Where GenAI tools struggle

A tricky, niche, tax question. Basic clauses that apply to the majority of taxpayers in the country are described and discussed everywhere on the web. But this specific question is not.

Since GenAI tools are the new panacea, I asked Gemini about this. It said something that was clearly wrong. I thought its “deep research” mode may do a better job. I asked the same question again but in the deep research mode. It did a lot of work and eventually spit out a report, which was also unsatisfactory.

There are nuances in tax rules that need to be considered for answering this question. Most web sites don’t care about this nuance; Gemini, which uses information from the web as its source, also couldn’t understand the nuance. It produced an answer without solid justification.

I then did a regular Google search and found a site that said the opposite of what Gemini said. I asked Gemini a follow-up request to include information from this new page.

My expectation: Gemini will reconcile the differences between the sources and improve on its previous answer.
What Gemini did: Gemini simply overwrote whatever it had said before with what was in the new site.

Gemini did exactly what I do when a code reviewer is forcing me to do what I don’t want to do, but I am tired of arguing. I just do whatever the reviewer says and move on. Gemini doing that to me did not exactly instill confidence in the report it had generated.

While GenAI tools are great at many things, they are not exactly good at answering niche questions based on conflicting information from different sources.

A different kind of social media diet

As I was going to write a rageful comment on a random post by a random person on Facebook, I realised something.

If someone told me in real life the exact same thing as that post, what would I do? I would say the least amount of words possible to stay polite and flee the scene. I know not to engage with idiots in the real world.

But when it comes to social media, I was constantly engaging with idiots. That’s why I wasn’t feeling good after spending time on social media. I am choosy about whom I engage with in real life; I should emulate the same on social media too.

(In my defence, this was not an issue in the initial days of social media. I only have sensible people as my connections; they don’t post garbage. With every social network promoting everything from outside the user’s own network, chancing upon random garbage has become more frequent.)

Starting to appreciate consistent performance

The following graph shows 3 year rolling returns of 3 different mutual fund schemes. (I have removed the fund names from the graph since the names of specific funds are not needed for this post.)

Rolling return graph taken from primeinvestor.in

The green and purple funds had sharp declines in March 2020 when the market had just reacted to the Covid-19 shock. The blue fund also fell, but not by as much. The reverse of this fall can be seen in March 2023. Any investor that invested in these funds in March 2020 got a significantly higher return than anyone invested right before or right after.

When I was new to evaluating investment assets, the peaks that the green and purple lines reach used to attract me. I liked such funds. “There is a chance of making an incredible return from these funds,” I’d tell myself.  Investing in funds like the blue line felt like leaving some returns on the table. I wanted to invest in assets that have the potential to maximise returns.

But high volatility can be hard to live with. When investing in a fund that provides fairly consistent returns, entry and exit times do not matter as much. A volatile fund can leave us less than satisfied depending on our entry/exit time.

Let’s say a fund’s NAV goes up from ₹100 to ₹130 within 4 months, and then falls to ₹121 in the next month. I’d find it hard to sell my holdings when the price is ₹121 despite knowing that anchoring to ₹130 is irrational. I’d delay exiting the fund as much as possible in the hope that the NAV may rise back up. Of course, the NAV can keep dropping below ₹121 as I wait. But that knowledge hasn’t been enough to gather the conviction necessary to sell at ₹121.

Over time, I have started appreciating consistent performance over potentially high—but uncertain—performance. I think the following reasons triggered a change of mind in me.

• Reading various articles on portfoliocharts.com and looking at the various charts that they plot to compare different portfolios.
• My experience selling the RSU shares that I receive from my employer. Working with volatile assets can be emotionally taxing.

There’s another angle to this, too. I used to think that investors avoided risk only when they were afraid of it. But now I know better. I avoid certain risky assets or risky portfolio mixes not because I fear the potential loss. Rather, I don’t particularly want the added return, so I am happy to keep both the extra risk and return outside my portfolio.

Uncertainty = discomfort of the mind

I went to see a doctor today. I was only expecting a simple treatment. After all, the symptoms didn’t seem severe. It seemed like something that could be cured in a few days.

Then came the diagnosis as a shock. It was a condition I’ll have to live with forever. Something that can change my life as I have known it. Something that can potentially disrupt what I consider as my identity. Something that can make me humble.

It hasn’t been easy since then.

A part of me keeps reminding me of what Oscar Wilde once said: “If I may not write beautiful books, I may at least read beautiful books; and what joy can be greater?” Though this will be a life-altering change, I have great confidence that my happiness will remain intact.

Nevertheless, it’s all a haze right now. Things will become clearer and more certain in the coming weeks and months. For now, however, this uncertainty hasn’t been easy to endure.

How diversification increases risk

Trump’s remittance tax is spooking many around the world. Some Indian residents investing in US assets are also worried if their withdrawals may also fall in this tax net.

A while back, I wrote that diversification doesn’t strictly reduce portfolio risk. This remittance tax is an acute example of how holding assets in the US exposes us to more risk.

Just to be clear, this post is not about global diversification or US assets. The only point I am trying to convey in this post is that diversification does not strictly reduce risk; it alters the portfolio’s risk-reward behaviour.