Badger returns from his motorbike trek to Budapest, but barely survives not losing his head. Monkey is still stuffing his face with cannolis in small-town Sicily (home of shoddy internet speeds and the reason why we have no video this week!).

Trump and Biden are two of the most compromised presidential candidates of all time — but is one somehow better than the other from an investing perspective? We discuss the lack of systems thinking, the blaming the other guy syndrome, and whether clean energy and Inflation Reduction Act businesses would do better under Biden part II than under Trump part II. Mentioned: Nate Silver’s 538 election outcome probabilities https://projects.fivethirtyeight.com/2024-election-forecast/?cid=rrpromo and Betfair.com.

As the world gets increasingly more complex, it also becomes more dangerous. Badger talks about the companies he’s going to focus on more exclusively in response to the shifting AI/cybersecurity demands, including CrowdStrike $CRWD and Anduril. Monkey is thrilled to hear this, and offers his own area of focus in a time of increasing energy needs: battery companies. $EOSE $ENVX

Financial statements can keep many folks from investing. But former CFO @IAmClintMurphy reframes them in language you can understand: Is your company stable? profitable? will it survive?

Let us know how you see the upcoming US presidential election affecting your life as an investor, and what megatrends and specialized areas you’re focusing on in the coming months and years!

Segments:
[00:00:00] Intro
[00:03:31] How Will The Next Government Impact Our Investments
[00:13:35] Investing in an Increasingly Dangerous World
[00:17:52] What Financial Statements Tell You About A Company

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WSW E34

[00:00:00] Intro

Woo, woo, woo, woo.

Luke: Hi, and welcome to the latest episode of Wall Street Wildlife from a bleary badger, literally straight off a plane and a Christoph who’s imminently flying home to the good old U. S. of A. How’s your Sicily, Poland trip wrapping up, buddy?

Krzysztof: Uh, it’s been really delightful and, , I have to be honest, I’m not looking forward to getting back to the Austin weather, which I saw is between 75 and humid and 100. 

Luke: What’s that in your numbers?

Krzysztof: It’s just really nasty. just really nasty. 

Luke: I’ve, uh, if you, I don’t know if you’ve been tracking me on Strava, but, uh, I’ve been running in Budapest a couple of times and I’ve had to be setting my alarm clock for like 6am to run because it’s just like 33. Which I don’t know what that is, but it’s a lot, it’s a lot of Fahrenheit as well.

Krzysztof: yeah. So before I ask you about your travels, I’ll say one thing. Life here in small town Sicily is really delightful, and I’ve been astounded by how much there is to do in such a small place. I mean, it’s not that small, it’s like 50, 000 people, but there’s a really wonderful sense of community and a lot of cultural things that I didn’t expect would be at this level, including art shows and queen cover bands and, um, so sad, uh, watching, the Italy soccer football team lose the other day for the Euro cup and that night having the queen cover band having to perform, we are the champions.

Luke: Wow.

Krzysztof: But I made the grief with, with, uh, cannoli every single day with, uh, there’s no bonus of granita.

Luke: Okay. I’ve not been following the football, so commiserations if Italy are no longer in it.

Krzysztof: So your travels, you’re the one that’s been having real adventures as, as usual, you were in Budapest and you just made it home. What were, what was an exciting highlight for you?

Luke: Uh, so we, yeah, Budapest was awesome actually. It was straight on the back of a motorbike tour with a bunch of buddies. Uh, as you might remember, my motorbike was stolen. So I flew to Milan, rented a bike, spent about a week up and down the mountains, having a lot of fun in ski resorts in the summer. And then.

did nine days in Budapest and it finished with a, a sort of bachelor party that wasn’t a bachelor party. I, none of my, none of that gang of male friends has got married recently. So we felt like, Hey, we, uh, we deserve a bachelor party. So we kind of went for the party without the bachelor as it were. That was fun, but we did lots of cultural stuff.

Um, probably only had one day of literally, uh, Like 12 hours solid drinking. Everything else was actually pretty cultural. I feel like I’ve seen Budapest quite well. 

Krzysztof: on the itinerary on travel itineraries for those who have not.

Luke: 100%. Yeah, it’s, uh, I mean, we were staying in a nice area. I had a beautiful apartment. I was pretty happy with my setup. but yeah, like it’s very reasonable, uh, sort of cost wise to go out, especially if you’re from the US of A, I’m sure everything feels very cheap. Um, good food, lots to see, lots of history, lots of architecture.

