Break the Playbook with David Einhorn
- What to look for
- You can learn about Einhorn's principle that judgments in both poker and investing must be revised in response to new information, and his lesson about macroeconomic risk from 2008.
- Why it matters
- This helps you learn an investment approach that weighs the rationale for holding gold over the long term, the possibility that excess profits from AI will accrue to companies using it, and the risk of a reassessment of Nasdaq valuations.
AI summary
David Einhorn says that both poker and investing require revising judgments in response to new information, and that rather than mechanically averaging down on stocks with large losses, investors should reassess their investment thesis. During the 2008 financial crisis, he profited from shorting financial stocks but suffered an overall loss because he overlooked the macroeconomic damage to his stock holdings. After that experience, he began considering his portfolio's macroeconomic risks as well. He holds gold for the long term because he believes the US fiscal deficit is not under control. In AI, he considers it more likely that excess profits will accrue to companies using the technology and to consumers rather than to technology providers, because of competition among suppliers and massive capital expenditure. His view is that expanding AI infrastructure may raise memory and labor prices in the short term, but could lower prices over the long term if productivity improves. Conversely, big tech's depreciation burden and intensifying competition could put pressure on the valuations of Nasdaq companies. While predicting that gold could outperform the Nasdaq over the next 3~5 years, he emphasizes the need to also reflect on the social impact of AI development and the moral hazard left by the 2008 bailout policies.