This week is a Community Q&A Special – you asked, we answered! We dive deep into your burning questions on portfolio strategy, whether the “SaaS apocalypse” will impact Cybersecurity, and finding the next big winner.
🎓 Options University Success – Hear from our first cohort of graduates! Discover how we’re using options for consistent income and portfolio insurance without the “gambling” mindset.
🍋 The $LMND Entry Strategy – Struggling to pull the trigger on a stock? We discuss the psychology of the “Starter Position” and why getting skin in the game is more important than timing the perfect bottom.
🔐 Cybersecurity Bear Case – Why are $RBRK and $ZS lagging despite the hype? We break down the institutional selling pressure and whether AI is about to disrupt the entire security model.
💼 Luke’s Portfolio Secret – Ever wonder why Luke holds 28+ positions? We deconstruct the “Barbell Strategy” and the psychological tricks he uses to manage risk and reduce friction.
🧸 Investing for the Next Gen – How to turn a trip to the toy store into a lesson on compounding. Practical, actionable tips for getting your kids or teenagers excited about stock ownership, and getting their money working for them rather than them working for their money!
🚀 Asymmetric Upside Picks – The ultimate showdown. Monkey makes the bull case for $ASTS as a massive risk-adjusted bet, while Luke defends $MELI and its unstoppable logistics moat in Latin America.
Segments:
00:00 Introduction
01:03 Options University Testimonials
06:19 Community Portfolio Update: $IREN Wins!
11:37 Lemonade Entry Strategy Question $LMND
17:25 The Psychology of Starter Positions
21:48 Cybersecurity Bear Case: Rubrik & Zscaler $RBRK $ZS
24:12 The SaaS Apocalypse Explained
27:11 Why Cybersecurity Should Be Different
32:05 Seat-Based Revenue Model Concerns
34:12 Portfolio Construction: Why So Many Small Positions?
38:14 The Barbell Strategy Explained
43:35 How Should Young People Get Started Investing?
54:34 Best Asymmetric Upside Bet?
55:10 Monkey’s Pick: AST SpaceMobile $ASTS
59:54 Badger’s Pick: Mercado Libre $MELI
01:05:25 Valuation Analysis Using Fiscal AI
01:10:00 Filtering the World’s Fastest Growing Companies
01:15:09 Conclusion
WSW – EP117 – Video –
[00:00:00] Luke: I just wanna get a foot in the door because what I’m doing for myself with that starter position is giving myself the motivation.
[00:00:07] Luke: I’m suddenly an owner and I’m giving myself the motivation to review and understand the company more
[00:00:13] Krys: I’m now an owner, so I care more. And from there I might say I’m next going to buy a 10% position, like in lemonade, because I’m concerned about valuation or whatever the, the issue is. But now skin in the game and then you start layering in.
[00:00:28] Luke: the way for the majority of us to escape the rat race way to where I got here was by investing, right? I wasn’t working for my money. I was getting my money working for me.
[00:00:39] Krys: You just have to think, I think from the most abstract level, if you believe that this aout build out is still in the earliest stages, do you wanna be invested in the world’s best company that’s helping make it happen?
[00:00:51]
[00:00:51]
[00:01:03] Luke: Welcome to the Deep Investing Jungle with your host, Luke, the Badger, Hallard, and c Christophe the monkey. This week we’re rolling up a ton of Patreon questions, plus one or two from YouTube, and we haven’t had a chance to get into those over the last month or two, so this is a special you asked. We answered episode.
[00:01:21] Luke: We’re talking cybersecurity, lemonades valuation, portfolio management, asymmetric upside bets, how to get started as a younger investor and a ton more
[00:01:33] Krys: We’re bringing all the goods. We’re bringing all the goods on on this. Freezy Freezy, frozen January, you’re living out in the mountains, so you’re like all good with the snow and you’re, you’re being what a, a natural polar bear and, uh, Eskimo and all in one. Whereas here in Austin we’re very fragile when it comes to, to a little bit of cold, and I don’t know if you know this, but it, it rained and then, uh, froze and I think the, it’s 18 degrees outside today, so, uh, nobody in Austin can literally drive.
[00:02:07] Krys: There is, there are zero cars on the road because everything is actually frozen over. So monkey is stuck inside all day. He’s gonna be up to no good, no good today. Badge is gonna come of this enforced enclosure.
[00:02:21] Luke: you’ve kept me trapped at home for the last two weekends, but for a very good reason ’cause you’ve just finished delivering cohort one of the Wall Street Wildlife Options University.
[00:02:35] Krys: Badge. Did it suck? Was it bad? Was it bad? How bad was it? Tell me, don’t spare. Don’t spare me. Don’t spare my feelings. Lay it on me. I could take it.
[00:02:45] Luke: Well, you don’t have to hear it from me, Christophe. Here’s a couple of testimonials from a couple of the Guinea pigs on your pilot course. My capacity to focus was frequently interrupted by my amazement. I love that one. Um, another one of our attendees said, I’ve tried learning about options on YouTube, but this actually makes sense.
[00:03:08] Luke: There is gold here. The gamification is great, very engaging, huge, but confidence inspiring as a tool, concise and elegant to play with. I feel more confident now. Like our attendees, it was a first run. It was long, like four times, two hours with a whole bunch of homework and playing with. The tool, like the simulator and the tool you’ve built, like my socks were blown off.
[00:03:34] Luke: Just like, uh, our participant who said she was frequently interrupted by her amazement, you built something really, really valuable for Patreon, so thank you for educating us.
[00:03:46] Krys: truly, truly wonderful to hear. You never know when you build a thing how it’s gonna land. I’ll say this badge from experience. The problem with something like options isn’t knowledge exactly. Because you could pull up options and you’ll get a bunch of, you know, charts and figures on, on the web, but you actually have to get hands on.
[00:04:10] Krys: And I think there has to be a better way to teach them. And since I’m a professional teacher, you know, I do that first. Like, how can we make some of these concepts and charts a little bit more accessible or a lot more accessible in the case of options? And to those who are terrified of them, it’s for good reason.
[00:04:27] Krys: But there’s a way through that, that difficulty. And if you come out on the other side, uh, you realize that it, it’s a incredibly powerful, potent tool, uh, tool that is not just for gamblers.
[00:04:43] Luke: I came into the course with, you know, half, half, like joking out the side of my mouth that this is like stuff for gamblers, but I now truly see how I can use this as a tool set to generate income. Like, we’ll come back to that as one of our questions in today’s episode, to have like insurance on my portfolio.
[00:05:04] Luke: Uh, so yeah, like there’s a valuable tool set there that I, I still stand by the fact it’s not for everyone. This is like a level of complexity that most investors don’t need. But if you, if you really understand equities, like stocks, how to research a company and you want to level up your skillset, this is one interesting direction to go.
[00:05:24] Krys: Right. Uh, fork in the road is some investors are better off just owning an index because they, they don’t have time or motivation. They don’t care anything about, call it the game. Uh. So obviously for those people, options should not even be on their radar. But for anybody that takes any kind of enjoyment out of research in companies and understanding the businesses that they own, the options call it layer on top, allows them to make the most out of their research and out of their their skillset, especially if they avoid the 10,000 mistakes I’ve made along the way and put in the guardrails.
[00:06:09] Krys: First, think about risk management and to use options in those ways, then it’s then you’re learning the right way, the principled way, the Wall Street Wildlife Way badge.
[00:06:19] Luke: It’s great stuff. It’s great stuff. Uh, we are about to start cohort two. We’re still refining the tool, refining the training. This is something we’re gonna make available to all of our Patreons though, uh, in the next month or two. We need to build a bit of automation and kind of self-learning and like a learning track around it, but we’re doing that actively right now.
