This week, we’re swinging through the vines of US politics, wrestling with the CrowdStrike $CRWD chaos, and dishing updates on Luke’s NuScale Power $SMR position. Strap in — it’s a wild ride!

Political Safari:

Joe Biden exits the presidential race, shaking up the political landscape. Luke’s prediction pays off handsomely, while Krzysztof welcomes the fresh air this brings to the democratic process.

CrowdStrike Struck Out:

CrowdStrike’s software update causes Windows PCs worldwide to crash, creating tech mayhem in critical sectors. Luke explains the fix: patch was swiftly issued, but in many cases required hands-on intervention to deploy. We ponder the implications: is this a short-lived hiccup or a harbinger of challenges to come? How much of a problem is it for shareholders, and what are we doing about it in our own investment portfolios?

Drawing parallels with Chipotle Mexican Grill’s $CMG e-coli debacle, we explore the perilous art of dodging investment disasters — is it okay this time to catch a falling knife?

Power Plays with NuScale Power:

As though that’s not enough, Luke also breaks down a decision with his $SMR NuScale Power stock position, after reflecting on last week’s analysis. Revenue is years away and the stock has been on an absolute tear, time to buckle down and HODL, or did he run for the hills?

If you enjoy our banter, please leave us a review!

Segments:

[00:00:00] Introduction
[00:01:08] Biden Steps Down
[00:08:44] CrowdStrike Struck-Out
[00:24:11] NuScale Power – what did Luke do?
[00:27:07] CrowdStrike – What Are We Doing?
[00:46:30] Why Is Wall Street Wildlife Different?

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[00:00:00] Introduction

Woo, woo, woo, woo.

Luke: Hello listeners. Today is July the 22nd. This is Wall Street Wildlife. On tap in today’s episode, US politics, CrowdStrike, and how we’re thinking about that debacle that nearly took down the entire world. Big news. Lots to talk about this week, Christoph.

Krzysztof: Yes, yes, how are you badger over on your side of the kingdom

Luke: I’ve just, had a visit from my buddy, Steph, who came over from ski season to check out my lifestyle in London. We saw. High flying birds in concert at Alexandra Palace. That’s like half of Oasis. It’s probably as close as you’re going to get to Oasis. And God damn it. Did I get close to Noel Gallagher? I was like 20 meters from the front of the stage.

That was superb.

Krzysztof: Were you fangirling? Do we need to, do we need to cool you off? Were you

Luke: good. It was good. I was definitely, uh, I was definitely like fanning out and like the pub, we took it to like a British pub afterwards, the gang of my buddies and the pub was almost as good as a gig, like a thousand people screaming like Oasis songs at the top of their voice for hours. It was superb.

[00:01:08] Biden Steps Down

Krzysztof: Okay. Wow. Well, I can’t compete with that, but on this side of the ocean, first we had a U S presidential assassination. And then just a week later, the democratic candidate, Mr. Joe Biden, current president of the United States, which some might say is the one person who has the most power in the world, I mean, if you want to sort of be reductive like that, did something, uh, extraordinary, which is to step down.

from running for reelection and many people did not think he would do this.

Luke: I think it’s somewhat expected. I actually had a bet that he would. So, whether you like or dislike that action, like it seemed like it was fairly likely to

Krzysztof: okay. I’m actually reading a book on Bayesian theory right now. More on that in future episodes. how people make decisions based on likely likelihood. I don’t know if likely we could say something was likely, I will say it’s unprecedented. That’s a, that’s more of a factual statement, right?

So to have a person running for office and then in a sense, willingly give up his own personal gain, if you want to say that for the benefit of the party at large is unprecedented. What I will report to you is that I felt a tremendous sense of relief it’s not about like who I want to win.

That I think this guy versus Trump has a better chance or not. But I generally felt that the previous two candidates, Trump first Biden was not a representation of how democracies ought to work to, and I hate to be reductive again, but two old candidates, one who was now an obvious mental decline running for this position just felt.

Like I was being I, and I think the majority of the American people, like we were crippled into not having a choice. So however, the next two months unfold, whoever the new candidate is, I feel like, Oh, okay, like we’re back. Like now there’s something to fight for. Now we could talk about ideas again. Now we could put up Biden’s accomplishments versus Trump.

And now we could have. an authentic debate. And I, you know, in terms of investing, I hated this feeling of the United States being a poster child for declining civilization because we couldn’t even a legitimate election on the table. And now that feels like it’s shifted and I feel fresh and invigorated and like ready to throw, you know, throw some Duke.

So, uh, from an investing standpoint, I’m, I’m excited.

Luke: Yeah, that’s cool. And, uh, I think I was, I was sort of saying in last week’s episode, like it felt like an inevitability. That going to take it now the game has changed again, the narrative has moved on now from the attempted assassination and we don’t know who the Democrat nominee is going to be, but potentially it’s all to play for again.

Krzysztof: Yeah. ran a rough around the edges, uh, Twitter poll. Or X poll. And I wanted to find out, you know, to some extent, like how important was age really, or to what extent is, uh, are people just, you know, stuck in there? they like who they like and they say one thing, but it’s actually another thing.

