I often tell people that I don’t have a crystal ball.
More specifically, I tell people that I had a crystal ball, but it broke when I was in my late teens or early twenties.
I say this in jest. Because crystal balls don’t exist, no matter how much people try to convince you otherwise.
I usually make this bold(?!) statement in the context of conversations about whether to buy or sell specific shares, or about the value of the share market in general. The value of this share or that share isn’t just based on the asset position of the company in question, nor its historical levels of profitability. A company’s share price reflects expectations about that company’s future. It’s the same with industries. And the same with asset markets in general.
Trying to pick whether a share is priced above or below its long-term value is a lot of like crystal ball gazing. You’re trying to work out what the future holds. And you’re putting the clarity of your crystal ball up against the crystal ball of many others.
In the context of investing, there’s an easy way out. You can invest in widely diversified, low-fee, index-based managed funds, as opposed to investing in shares directly. It’s a situation where not having the courage of convictions can work out in your favour.
In other domains of life, however, we have to try. There aren’t easy ways out.
When we make decisions, that’s essentially what we’re doing: we’re uncertain of what will result, but we’re making our best guess of what will (or might) bring about the outcomes we want. Consciously or not, we’re often balancing different possibilities and making decisions that are aligned with our idiosyncratic value functions.
Fortunately, compared to the domain of publicly listed shares, it’s possible to have a clear-ish crystal ball. Even if it’s not clear, you’re you’re not competing with as many others, and your odds are better.
But right now?
In the immortal words of Dr Sam Beckett: Oh boy.
I feel a little out of my depth.
Not just in specific domains. But also with the canvas of society, the economy, and everything.
This is due to technological change.
Not because of crypto (I am in equal parts sad and happy that I didn’t talk about crypto much on this blog; partly because I feel like I was a bit of coward (albeit, a busy coward). But mainly because I wish I had a contemporaneous record of what I thought and felt and when.)
But because of artificial intelligence. AI. It’s happening, folks.
It’s already making me more effective. I’ve experienced enough, and heard enough anecdotes to know that it’s going to make a lot of people and organisations who know how to use it, more efficient.
It will result in people – and professions – losing jobs. It’s a great example of software eating the world. Of labour being turned into capital.
One way of defining innovation or technology is the ability to get more done with less. More goods and services with less labour.
But – oh boy , I don’t know how it will rinse out.
What will be the broader impacts? What will the impact be on the economy, on the social fabric, on what confers status? Who will win, and who will lose? Will it be an abrupt change, or will it take time? On the whole, will most of us win? Or will most of us love?
Is this going to be good? I mean, more goods and services with less labour. Or even more (and/or better) goods and services with the same amount of labour, assuming people can find other things to do. It could be great!
I’m reminded of how agriculture employs a much smaller proportion of the entire labour force than it did several generations ago, even if the change took many decades. Farmers are more efficient than they used to be, which means more people can do other things.
I’m also reminded of how spreadsheets didn’t reduce the need for accountants or people who rely on numbers and data analysis, but have probably increased the need and value of a lot of their services.
But it could be bad. There’s a lot of potential disruption, and it’ll happen faster than these other changes. Lives will be disrupted.
I’m also reminded of nuclear weapons. Humanity might have developed – or be developing – another tool that has the potential to be an existential threat. Or that magnifies threats, with the potential for widespread disinformation, societal disharmony, and making harmful information easily available to the masses.
In the scheme of things, new innovation and technology tends to be good, on net. The benefits are usually cheaper and better products and services that are spread across lots of people. It frees people up to perform other tasks.
But the costs tend to be concentrated, and aimed at specific institutions, and ultimately, individuals.
What will the benefits be? And what will the costs be? Who will be the beneficiaries, and who will bear the costs?
In narrow investing terms, I don’t think it changes the way I approach things. I still don’t think I, or anyone I know, has any special knowledge or ability to work out which public companies are going to win or lose, even with these tools. As soon as Microsoft or Google make announcements relating to AI, for instance, changes in expectations get baked into their share prices (not just for the businesses in question, but for those that might be impacted by AI). These share prices may not be strictly “rational” or predictive of the future, but they are irrational in ways that I can’t predict, so I might as well treat them as such.
In terms of other asset classes, I don’t know. I’ve been thinking a lot about land, for instance. No matter what happens technologically, there will always be a finite amount of land. So while other items, such as TVs, can be deflationary (in the sense that you get more bang for your buck for less money over time), perhaps land will continue to increase in value. On the other hand, technological changes might mean we can do more, and different, things with land. Will people who are borrowing to invest with this property class going to benefit from magnified returns? Or are they putting themselves in an especially perilous situation? I’m erring towards wanting to retain optionality during volatile times. But perhaps that’s a Rorschach test, reflecting my personal risk tolerance. Other people can hold different views about the future and have different circumstances and tolerances for risk.
And human capital? I’ve got no idea. My current hypothesis is that if you have a job that requires knowledge and skills that involve fine motor skills, you’re not likely to be replaced any time soon. But if you can do most of what you do with a computer or in conversation with other human beings? I just don’t know.
Historically, you could probably make decent assumptions. You could make personal decisions that were likely to put you in a decent position, whatever happened.
But I’m not so sure right now.
I haven’t made any significant changes in my life, financially or otherwise. And I’m not recommending it for other people. As it stands, the general precepts I’ve used to inform my planning and decision-making remain the same – with an even greater sprinkling of humility about what the future holds, and how forecasting is flawcasting, etc etc. All we know is that things change.
But the most honest thing I can say is, my crystal ball is on the fritz.
That makes me a little excited. It also makes me a little scared.