Warren Buffett has always had a spot on his desk with a sign in big letters that reads: TOO HARD.
Buffett does a lot of reading. When he reads something he doesn’t understand or is too difficult to predict or overly complex, it goes in the too hard box.
There’s plenty of stuff in my too hard box right now:
Picking individual stocks. I’ve retired from picking stocks in my brokerage account like 7 times now. I think it will finally stick this time. I’ve had some lucky selections, but stock-picking has never been my strongsuit.
I also find that 95% of my attention gets placed on 5% of my portfolio when I own individual stocks.
Rules-based strategies that take the emotions out of the process are much easier for me to stick with and cause far less brain damage along the way.
Predicting macro cycles. People have been predicting bubbles and recessions for the past 17 years straight. Not one of them has been right.
It’s fun to make guesses about what’s going to happen based on what’s happening now and what’s happened in the past.
But it’s essentially useless to my investment process to guess what’s going to happen with the broader economy.
Even if I knew what was coming, I’m not sure it would make it any easier to gauge investor or policy reactions.
The U.S. healthcare system. There are certain big problems we have as a country that have relatively straightforward solutions.
Social Security requires some changes to retirement age assumptions and the ceiling on taxes for high-income earners. The housing market needs more supply and less red tape for builders.
I have no idea how we fix healthcare in this country without blowing up the system and starting over. Look at Mark Perry’s chart of the century for various inflation components:
Wages have been higher than overall inflation. That’s good news. College tuition has finally stalled out a little. But look at hospital services.
Hedge fund managers would kill for a performance chart that goes up and to the right in such a smooth line. That’s an off-the-charts-good Sharpe Ratio.
How do we slow healthcare costs when we have 70 million people entering their retirement years who will require all kinds of health-related care in the years ahead?
I don’t know.
Youth sports. When I grew up it was simple. Play for a YMCA team when you’re young, then play for your school. No club sports. No AAU teams. No crazy tryouts at 7 or 8 years old where adults judge you and make you feel good or bad about what team you make.
It was all very laid back.
Now it’s super competitive and intense. Parents are getting trainers for their kids in elementary school. If you don’t make a team in 5th grade they make you think your child’s career is done for. People are spending thousands of dollars traveling to out-of-state tournaments for their kids in middle school.
It costs thousands of dollars to join these teams. It’s insane.
How did we get to this place?
Are my kids taking part? Yes, I am a hypocrite playing the hand I’ve been dealt.1
Picking out the AI winners and losers. Here’s a question from a reader on this topic:
I heard Michael talking about dumpster diving into software stocks for trade (in the ETF). I’m curious if you are intrigued by any of these bombed out software stocks. Does anything look good for a trade? What about a long-term position? Asking for a friend.
The Wall Street Journal had a piece this week about how AI is eating software stock performance:
Here’s the gist of it:
On Thursday, Anthropic unleashed its most advanced model yet, capable of synthesizing data and analysis, running teams of coding assistants, and functions akin to product management. Shares of software companies including Salesforce, Intuit and others fell again Thursday, although less precipitously than earlier in the week.
And the chart:
The software stock complex is now in a bigger drawdown than the Liberation Day panic:
Some of the biggest names are getting absolutely smoked:
Is now the time to go bottom fishing? Catch some falling knives? Go dumpster diving for software stocks?
On the one hand, the moats for these companies could be broken forever with the advent of AI models and agents. Why pay someone else for software you can develop and control yourself?
On the other hand, how many companies are going to be comfortable vibe-coding their way through important systems and work functions for their customers and employees?
These companies have likely lost pricing power but it wouldn’t shock me to see a handful of winners emerge from the rubble.
Still, I’m not in the business of picking winners and losers in the AI revolution.
I own total stock market index funds. I own the Nasdaq 100.
I’ll let the winners and losers sort themselves out and have my index funds benefit from the ones that make it.
AI is moving at lightning speed. The winners and losers are changing on a weekly basis.
It’s too hard to know how this will play out so I’m not playing.
Josh Brown joined us on the show this week to help answer this question:
We also discussed questions about Netflix, setting trailing stops, portable mortgages and how to navigate wealth management as a young advisor.
Further Reading:
Iceberg Crashes
1To be fair my two youngest are still playing for the Y in b-ball right now.