Um, lots of really interesting, history from post World War II and, uh, and a revolution against communism and how the country changed. Um, so yeah, yeah, it was a fascinating, I highly recommend,

Krzysztof: All right.

Luke: I will definitely return.

Krzysztof: Welcome back home. I’m glad you got home safe and sound. I always worry about you and your motorbike uh, doing, you know, I mean, it’s, it’s, it’s a dangerous life you lead. Badger.

[00:03:31] How Will The Next Government Impact Our Investments

Luke: know, uh, and, and maybe this teases into our headline topic of today, I’ve realized I’m now starting to suffer cognitive decline myself, I’m becoming increasingly dazed and confused personally. So for the first time, uh, like I never lose anything. I’m always pretty sharp, but I, but I stayed in so many different places on the bike trip and it was relatively hectic, so I’m going to maybe give myself a pass, but I managed to, uh, lose, like, something fairly critical every single day of the motorbike trip, from, like, running shorts, to my electric toothbrush, to, like, my razor, to some other, like, I just, everywhere I seem to leave, like, this strew of toiletries and clothing behind me.

I had to keep replacing things as I went, which is very unlike me, so I do worry. If, perhaps like another notable public figure, I might be suffering cognitive decline, would you think?

Krzysztof: Well, uh, that’s a nice segue, but have you checked whether your head’s still attached? Uh, it’s the thing connected to your shoulders.

Luke: Uh, I’m, I’m looking relatively intact,

Krzysztof: Okay. All right. Yeah. So, uh, what is it? Last week? On Thursday, presidential debate happened and everybody is up in arms that we in fact have no sane candidate to choose from. We meaning. Uh, people in the United States. And I suppose our topic is, does this matter in any way for us as investors?

I’ll, I’ll summarize the top level, the way I see it. Um, I don’t like Trump because I don’t trust his character in the sense of, I don’t believe. what he says. So it’s hard for, I don’t know, to me, it seems like it’s hard for people to build successful businesses and industries when you can’t believe the person in charge, right?

On the other hand, uh, Joe Biden was obviously Severely, his, his cognitive capacities were severely diminished, and it was clearly on display. And there’s, you know, the whole democratic party is up at arms, like we knew this was coming. Now this is here. And now what? So between this rock and the hard place, As an investor, are we rooting for any one candidate in particular?

Does the business world seem to prefer one over the other? If my description has any merit whatsoever, what do you think?

Luke: I mean, I, I think the business world certainly does, if you’re a purely a capitalist, you probably do prefer, uh, the Republican party and Trump, he’s more business friendly, I think, in a number of ways. Whether that’s the right outcome for the world and for geopolitics, who knows? But it’s a, it’s a bit of a, is it a Hobson’s choice or a Sophie’s choice where you basically have no.

Good decision to make. I don’t like this. We’re recording on Monday. The first, we’re going to get this podcast out on Tuesday, the second, like we might get overtaken by the news. It does look like on Twitter, some informed folk on the fringes of the Biden camp might be suggesting that, uh, Biden’s going to stand down.

I mean, I, I don’t know that that will happen myself, but, it’s possibility that’s for sure.

Krzysztof: Yeah, you know, one thing I’ll add is, uh, and I’m sorry for repeating this ad nauseum, is that As a systems thinker, I always try to recognize that these individual variables need time to play out. So when I hear two candidates essentially blaming the other, you know, for the problems and the shortcomings we’re experiencing today, It’s so inaccurate.

It really bothers me. It’s, you know, the Biden campaign saying it was Trump’s fault that we had so much debt and the Trump campaign is saying, no, it’s Biden’s fault. We have so much debt and neither party on any level is willing to take any responsibility. Meanwhile, the debt spiral is, you know, growing out of control.

So I remain really, really worried about the state of the economy. And I just can’t see how any of these two. approaches, meaning ones that I guess reduce a complex thing to talking points will offer any solution that doesn’t continue to make things worse. You know that it just it’s just like a form of kicking the bucket down the road.

So I’m quite pessimistic at the moment.

Luke: I guess it’s a long time between now and November. my eyes are down on the, uh, UK election in just three days time. I’ve come home to see my ballot paper here. So I’m getting ready to file that tonight, post it off. But, um, you guys have got another, what, five or six months before you have to have your own election.

