Simon Edelsten quoted in Reuters’ ‘Analysis: Investors use dotcom era playbook to dodge AI bubble risks’

Asset managers need to be nimble to ride the wave

“The odds of this [AI boom] being a bust are very high because you’ve got companies spending trillions and all fighting for the same market that does not yet exist,” said Goshawk Asset Management CIO Simon Edelsten, who worked on telecom IPOs at stockbroker Dresdner Kleinwort Benson in London in 1999.

He expected the next phase of AI fever to spread from Nvidia and others like Microsoft and Alphabet into related sectors.

Timing the phases of a bubble has historically been a way to play it without the risk of trying to call the peak too early.

A study by economists Markus Brunnermeir and Stefan Nagel showed that hedge funds mostly did not bet against the dotcom bubble, but rode it skillfully enough to beat the market by about 4.5% per quarter from 1998-2000 and avoid the worst of the downturn.

They shed high-priced internet stocks in time to recycle profits into others before they caught the attention of less sophisticated investors.

“There were good profits to be made for the fleet of foot even during 2000 when the top came,” Edelsten at Goshawk said, adding the current market environment was similar to 1999.

He favoured IT consultants and Japanese robotics groups that can potentially pick up revenues from AI heavyweights, in what he said was the typical chronology of a market gold rush.

“When someone strikes gold, [you] buy the local hardware store where the prospectors will buy all their shovels.”

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