Quarterly Letter
What’s the Demand for Intelligence?
Charlie Munger once offered a great piece of wisdom: “If you mix raisins and turds, you still have turds.” He used this quip to warn that when an exciting new technology (the raisins) is taken to excess or applied foolishly (the turds), the result is not desirable.
Welcome to the new AI economy, where mixing artificial intelligence with dog turds apparently nets you $600 million.
Consider Ollie, a pet food startup that uses machine learning to visually analyze photos of your dog’s stool to create “personalized dietary solutions.” Yes, you read that right—AI poop scanning. The company raised $120 million in venture capital before selling to a Spanish pet food conglomerate for $600 million.
This reality led me to ponder: What is the actual demand for intelligence?
Judging by the skyrocketing market for artificial intelligence, the appetite seems nearly infinite. Yet, a quick glance at how our government manages its budget or how some Wall Street firms manage risk makes it painfully clear that the natural version of intelligence remains in remarkably short supply.
Admittedly, I am in awe of AI. It’s like carrying Aladdin’s genie in your pocket. I spend a significant amount of time using the technology to learn, research, and strengthen my ideas. It serves as an endlessly patient sparring partner – smart, polite, and always available on demand.
“Invert, Always Invert” – Charlie Munger
When looking at the broader picture, I realized that asking about the “demand for intelligence” is actually the wrong question. Once again, Mr. Munger provides the prophetic answer: Forget about trying to be intelligent; instead, focus your efforts on not being an idiot.
Trying to be a genius usually requires accurately predicting the future. It is a low-probability game, and history is littered with brilliant people who got it wrong. Avoiding stupidity, however, simply requires looking at the vast public database of human failure—and choosing not to step on the same landmines. If you avoid the obvious pitfalls, probability naturally shifts in your favor.
Here is how that philosophy applies to the core pillars of life:
- Health: Don’t obsess over the latest biohacking craze, bizarre supplements, or esoteric superfoods. Instead, prioritize good sleep, avoid excessive alcohol and cigarettes, eat a healthy diet, and stay active.
- Wealth: Don’t chase the latest cryptocurrency or hyped tech stock hoping for a 100x lottery ticket. Instead, live below your means, avoid excessive debt, and partner with advisors who prioritize risk management—which is exactly what we do at Park River Advisors.
- Happiness: Don’t obsess over self-help gurus or perfectly optimizing your morning routine for peak fulfillment. Instead, avoid envy, resentment, toxic relationships, and the endless treadmill of keeping up with the Joneses.
One of the quiet joys of avoiding stupidity is cataloging terrible business ideas and simply waiting for gravity to take hold. For years, my go-to example was SmileDirectClub, a company built on the terrifying premise of do-it-yourself orthodontics. It reached a multi-billion-dollar valuation before finally going bankrupt under a predictable avalanche of lawsuits, consumer complaints, and a business model that somehow managed to lose money on every single patient.
Will Ollie play out the same? Time will tell. In the old world (before AI), pet food distribution was a simple business model. Buy the food low, sell it high, keep operating costs to a minimum—and leave the dog turds to the owner.
Navigating the AI Market Boom
The current market boom is undeniably driven by AI optimism. The potential is staggering, but so are the expectations. I have found great comfort in simply not worrying about the ultimate size of AI demand or predicting its exact future applications.
Instead, the question we focus on is this: How do we participate in this transformative technology without facing ruinous consequences if reality fails to match the hype?
For us, the answer is the Barbell Portfolio. Rather than trying to guess exactly which AI software will conquer the world, we keep the vast majority of our capital safely positioned in highly secure, cash-flowing assets. We then dedicate a strict, small percentage to the asymmetrical upside of the AI boom—making calculated bets on positions with enormous payoff potential. By remaining fiercely conservative with the balance of our capital, we can afford to swing for the fence without ever risking the entire portfolio.
Returning to the overarching question of the demand for intelligence, I believe our AI investments require a strict demand for real-world value. The technology’s massive computational effort must be applied to the right problems with structural integrity. Rest assured, I will never allocate our capital to AI and dog turds.
Final Thoughts
I truly have no idea where the upper limits of AI demand will take us. But I want you to rest assured that we are directing our investments with a carefully measured, deeply rational approach. As a wise man recently reminded me: “Any idiot can take risk in a bull market and make money.”
My focus remains exactly where it should be: applying my limited natural intelligence toward not being an idiot. By utilizing the barbell portfolio, we drastically reduce our need for genius-level predictive skills. Instead, we can focus on avoiding the self-destructive nature of excessive risk-taking, remaining patient, and striking only when the opportunities are truly favorable.
If you are looking at your own portfolio and wondering whether it relies on predicting the future or simply avoiding stupidity, let’s have a conversation. Reply to this email or reach out, and we can discuss how a barbell approach might work for you.
Remember Durability Compounds,
Eric Wills
“No Bamboozlement Here” I recently saw that line at the start of another legal disclaimer. It caught my attention and hope it captured yours as well. Disclaimers boil down to the following statement – if you choose to believe any of this, then you are on your own. Jeepers! Given the ramifications, I too must disclaim liability for errors, omissions, and offer no warranties. I encourage you to verify my information, point out and forgive any errors. I am human and prone to mistakes, though I always strive for honesty.
While I do not intend to mislead, I cannot guarantee the accuracy of my content or the interpretation of my ideas. As an investor, I strive to do a good job and provide informative updates on my actions and thought processes. I hope these letters are read in the same spirit in which they are written.
Common sense tells you that the price and value of shares can vary greatly, and while I do not aim for this, we must also recognize that impairment of capital is possible. In my communications, I refer to clients as “partners.” I do this to convey a relationship that I seek where we share an experience and common destiny. I do not mean to suggest that there is a partnership in a strict legal sense of the word between clients, prospects or others that have an interest in the content produced by Park River Advisors LLC.