So now that Biden dropped out, we know that democratic candidate is going to be a younger person. And Trump is now the representative of a very old person running for office. So the critique against Biden, he should not run because he’s too old. If you’re going to logically stand by that, then you should also be able to admit that voting for Trump is voting for the same problem.

he would be if elected, um, 70, he’s 78 now. So if he were elected, he would be president at the age of 82. Filling out his term.

Luke: mean, let me just waylay this train of thought though, because is age now. materially part of the narrative. Like it clearly was when Biden was one of the contenders. I don’t think you can judge Trump by his, chronological age. Like the guy clearly has energy. And, you know, if you saw how he reacted post that assassination attempt, like, the guy’s a strong guy, whatever else you might take away from him, he said, and he’s certainly not a mental decline.

You might argue with, his logic and the way articulates himself, but he’s clearly, you know. you know, he clearly knows what it is he thinks, and he’s able to express that clearly.

Krzysztof: Oh, I think, I think I differ with you there. I don’t think he knows what he thinks and he does not express himself clearly and therefore to say that for sure that this is not a sign of cognitive decline because of age is a little too black and white for me. I think they’re related. Now that said, he’s been a rambling provocateur for a long time.

I just don’t think it’s gonna get any better as you enter your eighties. So I think my point is, in the end, There’s some relief at knowing that, it’s, I’m almost thinking of this, like the way a business person might, you know, who do you want in charge of your company? You, you, want someone that’s in touch, like more in touch with call, not necessarily the youth, but, not at the falling edge of the, previous several generations.

So I feel a little bit more hopeful. about what’s coming down in the next couple of months.

Luke: Yeah. I suppose, you know, in some weird way, like having a president is almost like, like they say, you know, you can choose your friends, but you can’t choose your family. Like as an investor, if a company you’re a shareholder of appoints a leadership team or a new CEO or chairman that you don’t like.

And you think it’s going to lead the company into the abyss where you just sell your stock, right? You just exit that position. You can’t really exit your citizenship of the U. S. without materially displacing your life. So whoever gets chosen by the democratic process, you’re kind of stuck with that person for four years. Better get it right, America, better get it right. anyway, let’s see, I’ve got some thoughts. I think we should wait. Let’s pick up this conversation again in an investing related way when the Democrats announce their candidate. Cause I think that’ll be quite interesting.

Krzysztof: Yeah. And I’ll weigh in on this too, real briefly. I will say it does look like it will probably be Kamala Harris, but I hope that that’s not a given. I hope the Democrats can go through some kind of, filtering process, nomination process, and if she ends up getting the nomination in that way, all the better for her, but I want some, I, you know what I want?

It’s that I want some ideas to be talked through. through. I want there to be a little bit of a debate. I don’t want it to feel like one dynasty replacing another dynasty, which is the antithesis of what a democracy ought to be. And I’ve read somewhere, one last thing that I think is it’s, this is the first time since 1976 that there’s not going to be a Bush, a Clinton, a Trump.

Or, um, uh,

Luke: Kennedy.

Krzysztof: or maybe a Kennedy on the ticket, you know? And so my, my God, yeah, you know, anyway.

[00:08:44] CrowdStrike Struck-Out

Krzysztof: Okay. In the meantime, I’m mad at you. You want to know why? Because your company has delayed my wife from returning back home to me and making me my morning coffee. So I’m still sweating in the kitchen, having to warm up the water and pour in the milk and do all the stirrings because she’s stuck in, uh, Amsterdam for four days.

She left. Yeah, she left Sicily on, on whatever day it was, uh, July the 19th. And, uh, no flights back until tomorrow.

Luke: my, uh, my buddy Steph just left London this morning on route to Amsterdam for the next leg of her trip. So. Maybe we can, maybe the ladies can connect, uh, over a hash brownie. Yeah.

Krzysztof: enjoying, she is going to the Van Gogh museum today in Amsterdam. But so tell our listeners why your company, the one in which you had, I believe the highest position in the king of the jungle portfolio, has. posed all of these hardships on many, many people. What’s going on?

Luke: So we’re talking about CrowdStrike, which is so broadly recognized as like the premier end point cybersecurity solution in the world used by, many, many millions of people. Very large and small companies. and so what happened? Uh, so I’m gonna, I’m gonna sort of take you through a bit of a timeline at quite a high level, but then let’s sort of conclude the conversation by thinking about CrowdStrike as an investment and.

You know, I’m, I’ve been a relatively long term shareholder it last few years. you were a shareholder and I know you exited your position. So let’s understand what’s happened, digest it, debate, and then conclude with what are we doing in our portfolios, how we think about this company.

So what happened on Friday at about two in the afternoon Australia time, which is interesting, like, in some ways, Australia is kind of the start of the global day. CrowdStrike released a sensor configuration update, which they do like multiple times a day. This is nothing special. but it turns out that Microsoft had updated Windows just 10 days prior.

And unfortunately, CrowdStrike’s testing process hadn’t extensively tested this new sensor configuration. With the very latest Microsoft windows patch, there was a conflict and a logic error. And essentially if you’re an Apple person, you’ll never have seen this other than probably in like jokes, but you get something called the blue screen of death.

