The Digest #82
Kahneman on AI, PPP Fraud, Druckenmiller on the Fed, Greenblatt on Investing
“The most worthless of mankind are not afraid to condemn in others the same disorders which they allow in themselves; and can readily discover some nice difference in age, character, or station, to justify the partial distinction.”
— Edward Gibbon, The Decline and Fall of the Roman Empire, Vol. 1, p. 164
Daniel Kahneman: ‘Clearly AI is going to win. How people are going to adjust is a fascinating problem’ by Tim Adams, May 16, 2021. “There is going to be massive disruption. The technology is developing very rapidly, possibly exponentially. But people are linear. When linear people are faced with exponential change, they’re not going to be able to adapt to that very easily. So clearly, something is coming… And clearly AI is going to win [against human intelligence]. It’s not even close. How people are going to adjust to this is a fascinating problem – but one for my children and grandchildren, not me.” Kahneman’s observation rings true, especially if humans choose to program AI not to simulate human beings, with all of our psychological and cognitive flaws, but to eliminate our flaws. If the latter, we truly have no chance against AI! (The Guardian)
Lessons From Remote School, Captured by Twin Sisters Who Pulled Through by Yoree Koh, May 14, 2021. The pandemic imposed massive costs on society, but few costs seem as severe and potentially long-lasting as the trauma faced by children who were suddenly pulled from their classes and expected to continue learning online. In theory, we now have the technology and bandwidth to provide children with the same content online that they receive in person, but theory and practice are not always the same thing. One of the saddest consequences of the pandemic is that millions of children have suffered serious setbacks not only in academics but socially and psychologically. This long-form article describes how the failure of online education impacted twin fifteen year-old sisters enrolled in a public school near Seattle. (WSJ)
Mr. Buffett on the Stock Market by Warren Buffett and Carol Loomis, November 22, 1999. Warren Buffett’s speech in July 1999 at Sun Valley was not fully appreciated at first. After a record setting bull run, stock prices were elevated and investors expected the party to continue indefinitely. However, the speech came to be regarded as almost prophetic with the passage of time. One of the important elements of the speech involved Mr. Buffett’s characterization of interest rates as “financial gravity”. The tailwind of ever-lower interest rates played a major role in rising equity prices during the great bull market of the 1980s and 1990s, and the same has been the case more recently. Revisiting this speech from two decades ago is well worth the time. (Fortune)
Hundreds of PPP Loans Went to Fake Farms in Absurd Places by Derek Willis and Lydia DePillis, May 18, 2021. The first round of pandemic aid was structured in such a hurry that fraud was nearly inevitable. Still, it is dispiriting to read about the extent of it and how flagrant the abuses were. This article, reporting on hundreds of PPP loans made by Kabbage, an online lending platform, is just one part of a broader pattern of fraud and abuse: “In total, ProPublica found 378 small loans totaling $7 million to fake business entities, all of which were structured as single-person operations and received close to the largest loan for which such micro-businesses were eligible. The overwhelming majority of them are categorized as farms, even in the unlikeliest of locales, from potato fields in Palm Beach to orange groves in Minnesota.” (ProPublica)
Reflections on Noise, May 18, 2021. This is an interesting reflection on how to process the “noise” that we all face in financial markets and elsewhere in life. The author uses the legendary story of Odysseus and the sirens as an analogy. Greek mythology describes sirens as singing music so beautiful that sailors were distracted to the point where they would crash their ships into rocks. You can choose to put wax in your ears and not hear the sirens at all. Or, like Odysseus, you can choose to listen but tie yourself up so that you will not end up shipwrecked. The author of this article is a 25 year old analyst who recently started writing on Substack full time. (Investment Talk)
Ford F-150 Lightning Revealed: An Electric Truck For the Masses by Sean O’Kane, May 19, 2021. The electric vehicle market has been getting more competitive for some time. Tesla’s Cybertruck adopts a radically different style that no one would mistake as a conventional pickup. Ford went in the other direction and announced plans to release a F-150 that looks decidedly … normal. This could be important since the truck market is known for customers who are traditionalists and are often very brand loyal. Making the leap from gasoline to electric will be enough of a shift for such customers without a radical change in styling. Whether the 230-300 mile range of the F-150 will be sufficient for truck buyers (and how much the mileage would degrade with the truck under load) remains to be seen. The Ford F-Series has been the bestselling pickup truck platform in the United States for 44 years. (The Verge)