A lot could change, you know, maybe. At least one of the candidates changes, maybe Biden was just having a bad day and maybe they do keep the next debate in the diary and maybe he knocks it out of the park. I mean, it would take a very compelling performance in a, in a subsequent debate with Trump. I think for Biden to recapture the, uh, momentum in the, in this race, like if you, I don’t know how accurate they tend to be, but there’s quite a lot of money on the line.

I tend to think that. looking at the gambling odds, the gambling line can give you some insight into these things because people, it’s not just opinion then people actually put hard cash up to back up their position. Donald is a significant favorite. If I were to bet a dollar on, uh, Trump today, I’d only win 72 cents.

If I bet that same dollar on Biden, I’ve been 5, 80. So it’s quite a stark difference in terms of, how confident the, at least the gamblers are that Trump’s going to take the win.

Krzysztof: The guy I follow for that kind of stuff is Nate silver and his blog 538. And I believe for the debate, it was He runs really sophisticated statistical analyses, from across all the polling and whatnot. I believe it was 50 50 before the debate, and it’s certainly shifted in Trump’s favor after But one thing, I don’t believe, is that what this was, was just a bad day for Biden. Unfortunately, as we age, our capacities continue to decline rather than, you know, get better. And so. He could have been, so I’ll reframe it this way. He could have been having a bad day, true, but it’s not like two years from now.

He’s going to be that much sharper, right? There’s no way that’s impossible. You know, from an investor standpoint, I guess it, it will come down to the policies that we’re dealing with. And I think the real, um, like you said, Trump is probably favored by business people. but I’m also worried about all the clean energy initiatives that he might.

Take off the table because some of his talking points were, you know, absurd, like him saying, under my policies, we still had H2O. Meanwhile, Biden is the guy that actually, you know, built all kinds of solar farms and wind farms and, made clean energy, you know, a really, profitable industry over the last four years.

Luke: Yeah. Biden’s, uh, inflation reduction act was really like a very badly named set of, incentives around things like sustainable energy and lots of other things, but that was quite a headline thing within that. Um, I don’t know that Trump can repeal those. Um, not without Senate approval, but he can certainly make it more difficult for, clean energy companies, solar batteries, companies like that to prosper in the way they are today.

But then there’s a bunch of other sectors that probably will do quite well. Like if we stay on energy, probably oil and gas, that’s those, those sort of non renewable energy sectors are going to do fairly well under a Trump presidency. Cause he’s all for fracking and, exploiting America’s oil reserves.

And then small business, like he’s, I guess he is business friendly. he made a big hoo ha in his shtick over the last month or two about deregulating, um, and making it easier to do business. And I think that’s probably true to be fair. And companies that have struggled to do M& A under the current FTC. Oversight. Um, you know, a lot of headline acquisitions have been challenged by the FTC under a Republican government. That’s probably going to slacken off.

And so it’d be easier for companies to expand, non organically. 

Krzysztof: Yeah. I agree with everything you said. The takeaway I have from the business standpoint is one of almost bewilderment. If I asked myself what it would take to be hired, you know, as a, at a call it top tier tech company, right? You, you go in for your interviews, you go through a series of, pretty intense questioning and no doubt, you know, uh, mental agility tests and exams of one sort or another.

Can you imagine what would happen to you if you were a candidate? equivalent to Trump or Biden as they performed in the debate, meaning like actually using sentences that are not only not grammatical, but nonsensical. You wouldn’t make it past five minutes of the interview, right? And so that these guys are the two candidates. Uh, applying in the sense for the world’s most, I would say, crucial and challenging and complex job in that these business leaders in some ways who know what it’s like, what it takes to make crucial, complicated decisions are somehow still cheerleading for their guy It’s kind of bewildering that I’m not hearing more often from people like we need somebody else besides these two people are still sort of like sticking to their political bias. And that bothers me.

Luke: foolish business leader. If you came out with a very strong political position, you’re probably asking for your company to get censured in some way. Whether you’ve got private opinions that you share at dinner parties might be a different thing.

Krzysztof: Yeah, that’s true. That’s a good reminder.

[00:13:35] Investing in an Increasingly Dangerous World

Krzysztof: Well, that sounds to me like a possible segue into talking about investing in an increasingly dangerous world. Do you want to give us an update Luke on what you’re thinking for yourself in terms of your own focused in the next coming weeks and months?

Luke: Yeah. You know, I’ve been thinking about, the breadth of. Of my own investments. And I’ve got a whole bunch of different stocks across all sorts of sectors and I’m tech centric and North America centric, but broadly fairly diversified across all sorts of different areas of technology. Like everything is technology these days.