B S O D this kind of literal blue screen with a now like a sad face and a PC reboots. So this is bad for CrowdStrike. But this is, was exceptionally nightmarish because impacted machines went into something called a boot loop. so basically. They received the bad patch.

They had the problem, they crashed, then they started up again and then they immediately crashed again. So there’s no even ability for, let’s say like your IT support guy to go in and like upload the repairs, like the fixed version. Cause CrowdStrike had a repaired file out like only 90 minutes later, pretty quick.

but it required manual intervention. So like if you had an office full of PCs. You’d have had your IT support guys going literally desk to desk and having to manually. Reboot these machines into safe load, do the fix. And then, then they can kind of back in business probably at 10 or 15 minutes per PC, but you might have literally like tens of thousands of these things in an office building.

And if you’ve got like a, you’re a remote organization, don’t forget it’s a Friday. You know, typically most people work from home on a Friday. Certainly do in London anyway. like if you had your own laptop and it’s gone into one of these boot loops. The IT guy can’t even get to you. So then he’s having to phone up the, uh, the end user and then talk them through what would be a fairly complicated set of steps for, you know, someone who’s just like used to doing a bit of word processing and spreadsheets.

For that person to like fix their own PC. So a bit of a nightmare. Most companies have now recovered from the problem. and I think overall it’s estimated to have impacted eight and a half million windows PCs. So like that’s less than 1 percent of all windows PCs in the whole world, but it’s still significant.

And we saw this at the start of like the Australia day with. Like airlines and TV stations, but we’re seeing it really with organizations that are kind of 24 seven. and luckily, I suppose, luckily the problem was almost resolved before the U S time zone woke up, it was happening in the middle of the night.

So if someone had their PC turned on overnight, they’ll have had the problem. But if like your laptop was shut down. In the U and your work for a U S firm, you probably avoided the problem because they fixed it before you kind of started your day anyway, pretty ugly. and although CrowdStrike have been on it in terms of fixing the problem.

Like clearly a very serious deficiency in their testing process. And there’s probably a lot of questions they need to ask themselves about how they avoid this happening again.

Krzysztof: Okay, on the dystopian level, you know what this was a preview of? Or this is like what, what we were worried would happen during Y2K, but it actually happened, right? Kind of, you know, Unexpectedly, I don’t mean to scare our listeners, but if you think about this, this was like an inadvertent coding mistake slash sloppiness, right? And just based on, I mean, people died because of this. We don’t know the full number, but right when the ambulances stop in hospitals. Uh, turn off and flights are canceled. Like we know that the effect of this was bad. Imagine just, just imagine what now we, we realize as humans, we are so dependent on software running everything.

Imagine if there’s an attack in the future, that’s more deliberate and more nefarious. I mean, it’s a really scary proposition. So I don’t think this is something to take lightly and it’s not just about CrowdStrike per se. Especially if we kind of like. Think a little bit forward about AI systems and how they’re going to.

evolve intelligently to, if you’re a bad actor, look for these kinds of loops. It’s scary. Um, I think, I think my, uh, my lady said she, when she was trying to get rebooked, said 200, 000 people were in the same position from her, her, her airline looking for hotels. And that’s why, the delay was like four days or whatever it was.

So I don’t know. I mean, that’s just a bunch of doomsday, I guess, emotive stuff. But these companies now like CrowdStrike are just so integrated into everything like the DOM, the levels of connectivity is so so massive. I don’t know. I have a little bit of, um, it’s like a bad feeling that this is a preview of something much worse in the coming years.

Luke: Yeah. Like this very clearly, this was not a cyber attack. This was a screw up of their process. And. Yeah. Like they just accidentally created this logic bomb. But clearly there’s this like attack surface now where suddenly, well, hackers and governments and good and the good and the bad guys have all realized, you know, you have got a number of companies.

CrowdStrike is one of those that are plugged into like most of the machines in the world, not just desktops, but like server side Azure and like cloud firms. they’re, They are like their business is to ship. change multiple times a day because cyber security, it’s all about staying like ahead of the bad actors.

And that can mean responding within like an hour. Sometimes when something happens, you ship a, a patch out for that problem. And you’re doing that constantly. That is the nature of your business. So, uh, yeah, that creates like a whole new attack surface for a bad actor. You know, maybe a state sponsored, uh, actor to get like some kid who’s like, you know, I don’t wanna use like James Bond terms, but like a double agent you know, working for one of these companies.

And suddenly they’ve got the ability perhaps to like ship some bad code to like every machine in the world. Just like that.

Krzysztof: I mean, I think what, uh, the summary for me is something as simple as a line of code, that’s being a little reductive, but essentially, right, can now shut down. how the whole world operates in this never ending ripple of effects that go way beyond, way beyond the scope of that initial line of code. That’s the, you know, that’s the scary thing.

And, uh, we don’t know what the full impact will be on all these people. There’s many people still suffering from it. Um, but, it’s a fragile ecosystem. I think that we’re in and, you know, some of the stuff we’ve been saying a long time about AI. I think like there’s a lot of reason to be optimistic. We could solve a lot of problems, but boy, when things go wrong, um, we have not yet adapted to the pace at which the dominoes start falling in the wrong direction when they do.

