Investment Theory #18: Klarman’s 1996 Letter

Lately it appears that a fresh wave of animal spirits has gripped the markets — just look at the post-election rally in equities. Investors seem to have bought into the hype that tax cuts and deregulation will jump-start the economy, while at the same time ignoring the risks inherent in an “American-First” protectionist agenda.

In times of market loftiness it serves us well to reexamine how similar cycles have played out in the past — and there is probably no better case study than Seth Klarman’s handling of the late 1990s. Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his hard to find book: Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor (plenty of pdfs floating around the internet though).

This series of posts will reflect on Klarman’s activity throughout 1995-2001. Links to past posts: 1995

Continue reading “Investment Theory #18: Klarman’s 1996 Letter”

Investment Theory #17: Klarman’s 1995 Letter

Lately it appears that a fresh wave of animal spirits has gripped the markets — just look at the post-election rally in equities. Investors seem to have bought into the hype that tax cuts and deregulation will jump-start economic growth, while at the same time ignoring the risks inherent in an “American-First” protectionist agenda.

In times of market loftiness it serves us well to reexamine how similar cycles have played out in the past — and there is probably no better case study than Seth Klarman’s handling of the late 1990s. Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his hard to find book: Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s thinking throughout the period 1995-2001.

Continue reading “Investment Theory #17: Klarman’s 1995 Letter”

History #17: Artificial Intelligence

Thomas Kuhn, in his book The Structure of Scientific Revolutions, provides us with a framework for modeling the historic progression of scientific progress. Opposing the prevailing view of scientific progress as an accumulation of accepted facts and theories, Kuhn argued that scientific progress took a more episodic path, in which periods of normal science were interrupted by periods of revolutionary science.

According to Kuhn, when enough anomalies have accrued against a current scientific consensus (some level of error is always inevitable), the field is thrown into a state of crisis, in which new ideas are tried, eventually leading to a paradigm shift. Investment of time and money pure in as the new paradigm proves successful in solving old and new problems. Eventually, this new paradigm may run into intractable problems of its own and the cycle repeats.

It is with this framework in mind that we will dive into the history of Artificial Intelligence. It’s a history littered with so-called “AI Summers” and “AI Winters”, where new ways of thinking spark rampant enthusiasm, followed by rampant pessimism when the lofty promises aren’t kept. It’s the boom and bust cycle that shows up again and again throughout human history.

Continue reading “History #17: Artificial Intelligence”