The Exchanges, every show

Q So where's the 10 dollar bill nobody's picked up right now?

A Well, I think it's in, it's, it's around AI. But, but everybody's excited about AI. So if, if your excitement level, and by that I mean your insight level, is average, you don't have an edge. Your, and you get involved in AI, your performance will be average. You will go along with the tide if it works. You'll be schmeiced if it doesn't work. Superior. It all comes down. You boiled down our conversation to this point. It all, and the things Charlie said and, and, and so forth, it all comes down to superior insight and Not, you know, we have an author in America, a guy named Garrison Keillor, and he wrote a book called Lake Wobegon. And Lake Wobegon was a fictional community in, uh, I think, uh, Wisconsin, if I'm not mistaken. And he said in Lake Wobegon, all the children are above average. Well, we know that there is no place where all the children or all the investors are above average. So I think my, my own vision of the world, which is not a scientific vision, is that in fields where human nature is involved, and the future is unpredictable, and things don't operate according to mechanical rules, there is still a place for superior insight, But you will not have success without superior insight.

AI assessment note: “Well, I think it's in, it's, it's around AI.”

Q Like expected value is sort of like a model or a lens into making better decisions. One of the other ones that you've talked about is sort of second order thinking. Can you explain a little bit about that? And then what would be really interesting is to go into other sort of mental models you commonly use to conceptualize problems and think about them.

A Well, what I call second level thinking says this. The goal in investing, investing is a funny activity. It's really incredibly easy to be average, and, and average is usually not too bad, and if you're willing to settle for average, you can do it with very little risk and very little, very, excuse me, very little risk of being below average and very little cost. You buy what's called an index fund. If you say, I will be You know, that the S&P 500 stock index, it represents average stock market performance. I'll be happy with the return of the S&P 500. You invest in an index fund, which invests in all the stocks in the S&P 500 in a certain weighting. The cost is very low because there's nobody making any decisions.

AI assessment note: “Well, what I call second level thinking says this. The goal in investing”

Q This gets back to this question of what else? In the past, when equities and bonds in the 2002 1002, it turned to alternatives, later turned to private equity. Private equity doesn't look so great. Credit markets aren't at the cheapest. Where do you think people are looking in terms of what else is going to be attractive to meet their spending needs going forward?

A I don't have that fertile mind. I'm lucky that I've been able to adapt to the changes, but I don't think I predicted or even caused any of the changes. I just don't consider myself a futurist. And one of my favorite oxymorons, Ted, is that we're not expecting any surprises. Surprises are by definition unexpected, and I don't feel that I anticipate the changes. I think that there are so many bright people on Wall Street. You have these fertile minds, they'll think of something. However, I wrote a memo in around October about asset allocation, and I said in there that I think there are really only two basic forms of assets, ownership and debt. I don't think Wall Street's going to be able to think of a third, but they'll certainly try. Wall Street has a very good record of accommodating people's desires to put money to work.

AI assessment note: “there are really only two basic forms of assets, ownership and debt”

Q challenges in the business. And one of those is when the pendulum has swung to an extreme that looks very good, you can get excited and buy. When it's an extreme that's tough, you want to be very, very cautious. Most of the time you spend in the middle. How have you gone about sustaining an organization that for the most part isn't playing at one extreme or the other?

A It's a very important question. There's not always something exciting to do. I wrote a memo in October of 22 called What Really Matters. We had a conference, and everybody was asking me, when is the Fed going to start cutting rates, and how much, when's the recession going to start, and which month? I said, these are all short-term questions, and they don't matter. What really matters is, can you buy interest in companies that grow, and can you lend money to companies to pay you back? It's not always something exciting to do. The memo got very little attention, as far as I can tell. I see what people write me, and I didn't get many notes on that one, and I think it was really important. I listed five things that I think don't matter, Ted. Short-term events, short-term trading, short-term performance, hyperactivity, and volatility. These are not things that matter. What matters? Are you better than the other person at finding growing companies and finding companies that will repay their debts? I think I said in there that when I was a kid, there was a saying, don't just sit there and do something. Well, in the investment business, I think a lot of times what's important is don't just do something, sit there, sit there and wait for your ideas to work. If yesterday you did what I said, which is to say you bought interest in companies that'll grow and made loans to companies that'l…

AI assessment note: “Now, you asked how you keep a business together, and it can be tough.”

Q I want to come back to something you said about thinking the same as everybody else. How does that change the information that you consume? And how do you, how do you go about the opportunity cost? I mean, you have a lot of things on your desk. There's a lot of books to read. How do you think about that?

A At some point in the process, and it's, it's probably a different point for everybody. You have to think about, again, this kind, this idea of, of counterintuitive. I think what most people think, who think about investing, is that if good things happen, you'll make money. Not necessarily so. It all depends on expectations. If the expectations are too high, then you could have a favorable out, a favorable event And it could disappoint people, you know. So, people think, last year the company made a dollar per share, next year they think they're gonna make two dollars a share, earnings doubling, that's exciting, they bid the stock up, and the earnings come out at a dollar 75. Now, earnings going from a dollar to a dollar 75 is certainly a good accomplishment, but most people are disappointed and the stock falls. And, and so, I think it's at some point, look, our, the people who work here spend all their time, time trying to figure out what is, and they try to know what is, that is to say, what is this company about? What will it be worth down the road? What will it accomplish? And so forth. And they try to know those things better than others.

AI assessment note: “You have to think about, again, this kind, this idea of, of counterintuitive.”