So anyway, that’s a little bit of the, I think, macro picture you did see that. Um, and I think you wanted to say something about the fact that, uh, sir, Elon Musk himself, uh, wrote. That in response to a question, um, he wrote, we just deleted CrowdStrike from all our systems. So no rollouts at all. And now Elon Musk say what you will about his politics.

He does seem to be on the leading edge of understanding technology and. Um, I guess where the world of technology is going, you seem to be what, uh, skeptical of his claim or, uh, cynical or what, what’s this expression.

Luke: well he tweeted that like barely a few hours after the incident. Okay. Okay. Maybe he did that in one of his companies. It strains credulity for me to think that he’s just literally taken like a safety critical piece of software out of like a major organization I don’t know, SpaceX, right? No way.

you remove something like CrowdStrike and you open yourself up to Potentially like serious vulnerabilities and maybe getting hacked could be, which could be much worse than, uh, just kind of having to reboot and do a manual fix. It’s not something you tell you uninstall lightly. yeah, I just found it.

I think it’s just. You know, the guy’s an ego machine, right? He just wants to be in the conversation.

Krzysztof: I think I hold a difference of opinion with you here. I don’t disagree that he’s a great marketer because he’s, he’s gonna, but I, I, I also Think he knows what he’s doing. I mean, he’s in there with wires and the AI, uh, like on the, on the, uh, level of the, the physical. I imagine he understands what alternatives he has better than most people.

So this is, I think, different than say a CEO of some company saying, Oh, well, now we’re going to change to a competitor. I believe him. I don’t think he says something like this knowing how much scrutiny he’s under publicly. where it’s an outright lie.

Luke: Well, let’s move away from him, right? Because I just, I just, I just don’t think this is relevant. It’s just him trying to get in the conversation. But the important thing here is that it may not happen within two or three hours, but now like boards of companies all around the world will be asking tough questions of their CTO, and they’ll be saying like, do we want to keep sites CrowdStrike as part of our security suite.

How do we mitigate this? Um, do you, do we actually want to uninstall it in a controlled way and replace it with something else? I mean, I think the large, like 90 percent plus of the time, the answer is going to be no, we’re going to stick with CrowdStrike because it is, well, I mean, I trust Gartner and Forrester and the rest, and I trust, um, you know, Matthew Prince, who’s the CEO of CloudFlare.

Um, coming out unusually, I noted unusually on Twitter in support of one of his well competitors slash partners. They don’t directly compete. there’s no arguing that CrowdStrike is one of the best solutions out there. they’ve screwed up and they’re going to pay the price for that. I think they’re probably going to lose some customers and we’ll see that over the next couple of quarters.

This isn’t going to happen straight away. but it’s like, it’s a question for investors, I suppose. The extent to which companies. find an alternative solution to CrowdStrike.

Krzysztof: exactly. So I think we’re about to start talking about what we’re doing personally for our own CrowdStrike positions relative to this major debacle. But before we do that, I think we have some good news to celebrate, right? In terms of this here, humble Wall Street wildlife podcast. it seems to us like that our viewers and listeners on YouTube are getting more engaged and y’all are coming out of the weeds and starting to post questions more, which we really appreciate.

If we could also kindly ask you to leave a review if you do enjoy the show. that will help us out a lot. So there’s that plug.

Luke: Yeah, I think we’ve hit a milestone. We’re now, uh, nicely over a thousand regular listeners across YouTube and Apple and Spotify. So that’s great. and it’d be good to get that to like 10, 000 over the next year or so. So if you’re enjoying the show, and maybe if you particularly, if you enjoyed last week’s longer format show as RG did on YouTube, who said much enjoyed the longer podcast, very informative.

Thanks. If you enjoyed the longer form conversations, which are a bit less filtered and maybe a bit less editing for me to cut out all the nonsense, uh, then let us know. And we’ll.

Krzysztof: the one spouting the nonsense here?

Luke: yeah, so, uh, yeah, so do like and subscribe. And if you’re enjoying the show, like tell a friend, if you sell one friend, then, uh, we’ll double our listenership and then that’ll make us enthusiastic about carry on.

Krzysztof: That’s right. Yeah. We’re, we’re excited to do, to do this and it’s um, it’s just nice confirmation that there, there’s people who are learning how to invest with principle and engaged in these conversations. So it really helps us out a lot to get feedback from y’all. So thank you and keep listening and leave those reviews.

Luke: Very good. So yeah, two, two stocks that I think we need to reflect on, like, what are we doing with CrowdStrike and why, but actually quickly before I do that, I’m just going to loop us back to last week’s episode as well.

[00:24:11] NuScale Power – what did Luke do?

Luke: So we talked about new scale power, which actually was a question from one of our listeners.

hammy, and we, he asked us to give us a bit of an overview of what we thought of new scale. We did that. And that prompted me to be a bit introspective about my own stock holding, uh, which has nearly tripled. Uh, just this year, year to date, and I was trying to dig into this week, why has the stock up so much?

