Updating my too hard pile – a wealth of common sense

Warren Buffett has always had a place on his desk with a sign in large letters that read: TOO HARD.

Buffett reads a lot. When he reads something that he does not understand, is too difficult to predict or is too complex, it goes into the too difficult box.

There are plenty of things in my too hard box right now:

Choosing individual stocks. I have now stopped choosing stocks in my trading account seven times. I think this time it will finally stick. I’ve had some lucky picks, but stock picking has never been my forte.

I also find that 95% of my attention is focused on 5% of my portfolio when I own individual stocks.

Rule-based strategies that take the emotions out of the process are much easier for me to maintain and cause much less brain damage along the way.

Predicting macro cycles. People have been predicting bubbles and recessions for seventeen years. Not one of them has been right.

It’s fun to guess what’s going to happen based on what’s happening now and what’s happened in the past.

But guessing what will happen to the broader economy is essentially useless to my investment process.

Even if I knew what was going to happen, I’m not sure it would make it easier to gauge investor or policymaker reactions.

The American healthcare system. There are certain big problems we have as a country that have relatively simple solutions.

Social Security requires some changes to the retirement age assumptions and the tax cap for high earners. The housing market needs more supply and less red tape for builders.

I have no idea how we can improve health care in this country without blowing up the system and starting over. Look at Mark Perry’s chart of the century for different inflation components:

Wages have been higher than overall inflation. That’s good news. Tuition fees have finally come to a standstill. But look at hospital services.

Hedge fund managers would kill for a performance graph that moves up and right in such a smooth line. That’s an extremely good Sharpe ratio.

How can we slow down health care costs as 70 million people retire and will need all kinds of health care in the coming years?

Don’t know.

Youth sports. Growing up it was simple. Play for a YMCA team when you’re young and then play for your school. No club sport. No AAU teams. No crazy tryouts at age 7 or 8 where adults judge you and make you feel good or bad about which team you make.

It was all very relaxed.

Now it’s super competitive and intense. Parents receive trainers for their children at primary school. If you don’t form a team in 5th grade, they make you think your child’s career is over. People spend thousands of dollars on out-of-state tournaments for their high school kids.

It costs thousands of dollars to join these teams. It’s insane.

How did we get to this place?

Will my children participate? Yes, I’m a hypocrite playing the hand I’ve been dealt.¹

The AI’s winners and losers choose. Here’s a question from a reader on this topic:

I heard Michael talking about dumpster diving into software stocks for trading (in the ETF). I’m curious if you’re intrigued by any of these bombed software stocks. Does anything look good for a trade? What about a longer-term position? Asks for a friend.

The Wall Street Journal had a piece this week on how AI is eating up the performance of software stocks:

Here’s the gist of it:

On Thursday, Anthropic launched its most advanced model yet, capable of synthesizing data and analytics, managing teams of coding assistants and offering features similar to product management. Shares of software companies including Salesforce, Intuit and others fell again Thursday, although less rapidly than earlier in the week.

And the graph:

The software stock complex is now in a bigger crisis than the Liberation Day panic:

Some of the biggest names are definitely smoked:

Is this the time to go bottom fishing? Catch a few falling knives? Will you be dumpster diving into software stocks?

On the one hand, the boundaries of these companies could be breached forever with the advent of AI models and agents. Why pay someone else for software that you can develop and manage yourself?

On the other hand, how many companies will comfortably navigate key systems and work functions for their customers and employees?

These companies have probably lost their pricing power, but I wouldn’t be shocked if a handful of winners emerge from the rubble.

Still, I’m not in the business of picking winners and losers in the AI ​​revolution.

I own total stock index funds. I own the Nasdaq 100.

I let the winners and losers decide for themselves and let my index funds benefit from the funds that make it.

AI moves at lightning speed. The winners and losers change weekly.

It’s too hard to know how this will turn out, so I’m not playing.

Jos Brown came to the show this week to help answer this question:



We also discussed questions about Netflix, setting trailing stops, transferable mortgages and how to navigate wealth management as a young advisor.

Further reading:
Iceberg crashes

¹To be honest, my two youngest currently still play for the Y in b-ball.