Fellow investors, 

Over the past couple years, no stock has symbolized the boom in artificial intelligence better than Nvidia, the leading manufacturer of computer chips that power AI machines.

A week ago today, Nvidia's stock fell 9.5%, losing $279 billion of market value in a single day -- the greatest one-day dollar decline by any stock in history. Another top AI stock, Super Micro Computer, is down about 19% over the past month.

To me, this is the latest example of what I consider a law of financial history: The beneficiaries of booms are never obvious at the beginning.

As I wrote on the 10th anniversary of the bursting of the 1999-2000 dot-com bubble, "you can be 100% right about the future and end up with zero to show for it if you overpay in the first place."  

Every major technological innovation is greeted with wildly excessive enthusiasm, showering new companies with funding, enabling the new technology to spread rapidly and take hold. Every company, no matter how dodgy, seems like a possible winner in the early days. Then the hype fades, growth slows, investors start to demand profits and nearly every company providing the innovations will struggle. Only a few end up surviving. The biggest benefits are reaped not by the innovators themselves, but by their customers.

AI may already have entered the phase where the hype is starting to fade.

The brilliant Zach Weinersmith skewered the excesses of AI investing with this cartoon on July 22:

This investment boom, like almost every one that preceded it, is likely to end in a cascade of surprises -- and in disappointment for people who thought they could predict the winners before the race was run.

Because of how my vacation weeks happened to land, this is the first issue of the newsletter in more than a month. Of course, there's a case to be made -- and I've made it myself! -- that you don't miss out on much while you're gone.

Here's what came up on the weeks when I wasn't away.

• Billionaire Bill Ackman tried to launch a closed-end fund that would mirror his hedge fund. It didn't work.
• The Japanese stock market lost an eighth of its value in a single day. The next day it went right back up again. So did other markets around the world. (How quickly investors forget!) The lesson I suggested you learn: Fearmongering propaganda goes up whenever markets go down.
• Index funds may be the best tool to build long-term wealth ever created. Investors can still use them to shoot themselves in the foot. Here's how to avoid that.
• With the Fed expected to cut interest rates later this month, firms are already preying on investors' craving for steady high income. I dug into one and discovered why the old saying, "If it sounds too good to be true, it probably is," isn't even true.
• High income doesn't always generate a great outcome, as investors in some funds that pay big dividends have found.

At the beginning of August, meme stock AMC Entertainment Holdings announced its results for the second quarter.

In the earnings release, Adam Aron, AMC's CEO, made one of the strangest statements I've ever seen from a corporate executive:

"Indeed, in June of 2024, AMC achieved our highest-ever June Adjusted EBITDA in our company’s entire 104-year history.”

I once defined EBITDA this way:

And adjusted EBITDA, of course, is even farther from actual earnings; a company can exclude the most basic expenses until it comes up with whatever number it feels like. (In 2018, WeWork was widely mocked for its "community-adjusted EBITDA," a rough indication of what WeWork might have earned if it had virtually no expenses at all.)

Why is Aron's statement about a 104-year record high in AMC's adjusted EBITDA so peculiar? 

Let us count the ways.

• EBITDA barely existed before the 1970s.
• Aron appears to be talking about adjusted EBITDA (normally a quarterly measure) for a single month.
• Did AMC really go back and calculate adjusted EBITDA for each month of its "entire 104-year history" even though it has been a public company only since 2013?
• Given that adjusted EBITDA can be rejiggered whenever and however a company wishes, how could any historical comparison be meaningful?

Meanwhile, the company's actual numbers were nowhere near 104-year records: Total revenues fell 23% from the second quarter of 2023, and AMC posted a net loss of $33 million compared to a $9 profit in the year-earlier period.

But its June adjusted EBITDA was the highest since Woodrow Wilson was president!

"Almost surely nothing is comparable across 104 years, so it’s a particularly odd and impossible-to-verify statement," says Patrick Badolato, an accounting professor at the University of Texas at Austin. However, he adds, "if one uses EBITDA as just a general stand-in for artificially embellished profitability, then they may have a point."

I emailed AMC repeatedly, requesting comment, but I received no response.

Or should I say I received a "silence-adjusted response"?

If you're among the "apes" who've invested in AMC, you might take a moment to question this kind of monkeybusiness.

Here are a few things I've enjoyed reading recently:

How to invest badly (Owenomics)

Are bonds still worth owning? You bet (WSJ)

Yes, you can easily become a multi-millionaire just by investing steadily in a 401(k) -- even without a match from your employer (Oblivious Investor)

Are gorillas in zoos getting addicted to smartphones? (WSJ)

How the great investor Benjamin Graham survived a panic on Wall Street (BeyondBenGraham)

People are renting everything imaginable nowadays (WSJ)

Artificial-intelligence funds aren't looking so smart (Scientific American)

Look carefully before you buy an index fund of small companies (WSJ)

Rent control has been controversial for more than 2,000 years (German Institute for Economic Research)

My dear friend Jonathan Clements is dying of cancer, but he says he has no regrets (HumbleDollar)

After my column on the 15% "guaranteed" returns at a startup called Yield, several readers emailed to say that only fools could fall for such an unrealistic pitch.

I disagree.

Bernie Madoff suckered many supposedly sophisticated investors, including professional allocators of capital.

Back in the 1990s, John Bennett of the New Era Philanthropy fraud took millions from such eminent financiers as Laurance Rockefeller, ex-U.S. Treasury Secretary William Simon, former Goldman Sachs co-chairman John Whitehead, and John Templeton Jr., son of the renowned mutual-fund manager.

I've been there, too. When I was in my mid-20s, I lost a couple hundred dollars to what New York City cops then called "the man from Angola" scam, a complicated grift whose details I no longer remember. (It somehow involved switching real money for fake bills, and I fell for it.)

Anyone can get suckered by a con artist if you let your guard down. That's why they are called artists!

So I'll ask:

Have you ever fallen for an investing fraud? What was it? What did you learn from it?

To share your thoughts, just reply to this email. Responses may be lightly edited for clarity and brevity. Please include your full name and location.

From the sparkling new book You Weren't Supposed to See That, by Joshua M. Brown:

Here's the trick I've used over the years when markets have been in freefall.

I log into a brokerage account and go to the Orders screen.

I pick five or six of the best stocks in America that I've missed out on.... A contemporary list might include Netflix, Amazon, Facebook, Disney, Celgene, Starbucks, Chipotle, Goldman Sachs, etc.

Now I go to my quotes screen to see where they're currently trading and I come up with utterly absurd prices at which I would buy them.... You get the idea. These are discounts of 20% and beyond [their] already discounted levels....

Next step -- I create GTC Buy Limit orders for a handful of these stocks at the exact absurd prices I've come up with. The Buy Limit order will not allow my trade to get executed until the price I've specified is reached.... The GTC -- or Good Til Canceled -- part gives me the leeway to watch a correction play out over weeks or months with my absurd buy list still in effect....

When you have these absurd limit orders on excellent stocks in place, something wonderful happens to your frame of mind.... you find yourself beginning to root for even more downside. It makes no sense, of course, because the rest of your portfolio is declining in value -- but your fixation on seeing one or two of these absurd prices hit completely overpowers any concerns you have. You begin rooting for the correction to continue!

...getting into this mindset completely distracts you from the panic going on all around.

Be well and invest well,

Jason

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Wall Street has a few prudent principles; the trouble is that they are always forgotten when they are most needed.
—Benjamin Graham