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Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better.

Today's Issue Read Time: <2 minutes

  • Lesson: AI can't do this yet
  • Timeless Content: The Math of Diversification
  • Thread: Howard Marks' Investing Strategy Deconstructed
  • Resource: The Economy in 2040
  • And more!

Together With: 1440​

News. Without Motives. That’s 1440

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Friends,

There's no doubt that artificial intelligence is changing the way we live. Over the next few years, AI is going to start making a lot more decisions for us. By and large, that's a GREAT thing. We won't have to worry about hundreds of taxing, low-stakes choices.

It's important to remember why that's such a good thing: because it frees our attention up to focus on the impactful, nuanced decisions that make a huge difference.

This is true in both life and investing. Consider my (Stoffel, here) best investment of the past year: buying shares of Duolingo last May at $175 per share (it's tripled since).

AI could have told you lots of important things back then:

  • The business was on a roll: At the time, revenue was growing at a 40% clip, while paid subscribers were increasing even more -- up 50%.
  • The stock was expensive: The P/E ratio was over 200. And while the P/FCF ratio was over 30 -- no one would argue that's cheap.
  • The stock had lost favor on Wall Street: Shares had fallen 30% in just a few weeks.

But this is where the importance of the human brain comes in. The reason shares had fallen was no secret: ChatGPT had just announced a real-time translation service. Many thought it was a Duolingo-killer.

AI wouldn't have been able to decide if that would be true. Only a human paying attention to the world around them could have seen the opportunity. That's because -- in my opinion -- people use Duolingo for two reasons:

  1. Gamification: Let's face it, we love games. We love addictive ones even more. Learning a language is an afterthought to these people. They aren't interested in ChatGPT at all.
  2. Connection: Speaking a foreign language is the closest thing to a real-life superpower. The connection it fosters while travelling the world is unmatched. Introducing a ChatGPT-like translator would kill that connection.

Of course, I could have been wrong -- that's just part of investing.

But that's beyond the point of this week's letter: AI is a great tool, but it shouldn't be used to make the most impactful decision.

AI is great for finding & organizing data -- but it's always our responsibility to use that data to make decisions.

After all, it's our money & financial future on the line.

Wishing you investing success,

Brian Feroldi, Brian Stoffel, & Brian Withers

Long Term Mindset

P.S. Are you interested in learning how to use AI to enhance your stock research process? Reply to this email with "AI" to let us know.

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Don't like volatility? Diversification can limit your losses during severe equity downturns. But with all investing strategies, there's no perfect solution. Dive in with Nick Maggiulli as he walks through the math of diversification.​

One resource

Wondering what industries will drive the economy in 2040? This visual shows 12 trillion-dollar-plus industries. You might be surprised which one comes in at #1, topping $40 trillion. (Hint: It isn't A.I.)

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Brian Feroldi

Brian Stoffel

Brian Withers

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Long-Term Mindset

I teach investors how to analyze businesses. Each Wednesday, I share six pieces of timeless content that can be read in less than 2 minutes. Read by 100,000+ investors from a16z, Amazon, Google, Microsoft, and more.

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