Beware of increased short-term volatility amid the government shutdown; Potential for a 'rude awakening' for AI investors; Argument for the end of a 'golden age of value investing'; Edwin Dorsey on QMMM; My first Waymo sighting in New York City
1) The markets are shrugging off the government shutdown... But that may not be the case if it continues for an extended period.
As of this morning, the real-money bettors on Polymarket think there's a more than 70% chance that the shutdown extends more than a week. And they think there's a 40% chance that it lasts more than two weeks.
Take a look at this screenshot:
This is all just noise for long-term investors.
But I wouldn't be surprised to see increased market volatility in the short term.... So be prepared.
2) The raging debate continues about the effect of artificial intelligence ("AI") on every aspect of our world and our lives...
Here's the most interesting take I've read lately – a column in the Guardian by legendary tech investor Roger McNamee of Elevation Partners. In it, he argues that AI investors are in for a rude awakening:
Investors have assumed that every major US player in [large language models ("LLMs")] will be a winner. This assumption is essential, as the monopolies that power big tech – such as Microsoft's Office suite, Google Search, Gmail, and Docs, and Meta's Facebook – are, without exception, approaching the end of their useful lives. The vast majority of customers believe that these products have gotten worse – and made users less productive – over the past decade or more. Each big tech company needs a global monopoly in AI to sustain their success and market value. They are not all going to get one.
As McNamee continues:
The former General Electric CEO Jack Welch made famous the notion that only two players can be profitable in a competitive industry. Below the top two, it is a struggle to survive. That means that at least three, and perhaps more, of the current players will be forced to write off their investments in LLMs. Each of the big tech companies has invested in the range of $100bn through this year, and by next year that number could easily double. If LLM technology does not improve rapidly, their corporate customers will also face write-offs.
And as he concludes:
The day may come sooner than many expect when shareholders, directors and executives will demand evidence that the massive investment in LLM technology will generate an adequate return for them. The answer will be no for many, if not most, players, and the reckoning will [be] ugly for everyone.
I've warned many times about blindly piling into AI stocks amid this frenzy. Amid the huge winners, there will be plenty of losers. And you can bet that plenty of regular folks will get sucked into – and lose a ton of money on – those losers.
When it comes to winners in AI, I continue to believe that my three favorite tech giants – Amazon (AMZN), Meta Platforms (META), and Google parent Alphabet (GOOGL) – will be among them.
3) Meanwhile, I haven't seen much discussion about how AI might affect value investing specifically.
However, my friend Guy Spier of Aquamarine Capital argues in a recent Bloomberg column that AI has taken his advantage as an investor ("painstaking research") and rendered it "worthless":
The way investment research changed in the internet age was glacially slow when compared to the earthquake that is LLMs. Before ChatGPT, you still had to have the patience to assemble and read through the mosaic of sources. Now you can just ask ChatGPT or Gemini to do all the trawling. An LLM can give an instant summary of all that has been said in the public domain about a company. And it can be instantly analyzed to provide the current state of wisdom on the topic.
Granted, the LLMs cannot, to the best of my knowledge, generate original thinking. But the path to original thoughts is so much shorter – and so much more accessible.
As Guy concludes, "the golden age of value investing is well and truly over":
Thanks to the LLMs, I have no need for a junior analyst: At a fraction of the cost, an LLM can do a far better job. And the era of the swashbuckling hedge fund manager – Michael Steinhardt, George Soros, Julian Robertson – is also gone.
Asset pricing will become more accurate. Hidden subtleties about a particular business that make it either better or worse than it appears will be more easily revealed. The return on better analysis and better insight will diminish because it will be available to all.
I think Guy is correct about the long-term trend. In our investing careers over the past three decades, markets have become more efficient, due mainly to the advent of the Internet and now AI.
But I'm not as pessimistic as he is about the demise of value investing...
I would argue that "painstaking research" and "scuttlebutt" information were only a small part of the value investor's tool kit. The real keys are patience – holding great stocks for years, even decades – and remaining calm and rational during times of turmoil. (Just look at the bargains that abounded in April of this year and in late 2022!)
Human behavior hasn't changed for eons. The vast majority of people still fall into all of the classic behavioral finance traps: following the crowd, trying to get rich quick, etc.
In fact, in a world that is increasingly fast-paced and hyperconnected, I'd argue that patience and rationality are in shorter supply than ever before.
That said, I certainly believe that investors can smartly use the power of AI to their advantage in the markets.
In fact, here at Stansberry Research, we recently launched a special system that makes AI work for you...
Put simply, we've automated Wall Street roles into a single system that helps find exactly where the most profitable part of the market is, at any time, in any given market conditions.
It took months of research and development. And the project involved dozens of coders, developers, and research staff.
Get the details on leveraging this system's power for yourself right here.
4) On a different note, I recently ran into Edwin Dorsey of the Bear Cave newsletter.
Here's a picture of us:
Last week, my colleagues Dan Ferris and Corey McLaughlin interviewed Dorsey on their Stansberry Investor Hour podcast. You can see that episode here.
Dorsey has done great work exposing Chinese stock scams like QMMM (QMMM), about which I've written three times (archive here). Here's the part of the podcast where he discusses this.
Check it out!
5) I've also written about Alphabet's Waymo many times...
You can see the archive here. And I loved my first ride in one of its autonomous cars when I was in San Francisco recently (see my video in my September 22 e-mail).
As such, I was delighted to see my first Waymo in New York City yesterday (though it had a driver in the driver's seat):
Looking ahead, I expect to see more of these as Waymo keeps ramping up operations.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.