The Paradigm Shift of Our Species
A look at the impending once in humanity event, and how I'm betting on it.
Join our growing community of 34,000+ and enjoy a dose of insightful and practical content that will empower you to achieve financial wellness and optimal health. It takes just a second to sign up, and it's completely free.
Early Stage Investment Opportunities
Are you looking for vetted early-stage investments that I’m personally betting on?
Join my WHealtheir syndicate, and get access to my latest deals. My next one goes live soon.
For accredited investors only.
Overview
We are living through the most profound transformation in the history of our species: the rise of superhuman intelligence and AI. If you stick around to this post’s end, I’m confident I can prove it to you. I’ll conclude with how I’m betting on this transformative shift.
This article is broken up into 4 sections:
1. The Paradigm Shift: AI, where we’re headed, and why few understand it.
2. The Implications of Superhuman Intelligence
3. How I’m Betting on AI
4. My convincing argument for my AI thesis.
Introduction
Imagine living through a time when everything changes—a moment so pivotal that it defines the future of our species.
We've seen paradigm shifts before, from the Industrial Revolution to the rise of the Internet, but nothing compares to the profound transformation we are experiencing now with artificial intelligence (AI).
This isn't just another technological advancement; it's a once-in-humanity event that will reshape our world in ways we can barely comprehend.
Today, I want to explore this monumental shift, its implications, and how we can strategically position ourselves to benefit from the rise of superhuman intelligence.
Understanding the Paradigm Shift
Artificial intelligence is the simulation of human intelligence in machines designed to think and learn like humans. AI has evolved significantly from simple algorithms to complex neural networks, pushing the boundaries of what technology can achieve.
Historical Context
Comparing today's AI revolution to past paradigm shifts, like the Industrial Revolution and the advent of the Internet, highlights the magnitude of change we're witnessing. Each of these periods brought about unprecedented advancements and reshaped societies globally.
Current State of AI
Today, AI capabilities are rapidly advancing. AI is already embedded in many aspects of our lives, from natural language processing and computer vision to autonomous systems and predictive analytics. The recent breakthroughs in machine learning and data processing have set the stage for an even more transformative future.
Perhaps the most popular form of AI is ChatGPT from OpenAI, which allows users to interact directly with an advanced language learning module. You can ask it anything, from how to analyze the value of an option trade to summarize a 30-page PDF to creating an outline for a blog post. The wildest part? It responds instantly and is wildly accurate. But, more on that in a minute.
A Shift in My Workflow
Faced with the daunting task of analyzing 30 different companies, I decided to give ChatGPT a try. I sent it the list of companies, and in a matter of seconds, it organized them by category and provided concise summaries for each. This saved me countless hours of research and allowed me to make more informed decisions quickly and efficiently.
This experience highlighted just how revolutionary ChatGPT is, much like the calculator's impact on mathematics. Once people experience the ease and efficiency of teaming up with AI for tasks like collaboration, creative work, and research, they will never go back to doing things the old way.
I’ve used the same process to help me with creative work as well, such as ideas for social media posts, proofreading content, summarizing long articles, and even legal documents.
Notably, this wasn’t possible with older models. GPT-4 is orders of magnitude better than GPT-3. The name leads to confusion. GPT-4 would better be named GPT-100 to truly convey the difference. Look for yourself at how they compare.
Moore's Law
A key concept underpinning the rapid advancement of AI is Moore's Law, which observes that the number of transistors on a microchip doubles approximately every two years, leading to exponential growth in computing power.
This principle has held for decades, driving the explosive growth of technology and computing capabilities.
The Power of Exponential Growth
The power of exponential growth, as illustrated by Moore's Law, is often misunderstood or underestimated. While linear growth is intuitive, exponential growth accelerates rapidly, leading to dramatic changes in a short period.
An example to illustrate this phenomenon is the classic "rice on a chessboard" problem: if you place one grain of rice on the first square, two on the second, four on the third, and continue doubling the amount of rice on each subsequent square, by the time you reach the 64th square, you would need an astronomical amount of rice—more than the total production in the history of humanity.
