AI Transition, Berkshire
AI growth continues to impress. The number of offerings and the quality seem to improve on a weekly basis. Just about anyone is able to leverage it to their immediate benefit.
We discovered ClaraLabs this week, a polite automated scheduling assistant that sends emails and follows up. Like many automated natural language tools, it’s surprisingly sophisticated and performs above expectations. It’s like a more advanced Calend.ly. Given that Calend.ly is a large business with over $100M in annual revenue, they are in a position build something like this themselves. It wouldn’t be surprising to see Calend.ly copy this system before the end of the year. Many existing automation tools will soon evolve into more sophisticated natural language versions.
This theme is supported by the mad rush of developers building niche AI products. Instacart, powered by OpenAI, will soon allow users to ask, “How do I make great fish tacos?” to generate the relevant shopping cart items.
Technology is fundamentally about automating tasks, which is inherently deflationary. When implemented correctly it reduces costs, increases profits, saves time and delivers a better outcome for the customer.
Warren Buffett released his latest annual letter over the weekend. He highlights the tremendous positive impact that a handful of decisions/positions can have on performance over time.
“Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years” and “Over time, it takes just a few winners to work wonders.” In particular, he highlighted the impact of CocaCola and American Express on Berkshire’s returns, which coincidentally we wrote about a few weeks ago.
He also highlighted the controversy around buybacks with some spicy comments. “Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose.” and “When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
Speaking of buybacks, 2023 appears to be on track to be a record year of buyback activity. It may be the first year where S&P 500 companies exceed $1T in buybacks. Buybacks are a more tax efficient way to return capital to shareholders. Shareholders don’t experience buybacks the way they would with a traditional dividend payment in that they don’t “see” that payment, but the value of each share increases because the number of shares shrinks. Apple repurchased $409B in stock over the past five years while it paid out just $71B in dividends. Their total shares outstanding have shrunk nearly -40% since the peak ten years ago. This can be frustrating to people who would prefer to see income coming into their account, but it effectively produces the same result.
0DTE – Zero Day Options Gambling
At any point in time there is a large group of investors actively sniffing out high-risk high-opportunity investments. Sometimes that pool of investor activity manifests into extreme bubble assets. Meme stocks in early 2021 are a prime example.
The latest craze is 0-Days-To-Expiration options. These are put and call options that expire on the same day they are created, allowing people to trade with very little capital and very high leverage. There is some worry that the growth in 0DTE popularity is starting to increase daily market volatility, which is something to generally be aware of. 0DTE options may become a household term later this year as the popularity is only increasing from here.
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