Be Patient and Maintain Reserves for Winners

Saudi Arabia’s government recently announced a $40 Billion fund to invest in Artificial Intelligence technology.

On the latest All-In Podcast, the besties discussed how they would approach deploying the funds if they were responsible for them.

I wouldn’t be in a rush to deploy all $40 Billion at once. That is a recipe for spraying a lot of money into unproductive or overhyped things. I would first take my time. In terms of a framework, I would think of the different levels of the stack of AI, and try to figure out where the value capture is going to be. I think there are four layers: silicon & chip layer (NVIDIA dominates here), then the foundational models (OpenAI, open source models), infrastructure (dev tools, databases), and finally applications.

David Sacks, All-In Podcast Episode 171

The most important thing that fund managers get wrong, is not having appropriate reserves for your winners. You need to reserve between 40-50% of a total fund size for reserves. Take $20 Billion off the table. Now you have a smaller problem of how do you deploy $20 Billion. Because the other $20 Billion is meant purely for the winners, where you cram the money into the few that are winning.

Chamath Palihapitiya, All-In Podcast Episode 171

There are two valuable lessons for retail investors from these approaches.

First, be patient (rule #3).

Wait for something to come along that you know is right. Then take your profit, put it back in the money market fund, and just wait again.

James B. Rogers, Jr. in Market Wizards

If you have $10,000 to invest in the market, don’t be in a rush to deploy all of it right away. As David Sacks said, take your time and develop a framework.

Second, maintain reserves for your winners.

If you have $10,000 to invest, allocate $5-$6k for your initial bets, and preserve the remainder. Then when a bet(s) starts to work, you’ll have the funds to increase your position size.

Be patient, cut your losers quickly, and deploy reserve funds into winning bets to increase your overall returns.