This illustrates why exponential growth can be so transformative and why few fully grasp its potential impact. Put another way, we are in the middle of the rice board, where each double produces an incredible leap forward in the advancement of technology, a place where humanity has never been before.
Extrapolating to the Future: The Singularity
As we look to the future, the exponential growth of AI capabilities shows no signs of slowing down. The attached graph demonstrates the rapid increase in effective computing power, with projections suggesting that AI could reach levels of intelligence comparable to an automated AI researcher or engineer within the next few years.
To quote the research in the article, written by an AI engineer.
“This doesn’t require believing in sci-fi. It just requires believing in straight lines on a graph.”
To put this in context, it took researchers 3 months to train GPT4. By 2027, the study predicts it will take less than one minute!
As you now understand compounding growth, it doesn’t take long before the numbers (or computing power) are astronomical. They are predicting these GPTs to be able to run the equivalent of 100,000,000 PhD researchers working 24/7 in just 3 years.
The craziest part? They’ll work at 100x human speed. That’s a year of work in a few days, multiplied by 100,000,000.
But what if we go further?
The concept of the singularity was first proposed by mathematician John von Neumann in the 1950s, describing a point where technological progress would drastically alter human civilization.
This may be the most astounding chart you ever witness. It sums up all of human history.
What happens when we compress hundreds of thousands of years of progress into a decade?
Futurist Vernor Vinge popularized the term in his 1993 essay, arguing that AI would surpass human intelligence, leading to transformative changes.
Inventor and futurist Ray Kurzweil further developed these ideas in his 2005 book "The Singularity Is Near," detailing the exponential growth of technology and its implications for the future. (He accurately predicted an incredible number of events, many of which seemed equally improbable to the Singularity).
Ray Kurzweil has made several notable predictions about AI and technology:
1. Human-Level AI by 2029: AI will pass the Turing Test and exhibit human-like understanding and reasoning.
2. Nanobots in Medicine: He envisions the use of nanobots in the human body by the 2030s, which will significantly enhance health, repair cells, and extend human lifespans.
3. Mind Uploading: By the 2040s, it will be possible to upload human minds to digital formats, allowing for a form of digital immortality. Have you seen Black Mirror?
4. Expansion of Human Intelligence: He predicts that humans will augment their intelligence with AI, leading to a future where human and machine intelligence are seamlessly integrated.
He believes the Singularity will hit somewhere around 2045.
The Implications of Superhuman Intelligence
Economic Impact
AI is revolutionizing industries across the board. In healthcare, AI aids in diagnosing diseases and personalizing treatment plans. In finance, it optimizes trading strategies and detects fraud. Manufacturing benefits from automation, increasing efficiency, and reducing costs. The economic implications are vast, with AI driving growth and innovation.
Societal Changes
Beyond the economic impact, AI holds the potential to address some of our most pressing global challenges. It can play a crucial role in mitigating climate change through optimized resource management and predictive modeling. In the fight against disease, AI accelerates drug discovery and improves public health strategies.
Ethical Considerations
With great power comes great responsibility. The rise of AI brings ethical considerations that must be addressed, such as data privacy, algorithmic bias, and the potential for job displacement. It's crucial to develop and implement AI responsibly, ensuring it benefits all of humanity.
The alignment problem with AI is crucial because it ensures that the objectives and actions of AI systems are in harmony with human values and ethical standards, preventing unintended and potentially harmful outcomes. Addressing this problem is vital to harnessing AI's potential safely and responsibly, fostering trust, and maximizing its positive impact on society.
I’ll be the first to admit I am very concerned about the harmful consequences of AI, which have been articulated by many leading researchers in the space. If I could choose to shut off the switch, I probably would, as I believe the risks outweigh the rewards, however, that’s a subject for another post.
For better or worse, this change is coming, and it’s important to be prepared for it, and as an investor, positioned accordingly.
While I remain concerned, I’m also trying to be optimistic and find the silver lining. What I strongly believe is that, just like how during Covid people underestimated the rate at which a virus could spread (it’s also exponential), they are dramatically underestimating the rate at which AI improves.
