As a little boy in the 1970s, I was obsessed with science and maths, so I read thousands of science-fiction books. Later, I switched to real-world science. Today, I’m an investing nerd. And what fun I had when asking a leading artificial intelligence (AI) program about the Lloyds Banking Group (LSE: LLOY) share price.
AI & I
What’s amusing me at the moment is the widespread belief that generative AI (GAI) is going to change the world, while making investors many trillions of dollars. My long experience leads me to believe that this is a hyped bubble waiting to burst.
For example, I asked a leading AI-powered chatbot to write an article in my style. Having been a financial writer for over 20 years, I could see this ‘word spaghetti’ for what it was. Frankly, it delivered what I’d describe as vague, high-level gibberish.
Next, I asked this chatbot to write about value investing as I would. Again, it came back with well-meaning, but ultimately nonsensical, gobbledygook.
Third time lucky? I then asked the bot to write about the Lloyds share price as I’ve done. Once again, what came back was utter tosh — something that any decent editor would reject in a heartbeat.
You can’t spell painful without AI
What was interesting about the chatbot’s third article was how easily I identified various biases and hallucinations in its output.
For example, the bot claimed that the group’s origins go back to 1765. In fact, its Bank of Scotland arm dates back to 1695 — I know, because I worked there for several years. Also, it claims that the group has 30m customers. I used to quote this figure, but it is actually closer to 27m nowadays.
Then the chatbot claimed that Lloyds is ‘a beacon of stability and innovation in UK banking’. Really? That ignores the fact that this firm nearly went bust in 2008, requiring a huge taxpayer bailout to stay afloat.
Actually, like many other clearing banks, the Black Horse bank struggles with legacy IT issues. That’s because some of its crucial systems rely on ancient programming languages such as COBOL (Common Business Oriented Language), which was outdated even in the mid-2000s.
My view on Lloyds shares
Another bizarre thing about the chatbot’s review of Lloyds stock was there wasn’t a single number in it. While share fundamentals lie at the heart of value investing, LLMs (large language models) don’t handle numbers well.
As I write, the Lloyds share price stands at 47.91p, up 14.4% in a month and valuing the bank at £30.7bn. However, the shares are down 7.5% over one year and 22.6% over five years. It’s much the same story for other big British banks.
However, these figures exclude cash dividends, which are the primary reason my wife and I invested in this Footsie stock in mid-2022, paying 43.5p a share. Currently, this stock offers a dividend yield of 5.8% a year, covered more than 2.7 times by trailing earnings.
To me, this cash stream is a good enough reason to own Lloyds stock, which I still think is too cheap today. Then again, rising loan losses and bad debt, plus slower credit growth, will likely lower the group’s profits this year. But my ‘real’ intelligence tells me to keep my stake for the long run!
