Howard Marks says he used AI tool Perplexity to help write his latest memo

Howard Marks’ memos are considered must-reads by many in the financial world, including Warren Buffett. Perplexity, an AI-powered search engine, helped write a chunk of his latest missive.

Marks, the billionaire co-founder and co-chairman of Oaktree Capital Management, has been writing memos for 35 years and turns 80 next year. That makes it perhaps a little surprising that he’s drafted in a machine as a contributor.

“In a sign of the times, I’ll let my new (and AI-powered) editorial assistant, Perplexity, fill you in on the background,” Marks said in a Wednesday memo titled “More on Repealing the Laws of Economics.”

The veteran fund manager said he hadn’t “changed a word” of Perplexity’s output, which was “pretty close to what I would have produced in an hour or two.”

In support of his argument for free-market economics and less government intervention, Marks roped in the AI tool to lay out how regulations have distorted the fire insurance sector in California, resulting in widespread underinsurance.

“As Perplexity notes, insurers were told they couldn’t price fire policies to reflect increases in the frequency and severity of forest fires,” Marks said. “Likewise, they couldn’t raise prices to pass through the higher premiums their reinsurers were charging based on the increased frequency and severity.”

The distressed-debt investor asked whether a hypothetical insurer would cover a $5 million house with a 1% chance of burning down if the regulator only allowed it to charge $25,000 a year for a policy.

“I didn’t need Perplexity to tell me the insurance company faces an expected payout of $50,000 on that policy,” Marks said. “The answer’s simple: you don’t write that policy.”

AI tools are divisive. Proponents hail them as productivity boosters that will free workers from mundane tasks and supercharge economic growth. Critics fear they’ll stymie learning and development, erode skills, and destroy so many jobs that they cause mass unemployment.

Marks may have embraced AI but he still finds value in human wisdom. In his new memo, he quoted Buffett saying the US fiscal deficit was “unsustainable” and could become “uncontrollable” during Berkshire Hathaway’s annual meeting in May.

The Wall Street legend also included his own colourful, incisive comments: “The behavior in Washington with regard to both the fiscal deficit and the precariousness of Social Security remind me of the tale of the guy who jumped off the 20-story building. As he passed the 10th floor, he said, ‘so far, so good.'”

Marks may be in his golden years and as skeptical of high-flying assets as ever, yet seems open-minded about innovations.

For example, he went from dismissing bitcoin as “not real” in 2017, to trumpeting its privacy and convenience in 2021 after learning about cryptocurrencies from his son. He’s clearly finding uses for AI too.

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