Put another way, this once-in-a-species event is not priced in. As an investor, that’s where things get exciting.
First and Second-Order Consequences
First Order Consequences
The immediate effects of AI integration are already visible. Job automation is changing the workforce, requiring new skills and adaptability. Efficiency gains are boosting productivity across industries, creating new economic opportunities.
Second Order Consequences
The long-term impacts and ripple effects of AI are profound. While some jobs may be displaced, new roles will emerge, requiring creativity, emotional intelligence, and advanced technical skills. Societal restructuring will follow, with changes in education, governance, and daily life.
These second-order consequences are where things get interesting. A question I’ve been thinking a lot about lately is, what nonobvious industries will benefit from the advancement in AI, and how can I bet on them?
Betting on the Future
Key sectors poised for growth due to AI include healthcare, finance, manufacturing, and technology. Investing in companies leading AI innovation, such as those specializing in machine learning, robotics, and data analytics, can yield significant returns.
We’ve already seen the obvious trades play out, such as Nivida. While there may be room left to run, that ship has largely sailed. I’m always looking for what’s next.
In other words, what will become obvious in hindsight, but that nobody is currently talking about right now?
My framework for finding these bets uses the following first principles:
Develop a Thesis (AI will dramatically change the world)
Find second and third-order consequences of this thesis (see below)
Vet the thesis with other smart minds. Ensure it’s rarely talked about.
Find the companies, equities, or bets that will benefit most from the thesis.
Let’s take a look at an example below.
Natural Gas: A Crucial Power Source for AI-Driven Data Centers
As AI continues to expand, powering energy-intensive data centers becomes critical.
Powering an AI data center can cost millions of dollars annually, depending on the size and energy consumption of the facility.
Natural gas emerges as a key player due to its reliability and efficiency. Unlike solar and wind, natural gas provides a steady power supply, essential for continuous data center operations. More electricity per unit of fuel means lower operational costs, and natural gas plants can quickly adjust to sudden increases in electricity demand.
Renewable energy sources face several challenges. Solar and wind depend on weather, leading to inconsistent power supply. They also have lower energy density, requiring more space and infrastructure to produce the same amount of power. Additionally, there are high initial costs associated with renewable infrastructure.
Regardless of whether renewables may be the future, natural gas is vital now for the stable and efficient power needed by AI-driven data centers. This makes natural gas an indispensable part of the current energy mix, and a likely industry to grow as a second-order consequence of AI.
Contrarian Bets on AI
This is just one of the many potential theses which I am exploring that may play out. Once I have my thesis, I look for ways to bet on it.
The obvious way would be to simply buy and hold Natural Gas equities. The second, more risky play, albeit with the potential for greater returns is to buy options on these stocks. That’s currently what I am doing, but not necessarily what I’d recommend for most to do.
Since the thesis can take years to play out, however, options are only available for 12-18 months, I plan on rolling them over to ensure my bet meets the expected duration of the thesis. This requires proper bankroll management, more oversight, and a higher tolerance for risk.
For more on this thesis, I recommend the work of Goehring & Rozencwajg.
Naturally, there are many other ways one can bet on the advancement of technology to increase productivity. I’m curious to hear what you’re thinking. Reply to this email, or leave a comment with your favorite bets. I’m always looking to learn more!
The Craziest Part - Get Ready!
We are living through a once-in-humanity event—the rise of artificial intelligence. This paradigm shift brings with it transformative power, heightened risk, but also endless possibilities.
My goal is to stay aware, learn as much as I can, and hopefully profit from the trade.
Now, I told you that by the end of this post, I’d convince you of my thesis. Maybe by now, you’ve changed your mind, maybe not.
But what if I told you this post was written by AI, using a few simple prompts in the latest ChatGPT?
Would you believe me then? Here’s a video of my workflow with ChatGPT on this post.
The entire post took me about 30 minutes, whereas, on my own, it would take me 4-5 hours. Yes, I made some small edits and added a few sentences, but 85% was done by the AI instantly.
Now, just imagine that productivity increase and time savings expanded across every industry, and then doubling in power every 12-18 months.
That’s what is happening right now.
Alec