What Do You Care What Other People Think? by Jason Zweig, May 18, 2021. Richard Feynman helped develop the atomic bomb for the Manhattan Project. His wife was chronically ill and soon died of tuberculosis. From the hospital, she would send pencils to his office with an inscription declaring her love for her husband. Although Feynman adored his wife, he was embarrassed and scraped off the inscriptions. When his wife found out, she asked him “What do you care what other people think?” Indeed, why would anyone care? Jason Zweig was influenced by this story from Feynman’s life and writes about it in his latest newsletter. (The Intelligent Investor)
Multi-Tasking and Our Greatest Fear by Lawrence Yeo, May 19, 2021. Multi-tasking used to be considered a virtue but lately it has gone out of style for a simple reason: it simply does not work for the vast majority of people. Human beings are unique in the world of animals because from a very young age, we are fully aware of our own mortality. This makes many people seek to exert control over their time by splitting their attention, but attention works best when it is undivided. This is a well written illustrated essay focusing on why we are tempted to try to multi-task and why it is the wrong approach when it comes to getting the most out of our time. (More to That)
Podcasts and Videos
Druckenmiller’s Keynote Address at USC, May 18, 2021. Stanley Druckenmiller’s keynote speech at USC’s Student Investment Fund annual meeting is remarkably candid. He makes a devastating critique of monetary policy and is very bearish on prospects for the dollar’s status as a reserve currency, stating that we have “crossed the Rubicon” breaching a point of no return on fiscal and monetary policy. It would be interesting to see Mr. Druckenmiller and Fed Chairman Jay Powell debate monetary policy, but of course this will not happen. (USC Marshall School of Business)
Brent Beshore - Learnings from a Year of Unexpected Events, May 18, 2021. Early in the pandemic, Brent Beshore and Patrick O’Shaughnessy discussed the problems facing small businesses suddenly facing a shut down. That podcast was very illuminating and I included a link to it in a newsletter published in late March 2020. It was interesting to hear Beshore and O’Shaughnessy revisit many of the same topics at a distance of fourteen months after the worst of the crisis. (Invest Like the Best)
Joel Greenblatt: Investing Made Simple, May 14, 2021. “There are a lot of smart people out there, a lot smarter than me. But if you look at things from 40,000 feet or a different angle—that’s where I have tended to have my most success. I just realized “Yes, everyone is looking at it this way, but I think that’s not the right way to look at it.” When you recognize that you have this other way to look, and that makes total sense to you and all the pieces fit when you look at it that way, I think those are the great opportunities.” (Farnam Street)
Julia Galef on the Scout Mindset, May 17, 2021. “Julia Galef talks about her book The Scout Mindset with EconTalk host Russ Roberts. Galef urges us to be more rational--to be open-minded about what we might discover about the world--rather than simply defend what we already believe, which she calls the soldier mindset. The conversation is a wide-ranging discussion of our biases and the challenges of viewing the world objectively.” (EconTalk)
How Childhood Education Will Change, May 2021. The weakness of online education has been exposed during the pandemic, as the WSJ story above illustrates. However, there are many advantages that could accrue to students if methods are found to deliver quality content online. I found my hopes for online education increasing as I listened to David Perell’s interview of Chrisman Frank and Ana Lorena Fabrega of Synthesis, an innovative approach that was spun off from the school Elon Musk started a few years ago. (North Star Podcast)
Don’t Kick People When They’re Down
Twitter is not exactly a platform you would think of if you’re looking for a sympathetic reception after suffering financial loss. More often, those who post about losses are greeted with sarcasm and a healthy dose of schadenfreude. I’ve been guilty of this on occasion as well. So, it is worth highlighting a tweet posted by Nassim Nicholas Taleb regarding this week’s decline in Bitcoin. Taleb has a reputation for acerbic comments and has a low tolerance for BS, but he also does not “punch down” and, in my opinion, has a solid sense of ethics.
On Wednesday, 775,000 traders had their accounts liquidated in a debacle involving $8.6 billion of crypto. Adding leverage upon leverage with an underlying asset exhibiting tremendous volatility was always a recipe for failure. Taleb is right in suggesting that neophyte traders should learn from the experience and, above all, learn that to win, you must first survive.
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