, but there’s one area which I sort of. Maybe I’m sort of horrified to feel is a growth area, like everyone’s going to get bored of AI at some point soon and the tide is going to turn. but I think one area that is going to be incredibly resistant and just increasingly important is the fact that the world is increasingly dangerous.

And what do I mean by that? ever rising cyber security threats, you know, we’re seeing something headline piece almost every day about another, another company or another government, uh, that’s been hacked or subjected to malware or lost data. There’s something bad has happened. public safety. Gun crime is still a very serious social problem in the U S.

I think there’s a lot that technology can do to improve public safety. And then also I’m afraid like military technology defense, um, some of the big companies like Lockheed and L3 Harris, but actually also some interesting private companies like Andrew Hill.

I think we’re going to see some interesting stuff happening in that space precipitated, unfortunately by the sad situation in the Middle East and also in Ukraine still. So I’m, I would like to turn my focus to those areas in particular. So my plan, uh, on LinkedIn is to, um, really focus my research time.

On those three subsectors. And I’m badging that as an increasingly dangerous world. So right now I’m putting together a kind of industry wide review of cybersecurity. I own a bunch of companies in this space myself, but I own some of the really big ones, and maybe it’d be interesting to, uh, get down to the nitty gritty and see if I can spot any tiny little companies as well in the same sector that might be, important in the future. Would you reckon to that, focus area, exciting or scary?

Krzysztof: Both, to be honest. I’m glad you know, I’m glad there are good guys, if I could call them that, you know, fighting the, upcoming. Tsunami of, AI based criminals. And I mean, all of those things are terrifying. I’ve watched enough black mirror episodes to kind of have, you know, a very dark vision of just how bad things could get.

And, um, you know, with sprinkled with some. Some serious AI experts who are sounding the alarms about just how bad it could get, uh, having someone like you continue to refine your focus on what are the best of the best companies that will continue to grow and mature in this space and try to keep us safe, I think is essential.

Um, not just from, you know, the, and how to make money in this situation perspective, but also for our own personal wellbeing and sleep well at night quotient. So I’m glad you’re doing that work. I suppose if I have, uh, any analog to that, uh, right now, my mind is very much on the battery space. Eos had, um, a really Good development this morning.

They finally put, put up their automated line. And so anytime I think of AI, I think of an increasing demand for electricity and that electricity needs to be stored somewhere. So with Bitcoin rising and clean energy farms going up and AI expanding, um, knowing your batteries well is going to be essential.

So that might be my counterpoint to what you’re doing. So between the two of us, I think we have our eyes on, on some important sectors. 

Luke: Very good. Very interesting. Christophe. Yeah. Uh, let’s see how this whole area plays out.

[00:17:52] What Financial Statements Tell You About A Company

Luke: Let’s take us onto our closing topic for the day because you have been reading about financial statements. What is it you want to share with our audience?

Krzysztof: sure. Uh, I think financial statements are often a roadblock to many investors because unless you took finance and unless your numbers, do we, you know, they are often quite complicated and they don’t always show up looking the same and numbers can mean slightly different things and there’s negatives and parentheses and it gets kind of, overwhelming for some people.

I personally don’t think financial statements are anywhere near the end all and be all of being a successful investor. but you know, if you want to be serious about this, you have to know them. And so I’m always, uh, as I’m. As I make my way across Fintwits, every so often I find investing professionals post some version of their version of what financial statements are, how they work, and what they mean, and I came across one from At I am Clint Murphy is a real estate developer and he has quite a large following on X. And I found his summary of what the three financial statements are and how to think of them really refreshing. So he said that, uh, a balance sheet is equivalent to asking, is your business stable? And recall that a balance sheet is a snapshot in one particular moment in time, and it basically weighs how much you have.

and what you have versus what you owe. And I suppose what’s left over is called the equity. But if you have an imbalance there, sort of like a seesaw, like too much of what you owe and not enough of what you have, you could say in a sense that your business is unstable, uh, which would be a red flag or a good flag if it’s the other way.

The, Income statement is probably the most familiar one, which shows you more or less how much money you’re making and whether you’re turning a profit or losing money each time you report, which is usually for our purposes quarterly. And then the last one, Is the statement of cash flows or cash flow statement and his equivalent for this one is will you survive because it shows a snapshot in time from a from one day to another exactly how much cash went into your business and how much Went out and you have to remember that you might have the world’s best business But if you run out of cash For whatever time period you can’t buy in a simple example more lemons for your lemonade stand you will go bankrupt Uh, regardless of how hot the weather is and how many people want to buy your lemonade So that that frame will you survive I think is really helpful.

