[ Question ]

Construct a portfolio to profit from AI progress.

by deluks9171 min read25th Jul 202013 comments

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It is probably impossible to hedge against a FOOM scenario. But it seems like there are plausible 'slow' but still transformative AI scenarios we might want to hedge against.

Here is an example of a portfolio you could construct:

40% VUG (covers most larger us tech companies, has some stuff you don't specifically want but gives you some hedging)

40% IGV (smaller us tech companies)

20% CQQQ (china, really high expenses but oh well)

A related question is how you could add exposure to an existing more balanced portfolio. (example answer: Buy CQQQ and IGV)

I am fully aware that trying to get lots of exposure to AI progress is the opposite of diversification for most lesswrong users. But if you are expecting rapid progress soon it might still be worth doing.

Some sub-questions that might be useful:

-- Which US Tech ETfs are most useful

-- Should people buy specific stocks instead of ETFs? Which ones?

-- How should we get Exposure to China? Do we want/need China tech exposure?

-- How do we get exposure to areas besides the USA and China? Do we need to?

-- Should we invest in land if we expect AI progress?

-- Should we directly invest in hardware (Nvidia has already gone up a lot)?

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6 Answers

I wound up doing something similar to this:


ARKQ - 27%

Botz - 9%

Microsoft - 9%

Amazon - 9%

Alphabet - 8% (ARKQ is ~4% alphabet)

Facebook - 7%

Tencent - 6%

Baidu - 6%

Apple - 5%

IBM - 4%

Tesla - 0 (ArkQ is 10% Tesla)

Nvidia - 2% (both Botz and ARKQ hold Nvidia)

Intel - 3%

Salesforce - 2%

Twilio - 1.5%

Alteryx - 1.5%

BOTZ and ARKQ are ETFs. They have pretty high expense ratios. You can replicate them if you want to save 68-75 basis points. Botz is pretty easy to replicate with only ~10K.

I'd consider adding exposure to specific company candidates most likely to participate / benefit from AGI, namely: Google, Microsoft, IBM, Amazon, etc...

Also, since you're betting on a pretty drastic outcome, which is very likely not priced in correctly into the markets*, you should consider buying options instead of stocks. The cost to you is much cheaper, it's easier to get more leverage, and they payout is much bigger for the extreme cases (in your favor).

* I gave a talk that touches on this point recently. The transcript should be up in the next few weeks.

Robot bodies are an obvious complement to robot brains.

4Stuart Anderson4moAlso, lots of things that don't look like robot bodies are robot bodies.
2Pattern4moSuch as?
4Stuart Anderson4moCars and trucks are the obvious example, they're about to start driving themselves professionally. Drones. Lots of medical equipment. Mobile phones are arguably 'immobots'. I suppose it all boils down to what 'robot' means. Does it have to move? Does it have to do all its thinking itself? How general does it function have to be?

For hardware, I can imagine a scenario where FPGAs become temporarily very important... This would be a period of rapid development into new types of algorithms that diverge from the capabilities of GPUs / TPUs, with such rapid and wild algorithm changes that new ASICs can't keep up. I dunno, it's just a possibility, probably not the most likely when I think about it.

Excellent question! Was thinking about it myself lately, especially after GPT-3 release. IMHO, it is really hard to say as it is not clear which commercial entity will bring us over the finish line, and if there will be an investment opportunity at the right moment. It also quite possible that even the first company that does it might even bungle its advantage and investing there might be a wrong move (seems to be a common pattern in the history of technology).

My idea is just to play it safe and save money as much as possible until there is a clear example we arrived at the AGI level (when AI completely surpasses humans on Winograd schemas for example), and if there won't be any FOOM try to find the companies that are mostly focused on the practical application where you get the biggest bang for the buck.

But honestly, at the point where you will have AGI widely available its quite possible that the biggest opportunity is just learning to utilize it properly. If you have access to AGI you can just ask it yourself: "how to benefit from AGI given my current circumstances?" and it will probably give you the best answer.

Should people buy specific stocks instead of ETFs? Which ones?

Unless you have expert knowledge of a domain or insider trading information then the answer to that question is probably no. We know that barring quants (survivor bias?), ETFs perform better than manual stock picks.

Everything I've seen in investing indicates that for the average person it is better to buy stocks, probably ETFs, and simply forget (ie. don't look at their pricing every five minutes) about them. Long term growth is what matters, but people get spooked by short term volatility.

How should we get Exposure to China? Do we want/need China tech exposure?

China is an authoritarian communism regime on a good day, so giving them your money is literally worse than burning it.

