Memorandum
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- Delaney Sawyer via Fortune | FORTUNE
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- Business·4 min to read
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David Booth: AI won’t change how markets set prices
ReDavid Booth: AI won’t change how markets set prices
Dimensional Fund Advisors founder David Booth argues that artificial intelligence, despite its transformative potential, will not help investors beat the stock market. He urges broad diversification over stock picking.
Artificial intelligence may reshape medicine, transportation, and the nature of work, but it will not change how prices are set in stock and bond markets, according to David Booth, founder and chairman of Dimensional Fund Advisors. In a commentary published by Fortune, Booth argues that the core mechanics of public markets — where millions of daily trades between buyers and sellers settle on fair prices — are immune to the predictive power of even the most advanced AI models.
Booth, who studied at the University of Chicago during the early days of market data research, points to a century of returns data showing that US stocks have averaged about 10% a year. That record, he says, demonstrates that most professional stock pickers cannot reliably beat the market over time. The stock market, in his view, functions as the world’s largest information processing machine, reflecting all available information faster than any human or model ever could.
To believe an AI agent can help you beat the market, Booth writes, you would have to believe it can know which stocks are mispriced and when. But returns are inherently uncertain, and no one — including an AI agent — knows what is coming. Even if AI improves the accumulation of information, that benefit would be shared by all market participants, making it unrealistic to expect one particular model to systematically outperform the competition over the long haul.
Booth also cautions against concentrating portfolios in AI stocks. He draws a parallel to the dot-com boom, noting that of the top 20 telecom stocks in 1999, only one survived in its original corporate structure 25 years later. Lucent Technologies and Nextel Communications led that pack at the time. Some of today’s market leaders will thrive, he says, but others will not, and entirely new winners will emerge that no one is talking about now. Google, he notes, did not go public until 2004.
“Who would have guessed Levi Strauss would be one of the big winners from the Gold Rush?” Booth asks. “No one knows who will win. So why make the bet? Trying to pick a big winner could turn you into a big loser.”
Instead of gambling on individual companies, Booth recommends owning public markets through a broadly diversified portfolio that includes AI stocks and many others. This approach, he argues, allows investors to participate in whatever the future becomes rather than betting on what they think it will become. Public markets finance thousands of competing ideas, some of which will result in spectacular failures, while moving capital rapidly toward what works.
With more than $1.2 trillion in expected capital spending in 2027 on everything from data centers to chips, the next big winners could be in Big Tech — or they could be in an entirely different sector. By buying and holding a diversified portfolio, Booth says, investors can pursue their financial goals without wasting time trying to guess which company will be the next big thing.
Booth emphasizes that open public markets have expanded the beneficiaries of innovation. Ordinary people, not just founders, venture capitalists, and insiders, can enjoy long-term wealth creation on aggregate without running the risk of overconcentration. He remains hopeful that AI will help people solve big problems and improve millions of lives — it may even make a better refrigerator. But, he concludes, it is unlikely to help anyone beat the market.