So just wanted to share that with our listeners. and encourage you all to, I don’t know, um, not be so scared of financial statements. If you use this reframe, what do you think of it?

Luke: Uh, yeah, that must make sense to me. That’s, that’s, that’s probably, I think there’s a whole bunch of questions like you, like his questions there. Are you stable? Are you profitable? Will you survive? It’s like a whole bunch of questions when you really get under the covers. That between them, like the financial statements can help you answer, uh, around the viability of the business, the sustainability of the business, and like the future potential of the business and, how the CEO at least, or maybe the founder still is, directing the company and their longterm vision.

I think it’s probably the most important. evolution in my own process as an investor was to take the financials far more seriously since I took a bit of a battering in 2022 and I think I was probably in that camp of Many growth investors through 2018, 2019, 2020, where the numbers almost didn’t matter, the valuation almost didn’t matter.

you know, you’re just trying to buy a big story and you probably make out like a bank robber. But clearly when the, well, that Buffett saying when the tide goes out as it did in 2022, is he, he’s wearing the bathing suit and he’s not. And, uh, I was caught with my pants off, certainly in some parts of my portfolio.

So, uh, yeah, getting much more into the numbers and it seems hard at first, but it doesn’t take long. Like if you really just, if you just start read like the most, most useful thing an investor could do, I think is just start reading like the 10 Q read. It looks really boring and it’s just like this 30, 40 page PDF with a bunch of tables in it.

But you, when you get into a flow and actually you can, once you get used to reading them, you can blast through one in like half an hour and you learn a lot about the business. So, uh, and there’s lots more you can do beyond that, but I think that’s a really good, thing for an investor in individual companies to make part of their process rather than just relying on other analysts to tell them what their

opinion should be. 

Krzysztof: Yeah. Agree though. I would make a small distinction between Say what happened in 2022, which were, let’s say, for simplicity sake issues of valuation, which I think are easily relatively easy captured by some ratios. Like, for example, the famed P. E. P. S. P. E. G. Growth rate ratios. Versus what I’m talking about, you know, like the balance sheet, income statement, and statement of cash flows, those three intertwined, almost like x rays of a company get really, really, granular, and they don’t necessarily.

Uh, at some point it can be like a little bit too much information, which doesn’t impact big picture stuff. So in a sense, like to argue against by point, you could have been wary of valuations without having looked at any of these, financial statements. You could have just looked at a summary ratio, but I think it’s, it is important to train yourself to do all the things. 

Luke: Agreed. 

Krzysztof: So just a small nuance. And again, if, if you’re a beginner and you hear the word balance sheet, that is sort of an abstract name, especially, or if you attach to it, something like the 10 K or eight Q or any of these, you know, jargon, jargon, mystic words. But if you think to yourself instead, Oh, that’s the document that helps me answer whether this business is stable.

I think the path into them becomes a little easier. And that’s kind of all I’m saying.

Luke: Okay. Very good. All important things to do as an investor.

Krzysztof: All right. So this has been another episode of Wall Street Wildlife. Slightly abbreviated because Badger is home and weary from his travels. I am, uh, weary from eating too many cannolis, but next time we record, I think we’ll be much more settled and grounded. I back in Austin, and Luke, settled into his, uh, home in the UK,

Luke: Yes, sir. Uh, if you enjoy our banter, you can find more of us at wallstreetwildlife. com. We’ve still got our 10 laws of the investing jungle download for your delectation. We’re also on YouTube and all major podcast platforms. and if you want to chat to us, go find us on Twitter or X I’m at seven

Luke Hallard.

Krzysztof: and I am at Seven Flying Platypus. And if you don’t mind, take a minute of your time and write us a review. That would help us a lot.

Luke: Yeah. We definitely would appreciate a star rating on Apple podcasts or a view on Spotify. Very helpful. Are you ready to become a beast of an investor? Your journey starts here 

BOO infinite voice booing Jack o’lantern A reminder that the people on this program may hold positions in the companies that are mentioned. Buying and selling stock carries financial risk Which could include loss of capital The views in this program should not be taken as personalized advice If Before acting on any of the information provided, listeners are encouraged to consult a financial or tax professional.