[00:06:42] Krys: Awesome. Yeah. Thank you for taking part in it and, um, I’m not done. I’m not done. There’s so many more things to do with it, but I couldn’t be more excited and more excited really for the people who will generally make life altering financial gains from this over time in the principled way. That’s the, that’s why we do what we do here in the, in the jungles.
[00:07:06] Luke: Awesome. But you know, we’re not just about options. We’re also about stocks. And one of the really interesting initiatives we kicked off a month or two ago was the Wall Street Wildlife Community portfolio. I think we have got seven picks in there, and we’ve just added our eighth pick. Um, you voted almost unanimously Patreon’s.
[00:07:28] Luke: Two thirds of our first pick votes went to ire, uh, nominated by Barry. This was one that was nominated last month. It got kicked to the curb by a STS in a close run race. Barry resubmitted it for January and it was overwhelmingly our community’s favorite pick.
[00:07:47] Krys: I love it. This is, this is my second top holding in the King of the Jungle. Uh, I couldn’t be more bullish on this company for the long term. So, so, tip of the cap, uh, Beasties for making this, this selection.
[00:08:03] Luke: I love it too. I own this one. I’ve got like a starter position for me, or it’s grown. Probably beyond the due diligence I’ve done, I do need to like knuckle down and understand this company better. But, uh, yeah. Now this is one all three of us own you, me and the community.
[00:08:17] Krys: You want me to give you the quick elevator pitch?
[00:08:20] Luke: I think I know it. I think I know it, but like it’s getting under the real covers. Like, you know, they’re transitioning from Bitcoin mining to actually like selling AI capacity. I couldn’t tell you where they are in terms of revenue split, things like that.
[00:08:34] Krys: Yeah. Well, okay, so I’ll give not you the re the, the elevator pitch. I’ll give the listeners an elevator pitch. Everything you said is true. The, I think the way I think of it, the moat right now for why this company above everybody else rests on a couple observable facts. They foresaw the need for power. Years ago, and in this particular moment of the ai, uh, revolution, you hear it over and over again that it’s, it’s not the chips, it’s the, it’s the infrastructure that’s the bottleneck, turns out badge. The kinds of processes that need to be figured out to get legit power going are years and years in the making, because you’re talking about land and certifications and like you’re dealing with utilities and the government and regulatory office.
[00:09:38] Krys: You can’t just, you know, flip a switch. These guys have more or less put together the best infrastructure building team in the world. They have the land, they have the permissions. They have the engineers, they have all the things you need to basically ride this wave of, of bringing power online. it’s the, the thief.
[00:10:10] Krys: Forget you. You don’t even need to dive into all the deals that are gonna be signed, even though they have a huge one already. You just have to think, I think from the most abstract level, if you believe that this aout build out is still in the earliest stages, then do you wanna be invested in the world’s best company that’s helping make it happen? The supply and demand, right? The supply and demand is so still skewed that whatever the stock does in the short term, the, the, I can’t foresee too many. I dunno, too many thesis breakers in which all of a sudden the call, call it ai, uh, demand and supply curve is on the wrong side. I mean, there’s talk about what the space data centers all of a sudden, but that’s still years and years and years and years away, right?
[00:11:03] Krys: So invest in the best, basically.
[00:11:06] Luke: Great stuff. Um, we’re gonna talk about later in the episode, our favorite asymmetric upside be, so don’t tell me now, but I’m interested to see if ire is your asymmetric upside stock, seeing as the second biggest position in your own portfolio.
[00:11:23] Krys: All right. Badge. Uh, today’s episode is featuring mostly questions from my, our Patreons. It’s kind of a community, community generated episode. So where should we start?
[00:11:37] Luke: Should we kick off with lemonade? We got a good one here from Paul on our Patreon and it was about probably a bit few aspects to this. Paul was saying he missed lemonade at around 65. He’s got euros here, I think he means dollars. Um, ’cause he was waiting for a pullback to 60 or 61 and now it’s kind of run away from him.
[00:11:58] Luke: So he’s feeling fomo. And his question is, when a stock is on our watch list, how do we typically decide when to enter?
[00:12:07] Krys: right. This is the one that I wanted to handle badge because, uh, one I added lemonade to the king of the jungle portfolio, couple of couple of, uh, months back. this is precisely, I think, where having your eye on the technical charts is of real use. And so I want to, I wanna show two charts in the weekly chart in the options course.
[00:12:35] Krys: If you remember, uh, badge I was saying this is, this is the one where long-term investors should, should kind of call their home, because when you look at the weekly chart on lemonade, you get basically the entire history of the supply and demand for that, for that company. And you could easily see on this chart there are three phases. There’s more or less it started, uh, shortly after the IPO to go straight down from highs of what was a hundred over a hundred, down, very, very low to at some point below 10. But visually, it’s no more complicated than it’s going down very steeply as an investor. From the, this, this perspective, no fancy lines, no patterns, no squiggles.
[00:13:28] Krys: You do not want to invest while the momentum is so strongly down parentheses, unless you know something more that the, that the, the brilliant billionaires buying these things do, and you don’t probably, so you’re not buying during the down slope. Then you see second phase is, is that from 2022 to 2024, the stock very clearly bounced flat between a level.
[00:13:59] Krys: So market structure wise, it starts with the markdown and then it has the accumulation phase. That’s that flat phase. And then clearly, very clearly looking at this chart around November of 24, there’s that big, big spike up, something that lemonade did, the market loved. Around. Yeah, big, big spike. But from that point on, what direction is it going
[00:14:31] Luke: Yeah, up.
[00:14:32] Krys: up?
[00:14:33] Krys: Right? So now if you’re an investor, you’re thinking at least a directionally speaking, I’m not going against the market, I’m going with it. So that’s the weekly chart. It just gives you it, it just gives you that basic with flow, no flow or against the flow. And so this is going now back to Paul’s question. Um, I drew the, the blue channel. Do you see that underneath, which kind of, and it’s not, it’s a channel because it’s, it’s intended to be loose. It’s intended to capture not a specific line. We’re not talking about, you know, being precision surgeons here, but from a particular low point, which happened months and months ago, you could more or less see that every time the price approaches that channel, it then goes back up. I think of it as supply and demand. So I say to myself, there’s buyers out there in the market that, that have orders hundreds of millions or bi, you know, li like tens of millions set for when it hits the east levels we’re gonna buy institutions I’m talking about. And so if I have a, to get to Paul’s question now, if I have a strong thesis that Lemonade is a great company I want to own, which I do, which Paul does. Then at no point looking at this kind of chart, very crudely, do I see, uh, any sort of problem or reversal or that all of a sudden sellers are coming in strong because they, you know, because there’s weakness and they wanna get rid of their position. Everything about this says people wanna keep accumulating.
[00:16:24] Krys: So at that point, I put on my long-term investing hat and say, okay, the technicals are giving me a green go, go light. So now I say to myself, I’m not gonna get cute here. I’m not gonna try, you know, if, if my thesis is long-term three to five to 10 years, then if I buy at 61 or 63, or, you know, I’m not, I’m, I’m not gonna trip myself out of owning this company, given what the, the technical show.
[00:16:55] Krys: So to Paul. I would say your error here in this case was you decided for better or worse, that this pullback to 60 61 was where you would pull the trigger. I’m saying that’s getting a little cute, and you were acting more like a, like a trader rather than a long-term investor who looked at the chart and said it’s go time.
[00:17:25] Luke: Yeah, that’s good. I think, and I’ve come around much more than I ever thought I would having mostly having sat the options course that there is something in this, like what I used to call like technical trading mumbo jumbo. Um, because you, I guess you’re right, like I, I used to say, well, it’s just arbitrary, you know, it’s just squiggly lines.
