Thoughts for the Long Run, 6/12/20
How to be Anti-Racist, The Limitations of AI, How Private Equity can Capture Upside in a Downturn, and Howard Marks - Uncertainty
Welcome back to TFTLR. There are few words to describe the times we are in, few ways to describe the hardship that so many people are facing today. I pray all of you, your families, and your loved ones are staying safe and healthy during these challenging times. While investing is my passion (and staying true to the newsletter I have included this as well), I came back because the world today needs more from us than our jobs and our interests; it needs us to make a difference. In that vein, I have re-ordered this week’s letter to prioritize the absolute most important segment.
Personal Development
From #BlackLivesMatter to Black Liberation
First the facts- black applicants are 36% less likely to get called back for an interview than non-black, non-Latino candidates, which has led to double the unemployment rate and half the wages. Second, what I can do about it - be an anti-racist. This means i) I need to learn more, understanding how 20th century zoning laws relegated African Americans to lower-income neighborhoods, how lower local tax revenue in these locations continue to erode public education quality, how the (sadly, not even comprehensive) flywheel is closed with lower job prospects. ii) I need to speak up (especially given my outsize voices vs. minorities), and iii) I need to dedicate my time, energy, and resources to targeting not just the symptoms- ending police brutality- but the causes.
Venture Capital
An understanding of AI’s limitations is starting to sink in
AI is projected to generate $16 trillion (~80% of the US GDP) by 2030, but while AI now powers search engines, voice assistants, and facial recognition, among others, it’s important to know the two limiting factors (and how they will be fixed) in i) high data requirements paired with limited data availability and required cleaning and ii) most applications use supervised learning, requiring specific labelled datasets and fixed outputs
Private Equity
How Private Equity Can Capture the Upside in a Downturn
Private equity has enjoyed robust growth since the last recession, with LPs looking for yield and public markets experiencing continued headwinds; however, now PE funds have to prove their worth. Private equity funds must now prove their value through operational expertise making portfolio companies recession-proof (liquidity, digitization, novel business models) as well as deploy capital intelligently in bolt-ons, investments, carve-outs, and (in my opinion, see Silver Lake) PIPEs
Hedge Funds
Humans have a strong aversion to uncertainty and a propensity for intellect (and logic), yet the lack of metacognition to assess forecast performance and intellectual humility to try has made experts, and us, far too certain of what is, simply, uncertain. The best decisions can be made through acknowledging that we don’t know the future. For most of us, that means dollar-cost averaging into low-cost index funds.
Please stay safe, healthy, and well,
Aimun