Pragmatically, they're running death camps and locking horns with more than half the planet right now. This is off the back of them killing many of our people with their dirty unhygienic ways creating covid, and their duplicitous and mendacious government deliberately allowing it to spread to the world. Hong Kong and it's financial and business markets being shafted by Chinese megalomania isn't exactly helpful either. Giving your money to that level of evil and stupid is both immoral and foolish.

If you are both immoral and foolish it is also worth bearing in mind in the event of escalation either China, your own government, or both are likely to void your investment. When a government can legally steal from you, they will.

How do we get exposure to areas besides the USA and China? Do we need to?

Stock markets, and probably, unless you believe that there's nobody capable of doing solid work outside the US and China.

I don't know the market, but I'd be really surprised if Israel wasn't putting money into AI. If there's anyone that knows a weapon technology when they see one, it's them.

Should we invest in land if we expect AI progress?

I have considered this in light of the increase in automation. It's pretty obvious that the skill floor on employment will continue to rise as it has. We don't need AI to have widespread human obsolescence. We've already seen what job losses from economic collapses do to people and whole countries, so it's worth considering what it would be like to live in tough times.

Land isn't ever going to be obsolete, nor is there likely to suddenly be more of it. If that is so then it is safe to assume that scarcity can be profited from. That being said, land, unless it is of low value, tends to be horrendously expensive. You need a lot of money to get into this game.

The thing I'm considering as a hedge against difficult times is sin. Specifically, brewing and distilling. This is effectively legal drug dealing, and people will pay for drugs before they'll pay for food, so it's not like selling will be difficult. Where I am the laws and permits aren't prohibitive, and as long as you don't sell too much the taxation regime isn't too horrible.

Should we directly invest in hardware (Nvidia has already gone up a lot)?

As Intel stock crashing due to getting lapped by AMD presently shows, winning and losing, even with a solid record, happens a lot in the processor sector. GPUs are nothing more than specialised processors. This is a high volatility area, so unless you're comfortable with that kind of risk I'd steer clear of it.

4bendini4moI've given this a strong downvote, but I'm writing a comment so the OP and passerby aren't confused why a long comment that provides relevant answers is (currently) sitting at -3 karma: 1. Repeating the false but popular assertion that smart people can't outperform indexes without insider knowledge/huge amounts of luck. 2. Conflating whether it's moral to invest in China with whether it is profitable. 3. The suggestion that the asker should look into selling moonshine/other contraband. (This isn't a moral complaint, it's just bad advice. Starting a manufacturing business isn't a remotely suitable replacement for stock investing + the risk adjusted returns of such a business are very poor.)
3MikkW4moI say props to Stuart for not letting Goodhart get the best of him, and we should follow suit. Investing in China might be profitable (i.e. provide financial returns), but it also increases the probability of living in a world that I don't want to live in- for selfish reasons as much as moral reasons. When investing, it's far too easy to be blinded by the numbers, and end up actively incentivizing bad things to happen. That's not something rationalists should strive to do.
2Stuart Anderson4moI would say it is obvious that there are more important things than money, but I'm broke, so that's how useful that advice is in an investment discussion. Ethics have a price tag. Sometimes that price is in dollars. That can be mentally 'quantified' by the individual fairly easily: all you have to do is ask yourself how much profit do you need from investing in China to look the other way on all the evil? Everyone has their price, myself included.
1Stuart Anderson4moI always appreciate someone that replies, as speech is always the answer to speech. Re 1: I mentioned quants for a reason. Smart people can outperform the market, but they have to be incredibly smart (basically psychic wizards as far as I can tell), and most people aren't. Insider trading works, so that doesn't need to be justified. Buy and hold works. ETFs work. That general principle is going to be a lot better than stock picks and active trading for the vast majority of people. Re 2: This is a valid criticism, however my reply to that would be that Investing in China is probably still a bad risk because of other parties opinions. Government is the 800lb gorilla that is always sticking its nose in on moral grounds, it's not like there isn't precedent for people losing money because the government got into a snit over something. Re 3: Distilling and brewing is legal in my country (so's sex work for that matter). The costs involved are far lower than investing in the stock market. And most importantly, I'm talking about what I am considering and not advising anyone else what they should be doing. My situation is probably very different to other peoples: I am low income, mentally ill, and apart from money that people have died and left me it is reasonable to assume that I'll spend the rest of my life in poverty. I don't have high expectations for what little money I have, I'd just like to stay off the street. So if selling 'drugs' (which is exactly what alcohol is) could help me in that, and if it turns out to be something that pragmatically works for me, then that's what I'll do. The set up cost is low, and it doesn't seem like brain surgery, but if it doesn't work for me then I'll just sell the equipment off and move onto my next hare brained scheme.