Um, cause it was kind of in the, in the dumps and I was gonna make a decision around what I would do with that. So thank you, Hammy, for prompting me to repeat that bit of, uh, analysis. as far as I can tell, like there’s not much substance to the, uh, the run up, it seems to be maybe. a Democrat administration support for clean power and also hints from the company, but I don’t think any material yet that they’re cutting the cash burn.

so if I were patient, I would wait until the 8th of August, which was new scales next, results when we would see how much they cut that cash burn, but I cogitated on it for a couple of days. I thought about my own comments last week, that the window of commercialization is just getting smaller and smaller.

And I decided to cut and run. So I sold my new scale power stock position a few days ago,

Krzysztof: Wow. What’s the ticker?

Luke: S M R. And if you want to hear a bit more about it, go check out episode 36 and go jump to that timestamp and I’ll tell you all about who they are and what they do. You

Krzysztof: Right. So it’s a small company whose potential money making revenues are still years away. And the stock got, quite ahead of itself in terms of It’s actual, price versus what it’s making now. So you, you sold, which is interesting because I compare that to, you know, my own little companies and the reason I’m not selling, uh, for example, EOS after big, run up.

Recent run up is because the batteries are now coming off the line. So the revenue acceleration curve is on its way to physical manifestation. And that’s a different situation than knowing you need to wait many years out.

Luke: know, I won’t reveal who, but, uh, I’m in touch with someone who knows you very well. And is also worried about your EOS stock position. And I think this chap is a regular listener to the show. So, uh, no more clues than that, but there’s more than one of us worrying about you and your EOS debacle.

Krzysztof: Okay, well, it’s not a debacle because at least in the king of the jungle portfolio, it’s nice It’s now up something like 60 percent so I Call green a success. I don’t know what what color blinds Insanity the badger has going on.

[00:27:07] CrowdStrike – What Are We Doing?

Krzysztof: Okay, more importantly crowd strike What are we thinking as investors and what are we doing?

And I, between episodes, I messaged you that I bought one share of CrowdStrike after it fell on the first day so that Um, this is a strategy I use so that, um, it’s, I’m not, I’m not really in love with this strategy, but I think it works better than not when I’m really interested in the company like CrowdStrike, which I know inside and out, and I want to be an owner, but wasn’t an owner, I buy one share so that it’s in my official portfolio.

And I can, it just leads me to scanning it and seeing it every day. As opposed to being on the watch list, which may or may not be seen. So basically gets me involved in thinking like an owner again, which is very different than as a potential buyer. So officially, even though it’s not a lot, I am once again, a CrowdStrike owner.

The better question is, uh, to what extent should I make it a bigger position in my answer at this moment is it’s not ready. for additional shares. And there are several reasons. Do you want to hear, do you want to hear them? Or do you want to tell me what you’re doing?

Luke: No, go on. Yeah. Yeah. No, carry on. That’d be just interesting. Yeah.

Krzysztof: Okay. So initially I sold CrowdStrike back in, uh, I think November, right before it’s big run up because I was concerned about macro, uh, the macro stuff, and it was still highly valued, meaning it was still very rich. it’s earnings to price ratio was still very high and great companies. Almost always stay expensive.

I mean, are expensive and stay expensive and they could continue feeling expensive for years and years as the stock price goes up and up. So I sold, and regretted it because then it went up and did nothing but going up. However, right now, even after the fall, it still remains one of the most expensive stocks in the world.

in the field of software as a subscription service. It’s forward ratios, price to earnings. I don’t know what the actual numbers are, but they in a sense don’t even matter because it’s all relative. But I could tell you they are still one of the highest, meaning it’s still one of the most expensive stocks.

And now I know that whatever happens on the next earnings call, there’s going to be. Some mention of lost orders or some customers that defer, you know, maybe the acquisition costs for getting you customers goes up. But anytime you have such a call it priced for perfection stock and you have this major catastrophe, It’s a speed bump, no matter what, no matter what. So there’s a term in investing called trying to catch a falling knife. And this is where a little bit of the technical analysis for me comes in. Instead of thinking about weird patterns on the charts and trying to make sense of head and shoulders and all that, all I need to know is that in this moment.

The momentum for CrowdStrike went from going straight up to reversing, and now it’s going down. What we don’t know is, we don’t have crystal balls, we don’t know how long that’s going to last, but we already know that the momentum switched. So what I’m going to do is look at the price, look at the charts, and I’m going to wait until the momentum either stalls from dropping more, or has some visibility to changing to going back up in price. If I don’t do that, that’s called trying to catch a falling knife. And the weird thing is that stocks, even great companies like CrowdStrike could continue falling much, much further for much longer than you think is reasonable, because that’s just a feeling, right? So I’m going to wait for the price to tell me when it’s done falling, and only then will I try to extend my position.

Luke: Okay. Yeah. It sounds very reasonable. I know you used to be a CrowdStrike shareholder. So it’s a company, you know, well, so you, you know, your one share is just a, it’s a nominal thing just to get it back on your radar. It’s like one share isn’t meaningful clearly in terms of ownership, but it’s just so it’s like top of mind for you.

