I want to start with an apology.
I’m sorry.
I may have indulged in too much Reserve Bank talk lately.
The fault is two-fold.
One, most people are sick of hearing about it. Markets largely know what’s ahead for central banks.
And two, monetary policy isn’t a potboiler.
If Dan Brown wrote the RBA’s next Statement on Monetary Policy, it’d still get less readers than an Aldi catalogue.
I did watch Michele Bullock’s speech on Wednesday. I found it highly interesting. But I won’t speak on it here!
Enough RBA chatter. Enough Fed talk.
I did smuggle a reference in the latest What’s Not Priced In episode, but it served a higher purpose.
See for yourself.
In the latest episode, Greg and I discuss:
- Updates from Accent Group, Lovisa, Kogan, Temple & Webster, and Nick Scali and what they reveal about consumer demand
- Origin Energy takeover chaos
- Nvidia’s massive forecast beat, albeit one largely priced in
- How the high cost of capital is forcing investors to get serious about valuations
- Why now is a good opportunity for investors who can ‘do their homework’
- ‘Investing is not about what you believe but what you believe that’s different to what the market believes’
- AI is not a substitute for great, creative investment research
By the way, the podcast now has an email address. Send your questions and comments to wnpi@fattail.com.au.
Talking about AI
Now, onto something non-RBA related.
Artificial intelligence.
I know.
If people are tired of hearing about central banks, surely they’re tired of hearing about AI?
Bare with me. I am not going to talk about AI specifically. I’ll use it as background to throw into relief the main topic.
Juxtaposed next to AI, it really pops.
Earlier this week, our Fat Tail editors discussed the emergence of AI research tools.
AI technology, like Google’s Bard or OpenAI’s ChatGPT are powerful. And will become even more so.
But do they present a challenge to investors or a boost? In other words, is AI a research tool or a research substitute?
The former keeps the need for good researchers alive. The latter obviates it.
What’s stopping people from taking the research steps enabled by new AI technology and cutting out the middlemen? Intermediaries like financial advisors, hedge funds, asset managers, and research firms?
What’s stopping them is the lack of unique insight.
AI tools like ChatGPT are great at guessing what words follow other words based on the billions of data points scraped from the Web.
Large language models like ChatGPT stitch responses together based on statistical relationships observed in these massive datasets.
Using the datasets, these chatbots ‘see’ that some terms are more likely to be paired with others.
Therefore, their responses inherently reflect the ‘consensus’ view.
But great investing is all about being ahead of the consensus.
For the time being, the art of investing remains a human art.
Seeking the signal amid the noise
To highlight the point further, I raised this quote from hedge fund manager Dan Rasmussen in the episode.
Speaking at the recent Sohn Hearts & Minds event, Rasmussen noted investing is a game of meta-analysis:
‘Investing is not a game of analysis, it’s a game of meta analysis — not what you believe but what you believe that’s different to what the market believes.’
How much of what you believe is different to what the market believes?
And how much of that difference can be turned into a profitable trade?
Better yet, how much of your research focuses on areas where your ideas clash with the market’s?
Spending weeks researching the adoption of EVs is a fruitless exercise since it’ll end up with you believing what the market already does.
Another thing to note is the point made by economist Herbert Simon: a ‘wealth of information creates a poverty of attention’.
We have access to a massive wealth of information. The existence of ChatGPT only adds to it.
But we have a fixed quantum of attention to spare. We can’t pay attention to everything.
So in investing, the differentiating factor is where we direct our attention.
What is extraneous information and what is necessary information?
It’s important to know the difference.
AI won’t help you there.
Regards,
 |
Kiryll Prakapenka,
Editor, Fat Tail Daily
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