1 min read24th Apr 20212 comments
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I have some long comments I can't refind now (weirdly) about the difficulty of investing based on AI beliefs (or forecasting in general): similar to catching falling knives, timing is all-important and yet usually impossible to nail down accurately; specific investments are usually impossible if you aren't literally founding the company, and indexing 'the entire sector' definitely impossible. Even if you had an absurd amount of money, you could try to index and just plain fail - there is no index which covers, say, OpenAI.

Apropos, Matt Levine comments on one attempt to do just that:

Today the Wall Street Journal has a funny and rather cruel story about how SoftBank Group went all-in on artificial intelligence in 2018, invested $140 billion in the theme, and somehow … missed it … entirely?

The AI wave that has jolted up numerous tech stocks has also had little effect on SoftBank’s portfolio of publicly traded tech stocks it backed as startups—36 companies including DoorDash and South Korean e-commerce company Coupang.

This is especially funny because it also illustrates timing problems:

SoftBank missed out on huge gains at AI-focused chip maker Nvidia: The Tokyo-based investor put around $4 billion into the company in 2017, only to sell its shares in 2019. Nvidia stock is up about 10 times since.

Oops.

Part of the problem was timing: For most of the six years since Son raised the first $100 billion Vision Fund, pickings were slim for generative AI companies, which tended to be smaller or earlier in development than the type of startup SoftBank typically backs. In early 2022, SoftBank nearly completely halted investing in startups when the tech sector was in the midst of a chill and SoftBank was hit with record losses. It was then that a set of buzzy generative AI companies raised funds and the sector began to gain steam among investors. Later in the year, OpenAI released ChatGPT, causing the simmering interest in the area to boil over. SoftBank’s competitors have spent recent months showering AI startups with funding, leading to a wide surge in valuations to the point where many venture investors warn of a growing bubble for anyone entering the space.

Oops.

Also, people are quick to tell you how it's easy to make money, just follow $PROVERB, after all, markets aren't efficient, amirite? So, in the AI bubble, surely the right thing is to ignore the AI companies who 'have no moat' and focus on the downstream & incumbent users and invest in companies like Nvidia ('sell pickaxes in a gold rush, it's guaranteed!'):

During the years that SoftBank was investing, it generally avoided companies focused specifically on developing AI technology. Instead, it poured money into companies that Son said were leveraging AI and would benefit from its growth. For example, it put billions of dollars into numerous self-driving car tech companies, which tend to use AI to help learn how humans drive and react to objects on the road. Son told investors that AI would power huge expansions at numerous companies where, years later, the benefits are unclear or nonexistent. In 2018, he highlighted AI at real-estate agency Compass, now-bankrupt construction company Katerra, and office-rental company WeWork, which he said would use AI to analyze how people communicate and then sell them products.

Oops.

tldr: Investing is hard; in the future, even more so.

2-of-2 escrow: what is the exploding Nash equilibrium? Did it really originate with NashX? I've been looking for the history & real name of this concept for years now and have failed to refind it. Anyone?