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LearningMachine

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LearningMachine last won the day on March 7

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  1. I think LLMs is only one of the benefits of AI. For short-term for LLMs, moat is in data and existing user experiences that carbon based neural nets (humans) are trained on already. Tech itself will spread around with good engineers getting high bids from those who have the moat. META has already benefited from it in increasing relevance of its ads. Nvidia's customer base are companies with big pockets and when those customers are paying 10s of billions of dollars, they can easily spend a few billion dollars each to continue to invest to try to create their own AI chips. Will one of them be successful eventually? Time will tell. I think probability is significant that at least one of them will be successful eventually. Next huge value-add won't be in increasing relevance of ads, but it will be in another scenario. One of those will be to reduce # of hours of high-hourly rate knowledge workers. If you can save 50% of hours of 10M workers getting paid $100K per year, you have created $500B in value, and that is per year. At 10-20X multiple, that is worth $5-10 Trillion. To enable this scenario, you need access to data that those knowledge workers are consuming and producing already. You can deduce from there, who has access to that data and who already owns the user experience that these knowledge workers have been trained on. Longer term, who all will benefit is a little like trying to predict which 3 car manufacturers will be winner out of 1000s of car manufacturers in 1900, where almost all went bankrupt. LLMs is only a start. Another big industry to be disrupted is biotech, in discovery of new treatments and drugs. Counterintuitively, I think value of drug exclusivity rights will actually go down if innovation starts to happen at such rapid pace that a better drug is found by someone else that doesn't infringe an existing drug's exclusivity rights. Autonomous driving has been talked about a lot, but when level 5 really arrives, it will cause a sea change. Entertainment is ripe for disruption with AI generated short-videos, movies and even games. Longer term, innovation will continue to happen. Some assets will be bottlenecks and will continue to get valued higher, e.g. energy, and even commodities that have a monopoly controlling the limited supply, e.g. oil. The demand for these commodities could rise to unthinkable levels in terms of multiples of today as commodities will still be needed by the remaining 99% to increase their standard of living to match top 1% of today, when labor is no longer bottleneck. But, the value will only accrue to those commodities that have a monopoly over controlling supply.
  2. I think this is true. I think we'll overestimate what AI could provide in the short-term, but will underestimate what AI could provide in the long term. Before industrial revolution, people couldn't have imagined all the things we take for granted today that take energy. Similarly here, imagine human desires were not bottlenecked by availability of human labor. For example, think about all the things that people in top 1 percentile can afford with human labor today, e.g. concierge to take kids around, help to keep home clean, human labor to rebuild a house on the lake and another cottage in woods, repair roads, build more roads, build more housing, jets to fly around the world, etc. Now, imagine all these things were not bottlenecked by availability of human labor for the remaining 99% of humans. All that would need more and more energy over time, and it is possible that growth rate in energy use will go up when we are not bottlenecked by human labor needed today to fulfill a lot of the human needs that top 1 percentile are able to satisfy today.
  3. Totally agree. It ends up being that trees paying you $12 and ponds producing $15 go on sale only once in a while, and so you have to concentrate when the sale is going on. I was reacting to how folks on another thread might be thinking S&P 500 would be safer than diversifying across a handful of trees and ponds. So, I was trying to use an analogy with rocks to help land the point in a simpler way that keeps other non-essential things out, but I might not be landing it well.
  4. Imagine you could buy a rock for $100 that has SPY or RSP written on it, and imagine that rock gave you $1.36 per year for SPY and $1.67 for RSP, and the rock has a history of increasing earnings at a mere 3% annually over long periods adjusted for inflation, as far out as since 1870 or since 1970 or since 2000 that took advantage of productivity increases from the Internet. See https://www.multpl.com/ . Who would be willing to buy that rock? Even if you were to stretch your imagination to imagine that $3.56 in so-called earnings within rock labeled SPY and $5.53 within rock labeled RSP were FCF and distributed to owners of rocks in terms of dividends or buybacks, would you still be willing to buy it?
  5. And, people think they are diversifying when buying Mag 7 and S&P 500, when they all share a high severity & medium probability common risk of high growth expectations and P/E multiple, which when it materializes, some will call it a black swan event even though it is clear ahead of time that it is a common shared risk. You'd be safer to be in a handful of lower probability and lower severity independent risks that all won't materialize at the same time than Mag 7 & S&P 500 that are exposed to a common risk that when materializes will impact a lot of them.
  6. @Cigarbutt, I think here too, Mr. Buffett doesn't want to risk losing 500-1000% of the investment in a specific utility due to uncapped jury damages, which could put mothership at risk. He wants statutes on the books to cap those damages for him to invest.
  7. @yesman182, yes, he could do that and I've mentioned that earlier as well. With the recent purchase, OXY has already indicated they are going to divest certain assets - remains to be seen if they shed the riskier ones. Given Buffet is involved, they probably would.
  8. The risk here is not about just losing 30% if only 30% is owned, but the risk here is about losing 500 to 1000% of the investment if 100% is owned. If BRK owns OXY as a subsidiary fully, in case of a deep oil spill, courts can pierce the corporate veil to reach BRK assets like they did in case of BP subsidiary to reach BP parent's assets. So, full $58B OXY purchase can create a $250B liability. Ajit explained how they make insurance bets at a recent annual meeting that they are willing to risk a certain percent of their capital. I think he said risking somewhere around 5% of capital on a bet. Risking $250B liability would be too much for BRK. When justifying BRK's purchase of BNSF, Buffett and Munger once explained how they looked at the highest damages that a BNSF accident had ever caused in the past, and had decided that they could live with that. However, they can't live with the highest damage that a deep water oil spill can cause.