[00:17:46] Luke: It’s random, but it isn’t really random because it does reflect, it reflects what people who are human and have emotions and they’ve set, you know, prices and they’re, and they’re, it’s self-fulling. You know, they’re looking, many people in algos are looking at the chart and then they, they self fulfill the chart because they expect it to do something and they end up like putting orders and, uh, strategies in place that kind of reinforce the kind of pretty pictures that you draw.
[00:18:17] Luke: But let me, let me say something else as well in response to Paul’s question. ’cause um, I, I think, I think getting QI agree with that. And if I didn’t use technical trading, and I don’t really, I probably still never will. I don’t really look at the charts. Um, it is still getting a bit cute, like if you, if you’re a long-term investor and if you want to own, if you understand lemonade and you want to own lemonade, in some ways.
[00:18:42] Luke: Now, this might sound dumb, but gimme a, gimme a second to really fully explain it. If I want to own a company, I’ll take a starter position. Damn the numbers, I’ll ignore them. I don’t care. It could be like a billion time sales. If it’s like a pre-revenue company, I just wanna get a foot in the door because what I’m doing for myself with that starter position is giving myself the motivation.
[00:19:07] Luke: I’m suddenly an owner and I’m giving myself the motivation to review and understand the company more. And if I’ve got like a half a percent position, right, it’s just not material. If it doubles, it’s not material, it doesn’t really impact my portfolio. If it goes to zero, like, you know, that’s irrelevant as well.
[00:19:23] Luke: So I’m just getting started and then I’ll do my research. And if I then. Become comfortable with the valuation and I really actually look at the numbers properly motivated by the fact that I’m an owner. Then maybe I’ll add, and if the number’s ugly, maybe I’ll say, oh, this doesn’t belong in the portfolio.
[00:19:39] Luke: I made an error and I’ll exit it. Um, but I think there’s, there’s a really useful psychological trick you’re playing on yourself when you do that because you’re not going from this like black and white position of like, today I am not an owner and tomorrow I want to be an owner. ’cause that’s like the friction of starting a position.
[00:20:01] Luke: And that’s what Paul’s done. He said, okay, I want to start a position. I’m gonna wait until 60 61. And then he is missed it. It’s run away from him if he already owned Lemonade stock. And his question was, I want to add to it and say, you know, if he’s saying I, I bought it whenever, maybe I bought it at 200 when it was at the peak, like years ago, and it’s 65, I want to add to it.
[00:20:25] Luke: I’m gonna wait to add till 61. Well, if it runs away from him, it’s he. He might feel like, okay, I missed out a bit, but he’s already an owner. He can still add, like there’s much less friction for him to add a 80 or at 90 because he is already got a foot in the door. And I think that’s really helpful.
[00:20:43] Krys: I agree. The binary yes or no. It makes sense why people default to that. Do I go all in and not all in, but do I, am I buying or am I not buying in the middle? Is the, you know, you know, I use my silly, I buy one share just to move it. Uh, you know, but, but actually you help me understand that when I buy my one share of like pit, you know, tryout companies, it, it become, it’s clear to me in the way you just explained it, that that’s a friction reduction for me because it moves from a list of, call it 200 potential companies, to now I’ve got like, let’s say 40 because I literally own a share.
[00:21:21] Krys: I’m now an owner, so I care more. And from there I might say I’m next going to buy a 10% position, like in lemonade, because I’m concerned about valuation or whatever the, the issue is. But now skin in the game and then you start layering in. So I think between the, what we’re saying between the two of us should be, should be.
[00:21:46] Krys: Alpha generating from many of our users.
[00:21:48] Luke: I think it’s, uh, to go from kind of black and white to being living in like the gray, I think that’s something that would benefit all investors.
[00:21:55] Krys: Yeah. And you know, uh, to return to one point about the technical analysis stuff, you are right badge to to point out that the majority of the technical stuff that I see it is mumbo jumbo because people do get obsessed with patterns and finding patterns and, and or they’re playing the game that we’re not interested in the daily game.
[00:22:18] Krys: When you use a chart cleanly, simply it’s objectively a map of supply and demand, and there’s a reason for that. Supply and demand. The only time really, mostly, uh, where it’s sort of. Uh, a not a hindrance, but where you can override it is when you genuinely have a thesis that is either unknown, which is rare, or you have a deeper understanding, because it’s say public discourse, but you still really believe you’re right.
[00:22:55] Krys: Like your, your, your call on Google that I think is a great example because people were talking about that, right? Is Google being threatened or not? And you came to a very decisive conclusion for reasons that you need to be true. So were you to look at that Google chart in that simple way, you would still obviously see the momentum is up.
[00:23:17] Krys: So that’s one problem solved, but then that dip you saw as an opportunity. You would not have been scared out of it because of the technicals. ’cause your research would have sort of overridden it and you would have seen it as an opportunity, which you. So you went against, you know, you, you had a contrarian play against at least many market participants, and you benefited from it.
[00:23:40] Luke: and you know, you’ve done the same with eos, where you’ve suffered the slings and arrows, many of which have been from me over the years. You’ve been proven right in the end.
[00:23:49] Krys: Awesome. Where are we going to next? The laws, cybersecurity, 50 cuffs.
[00:23:54] Luke: let’s do it. Yeah, let’s do it. We’ve got a good one here from Bengal Tiger on Patreon. What’s the bear case against high quality cybersecurity names and more specifically, why shouldn’t I average down on rubric next week? Now you said you are not gonna like monkey’s.
[00:24:13] Luke: Answer tiger, but it’ll give it to you anyway on the next pod. What is your answer?
[00:24:18] Krys: All right. This is a continuation from Lemonade. And then, uh, and I have a part two, but I’ll let you, uh, uh, I wanna get the facts down. Uh, Rubrik was one of my, uh, safari stocks some, some long time ago. So I have a pretty good understanding of it, and I’ve wanted to be an owner. Uh, earnings came out last, last, uh, quarter.
[00:24:43] Krys: They were way above what the market was expecting, and the price shot up, uh, very, uh, very high. Um, it was like, oh, damnit, you know, that feeling. We missed it.
[00:24:54] Krys: Uh, three months later, the prices even lower than before the positive earnings side bracket. I’m also looking at Zscaler. We talked about it during the options course, right? So basically two companies that deal with cybersecurity, uh, that I’m familiar with, that I know very well. Both of those are now selling below.
[00:25:19] Krys: A, a certain resistance, uh, I’m sorry. Certain support level, so not trying to get too cute. Here’s how I interpret that. Institutions who have or had huge positions in both these companies despite good earnings, are getting rid of them or getting rid of these companies. That’s where the selling pressure is coming from.
[00:25:48] Krys: Why? The problem is I legitimately am not a cybersecurity expert, so I either couldn’t tell you in the sense of whatever the technical reasons might be, but I’ve studied the sector like you have for a long time. In, in that kind of simplest occam’s razor theory I have is that the people controlling these industries are seeing something that is making them want to sell.
[00:26:17] Krys: As experts, as analyst, houses, as whatever. So my choice point here in this moment is, can I rely on my own expertise in this? I cannot. I’m basically going with warning sign, warning sign that the institutions are selling for a reason that is better than the one I could come up with. And the positive spin before I turn it over to you, before you retort badge, is I still believe in cybersecurity as a, as a, um, sector. But it’s for me and to tiger. It’s more now that I’m hoping. It’s more that I’m hoping that these AI revolutions and paradigm shifts are not going to interfere with what I used to know to be true about the sector and the institutions are saying otherwise. So that’s why I’m not engaging, or rather that’s why I, I would say doubling down here would be a mistake because you’re going against the trend, so to speak.
