Fundie vs AI: Who is the better stock picker? (and 10 ASX stock ideas for your trouble)

I was 10 years old when Terminator 2 came out, the sci-fi movie starring Arnold Schwarzenegger, premised on artificial intelligence that becomes ‘aware’ and proceeds to surmise that humans are the problem and we best be exterminated.

A few years later, in 1996 and 1997, reigning world chess champion Garry Kasparov took on the supercomputer Deep Blue. Kasparov prevailed in 1996 but in 1997, he was defeated – the first defeat of a reigning world chess champion by a computer under tournament conditions.

My then-adolescent brain put the two together and was sure that the end of days was upon us. Of course, the passage of time has proven that not to be the case.

AI has come a long way since the days of Deep Blue, to the point that it can now spit out reasonably well-reasoned stock picks – on the face of it, at least.

So what better use of this wondrous new technology than to ask it to select five stocks in a particular style and pit it against a real stock picker, in a fun thought experiment?

For mine, I'm backing the human stock pickers (for now). 

The parameters

• Each competitor is to provide five stock picks within the given factor (growth, income, etc) and provide a short summary of the bullish thesis.
• We will track the performance over the following calendar year, with entry prices calculated from COB, 5 February 2024, to answer the question: Who is the better stock picker?
• We recognise that this is nothing more than a fun, but nonetheless important, thought experiment. Ultimately, AI will likely become a tool that all use to make more informed decisions, across a broad range of topics.

The competitors

• In the blue corner, we have Google’s AI – BARD. Bard was released on 21 March, 2023, and is available in 46 languages and 238 countries.
• In the red corner, we have Dr Don Hamson from Plato Investment Management. Don is a Livewire fan favourite, with over 25 years investment management experience. He founded Plato Investment Management Limited in 2006 and has written a number of white papers on after-tax investing, and has spoken at many conferences and seminars on this subject. Prior to Plato, Don was Head of Active Equities, Asia Pacific and a member of the global Senior Management Group at State Street Global Advisors, responsible for over $10B in active and enhanced equity investments.

The disclaimer

The information provided below is not, nor is it intended to be, a set of recommendations. It is provided for educational purposes only. Please do your own research and seek advice from a professional before investing. Past performance is not a reliable indicator of future return. 

The stock picks

• Bard

On Monday 22 January, my more tech-savvy colleague, Kerry Sun, asked Bard for the five best growth and five best income stocks for the next 12 months. We are focused on income stocks in this wire (growth wire to follow shortly) and Bard provided the following:

Predicting future performance is tricky, but here are five ASX 200 contenders for potential income in the next year:

1. Harvey Norman (ASX: HVN): High dividend yield & possible rebound after profit dip.
2. National Storage REIT (ASX: NSR): Growing demand for self-storage & consistent dividend payouts.
   
3. Transurban (ASX: TCL): Toll giant enjoying increased traffic & reliable income stream.
   
4. Macquarie Group (ASX: MQG): Financial powerhouse with diversified revenue & solid dividend history.
   
5. Dexus Property Group (ASX: DXS): Office landlord, recovering rental market & attractive current yield.

• Dr Don Hamson – Plato Investment Management

On Thursday, February 1, having seen the list compiled by Bard, Dr Hamson came out swinging and provided the following:

AI seemingly tends to buy stocks with depressed prices which suggests it has an inability to spot dividend traps. We also note AI doesn’t seem to consider the benefits of franking credits. On top of the $90 billion returned to investors in ordinary and special dividends during the 2023 calendar year, an additional $30 billion was paid out in franking credits – that’s a $30 billion missed opportunity for those outsourcing their investment decisions to Bard!

1. Ampol (ASX: ALD) – Ampol is Australia’s largest fuel refiner and retailer. It pays a strong yield and holds a very healthy franking balance on its accounts. We think there’s also potential for special dividends to come.
2. JB Hi-Fi (ASX: JBH) – JBH has a strong management team with a proven track record in discretionary retailing. It has maintained sales despite interest rate rises and cost of living pressures. Income-seeking investors should continue to see their JBH stock deliver.
3. Macquarie (ASX: MQG) – Whilst Macquarie doesn’t pay fully franked dividends, it has a great track record of growing earnings and dividends. A reliable yield generator in income portfolios.
4. Medibank Private (ASX: MPL) – We maintain a positive outlook on insurers as they’re positioned to benefit from higher interest rates, and in Medibank’s case, lower claims.
5. Rio Tinto (ASX: RIO) – The mining giant continues to deliver solid outcomes for shareholders, despite the doomsayers. With prices remaining elevated, its high exposure to iron ore is just one key reason we think it’ll provide investors strong dividends over the coming year.

See you in 12 months

There you have it, everyone; the picks are in. We will revisit the selections in 12 months. Who do you think the winner will be and what are your thoughts about abdicating investment responsibility to AI? 

Whilst this is a fun thought experiment, that is a question that you will likely need to answer at some point in your investing journey, especially those in the younger cohort. Share your thoughts in the comments section below.