
No: the real opportunities come from companies that are already on a solid footing financially, relatively unknown and able to supercharge their businesses by applying AI.
And the company that we’ve added to our buy list is exactly that.
Of course, I can’t give you the name of the company, specifically, that’s reserved for our subscribers to Small Cap Investigator. But it gives you an idea of how we look to introduce a company to our readers that is integrating the most important technology of the modern era.
It’s not just AI that we look at either. In fact, one topic that we’ve been hot on for some time and is of the most important relevance today is the emergence of bitcoin, crypto and blockchain technology.
Considering the de-banking of our own Nigel Farage right now, we’d argue that there’s never been a more important time to understand all about bitcoin, crypto and how this emerging sector is ready and ripe for investment.
So, let’s look at one of our more recent approaches to crypto investing…
A cheap and easy way for UK investors to access the crypto world…
The global crypto revolution is unstoppable.
This is because cryptocurrencies are at the heart of decentralised finance (DeFi), which is encroaching on the traditional finance (TradFi) system.
Examples are numerous and include payments infrastructure, brokerages, “savings” applications, lending and borrowing, and governments legally defining bitcoin as legal tender (as El Salvador has done).
However, it would be incorrect to suggest that the rise of DeFi is always at the expense of TradFi. Rather, it is sometimes because the barriers between the two are falling.
For instance, exchange-traded funds (ETFs), which are very much creatures of the TradFi world, are now providing access to crypto.
We’ve already seen the arrival of the first bitcoin futures ETF on the US markets, called the ProShares Bitcoin Strategy ETF, in October 2021. This was after the world’s first bitcoin ETF launched in Canada, back in March, but the poor, old Canadian market never really gets the credit that it deserves.
Now, some of the world’s biggest fund managers, BlackRock, Fidelity, Invesco are all lining up to get their own bitcoin ETFs approved and investors are piling in.
Of course, when a bitcoin ETF hits the US markets, it’s a big deal.
More bitcoin and crypto ETFs will follow. Some will be direct exposure to “spot” crypto, and some will be derivative products. Many will be companies, listed on stock exchanges around the world, with a crypto and blockchain-specific focus.
What this all means is the continued, successful integration of crypto with TradFi systems, which will go a long way in boosting confidence in this new system of money among potential users who are seeking to venture into this world.
And the amazing thing is that, despite all the furore and excitement around crypto, it’s still early days and there are plenty of ways in which to get involved.
Some people will invest directly in crypto.
There will be some who invest indirectly through companies that are domiciled overseas, like Coinbase (NASDAQ: COIN). And, if and where available, some will invest in ETFs that give exposure to a variety of crypto opportunities.
This is all fine and dandy, but – for now – there’s a bit of a problem if you’re an investor in the UK that wants to add crypto-centric positions to your long-term portfolio.
There are not a lot of options…
The UK roadblocks
One problem is that the few crypto-focused companies that are listed on the London Stock Exchange are high-risk businesses.
Also, in 2020, the Financial Conduct Authority (FCA) banned the sale of all crypto-derivative products to UK retail consumers. The FCA said:
… the FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives (ie contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable crypto assets by firms acting in, or from, the UK.
This put the brakes on any kind of crypto-related product that had been available to investors who were accessing markets through vehicles like self-invested personal pensions (SIPPs) and individual savings accounts (ISAs).
The FCA’s ruling stunted and still prohibits growth in the UK for a sector where there is clearly appetite from investors.
Therefore, for most UK investors, getting crypto exposure in investment accounts means investing overseas. Canada and the US are the two major markets for these companies.
But there are others that are much harder to invest in for the average investor like China, Japan and Hong Kong.
Investing overseas can be problematic and, for many, quite scary. Foreign exchange rate fluctuations can erode gains and there are extra costs that come with currency conversions.
In addition, bureaucracy and regulations within different jurisdictions can make the investing process arduous and complicated. For instance, do you know what a W8-BEN form is? This is the document that you need to sign and understand before investing directly into US markets.
We can tell you, even as seasoned investors, it’s a daunting form that would terrify us if we were new to all of this.
In addition, to get a good, diversified exposure to everything from crypto miners to exchanges, infrastructure providers, companies holding bitcoin direct on their balance sheets, you’d need to hold at least a half dozen or more stocks. That means a larger capital outlay, and more transaction costs…
Phew! It’s all just a bit too much.
If you want to invest in a huge, future investment idea like the crypto revolution, for the last few years, there has not been an easy way for anyone in the UK to invest in a wide selection of these investments, easily, cheaply and right here in the UK market…
At this point, again, we’d share with you the specific recommendation, but again, the only way to get your hands on that is to join us at Small Cap Investigator.
You can do that here if you’ve liked what you’ve seen so far.
And I should also add a thanks for reading all that we’ve had to write about small-cap investing this week.
It’s been, somewhat, of a departure from your regular Fortune & Freedom reading, but our view is that if you really want individual liberty, freedom and control over your own destiny, then you need to be investing and building your wealth.
Small-cap stocks are a great way to do that, and it’s an area that we’ll continue to cover and recommend as an investment to our readers. If you think it’s something that you should be investing in, then head here to read a bit more about what we do and join me and other investors just like you at Small Cap Investigator.
Editor, Fortune & Freedom