Krzysztof: Yes. And I will say, I guess I’ll just, just say, I know myself as an investor and I have, we all have habits, right? We all have habits of mine. I can poker, right? That’s why poker is a game, because over time people tend to do the same thing, subconsciously or consciously. I can avow publicly that I tend to look at a price drop of a good company and get excited.

I’m like, oh, it’s now cheaper than it was, so it’s on sale. And I tend to get, to be early to wanting to buy more of it. The technical stuff has helped me a lot. pump my brakes and wait for the price to be the thing that dictates when is the better time in terms of probability to get back in. And I think more often than not going forward, this will save me money rather than cost me money.

I’m going to continue to wait. And now at this point, the further it drops, the better it’s going to be for my long term returns. So I’m not in the rush to add to my one share yet.

Luke: And let me use that. I’m not in a rush comment. To segue into like how I’m thinking about this too, cause I’m also not in a rush. I’m going to have a crack at doing a screen share.

Can you see that? Super. Um, so yeah, if you’re not on the YouTubes, like go subscribe to us on YouTube because we’ll start using FinChat increasingly to actually do a bit of analysis live and talk about stocks.

Krzysztof: Badger, can you, can you, uh, I love this platform. Can you name the web address for what this is so that users can find it?

Luke: yeah, uh, I, I’m a new subscriber. I now paying member of FinChat. io. it’s a really good tool for doing fundamental analysis of companies. And one thing I particularly like about it, they’ve got some nice integration of like AI, large language models, and you can pull in like the last many quarters of investor decks, transcripts, you can actually have a conversation.

With the analysis and, and pull out data points and look at ratios and do fun stuff. but I’m gonna look at something really simple with CrowdStrike to bring to life how I’m thinking about this right now. So this is, has always been an expensive company. I’ve been a shareholder for, I think maybe it’s 2021, but like early in their journey, I forget exactly when they IPO’d.

I’ve been an owner for quite a few years. and I was trimming my own investment position in my mind, this is like. world class cybersecurity stock. I think cybersecurity is probably the highest conviction sector I have in mind for the last year or two. and I want to own the best, but at the same time, I don’t want to get overexposed.

So I’d started managing my position and I sold a little bit last December. And I put some money into Palo Alto Networks, which I acknowledge was the inferior investment, but I just wanted to diversify a bit without getting out of cybersecurity. I thought I’d move some money from CrowdStrike into a competitor.

And then I trimmed a little bit more in, I think, April, a few months ago. And why was I trimming? Just because the stock was getting too big in my investment portfolio. It doesn’t mean I didn’t like the company, but I was getting up to like a seven, 8 percent allocation. And in my mind, My conviction level was like a 6 percent allocation in my mind.

So, you know, why was I trimming it? You mentioned P E price earnings actually for CrowdStrike. The metric I like is price to free cashflow. So sort of where CrowdStrike is in its maturity curve, it’s still very much a growth company. It’s generating free cashflow. It’s, it’s almost optimized free cashflow.

So it’s a really good lens through which to look at. I mean, free cashflow is like after the company has paid the cost of like the stuff it sells and it’s like keeping the lights on and it’s like done is dealt with, it was operational expenses. Like how much money does the, essentially the board have left over after running the business to it’s free.

They can decide what they want to do with it. They could do a buyback. They could Pay a dividend, they could do an acquisition. They could invest it in, you know, all sorts of other stuff to improve the product. Um, so free cashflow is a good measure for a company like this. And I was trimming because free cashflow was just really fricking high.

Like if you, if you can see where my mouse is scrolling up until a few days ago, like Thursday, before this failure, they were trading at 86 times free cashflow. Like that’s historically high for the company. You know, here we go back a little bit. It’s only really ever been that high. Way back in 2020. And that’s probably like not long after they IPO’d and when they were a much less mature company and free cashflow wasn’t the right way to look at them.

So they’ve taken a fairly serious downturn. Um, I think my, I think they’re down about 20 something percent. If you look at, uh, Thursday, uh, sorry, Friday and Mondays. Declines and now they’re down to just under 60, just over 68 times free cashflow. That is still expensive. Um, you know, what does that mean?

That means, like the company essentially has to generate 68 years worth of free cashflow to kind of equate to its market cap, like its overall value. that’s high. so I’m not adding to my stock position, even though my allocation is now like a 5 percent allocation in my portfolio, because it just took like a nosedive.

so for sort of grounded reasons right now, I’m doing nothing. Now I think things are going to get worse. So I’m not, I’m not sort of looking at like trends and, and. Uh, you know, which way the stock is going. I’m just kind of asking myself questions about what’s going to happen next. So let’s turn off the screen share.

What’s going to happen next is CrowdStrike are now going to have to defend a whole bunch of legal claims and maybe class action lawsuits, potentially, from people like your

wife.

Krzysztof: Yeah.

Luke: So they got to deal with that and that’s a cost, even if they successfully defend those claims. And from what I’ve read. even though their liability in the contract is only limited to the cost that the customer paid for CrowdStrike. So they can’t be sued for more than they were paid, but customers can essentially get like a rebate on what they’ve paid.

like they’re gonna have to deal with that and it’s just noise and headache. And it’s going to be a massive distraction for the leadership team for a chunk of time now, next few months. but also, Now we’re probably going to see some level of customer churn over the next couple of quarters. So I think I want all that, uh, washed through and let’s get back to like a new place of stability.

