The Age Of Digital Divination
Warren Buffett
If you could be in the 99th percentile in one of these two skills, and just 55th percentile in the other skill, which would you pick? One is a
visionary who can predict ten years ahead—the year 2035—with perfect clarity. Interest rates. Gold prices. Fashion. Presidents and prime ministers. The other choice is a 99th percentile detective, a star at separating signals from noise, but who is only 55th percentile good at ten-year forecasts.
At first blush, one might be tempted to choose the visionary's skills. Market history shows that every rolling ten-year period produces a few investments that go up 500x or more. I have dreams (and regrets) that it's 2018 and I just mortgaged my home and liquidated my retirement funds to bet it all on Nvidia. Of course I didn't do that. My bad: I truly liked Nvidia and its CEO Jensen Huang 15 years ago. My mistake was not looking deeper, to find signals in the noise. The signals pointed to Nvidia in 2010 and 2015. They screamed buy Nvidia! after 2018.
I have a hunch that AI's ten-year forecasting powers will disappoint us, now and for a long time. But AI's power to separate signals from noise along the way will astonish us. That's why we need to jump in and master AI now. So we can profitably detect signals in the noise of tariffs, war drums, hype and gloom.
When Warren Buffett, known as the Oracle of Omaha, announced his retirement in May, many asked if it was likely, or even possible, to see another investor in his league. Buffett began his stock-picking career in the mid-1950s, working out of his modest house. His original investors were family and friends, and Buffett at the time was a pure value investor following the principles of his Columbia Business School lecturer Benjamin Graham. Buffett bought stocks that were heavily discounted to their intrinsic value. Out of fashion. Dirt cheap. Between 1957 and 1968, Buffett's small private fund reportedly delivered an average annual return of 25%.
In 1965, Buffett acquired a struggling textile company, Berkshire Hathaway, and grew it into the world's most valuable public holding company. Over six decades, Berkshire produced a 19.9% compound annual return, roughly twice the S&P's average over the same period. One thousand dollars invested in Berkshire when the Rolling Stones' '(I Can't Get No) Satisfaction' topped the pop charts would be $54 million today. What if you had invested in the S&P index instead for 60 years? Sorry, $304,000.
For the entirety of Buffett's extraordinary run, he avoided making predictions about the market or the future. In 1965, Toyota was building a reputation for small, reliable cars while Singapore was a startup nation with a new leader. Nowhere did Buffett predict that Toyota would become the world's top car company by sales. Buffett never predicted Singapore's rise to become one of the world's wealthiest cities per capita. He didn't foresee the Soviet Union's collapse or the rise of China. He said nothing about personal computers, the Web, or smartphones. He only became an Apple investor after it had turned into a cash-generating monster.
Buffett's superpower was not predicting the future. It was detecting signals in the noise. Upon Buffett's retirement, Wall Street Journal columnist Jason Zweig wrote 'Why There Will Never Be Another Warren Buffett.' Zweig cited three Buffett superpowers: 1. Pattern recognition developed over 70 years and the careful reading of an estimated 100,000 financial reports. 2. A memory that 'is almost supernatural.' 3. Unparalleled access to financial information.
Buffett was a one-man AI machine long before AI.
Zweig is correct in saying there will never be another Buffett. The investing game will have moved on. But the new AI-armed investors will separate themselves from the pack exactly the way Buffett did: Seeing not the future, but signals in the noise.
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