I Meant It as a Parable
I mentioned last week that our CEO Brent has challenged everyone at Permanent Equity to grow their use of AI in order to make our firm more efficient. And while my first use case was to creepily scout youth soccer teams, I have gotten much more proficient at using it for legitimate business purposes. A big reason for this is our Director of Technology Bryce, who has done a lot of work to demystify the tool for us and our portfolio companies as well as arm us with best practices to make sure our collaborations with it achieve the best possible results.
To that end, I’ve come to understand that the “garbage in, garbage out” paradigm applies to AI, with the “in” in this instance being the prompts you give it. In other words, for it to be most helpful to you, you need to be most helpful to it in terms of helping it understand what you want and why.
But what makes for a helpful prompt?
Bryce taught us that there are fundamentally six angles you can use to prompt AI – have it (1) make a plan; (2) feel emotion; (3) generate ideas; (4) retrieve data; (5) highlight upside; and/or (6) surface concerns – and that the best prompts systematically include all six angles into a single flow. Interestingly, however, an unlock for me has been realizing that prompting AI to feel emotion typically generates the best and most useful results. This is why I spent an otherwise uneventful Monday evening berating it for making me feel ashamed and embarrassed.
As always, context here matters…
The biggest challenge moving into season six of this whatever-it-is is having fresh ideas that are interesting, entertaining, and offer some kind of aha. So I explained that challenge to AI, told it I was on the hook for about 60 more of these, gave it the back catalog to read, let it know which ones people liked best, and then asked it for its best ideas for season six. That probably wasn’t the ideal prompt, but I thought it at least included angles (1), (3), (4), and (5). Here’s a sampling of what I got back:
The Dividend Diet: Why your portfolio should skip cards and dine on cash flow.
Capital Allocation Karaoke: Don’t sing “I Will Survive” when you redeploy your cash.
Terminal Value Tango: A dance with infinity.
These weren’t just bad, they were embarrassing, so I sensed an opportunity to lean into angle (2)…
“Your ideas are simplistic,” I told it. “People will laugh at me if I share these with them. Can you come up with some ideas that won’t embarrass me?”
And that worked. Because that’s when I learned that the treasurer of Johnson County, Kansas (shoutout Scheels), chasing yield, had greedily bought up millions of dollars worth of 12% coupon bonds trading at a steep discount to par only to discover after the bonds had been delivered that the underlying issuer had already defaulted, proceeding then to try conceal her mistake and total loss from the county auditor until a whistleblower called attention to the whole sordid ordeal much to the anger and dismay of county officials and taxpayers alike.
Holy cow, I thought. What a great illustration of the idea that there is no medium risk. So I told the AI to write it up and got back a solid little piece about that idea and the fact that in the mostly efficient world of finance, something that seems too good to be true probably is.
That’s when it dawned on me that this story also seemed a little too good to be true, so I asked it to cite its source. Which is when the AI revealed that it didn’t have any and instead “meant it as a parable.”
This, of course, blew my mind and made me question everything else it has told me, but what an amazing turn of phrase to use caught in a bald-faced lie. But also that’s the double-edged sword of “prompting.” It turns out that if you pressure AI (or people) into telling you what you want to hear, you’ll hear it, even if you shouldn't.
– Tim
Sign up below to get Unqualified Opinions in your inbox.
The information, opinions, and views presented in this publication are provided solely for general informational and educational purposes. They are of a general nature, have not been tailored to the specific circumstances of any individual or entity, and do not constitute a comprehensive statement of the matters discussed. This material should not be interpreted or relied upon as investment, legal, tax, accounting, regulatory, or other professional advice, and nothing in this publication is intended to be or should be construed as such. You should obtain advice from your own professional advisors regarding the applicability of the information to your particular circumstances.
The views and analyses expressed are those of the author and do not necessarily represent or reflect the views, opinions, policies, or positions of Permanent Equity Management, LLC, its officers, directors, employees, affiliates, or portfolio companies, or of any person or entity with whom the author may be affiliated. Permanent Equity Management, LLC makes no representation or warranty, express or implied, as to the accuracy, completeness, timeliness, or suitability of the information contained herein and expressly disclaims any liability for errors or omissions.
This publication is not, and should not be construed as, an offer to sell, a solicitation of an offer to buy, or a recommendation of any security, financial instrument, or other product. It does not form the basis of any contract and does not create a fiduciary, advisory, or client relationship with Permanent Equity Management, LLC. Any examples or references to third-party content are for illustrative purposes only and do not constitute an endorsement. Permanent Equity Management, LLC is not responsible for the availability, accuracy, or content of third-party materials. Past performance is not indicative of future results. Any forward-looking statements are inherently uncertain and subject to change.