[00:27:30] Luke: That’s cool and all. And I, so I think, I think Rubrik and other cybersecurity and names are down just because, like we are in the SaaS apocalypse, which is like a kind of fun term being applied to this exact moment in time where software as a service companies are all getting smashed because everyone is afraid that companies are going to replace them with like home-built solutions with ai.
[00:28:04] Luke: And like you built the options course using. Google anti-gravity and clawed code. And, with, the greatest respect to you, you know, you’re not a programmer and you’ve built something that is incredible, very powerful. Pulling in like real data. It’s not just like a learning tool thing.
[00:28:26] Luke: It’s like a tool. It’s a simulator. You’ve built a real thing that does stuff and has value and has utility and like companies, or rather, the market is worried that lots of SaaS companies who make their business out of selling like seat, like subscriptions to software that does stuff are gonna get replaced in the same way because it’ll be much cheaper and easier to build.
[00:28:52] Luke: You know, rather than buying, say, let’s say Rubrik, rather than buying like Rubrik, this sort of industry leader around cybersecurity and focusing on backup, like maybe some company will build with like one developer and a bit of ai. They’ll build like a niche solution for a specific industry that’s just targeted and better for, I dunno, healthcare for some reason.
[00:29:15] Luke: And because they’re operating in that narrow vertical, they can outcompete Rubrik who are trying to offer their services to like every company across every vertical. And it’s much easier for like a hospital. I mean, I’m not saying hospitals would do this, but it’s much easier if they wanted to, for hospitals to build that stuff for themselves.
[00:29:33] Luke: And so that’s the kind of fear that sent a lot of the software sector plummeting. Now, I, I think personally, and I gave my rationale for this a few months ago, but I’ll just kind of reiterate it. I think c cybersecurity should be immune, but in the short term, it’s just being caught up in the panic. And the reason why I think it should be immune is it’s a, it’s more than just like a piece of software that does a thing.
[00:30:01] Luke: Like if you are, if you are a company and you. Your customer services system goes down, you are out of business. Like that’s really bad and you’ve lost your ability to do business and you might be out for like a day or two while you recover the system. If you get hacked and if you get like ransomware, this is the specific vertical that rubric operate in, you could literally lose your entire business.
[00:30:28] Luke: You know, I’m watching Mr. Robot at the moment. Um, I’m just at the end of season three and it’s, you know, it’s sort of, it’s really fun kind of techie arc and it’s kind of about a company E corp. They get hacked and there’s much more depth to the story, but they kind of lose all their data and like, it, it sort of destroys the world’s like financial system almost irreparably.
[00:30:51] Luke: Um, like that happens. Unfortunately, that happens all the time to real companies. And if you are the, like the chief technology officer of a hospital, let’s say. And if you literally lose irreparably all of your patient records, that’s bad. That’s no bueno. And it’s not like I’m gonna recover in a day or two.
[00:31:14] Luke: Like I’ve literally lost everything and there’s no way back other than paying like a ransom to the hackers. And then maybe they give you the keys to unlock your data. So you know you don’t want that to happen, but it’s such a mortal risk. You probably, you’re gonna go out and buy the industry leading solutions like CrowdStrike, Zscaler, Rubrik, and many others like you.
[00:31:38] Luke: Most big industries own lots of these companies. ’cause they’re complimentary tool sets. You’re gonna buy them because if nothing else, it gives you an excuse. And if the CEO says to you like, what the hell has happened? We’ve just lost everything. At least your excuse is, I’m sorry, boss. I bought the industry leading solution.
[00:31:58] Luke: We’ve implemented it, we’re running rubric. If we’ve lost everything, like it’s those guys’ fault, it’s not my fault. What could I do? Right?
[00:32:05] Krys: Badge, no disagreement, but I think a refinement here that that’s been the thesis now for for years, and that’s played out magnificently. But I think you, you mentioned yourself, what I think of as the crack in the, uh, not the ex existential philosophy of why cybersecurity, but why this might be a poor investment.
[00:32:30] Krys: Uh, and I don’t know enough now, see within the, the, the industry to see to what extent this is true, but it’s if the seats themselves are going down, because now AI is doing, say more of the, call it labor work. The SaaS model was built on selling and upgrading to the number of seats. So isn’t that possible that a large enterprise say buys CrowdStrike or Zscaler or rubric, right?
[00:33:01] Krys: So they’re all in on your thesis. That’s not the part that’s being disputed, but now it’s a year or two years from now, they’re still paying Rubrik and crowd. But because AI is now automating more of the stuff, the number of seats that the company needs is less. Therefore the revenue model basically is breaking even though the product and everything else is still true.
[00:33:28] Krys: And, and so if, because of the, if we get a little now more sophisticated, and we say the valuations of these companies are still very high because they’re pricing in a lot of expected growth. I don’t know what the, what is it, like 20 still 20, 30% per year. But in fact, the AI stuff is, is blowing, wins the other way then the valuation, multiple compression is likely to get squished.
[00:33:55] Krys: And so I’m saying you’re right. But that to me is the most logical reason why the, the, the, the pressure is so big on the cell side right now, and I’m not smart enough to know to what extent that is. You know how that’s really gonna play out.
[00:34:12] Luke: I think it’s a bit of a red herring quite honestly. So like most, like most companies are now doing more with less, which really means like either fewer employees or the same number of employees with the power of AI get much more done. So I think sa, many SaaS companies recognize that a long time ago, and most of them have moved to like hybrid models and it’s just like a contractual pricing change.
[00:34:37] Luke: It’s not complicated. So I’m not an expert in Rubrik, but I think they operate this, they, they sell per seat, but they also sell per terabyte protected. So, you know, it’s like about backup and recovery. The more data you want to protect, you’re paying for your data. Um, and any SaaS company worth its beans with some exceptions, will have moved to that kind of model.
[00:35:05] Luke: ’cause you’re right, like the number of humans that these bits of software interact with is, is kind of stable or fewer. It’s not growing over the next couple of years.
[00:35:16] Krys: So maybe, uh, the summary for Tiger here is you are saying big picture, this is not going anywhere. The model’s still mostly intact or fully intact, and that the growth will continue to justify the val uh, valuations. I’m saying, uh, doubling down here where the big players are selling it’s dangerous. And I would wait, I personally would wait for a reversal of that, of that selling trend, uh, because then. Maybe there’s more evidence that the SaaS model is fully intact. Yeah.
[00:35:59] Luke: Yeah, it’s almost like a mirror of the conversation we just had around lemonade. Right. Um, if Tiger is an owner of Rubrik, if he believes that he has a bit like my Google thesis last May, if he believes that he’s right and the majority of the market like doesn’t, it’s not like he’s the one sole person.
[00:36:19] Luke: You know, it is a market. There will be thousands of rubric shareholders who believe something like the kind of thesis I just laid out. Or maybe some other bull thesis that they might have. ’cause they know more about the company than I do. But if the majority of the market are trading on momentum and like the SAS apocalypse and it’s getting, you know, the babies, like the CrowdStrike are being thrown out with the bath water, like the companies like Monday that I think are genuinely doomed, um, then, you know, maybe, maybe tiger is right to jump in, but maybe he should also heed your technical warning and wait for at least for that down slope to stabilize.
[00:37:01] Luke: So he is not kind of, you know, pouring more of his fuel onto a raging furnace.
[00:37:06] Krys: We’re both right? Yeah, we’re both right in the way. I think what’s great about our our show is that we’re not given we, or uh, we’re not giving, sorry, tiger. You’re not getting an easy answer ’cause you’re getting a little bit of a, of a push and pull perspective, but I think we’re both right in our own ways.
