NCI: How AI Will Transform Investing

Speaker1: [00:00:00] [00:01:00] Welcome. Great to see you again. 

Speaker2: Hello, Ram. Great to see you, too 

Speaker1: I'm pleased to kick off our next episode of Illumida Non-Consensus Investing with a close friend, Bob Dewey. Bob is the host of the Exploring Prosperity podcast. And what I like about Bob is that he... Many things I like about Bob, but he's looking at the bigger picture, the bigger trends.

And you also grew up in the money management industry, and I love talking to people that come from that industry 'cause you actually have to make a risk decision. It's not enough to pontificate. You have to have a point of view and implement. So we're gonna talk about AI and transformation, how AI will disrupt investing, some Illumida's plans.

Before we get into that, Bob, do you wanna introduce yourself? 

Speaker2: Sure. I've had a lot of fun creating this podcast about how pessimistic everybody is about the future, and particularly prospects for the next [00:02:00] generation. It's amazing that over, since World War II, it's been almost a straight line down in the optimism that Americans have for the next generation.

Whether their kids are gonna be better off than they are. And it's curious because it feels, especially if you look at the stock market as an indicator it feels like this is a golden era. It's almo- it's rare to have seen the stock market go up so steadily for so long, and it is a measure of economic activity and economic progress.

And the obvious point is that people are pessimistic for the non-economic reasons, and those are kinda compounding on each other. Anyway, so it, so I just, m- my business is to find those things that make people pessimistic, talk to experts about it, and write every week about it. So it's been a lot of fun.

My background is in the investing world. I started off in the [00:03:00] private equity world, where I was actually working for banks that lent money to the original LBO investors. And so they would find a company they wanted to buy, and they would come and ask for our loans to buy the company. Very interesting private equity angle.

And then I got into the stock market, and the big difference in the stock market is that y- everything is a buy at the right price in the stock market. And in private equity, it's not. There are companies that just weren't capable of handling debt loads because their cash flows were too inconsistent.

That market has evolved so that it's quite different these days. But anyway, so the stock market l- allowed this element of there's the company has a value, and the stock price goes around that value. And so it became a much more enjoyable game. And yes, I did, I wound up working for Morgan Stanley, and I wound up covering a lot of the big institutions 

Speaker1: And, you had an interesting experience 'cause you h- had an [00:04:00] adventure where you were trying to connect the brightest sell-side analysts to money managers, and now at the outset of the call, in the preview session, in the green room, we're talking about Ken Griffin and some of his comments.

You wanna share that? 

Speaker2: Yeah, he, last week his clip went viral, and it's, he said essentially, "I wound up recently seeing that we're solving problems that PhDs and master's employees in finance of mine took weeks and months to solve, and we're solving them in hours or days." And then he went on to say, I actually went home on a Friday and felt pretty depressed about this."

He didn't explain exactly what was making him depressed, but we can assume it's the same that everybody is worried about. That 

Speaker1: his boat is gonna get smaller, presumably. 

Speaker2: Exactly. That that all of a sudden people aren't going to be needed to in this [00:05:00] case, solve problems, and I think that it's very human to look at rapid change and be worried.

On the other hand, progress is all about solving problems, and if you can solve a problem that used to take months in hours or days, then you would be worried if those problems were the last problems to solve because then you're done. But- 

Speaker1: Yeah ... 

Speaker2: problems that get solved normally create many more problems that can be solved, and so I- 

Speaker1: 100%

Speaker2: thought it was interesting that he took this negative view when he would have... normally I would have expected him to take the capitalist view which is, "Wow, if we can solve that problem that quickly, think of all the new problems that we'll be able to solve better than anybody else." And you need PhDs and master's educated people with brains to identify what the priorities are.

What are the next problems that can be solved that are worth solving? 

Speaker1: I agree. There's an infinite amount of problems to solve. You solve a [00:06:00] problem, you've got another problem, right? We have a GLP technology now is extending lifespans, improving outcomes. I saw that as a biotech company that appears to have a solution or powerful treatment for pancreatic cancer.

