Quote of the week:

“The future is already here – it’s just not evenly distributed.” (Source)

Creativity, the future, and long-term investing

Creativity is the cornerstone of all great investments: It forces the stock investor to reimagine the future and discount back to the present which companies will be the likely winners of any transitional period. For long-term investing, short-term blips of volatility are the price of entry to long-term compounding, but creativity allows the investor to see through the noise and stay focused on what matters.

It is unfortunate, then, as Howard Marks points out in a recent memo titled “The Illusion of Knowledge” that the vast majority of public discourse in the investment community focuses on short-term forecasts. In the piece, Marks describes attending a recent lunch among investors where the subject of conversation naturally drifted to the investment environment, where participants began to share their thoughts on interest rates, Ukraine, etc. And yet, Marks writes, “none of the thoughts expressed, even on economic matters, seemed much more persuasive than the others, and I was absolutely convinced that none were capable of improving investment results.”

All of which to say, forecasters typically have the loudest microphone in this environment, but creativity and independent thinking are the best tools to outperform over the long-run. 

“We can’t consider the reasonableness of forecasting without first deciding whether we think our world is one of order or of randomness. Put simply, is it entirely predictable, entirely unpredictable, or something in between?  The bottom line for me is that it’s in between, but unpredictable enough that most forecasts are unhelpful. And since our world is predictable at some times and unpredictable at others, what good are forecasts if we can’t tell which is which?”


The age of supercomputing—and AI’s exponential abilities 

I agree with the central premise of this recent piece by James Morris, who argues that Tesla’s recent AI Day 2 presentation effectively buried the lead: It is not the humanoid robot that will have an immediate impact on the world (and Tesla’s financials), but rather the rapid progress of Tesla’s supercomputing platform Dojo, which is optimizing the training necessary for its machine learning models. “Just as human beings learn to recognize road conditions from past experience and react accordingly,” James writes, “an autonomous vehicle draws on the driving experience of all contributions to its AI model to decide how to drive.” He continues: 

“Tesla aims to bring the first Dojo exapod online in Q1 of 2023 but hasn’t said when the other six will arrive. When this level of processing becomes fully available, focused on crunching through the training of Tesla’s FSD models, it will massively accelerate the development of autonomous vehicles. There are now 160,000 Tesla drivers participating in the FSD beta, collecting real-world driving data. With Dojo exapods using this data to build new models, and new systems rolling out to the 160,000 users, a virtuous circle will develop, and more testers are likely to be enlisted, further accelerating development… Assuming Dojo starts delivering next year, expect to see much more rapid iterations of the Tesla FSD beta, much faster improvements, and a sooner commercial rollout of autonomous vehicles than you might have previously expected.”

The counterintuitive genius of Trader Joe’s

This recent Colossus podcast on Trader Joe’s is packed with fascinating insights into the company’s origin story, particularly how its founder sought to differentiate the grocery business model by using high wages to retain the best employees—while using reduced product lines at higher margins to generate consistent profits. The conversation is available here as a transcript as well. 

“So everybody else was in the business of reducing labor costs, and of course that caused a lot of turnover and a lot of other indirect costs. He sets out to basically do that all different and he starts paying very high wages relative to competition. That allows him to get the best employees, to keep them, to basically be able to run a much higher service business. And he made it his challenge then to find high margin categories that he could sell to basically make the numbers work. So it is a very different approach from basically everybody else in the market at the time.”

A few more links I enjoyed: 

“Since the future might be very long, there could be far more people in future generations than in the present generation. This means that if you want to make the world better in an impartial way — i.e. without regard to people’s race, class, or where or when they’re born — then what most matters morally is that the future goes as well as it can for all generations to come. We’ve called this the ‘long-term value thesis.'”
“But probability is different; it is a conceptual tool invented in the seventeenth century. The word has several meanings, but the one that matters in making risky decisions is the strength of one’s belief in an unknown state of affairs. Any scrap of evidence that alters our confidence in an outcome will change its probability and the rational way to act upon it. The dependence of probability on ethereal knowledge rather than just physical makeup helps explain why people fail at the dilemma.” (H/T Harrison Moot)

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