[00:37:24] Krys: And the art of it unfortunately, is you’re gonna have to come to your own decision. Who’s, who’s more right? In this case, which is, which is your pal monkey. So, but that’s up to you. Alright, badge. Um, uh, our, our buddy Chooch has a, has a question for you. Uh, mostly I think. what are your intentions for holding so many positions that are less than even 1% of your portfolio?
[00:37:53] Krys: What’s the point of such tiny bites?
[00:37:56] Luke: It is a good question, Chu And by the way, Chu, thank you for joining the Patreon. Like I know we used to have some fun conversations on seven investing, So I, I publish this to Twitter every mid month, but here’s like my current cut of my portfolio, just so we can see what chu is actually, uh, kind of challenging.
[00:38:14] Luke: And I’ve got 29 positions in the portfolio today, like one of which is cash. So 28 stocks and yeah, like my bottom. 10 a rule, sub 1% like Palantir, 0.9% down to Salesforce and Greg’s like half a percent. So what’s the point of that? It’s a deliberate strategy. I kind of think about it as being like the barbell in my portfolio.
[00:38:41] Luke: So on one end I’ve got like big allocations to my core stocks. These are the companies that I have high conviction in, I’ve owned in some cases for decades. And like they, it’s not like they can do no wrong, but I’m gonna give them a lot of slack to make, you know, alphabet would have to really mortally screw up for me to be seriously reducing the size of that position.
[00:39:08] Luke: And so on that end of the barbell, I don’t know, there’s maybe seven or eight kind of core stocks that probably make up like directionally about 50% of my portfolio.
[00:39:18] Krys: I’m looking at six. ’cause it’s mely, Amazon, Tesla, Google, intuitive and Rocket Lab. All uh, 5% or higher. I would say that’s the heavy. Heavy.
[00:39:29] Luke: There’d be a bit of nuance. ’cause I’ve got some star, like some little stars in there. I would say the stars are actually like my high conviction companies right now. Um, and my
[00:39:38] Krys: I’m saying just in weight. ’cause you’re using the barbell metaphor, right? The heavy weight is in six.
[00:39:43] Luke: fine. Like, anyway, everything at that end of the portfolio, I have a deep enduring belief in, like, there are different risk levels.
[00:39:50] Luke: Like my biggest position is Rocket Lab. It is a risky position. I’ve been trimming cash out of it, like relentlessly. Um, but stuff at that end of the portfolio, like I, I genuinely believe in the stuff at the other end of the portfolio. These are like things I’ve got into more recently or I haven’t seen the need to add, or like Palantir, like the valuation is egregious and I’ve trimmed them, but I don’t want to get like completely out of the game.
[00:40:17] Luke: I still wanna keep some exposure to a company like that. And so let me pick on one particular one that I talked about last week. Brookfield Renewable, ticker, BEPC. Like I took a starter position in that about half a percent. And that’s all I’ve done. Like I’ve just opened a position, I now studying the company, trying to understand it better.
[00:40:38] Luke: And I’ve done that with like a bunch of companies. And I’ll go through these periods of expansion and contraction. I’ll buy a few new things over the course of say, six months or a year. And then I’ll let them run. I’ll understand them over the course of a couple of quarters, maybe an annual report, listen to some earnings calls, and some of them I might really like and want to start adding to and like lifting up in the portfolio.
[00:41:03] Luke: Let’s say a recent example, maybe Novo Nordisk, I’ve started adding to that. Um, and some just won’t perform. There’s like stocks on here that, well, the stocks missing from the assist because I had them and I exited them. Because either they didn’t like get me interested or they were, the thesis wasn’t playing out in the way I thought, or maybe I found I didn’t really understand the company enough to be comfortable building a bigger position.
[00:41:29] Luke: So yeah, like from time to time, at the other end of the barbell, I’ll bunch buy a bunch of small positions. I’ll let them run, I’ll kill the weeds and I’ll add to the flowers. That’s kind of how I operate.
[00:41:42] Krys: Do you know what my answer is? The old adage, the best stock to buy is probably the one you already own.
[00:41:50] Luke: Mm-hmm.
[00:41:52] Krys: And if you do it the way you do it, you, you clearly have the heavy weights and the high convictions. Those are clear. But then you introduce a few more little plants, little sea, little seedlings to your earlier point that reduces the friction.
[00:42:10] Krys: And there’s probably a reason you were attracted to, to those little seedlings. So since our time is limited, instead of trying to find the next mystery stock, God knows where you already have, in this case, say, 29 positions to do deeper research on. Go over again. And odds are, odds are the next greatest.
[00:42:32] Krys: You know, biggest gains would come from one of these 29. So maybe it’s the little podunk, you know, 0.4 position. I’ll tell you what, it’s not Greg’s sausages, so that, that’s, that’s, that’s for sure. But it could be any of the other 28.
[00:42:51] Luke: Yeah. Like I ran is now over 1%. That was a half a percent position for me to start with. It’s now growing into something and now I, I wanna learn more about it. Yeah, totally.
[00:43:00] Krys: Yeah. So it’s, uh, maybe in, maybe in this age. ’cause we’re in this new investing age, right? Where the information is now everywhere. So it is more now a question, not of finding stuff, but it’s actually a question of, of too much. And like, and, and not just too much, but like filtering, right? And this is a great way to filter your attention by getting it into the portfolio to begin with.
[00:43:25] Luke: Yeah. Great stuff. So anyway, ch hopefully that answers your question. It’s not through lack of paying attention, it’s deliberate. That’s why I operate that way. It works for me. May not work for you.
[00:43:35] Krys: Excellent badge. We do a, a Christmas special episode every year about, uh, encouraging people to invest and, and give gifts of investing for their youngins instead of material goods. You should check out those, those episodes, by the way, if you haven’t seen them, but is how should young people get started investing?
[00:43:59] Krys: What is, what’s the secret? Is there a secret trick about this? Do we expect AI to change how people invest? Uh, third part to this question is how has content creation affected the way you think about money and, and, and investment? That’s maybe a little more of a tangent, so let’s deal with the first two.
[00:44:20] Luke: I’ve got my niece and my cousin’s kids investing and most of ’em are too young to really understand that, but it’s a conversation I’m looking forward to having with them. When they’re a little more grown up and they look at their account and they wanna understand like what these companies they own are, how should kids get started?
[00:44:38] Luke: Like kids should get started investing and do, go back and check out, like, I think it’s episode 60 and then we did it most recently and maybe episode 1 0 6, like the easiest way is like, I don’t know, go to the toy store, go walk around, talk to your kids about like the brands and the things they love, and then talk to them about what it means to be an owner of those things.
[00:45:04] Luke: So you’re not just buying, I don’t know, like a, I hate McDonald’s, but you’re not just buying like a McDonald’s cheeseburger, you’re suddenly an owner of McDonald’s. And when you bought that cheeseburger, you know, you’ve, you’ve generated a little bit of revenue and profit for yourself. And you can explain that in a really simple way.
[00:45:23] Luke: And if it’s a brand either, that’s a really bad example McDonald’s, but it, you know, your favorite example of Nintendo. Is a much better one if it’s a brand that a kid loves. Well, by playing the games and being an owner and being in like the community of their buddies chatting about Nintendo, they actually know, they know a lot about the company and in some ways they might know more than a professional investor ’cause they’re like truly like the end user.
[00:45:50] Luke: So if you can start to get your kid or you know, the kids in your circle thinking about the world in that way, it really can be quite transformative in terms of how you, your perspective on like everyday life.
[00:46:06] Krys: Let’s parse this maybe a little more. Finely young people is relatively abstract. If it’s a young person that can’t have a job yet, say. I remember always being told to turn off the, the lights in the house as a kid, but I ain’t ever had to work. So I don’t understand why it’s, you know, money grows on, on trees from a young kid’s perspective.