  9. Because owning it fully exposes to potentially severe liability risk, e.g. a spill in the deep water operations of Gulf of Mexico. I've mentioned this a few times before. Remember the BP oil spill. Buffett wouldn't want to expose the mothership to that type of liability risk even if it is low probability.
  10. I remember some of the cable investors have mentioned in the past how laying fiber doesn't make economic sense in today's high interest rate environment. The core message I took away from that discussion was that fiber pays at best only about mid-single digit unleveraged yield, and that doesn't make sense when interest rates are higher than that. @Spekulatius, if memory serves right, I think you might have been one of the participants in that discussion. I see people buying NNI and BOC where they are allocating capital towards fiber install. Can we jointly figure out what is the unleveraged FCF yield range on laying out fiber?
  11. I agree you don't want to make macro guesses about economy and make investments based on those guesses. I also agree you want to keep on reading SEC filings & transcripts until you find attractive investments. However, that doesn't stop you from also doing risk management by making sure your investments will do reasonably ok in case any reasonable probability macro events were to happen, e.g. before Mr. Market realized interest rate risk, folks could have questioned what would happen to an investment candidate if inflation or interest rates were to hit 10%. In case of real estate, there is reflexivity and stickiness that humans are susceptible to. Thinking purely from a cash perspective under the hypothetical that whatever you buy, you have to hold forever, and can't sell to anyone. #1. If you bought a property yielding 6% unleveraged and locked in 2.5% interest rate for 30 years, you can calculate how much cash will come to you. #2. If you buy a property yielding 6% unleveraged now and lock in 7% interest rate for 30 years, you can calculate how much cash will leave you. You can now make an assumption that rents will keep on rising, and calculate which year you will start getting cash instead of giving cash You can also try to speculate that interest rates will come down, etc., but that would be hopeful speculation. If you were to calculate amount of cash you will get for #1 vs. #2 in next 10 years, there will be a HUGE difference, as much as 10X to 100X to 1000X to even 1000,000X depending on situation. However, when people in #1 scenario don't want to sell, it makes real estate prices seem sticky and reflexivity of real estate prices causes some humans to miss how HUGE the difference is between two items above, and they irrationally start doing #2. However, if prices fall a little that causes people to start questioning stickiness and reflexivity, and narrative starts spreading through social media and traditional media on how starkly different #1 and #2 are, it can cause people to stop doing #2. Whether and when this narrative spread could happen is hard to predict, but you could always try to calculate probability of this happening and watch metrics, SEC filings & transcripts that indicate probability increasing/decreasing, and be aware how your housing-related stocks would be impacted if that happened, and you could also be prepared to take advantage of it happening. In no way I'm saying you wait for that. You continue reading your SEC filings & transcripts and finding other investments, while keeping it at the back of your mind that this narrative spread might happen and an opportunity might come.
  12. I've been reading transcripts of the builders as well, and waiting to see when existing home sales are below 2009, when would it start impacting them also. Same thing happened in 2009. First existing home sales started falling, then new home inventory started piling up, then builders stopped building, and then, unemployment started going up. So, these things take time. We need to patiently keep an eye for the domino effect to unfold. I think causation has pretty high probability at each stage, i.e. much higher interest rates had high probability of impacting existing home sales and boat sales, and that we are seeing already. Next step in the causation chain is the existing home sales being below 2009, also starting to show up in new home sales starting to fall. I think the probability is high for this causation link also. One thing that is different this time is that people are willing to move far away from their jobs, and so there is a chance, new construction continues, but if that happens, housing supply will go up a lot over time. Anyway, keeping an eye. I think probability still high that this causation link will materialize.
  13. Surprised no-one is talking about this, but the signals of impact of higher interest rates are starting to show up in the real economy in home & boat sales but not in the stock market yet. Malibu Boat sales fell 37% year over year because buyers are going on the "sidelines". See https://malibuboatsinc.com/investor-information/events-presentations/default.aspx. Wonder how many construction & other workers will continue to be needed to build more homes, boats and other interest rate sensitive items. How long before it starts to show up in profits of more companies, and Mr. Market starts to notice? Source: https://tradingeconomics.com/united-states/existing-home-sales Source: https://fred.stlouisfed.org/series/MSACSRNSA Source: https://fred.stlouisfed.org/series/NHFSEPT
  14. Sorry, I disagree. I think it would be easy to build a company to compete with Grab, Uber and Lyft. With Uber, you have to give Lyft and other entrants some more time. The reason it is easy is because product is homogenous, and a significant percentage of customers compare price. Proof based on induction would be that if you have a competitor start with 1% market share and slightly better value prop, e.g. better price, would some customers pick it? In marketplaces where the product is homogenous, some customers will end up picking it, causing the marketshare to grow from 1% to 2%, and so on. So, I believe moat of Grab, Uber and Lyft is weak, and subject to new entrants coming in.
  15. With Grab, if a competitor came up and had only 5% market share but a better price, do you think some customers would be willing to use the competitor on their homogenous product? If so, where is the barrier to entry and moat? Similar with Sea to some extent.
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