Could be interesting to see some more thinking about investments that have short-to-medium-term correlations with long-term-upside-capturing/mission-hedging stocks that don’t themselves have these features (as potential complementary shorts).
You could look for investments that do neutral-to-well in a TAI world, but have low-to-negative correlation to AI stocks in the short term. That could reduce overall portfolio risk but without worsening returns if AI does well.
This seems quite hard, but the best ideas I’ve seen so far are:
The cluster of resources companies, electricity producers, commodities, land. There’s reason to think these could do quite well during a TAI transition, but in the short term they do well when inflation rises, which tends to be bad for AI stocks. (And they were effective hedges in the most recent draw down and in 2022.) Some of them also look quite cheap at the moment. However, in a recession, they will fall at the same time as AI stocks.
Short long-dated government bonds or AI company credit. In the short term helps to hedge out the interest rate and inflation exposure in AI companies, and should also do well in the long term if an AI boom increases interest rates. Credit spreads are narrow so you’re not paying much for the hedge. However, if there’s a recession, these will also do badly.
Index shorts (especially focused on old economy stocks). This could reduce overall market risk, and AI stocks will most likely fall at the same time as other stocks. If you buy long dated put options there’s some reason to think AI will increase volatility, so you might also benefit a little there. However, on net it might be desirable to have high market exposure / this trade most likely loses money.
Long-short multi-asset trend-following. This is an active strategy (so you might be skeptical that it works) but tends to do well during macro regime changes / big market crashes / high volatility, which will likely be times when AI stocks are doing badly. But for the same reasons it could also do well during an AI boom.
However, all of these have important downsides and someone would need to put billions of dollars behind them to have much impact on the overall portfolio.
(Also this is not investment advice and these ideas are likely to lose a lot of money in many scenarios.)
Could be interesting to see some more thinking about investments that have short-to-medium-term correlations with long-term-upside-capturing/mission-hedging stocks that don’t themselves have these features (as potential complementary shorts).
You could look for investments that do neutral-to-well in a TAI world, but have low-to-negative correlation to AI stocks in the short term. That could reduce overall portfolio risk but without worsening returns if AI does well.
This seems quite hard, but the best ideas I’ve seen so far are:
The cluster of resources companies, electricity producers, commodities, land. There’s reason to think these could do quite well during a TAI transition, but in the short term they do well when inflation rises, which tends to be bad for AI stocks. (And they were effective hedges in the most recent draw down and in 2022.) Some of them also look quite cheap at the moment. However, in a recession, they will fall at the same time as AI stocks.
Short long-dated government bonds or AI company credit. In the short term helps to hedge out the interest rate and inflation exposure in AI companies, and should also do well in the long term if an AI boom increases interest rates. Credit spreads are narrow so you’re not paying much for the hedge. However, if there’s a recession, these will also do badly.
Index shorts (especially focused on old economy stocks). This could reduce overall market risk, and AI stocks will most likely fall at the same time as other stocks. If you buy long dated put options there’s some reason to think AI will increase volatility, so you might also benefit a little there. However, on net it might be desirable to have high market exposure / this trade most likely loses money.
Long-short multi-asset trend-following. This is an active strategy (so you might be skeptical that it works) but tends to do well during macro regime changes / big market crashes / high volatility, which will likely be times when AI stocks are doing badly. But for the same reasons it could also do well during an AI boom.
However, all of these have important downsides and someone would need to put billions of dollars behind them to have much impact on the overall portfolio.
(Also this is not investment advice and these ideas are likely to lose a lot of money in many scenarios.)