[00:46:32] Krys: Right? Food shows up magically on the table. I would say the, one of the earlier jobs is to legitimately teach a lesson to a child that shows them that money doesn’t in fact grow on trees. That’s something you need to cultivate, like, uh, an actual real, you know, I wouldn’t, I’m not a, I’m not advocating any kind of child abuse, by the way, just to be clear.
[00:46:59] Krys: But, you know, if one day there’s no hot water and the child says, well, I can’t take a bath because, you know, and it’s like, well, you forgot to turn off the light in the room, and that costs money. So we don’t have enough money to run the wa hot water. So if you want a hot bath. Then you’re gonna learn to turn off the light.
[00:47:17] Krys: Right? That’s a, I mean, you know, what is money? It’s important. That’s for younger kids. If we wanna talk teenagers, which more of our audience, right? Teenagers, young adults. Then we talk about how, how great is your summer job where you’re, you know, where you’re busing tables or cleaning dishes, right? How, how much do you enjoy working really hard for Very little.
[00:47:41] Krys: Is there a better way? Oh, there is. And you want, you know what, let, let me show you my portfolio, right? And let me show you the graph of what a thousand dollars looks like in 10 years. And you sit ’em down and they’re like, wait a second. You kidding me? Uncle Badge, you’re saying if I put my one K into an investment portfolio, that by the time I’m outta college, that might be 30 K or whatever, you know. Think smarter, not hard, you know, work smarter, not harder. That kind of lesson. Then you, you mix that with what you said with cool companies and so forth, the motivational piece, and you’re in business for, with young people.
[00:48:25] Luke: And it’s, it’s interesting, right? Isn’t it, like, as you, let’s say you just take your, uh, your conversation a little bit further and you’re, you know, you’re going into the workplace. Um, I’m actually, I’ve got a, a live conversation this, this morning with an ex-colleague from HSBC. She’s looking for a job at the moment and she’s just messaged me on LinkedIn literally an hour or two ago and just said, oh, like, hey, how’s it going?
[00:48:48] Luke: And she said, oh, I saw you got a podcast. I’ll check it out. So we’ve been like messaging backwards and forth about the podcast. Um, and she asked me an interesting question, the way it’s kind of framed, um, relevant to investing, like she said. Would you say investing has given you more returns overall than the stable pay slip way and like there ain’t no stable pay slip way anymore, like, you know, companies?
[00:49:18] Luke: Well, because of they have to have responsibilities. They’re shareholders. They don’t, they’re not gonna love you and look after you. Right. And you, you might be, you might think you’re in, if you think you’re indispensable, you’re probably misguided. There might be a very small number of people who get paid like literally hundreds of millions of dollars by meta.
[00:49:38] Luke: And you know, there’s small cad. Of folk who might actually legitimately be indispensable in this exact moment. But the large majority of us, uh, are not indispensable. We’re just cogs in a machine. And if you are working for somebody else, you, you, you, there’s a certain level of agency you don’t have over your financial future.
[00:50:01] Luke: And the way to the way for the majority of us to escape the rat race and, you know, be, I’m in the mountains and I ski for like three months every year. And I, you know, I’m a bit older. I’ve done my career thing. and the way to where I got here was by investing, right? I wasn’t working for my money. I was getting my money working for me.
[00:50:22] Luke: And if you can teach your kids that at a young age, investing like a bit of their pocket money, that’s actually a really, there’s a lot of utility in that mindset, like delayed gratification. And the quicker you get started, like the quicker you finish and in this game like finishing is, I no longer do a particular job ’cause I have to do it.
[00:50:47] Luke: I do stuff, which might be a job because I want to do it.
[00:50:50] Krys: Yeah. Great answer. Badge. can I handle the second question that the AI for, ’cause the whipper snappers are now gonna be used to ai. Uh, how’s that gonna change investing? I, I think I have a good news, bad news idea. I think the good news of it is more than ever and it’s so clear. I think, um, information is so, uh, infinite, maybe.
[00:51:17] Krys: Yeah. This is why I think actually, you know, like subscription services and stuff are not looking great because meaning subscriptions to say info that’s generally available is, is not great. But that’s a side tangent. Uh, anybody now more than ever has access to, in some cases, like sell side analyst level research, right?
[00:51:46] Krys: Like the A STS community on X, for example, I think is just absolutely stunning in what that group was able to achieve. It’s basically like a public, public analyst house. Okay. That’s one example. That’s the good. Can you intuit with, I think the bad side of this stuff will be.
[00:52:08] Luke: Information overload or like, uh, cognitive? What’s that thing where, uh. Confirmation bias.
[00:52:16] Krys: Yeah. Yeah. In heading in that direction, the downside, at least AI now is like, you know, it’s only averaging take, in some sense, it’s taking the average of all the data points. I’m guessing that people will be overconfident in, in whatever they read, especially if it’s generated by a bunch of AI slap, which you need to be able to tell, versus really doing, continuing to do the long, hard work of what I would call the obvious experts in, in the field.
[00:52:53] Krys: So they’re, they’re gonna take the surface level view, think it’s a shortcut, and they’re going to make the same average mistakes as AI output. Right, because you need alpha, somehow your alpha has to come from somewhere. If you’re gonna beat the market averages literally by definition. So if you’re using the averages, you’re not gonna beat the averages and people won’t probably be willing to continue working hard the way you always kind of have to.
[00:53:24] Krys: It’s just, it’s gonna be a different kind of hard work discernment
[00:53:28] Luke: I think you, you’re right, there is like a skill in weeding through, unlike finding the true alpha, which is to mean, you know, the information that means that your decisions will be better than the average decision. Um, but I mean, just to say, ’cause this, this question is like from a young, like, it’s from a Patreon’s daughter, and it is like, you know, how do you, how do you invest?
[00:53:51] Luke: Like, you don’t just remind people, you don’t have to do any of that stuff. You don’t have to do anything that we talk about on this podcast, but what you should do. At least is be passive investing low cost in passive index trackers. And it doesn’t have to be a, you can, if you go check out our investing for your kids episode, or you’re getting started as an investor episodes, like you can set it up in 30 minutes and you’ve literally changed the trajectory of your life.
[00:54:19] Luke: You just need to set it up, wait 15 years and just keep adding money every month. Um, and then suddenly you’ll find yourself in a very different situation.
[00:54:28] Luke: Alright, Christophe, so here’s a question from our YouTube from, uh, maybe like a month or two ago
[00:54:34] Luke: Thumbnail of overlay – logo for small bottom left.png
[00:54:35] Luke: Thumbnail of overlay – logo for small bottom left.png
[00:54:36] Luke: from Nick n Triple eight. And Nick asks, can you guys do a video and what you think is the best and safest bet with an asymmetric upside?
[00:54:44] Luke: And just to explain what that means is like on a risk adjusted basis, like, you know, maybe 10% of the time I’m gonna a thousand x my money, but 90% of the time I’m gonna lose all my money. That’s actually quite a good bet. And if you could take that bet like 50 times, you’re gonna make a ton of cash. Um, so asymmetric upside, you know, the, the upside outweighs the downside.
[00:55:07] Luke: What’s your favorite stock right now?
[00:55:10] Krys: All right. Badge. It’s the, it’s the risk adjusted. That’s the real trickier. So I came up with basically two rankings. The first is the risk rankings for me out of EOS iron and the, OR EOS iron and the A STS. The rank is iron is safest.
[00:55:29] Luke: Yeah.
[00:55:29] Krys: EOS is second
[00:55:31] Krys: safest. A STS is third safest. That’s one column versus potential, say upside.