So now we have a new problem, people living longer than ever, and the problem is we need senior living care and help for the seniors, which is gonna create a demand for a new industry. Maybe it's humanoid care workers, I'm not sure, but, or demand for more healthcare services. So there's a never a shortage of problem.

There's never a shortage of work. So there'll always be work to do. And things are looking pretty good now. Things are looking pretty good. You can... And we're still so early in the transformational power of AI and what it means for different categories. And people are starting to see glimpses of it in different areas including investing 

Speaker2: Yeah it's important to [00:07:00] keep in mind w- what is AI good at and what is AI not good at?

One of my guests is a, is, was a man named Albert Berthelans who works for Invinium, and he's been at the forefront of applying AI to a very s- significant problem, which is the tokenization of real estate. The payoff is enormous, but there were enormous problems to solve. And so he's been at for the last two, almost three years, developing AI processes that can help create the market, allow this enormous technology to actually work.

And he pointed out that AI can do a good job of synthesizing large information sets. It removes friction, it compresses analysis time. It generates options unbelievably well. It lowers the coordination costs and it services patterns that [00:08:00] humans will normally miss But what it can't do is think.

It's not good at judgment or prioritization or interpretation which remains deeply human. And that's mostly because AI doesn't actually think. It simulates thought. There's an important difference there. It doesn't possess curiosity, it doesn't possess ambition, it doesn't possess conviction.

It doesn't understand meaning the way humans do, and that becomes really important as people... So people who are worried about AI taking jobs shouldn't be, because it's the... all this really, these are tools. AI is a tool that allows humanity to solve more problems and do things better, faster, and get more things done.

Speaker1: I agree. Yeah, it doesn't replace ownership, agency, vision, execution. You still need direction. And, we've talked in the past about how you have a K-shaped economy. My view is [00:09:00] AI accelerates this. We get a new dynamic, you get the AI economy, and either you're on the right side of that curve and you're part of that future, or you're not, in my view, everyone's gonna be an entrepreneur in the future or working for an entrepreneur. That's it. You're an entrepreneur, I'm an entrepreneur. We got a lot of listeners that are entrepreneurs. People that are thinking about being an entrepreneur. You're seeing an explosion in small business formation, 10% year over year higher new small business formation growth each of the last few months.

So yeah- It's barely begun ... probably. 

Speaker2: It's barely begun. 

Speaker1: It's barely- That's right ... it's barely begun. 

Speaker2: People think of in terms of jobs, because we always have. That's been what economists and certainly amateur observers of the economy like to think about jobs, as the core engine of income and prosperity.

It has been, but that doesn't mean that it is what you should be focused on. So I, it's amusing that politicians wanna go protect, force companies to not fire people. That's [00:10:00] not the right way to look at this. It's so stupid. 

Speaker1: It's 

Speaker2: so- In the old days, it was corporations were the best route for the average person to get an income and a good living.

Yeah. But that doesn't mean... This, AI really in many ways should be viewed as- Yeah ... a a release from the obligation of having to go work for somebody in order to make a living. 

Speaker1: I agree. I agree. One of the areas I'm excited about is disrupting the old guard of investing and wealth management, and this is a category you know well, too.

There's all sorts of issues with it. People are being peddled these 60/40 portfolios, which maybe made sense when rates were declining after 1982. They certainly don't make sense now in an inflation is higher for longer world. That's one. Two, you've got an acceleration of winners and losers. You're gonna have a lot more losers than winners.

You're gonna see more concentration in winners in different categories. That's how capitalism works, and AI is a part of that. Third, you've got conflicts of [00:11:00] interest. And one of the things we've been focused on, which is really the future of Lumida, is building AI technology to transform the experience around investing.

I'm glad you spent time with our app. It's something I've been talking about online. Yeah. I haven't really introduced it to the public properly. We've just been heads down executing, cranking. But would love to hear kinda your reactions. We can spend some time on that. 

Speaker2: Absolutely. Do you mind if I stop, start from a top-down perspective?

Yeah. 

Speaker1: Yeah, however. 

Speaker2: So I haven't become an expert at your app because I've o- I haven't had it that long. But w- what it is doing is very clear to me. It is conducting a lot of the work that used to require institutional control. What I mean by that is when I started in the stock market, it was in the early 1990s.

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