Noteworthy years in the stock market tend to be associated with specific events or themes. For veteran investors, 1987 invokes memories of “Black Monday,” while 1999 to 2001 will be forever linked with the “dot com” boom and bust. While not quite as dramatic as those periods, this has been the year of artificial intelligence (“AI”), a technology that has surged into the public consciousness and rippled through the economy. You may wonder, what does this have to do with me? Perhaps more than you think.
Let’s start with some positives. A surge of investor enthusiasm for stocks associated with AI has bolstered market performance, as the ten largest S&P 500 technology names have produced an average YTD return of +25.5% vs. +9.6% for the Equal-weighted S&P 500 Index.1 In such a “top heavy” market, one may be tempted to follow herd momentum, a phenomenon we have previously discussed. To be clear, high growth rates are appealing, yet value still comes back to fundamentals. Our research process requires not just growth, but also conviction in a company’s business model, sustainability of earnings, and management, among other factors.
Many other aspects of our daily lives are also being impacted by AI technology. A few examples include GPS navigation systems, wearable healthcare devices, medical diagnostic systems, and virtual assistants such as Siri and Alexa. These and other applications offer instant access to information, encourage healthier lifestyles, streamline healthcare delivery, and enhance consumer convenience. Turning to the younger generations, AI is transforming education by dramatically accelerating innovation in teaching and learning. The days of searching the library aisles for source material are long over, yet technological change does not come without its complications.
The age of AI, like so many other innovation cycles, has introduced a host of concerns. Misinformation, algorithmic or systematic bias, an erosion of critical thinking, and the loss of human connection are all very real risks. At Appleton, we try to focus on what we can control, and relative to AI, understanding where information comes from is as important as the content itself. Our research teams do not currently use AI tools. However, If and when we do incorporate the use of AI in the research process, we will not deploy those tools or other research technology to gather information from sources that we cannot identify and/or do not consider to be highly credible. In other words, we largely constrain our research environment to content drawn from companies and bond issuers themselves, as well as other reliable sources, and then draw our own conclusions. But gathering and synthesizing data and analysis of this nature is time-consuming, and AI and related search applications can be extremely useful in the research process.
It is often said that portfolio management is an art and a science. One must gather a wealth of insight concerning the economy, public policy, the capital markets, listed stocks and bond issuers, and then determine how best to utilize this information. To us, AI is a tool – a valuable analytical input – but will never be a determining factor in how we make investment decisions. Our research process, security selection, and portfolio construction remain squarely in the domain of our Equity and Fixed Income Investment Committees and our Wealth Managers.
Furthermore, we view risk in personal terms. Risk is not just a quantitative metric such as standard deviation or benchmark tracking error; it’s a critical element of personal financial planning. A portfolio strategy designed around your circumstances and objectives may not be appropriate for someone else. While AI tools are highly sophisticated, our risk judgment is not going to be outsourced to any algorithm. Understanding each client’s investment personality, needs, and goals is required to determine risk tolerance and, ultimately, asset allocation strategy. So, don’t expect a bot to replace your Appleton Wealth Manager any time soon.
In a highly competitive industry, delivering compelling value demands efficiency and productivity in all areas of our business. AI is a technology we are actively exploring, and you can rest assured that any usage we may undertake will be thoughtfully considered. We will employ AI tools where they can help us gain productivity, but we will never compromise the personalized nature of our wealth management services and the judgment of our professionals.
1. NVDA, MSFT, AAPL, AMZN, META, AVGO, GOOG, TSLA, BRK.B, ORCL; performance measured 1/1/25 – 9/30/25.
This commentary reflects the opinions of Appleton Partners based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information. Specific securities identified and described may or may not be held in portfolios managed by the Adviser and do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed are, were or will be profitable. Any securities identified were selected for illustrative purposes only, as a vehicle for demonstrating investment analysis and decision making. Investment process, strategies, philosophies, allocations, performance composition, target characteristics and other parameters are current as of the date indicated and are subject to change without prior notice. Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen, or experience. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.