[00:55:41] Krys: All of them have tremendous upside. But A STS, I think is the biggest. Which makes sense. I think, uh, I think EOS from its current size would be second biggest upside in the iron would be third. So then it’s a kind of mental calculation of what is the combined taking those, those two polls combine what’s the most safe, highest upside, unless it’s, you know, we’re talking about absolute asym asymmetry.
[00:56:15] Krys: I think this might surprise you or maybe it’s ignoring the risk too much. But I came to the conclusion that A STS is the, should be the winner here because I probably think the risk is not as high as you do, even though it’s high. And I think the upside is just so tremendous that as a ratio A STS would be the safest in quotes.
[00:56:45] Krys: But also most asymmetric. ’cause if, if things play out and the, and the, and the sectors start expanding, I mean, this is a potential trillion dollar company in the making and, you know, whatever, five years, uh, of course things need to not blow up and, and all the engineering challenges, but adjusted for risk.
[00:57:09] Krys: I’m going a STS, uh, eos and Iron.
[00:57:14] Luke: if it’s those three names, I’d agree with you. S, I dunno, about a trillion dollar company. I’m pretty skeptical about that. But certainly there’s a massive upside and certainly they have significant risks. So I agree with you about the way you ranked and
[00:57:29] Luke: stacked all
[00:57:30] Krys: Could I, could I, could I pester you about just, I wanna, I wanna put, uh, your feedback on one thing you just said,
[00:57:35] Krys: cause you’re a SpaceX owner.
[00:57:37] Krys: And there’s the talk of the trillion dollar valuation. I would think that because of that background, you wouldn’t be so skeptical about a STS as a, call it duopoly ish entity. Because, because of the, the space example. And if you, if you assume that they do, in fact at the moment, have the better technology, then why not? Why not a trillion or
[00:58:12] Luke: Because I compare them to a company like American Tower, right? So look, this isn’t the A STS episode. Now we don’t wanna go down the rabbit hole, but essentially like they’re kind of putting cell phone towers in space. That’s kind of the business model. And yeah, it’ll be global, but that’s kind of what American Tower do in the us.
[00:58:32] Luke: Like it’s CapEx heavy and they enable like the at and ts and the other operators to have like a cell phone service. ’cause they basically. They’re like a, almost like a real estate investment trust, but they kind of provide the infrastructure so that the cell phone networks can do their thing and run their businesses.
[00:58:51] Luke: And a STS are doing the same thing. And, um, A STS are global, right? So they’re not just American only. Um, but American Towers valuation today is like 80 something billion dollars. It’s nowhere near a trillion dollars. So even if A SDS can grow to like a multiple of that, like, you know, it’s a stretch in the next five years, say, to expect them to get to anything like a trillion dollars in, that’s, you know, with if they overcome all of the hurdles.
[00:59:19] Krys: yeah, let’s move on. But, uh, I’ll only say that a company like at and t is 167 billion. That’s just one, you know, conglomerate. And in the future, all of those guys will be relying on a ST. So if I add them up, T-Mobile and Verizon, whatever, the numbers, I’m just very, very, very loosely saying, without even defense and, and all of that, it’s, to me, it’s not a sh not an ins, you know, I’m not talking about like insanity.
[00:59:52] Krys: I think it’s in the realm of possibility.
[00:59:54] Luke: Like, you gotta walk before you can run. So I think, you know, I’m kind of with you on the direction. I’m just challenging like the exuberance of the, the destination. But let’s come back and have this conversation in five years time when they actually have a commercial service and they’re, you know, they’re running, they’re helping mobile operators in many countries around the world.
[01:00:14] Luke: And then we could talk about, you know, what their possible like end point total
[01:00:19] Krys: Let’s have this conversation in, uh, in, in a year or, or nine months.
[01:00:24] Krys: In the meantime, tell us about Mely. ’cause this is this guy, this has my ears perked. You. You got, I, I love this company. Uh, and I don’t own any at the moment and it’s, tell me why that’s foolish.
[01:00:36] Luke: I’ve gone off piece from Nick’s question. He’s asking about my best asymmetric upside bet. Like today. For me it’s Mercado Libre. Um, feels a bit like a no brainer to some extent Here’s a pretty picture that tells some of the story from, uh, our friends@fiscal.ai.
[01:00:55] Luke: Um, and we’ve got a pretty picture here of their total revenue growth over the last four or five years. Also plotted against, uh, their valuation and I’ve chosen to use forward. To ebitda, and I probably is complex to explain why that might be the right valuation metric, but just kind of take my word for it.
[01:01:18] Luke: If you look at PE it’s similar shape anyway. Um, like the valuation of Mercado Libre is among the lowest it’s been in recent history. Like it’s come down, it’s now kind of 20, 24 times, uh, like ebitda, um, which is at the low end of, of the range. Uh, and revenue growth on like a big base is still significant.
[01:01:43] Luke: Like revenue growth obviously has come down from like doubling revenue every year, but it’s still hovering around like the 40%, uh, revenue growth per year. And that’s significant. Um, like they’re dominant in the markets they operate in. These markets are still early in their e-commerce adoption.
[01:02:08] Krys: Is that, can, can I, can I press you on that a little bit? ’cause that’s the question that comes up for me. Looking at that chart for growing so, so fast for so long is kind of, you know, that’s, it’s, it’s, it’s incredible. But when I think of what Brazil dominant, Brazil and Mexico, I guess, as the two largest economies are, I mean, are.
[01:02:30] Krys: You are saying early, not mid, not mid, not mid, early, not middle growth.
[01:02:36] Luke: early in the sense of the proportion of sales, like e-commerce or sort of, you know, regular bricks and mortar, someone goes to the store and buys something with cash versus buying something online. Like e-commerce is still relatively under penetrated. And a lot of the markets where these companies operate, and actually I don’t think they are dominant in Brazil.
[01:02:58] Luke: I think that might be. Sea Limited or Amazon, like, there’s certainly all three of ’em are close competitors in Brazil. Um, so the, you know, the battles still being fought there, but there’s, um, but Brazil, Mexico, and Argentina, like revenues are strong and healthy and growing in those, in those countries. Uh, as all of these e-commerce players come online and, you know, get, capture more market share from traditional, like legacy retail plus don’t forget like Mercado Cargo, which is like, it’s kind of, it’s, it’s almost like a banking system and a credit system for folks and for retailers in those geographies.
[01:03:42] Luke: Like this is still a quite heavily underbanked set of markets and Mercado Libre and a bunch of other companies, like another favorite of mine, newbank, are leading the charge as these countries, you know, come online and. Um, and as the populace, you know, starts to make use of the capabilities that we’ve all got pretty used to in America and in the UK
[01:04:07] Krys: And that’s the advantage, right? Over your other huge position, Amazon is that Mercado sort of has the one two banking e-commerce, whereas Amazon obviously doesn’t have the banking side. So is that, is that why you remain so, so bullish in the face of whatever it is that Amazon’s gonna obviously try to, you know, they’re not, they’re no, they’re no slouch.
[01:04:32] Luke: that they’re not, but like, I think probably it’s logistics is like the big advantage that Mercado Libre have over most of these competitors. Like, logistics is hard in some of these countries where, like an address might be literally like the red House at the end of the road past the post box, right?
[01:04:50] Luke: And if Amazon wanna send something there, it’s kind of complicated. To do logistics and Mecado Libre have not solved that problem, but they’re now doing something like 50 or 70% of deliveries within 24 hours. that’s pretty impressive. given the kind of complexity of some of these geographies, it’s hard for an outside player to come in and wouldn’t have done that and see Limited have done that in some of the markets.
[01:05:19] Luke: But Mercado Libre, like this is their home territory. They really understand this geography well.
