One Legendary Investor's Advice on Investing in the AI Boom

Every day this week we have examined how legendary investor Howard Marks thinks about the AI boom. Today, we get to the most important question: How exactly is he deploying his own portfolio of $200 billion when it comes to AI?

First, Marks points out the market is exuberant about AI, but that it's likely to be overbuilt and incur at least a brief painful correction, just like every transformative technology that came before it.

When the industry eventually does become profitable, ays Marks, just one or a few companies are likely to take nearly all the winnings. He says:

The “right” way to play this dynamic is through equity, not debt. Assuming you can diversify your equity exposures so as to include the eventual winner, the massive gain from the winner will more than compensate for your loss on the losers. That’s the venture capitalist’s time-honored formula for success.

Of course, if you can’t identify the pool of companies from which the winner will emerge, you’re a zero.

That’s precisely what happened in search and social media: early leaders (Lycos in search and MySpace in social media) lost out spectacularly to companies that emerged later (Google in search and Facebook in social media).

— Howard Marks

So there you have it: Howard Marks' advice for investing in AI. Be humble, invest widely in potential winners, and don't go all-in on any single bet.

If you want a deeper dive into Howard Marks's thinking, get a copy of the excellent The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor.

This is the last in a week of posts about Howard Marks' investing analysis. If you missed the story, you can find all of my stories about Howard Marks on My Daily Oracle.

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