I’d like to see what steps they’re taking to actually prevent this from recurring, in partnership with Microsoft. And then once all that’s clear, then I might think about adding.

Krzysztof: yes, that sounds, that sounds similar to what I’m looking, looking for. A company that I think is in an analogous position that taught me a really important lesson. some years ago. and that company is Chipotle Mexican Grill.

Luke: They have their, um, that E. coli or something, that’s some sort of outbreak.

Krzysztof: Yeah. So here’s why I think it’s analogous. I always thought of Chipotle Mexican Grill as an excellent company, like an excellent business model with excellent leadership. It was always, you know, the lines out the door during its heyday. And so it was always selling at a premium. And then lo and behold, it has a terrible E.

coli outbreak and the narrative switches seemingly overnight, right? This is a company that’s, that’s trying to kill you. And the reputational damage was absolutely awful. And the stock plummeted, for a long time. The question is. is that a short term event or is the damage so severe that the company cannot recover and historically what happened with Chipotle is that damage lasted longer.

then I thought, because it was just a bad news cycle that wouldn’t go away, but the quality of the company never changed. And eventually, if you invested during that peak sort of pessimistic phase that lasted, call it six months to a year, shares from that low have massively outperformed the market again, because the company itself Was structured solidly.

I think that’s exactly what’s going to happen here at CrowdStrike. There’s probably going to be a longer than we think. Lull the next quarter or two might really come in, uh, under some pressure. Margins are going to compress, downgrades are going to happen. Competitors are going to, you know, take advantage of it, but.

If you ask me whether the stock’s going to be higher than today, it is today, say two years from now, I think odds are very, very high. And so I go back to don’t try to catch a falling knife. The momentum is now down. So keep listening to our show. Stay informed. Don’t be anxious to add just because the price is lower.

and be ready to add when the data is in. That’s turning the corner.

Luke: Yeah, there’s an interesting, um, difference, I suppose. I agree with you about the, the analogy between those two situations, but they are interestingly different in a certain way, which is Chipotle’s reputational damage was chiefly with like, just like the man in the street, right? Like the customer who goes in the store and buys the thing.

And so it’s very hard to recover from that because you don’t want to go and get like a burger. And then you think, Oh, I’m just going to get sick. And. CrowdStrike is a bit different because the person, it’s not like the man in the street who buys CrowdStrike. It’s like the CTO or the, you know, the cybersecurity team in a company.

And this isn’t like a gut reaction and going, Oh, I’m going to get sick. This is like, I have to manage my cyber risk and protect my organization. And at the same time, like invest my funds in the smartest way and avoid downtime and outage. So you’re just going to take a more methodical. Decision, not like a snap reaction, like Musk seemingly did.

I think similarly the, like these cyber heads and these different customer companies are going to read very closely what root cause analysis was done and what George Kurtz, the CEO has to say. And whether they’re, you know, hopefully they will be convinced that the company has now taken steps to prevent.

This particular recurrence and maybe they’ve looked at adjacent kind of problems and they’ve, you know, maybe they found some other things that they can tighten up in their process. which is why I think the majority of customers are probably not going to stop buying CrowdStrike just because of this one incident, even though it was very severe.

Krzysztof: See, this is why I think at the core of our puzzle, to go back to Musk’s comments, this is where I think that interesting tension is. You’re skeptical of the extent to which what he’s saying is true and doable. And I tend to, in this case, believe him that it’s maybe more possible to not only that it’s not only possible to switch, but that there’s going to be more companies.

that are in fact, not leaving themselves vulnerable and will in fact switch. I’m not, I’m not on the inside of a, of a, you know, I’m not a CTO of a company like this. So I’m, I’m kind of, you know, um, pulling shit out of my ass right now, but it seems not. It’s

Luke: might be, like, I might be eating my words here, right? But do you, do you think there’s any credibility in the thought that this is going to reoccur in the next couple of months? It’s not. Come on.

Krzysztof: you mean like,

Luke: Like they have royally screwed up if this happens again, like next week, right?

Krzysztof: yeah, in that, yeah. I, I mean not this particular thing. Is it, is it possible that some other thing could happen? Yes. But that’s like, you know, That’s just bad luck. And

Luke: Sure. But that could happen with any one of your cyber security vendors, right? So you know, if you take, I don’t, I’m not a CTO, I can’t answer this, but you know, you have to weigh up the actual risk you’re bearing in your organization. If you decide to uninstall CrowdStrike and if you don’t have Like equivalent capabilities from some other supplier and who’s to say the other supplier doesn’t have similar vulnerabilities, right?

Krzysztof: exactly. I think this is what we’ll put this as the cost of switching, which has to be acknowledged. It’s not just especially when you’re talking about the nervous system of your of your company. And we’re talking about millions, billions of dollars. And I mean, it’s it’s massive open heart surgery. you’re not going to elect to do it willy nilly, right?

