Comment by darawk | Hacker News Reader

Comment by darawk | Hacker News Reader

Parent Full thread

> The challenge with levered long bets on technology is that most foundational technologies undergo waves of innovation, growth, replacement, and bankruptcy. You could've been totally right about social networking by betting on Xanga in 1999, and still gone bankrupt because they were long gone by the time Facebook ultimately won the market. Same with betting on Altavista for Search in 1995, WebVan for e-commerce in 1999, BlackBerry for smartphones in 2002, etc.

Ya, that's why it's a hedge, not an isolated bet. The idea is that one of two things has to happen: high interest rates, or strong AI labor substitution. You construct a portfolio to benefit from either outcome.

My expectation would be that the AI bets would lose money and the interest rates bets would make money, on average. However, in the case where AI really does undergo a miracle in the next decade sufficiently profound to lower interest rates, my portfolio would be hedged to that.

The challenge is that the eventual winner in the AI space might not be a company that exists today. Say that you build a portfolio that's 60% interest rate swaps and 10% each into DeepMind & 3 other hot AI companies of the moment. In 10 years, we've solved the labor shortage, but the eventual winner is a company named ConvBrain, founded 2028. All the capital you allocated to the AI space is tied up in DeepMind and the three other incumbents, so unless you're watching the space like a hawk (in which case you might as well be employed in it), you would've missed the ascendancy of ConvBrain and picked the losers despite the space as a whole being a winner.

Agree. You would have to keep up with changes in the space, and accept the possibility that you even if you're right about it strategically, you aren't able to make the appropriate bet, because e.g. the company that succeeds is private.

However, you could try to think about ways to hedge that risk, by thinking about who benefits in ancillary ways. E.g. for instance, which firms are likely to benefit most from AI labor substitution (whether developed in house or not). There are no certainties here, of course.

Reply on news.ycombinator.com