I’m just saying, without knowing what I don’t know, that because there are so many other kinds of offerings, CrowdStrike’s life in the near term just got much more difficult. And somebody like Elon, who does know these things inside and out, I imagine he knows where to turn much more quickly than most other CEOs.

Elon aside, because he’s sort of just a rare exception, the majority of I think CTOs won’t be elected to perform this kind of open heart surgery. But in the end, then for me, it becomes with relative to the stock. The stock is still priced very, very expensively for perfection, so to speak. And this is a, this will compress that valuation more likely than not.

over the next, say, year. but the flip side of that is for someone like me, that’s regretted in hindsight selling when I did, this is exactly the kind of thing that, you know, I look forward to in a, not in a, I’m glad anyone’s suffering way, but that it’s a window that’s open for me to buy it at a more reasonable valuation on the assumption that the company will remain dominant, which I think it will.

Luke: Yeah. And I’m, I feel relatively neutral, obviously, obviously, neither of us wanted this to happen, clearly, but I’m happy with my allocation right now. If the stock goes down hard from here, I’ll be fine with that because I’ll be able to buy more of this incredible company at cheaper price.

And if they get a handle on this and they’ve managed to deal with the legal claims and get through the churn. And the stock starts to turn up again fairly soon. Well, I’ll be happy with my 5 percent allocation increasing relative to the rest of my portfolio too.

[00:46:30] Why Is Wall Street Wildlife Different?

Krzysztof: Yeah, in the end, I like the way you said that. So, uh, you’re excellent. I think very long. You don’t get the returns you do over such a long period of time without managing your risk. And this is, I think, another example for our listeners, how kind of taking, I hear it as a moderate Road, right? You don’t get bummed out when the debacle happens to a high position because you you sized it Appropriately then when it goes down, it’s an opportunity and you kind of like stay in that middle lane very skillfully.

So That’s kind of opposite to some other voices that you’ll hear on public channels where they say they found, you know, the next thing like I did with EOS and then that explodes, to the great detriment of my portfolio, or, you know, you have this conviction, like a bunch of people like are all in on Tesla, saying this is the next thing.

And then they allocate something like 50 percent of their portfolio to that one stock. And it could blow up just like this. So

Luke: that’s a really good point you made. And let’s just, let me just re say this really succinctly because this will be like a, an, like a 30 second advert for the show, I think, right? If you want to get like meme advice all in on this next shit hot thing, that ain’t what we do. We have between us, a 40 year track record, like 20 years each of doing this stuff, we sharing the good and the bad. We’re being honest about the companies we own, and we’re trying to give you a balanced long term view. If you really want to understand how to be a long term investor, Wall Street Wildlife is the place to come.

Krzysztof: Yeah, right. I’m glad you said that. And you know, one thing I noticed too, is that sometimes I’ll say things and after we finish recording, you’ll take some of those things and you’ll actually think about them and make change in your decision process. And likewise, the other way, right? And this is the value of listening to people who I think are transparent about their own process. As long as can pierce your own already existing beliefs about how things are and are willing to adapt to new circumstances. So this is the value what we do.

Luke: And hopefully our thousand subscribers agree.

Krzysztof: Wow. All right. So we, that feels pretty thorough, right?

Luke: Yeah. I think we need another, uh, another deep episode. I’m liking this new format. I don’t know about you. I’m happy to put the extra effort in on the longer editing, several hours, every episode, to have a better quality conversation. I think.

Krzysztof: Right. All we need are some, uh, presidential assassination attempt, some changes at the top of the democratic party tickets, some worldwide, uh, software debacles, and we got all the content that you need and want. Right.

Luke: There we go. I’m, I’m looking forward. I don’t know about you, to a bit of a quieter next seven days.

Krzysztof: We shall see. so we are at wallstreetwildlife.com If you want to find our 10 laws of the investing jungle. As long as our updated King of the Jungle Portfolio Challenge, where you could see our current holdings up to date,

Luke: I’m, on X @7LukeHallard.

Krzysztof: um, @7FlyingPlatypus.

Luke: I will give my Twitter an extra plug. cause I hit a milestone the other day. I’ve managed to over the weekend leap up from four figures. So I’ve now got nearly 12, 000 followers on Twitter. Thank you. If you joined me in the last few days. And the reason for that is I’ve announced my new project, which is to start doing in public, deep dives.

On what I think are the world’s greatest companies. And I’m right now, I’m working on an extensive presentation deck for Axon Enterprise, one of the world’s best public safety companies. So I’ll be releasing a video on that, hopefully in the next couple of days. And, uh, I look forward to your feedback. It will be on live on our YouTube channel here and also all over the X’s and the LinkedIn’s.

Krzysztof: Awesome. Yeah, congratulations. That’s a, that’s a great milestone. I like making you the public face of Wall Street Wildlife. I’m too furry to get, get far in this business on my own, but in Badger people trust.

Luke: Well, let us know on the Twitters if you are team badger or team monkey in the king of the jungle portfolio challenge, we’ll come back and have a look at that in the next episode or two.

Are you ready to become a beast of an investor? Your journey starts here.

Speaker 3: 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. Before acting on any of the information provided, listeners are encouraged to consult a financial or tax professional.