[01:05:25] Krys: I have, I just thought of another little bit of maybe of a puckish question for you. What’s interesting to me is you, you chose the ev ebit a line, which in an objective sense, uh, is high. ’cause 23 or 24. It’s, you know, well, especially if you’re talking to value investors, you know, you’re saying that’s, that’s paying quite, quite a chunk for, for the earnings.
[01:05:55] Krys: But what’s interesting to me is when you look at it in the style of a technical analyst, you would see that line and you would see essentially a support line that it’s at the low, meaning that historically, relatively speaking, compared to where it started, it’s cheap. And you could see that’s where the buyers are coming in.
[01:06:18] Krys: But maybe the, you know, the obvious bear, the bear case would be, despite that if the growth really slows, then that margin still has a decent, you know, if, if it were to break, quote unquote support, that 24 could become 15 in, in a hurry. Obviously, it has not happened, and that’s why you would have, You would probably enter this with relative confidence. That now is a good timely buy.
[01:06:50] Luke: Yeah. Like I think it’s been a reasonable time to be adding to Mercado Libre over the last couple of years. And so I’ve just been doing that personally. And maybe to bring it back to the question like asymmetric upside, I think this is like, it is more expensive that we talked about C and Amazon, like on a forward EV to EBITDA basis.
[01:07:09] Luke: I just quickly checked it on fiscal.ai, they’re both like half of the valuation of Mercado Libre. So objectively compared to those peers, it is expensive. But it’s kind of playing a slightly different game and it’s operating in those markets, whereas, you know, they have different footprints. Like Amazon is a completely different kind of behemoth to Mercado Libre really.
[01:07:30] Luke: Um, and so I, I tend to look at companies in the context of like the most appropriate valuation metric and then their own history. ’cause you’re kind of seeing like the company as a comparable with itself. Um, and I think it’s, I think it’s not unreasonably valued, even if you’re just looking at like the squiggly line, let alone looking at the business model and the evolution and what they’re doing around the credit portfolio and a bunch of other stuff.
[01:07:58] Luke: Now really just kind of TLDR of the last 10 minutes, I think it’s reasonably valued in my personal opinion. And I think the upside is still significant over the five to 10 year term. So low risk, reasonable returns, that’s my definition of an asymmetric upside.
[01:08:18] Krys: And, you know, I just see what I like looking at a graph is it’s, it might be overlooked by most, but that jump from 33.8% to 39.5% in revenue. That it, it, it looks, that’s why visually fiscal AI is wonderful. You could see acceleration and then when you compare it over the 24, the, the previous year’s quarter, anytime you’re that deep into the growth and all of a sudden you have this nice little bump, it’s going in the right direction.
[01:08:48] Luke: Yeah, like, let, let’s just, let’s quickly mention fiscal AI because I’m only showing two basic metrics here, but there is a ton of data, like we use it all the time. They, they have really good quality, like segment data. That’s kind of my favorite thing about, um, fiscal.ai. ’cause they go in, they dig into the earnings reports and they pull out like real meaningful, like the breakdown of say Mercado Libre.
[01:09:16] Luke: Like commerce revenue versus FinTech revenue versus credit revenue. Like you’d have to go and you wouldn’t see that in most tools. You’d have to go and dig into the 10 Ks and then like, you know, build your own spreadsheet. They do all that kind of work for you. They break it out by country for you. They break out KPIs that are interesting, like, you know, growth in unique active buyers.
[01:09:39] Luke: This is all data I’m looking at right now on fiscal.ai. If you wanna use it too, go check out fiscal.ai/wildlife. You’ll be doing us a favor, but you’ll also get two weeks free of fiscal AI Pro and 15% upgrade, uh, discount when you upgrade.
[01:09:58] Krys: Sweet badge I.
[01:10:00] Luke: you gave me a bit of homework last week. Just before we close, can I just give you an update on where I am? ’cause we chatted about like 30 or 40 of the world’s fastest growing companies. And I kind of gave this sort of throwaway line, or I can, I can get through these 30 in like an hour and pick out the ones I’m interested in.
[01:10:20] Luke: So I did that over the last week and I, I gave you my list of six that I’m gonna look at in a bit more detail. So I’ll just kind of, I’ll park that there. I will just say, if you remember last week’s graphic, the six I picked out, that kind of caught my interest were
[01:10:39] Krys: Actually before you announce, wait, wait, wait. Before you do that, you know what I think, I think this could be an interesting segment potentially for, for future podcasts, but in between. In between. Because we start this episode with how do you invest in the age of ai? This is an interesting maybe homework exercise, uh, for our Patreons and anybody else listening on YouTube, you have this list of 40, right? And you have fancy AI tools. What might you ask the ai? How might you structure your prompt to help you whittle it down according to what criteria and so forth? So it’s less, I think about hearing the actual winners from you. Maybe we talk about that next week potentially, because we’re, we’re running long now.
[01:11:24] Krys: But if you could put more, say, say more about your process. Like, was it, was it impossible? Did it take you 19 hours? Did you, what kind of basic structure did you use to come up with your six out of that longer list?
[01:11:44] Luke: I said last week, like I acknowledge fully my process is highly deficient. Um, but I applied that deficient process because I wanna, when I look at companies, I wanna weed through like a lot of ideas very quickly. And my first pass I want to discard, like the majority of stuff. Let me give you a couple examples then of companies I discarded and why.
[01:12:09] Luke: Like in that list, there were probably 10 biotech companies not interested. I don’t understand biotech. There might be a winner in there. I don’t believe I have any ability to pick out the winner, so forget it.
[01:12:24] Krys: Yeah, principle. Know the game you’re playing. That’s very, yeah, that’s,
[01:12:27] Luke: right.
[01:12:28] Krys: yeah.
[01:12:28] Luke: there’s a bunch I just think are too hard, like intuitive machines, like a space company.
[01:12:34] Luke: Um, I’m gonna go deeper on fire flight Aerospace, but similarly, it’s kind of a little bit in the too hard pile for me. Like it’s just a complex business. Um, like it’s tough space is tough. Companies like Rocket Lab succeeded because of a combination of like, incredible engineering talent and leadership, but also probably a ton of luck.
[01:12:56] Luke: Um, it’s quite hard to replicate luck, so I kind of, I’m, you know, I have a high bar for space companies. I’m not interested in anything to do with like commodities or commodity mining. There’s a bunch of commodity mining companies in there. Not interested. Some stuff’s just too niche. It’s like too buried doesn’t turn me on.
[01:13:16] Luke: I don’t want to do the research on it. Like these are, these are kind of in some ways like dumb lenses, but they work for me ’cause it means I don’t give myself a whole load of homework and potentially end up owning something. But I don’t really enjoy reading the quarterly report for. Like most of the companies I own, I actually enjoy reading their quarterly reports and I feel a bit like science fictiony and it makes me excited about the future.
[01:13:41] Luke: Like a lot of this stuff wouldn’t make me excited. So that’s, that’s kind of my dumb ass filter, but.
[01:13:48] Krys: No, that’s great. That’s great. You know what we should do, uh, uh, I’ll post that original graphic from last week’s episode to our Patreon site, and maybe we turn it over to the crew and tell them, you know, pick five of these that you are most interested in. What, which are you immediately discarding and tell us about your process?
[01:14:10] Krys: What is it that you use to filter that stuff? That’s the, that’s the teacher man how to fish, um, strategy, right? And then maybe, you know, maybe one of our Patreons will come back and say, Hey, you discarded this one. Right? But for me, this is a gold mine because X, Y, and Z and together. Maybe we’ll have our eyes on this no matter what.
[01:14:32] Krys: Fascinating group. ’cause they’re growing a lot for some reason or other.
[01:14:36] Luke: that’s a good shout. That’s a good shout. And like, less to say, right? There’s no right and wrong answers. Like, you know, it takes multiple opinions to make up a market. Christophe and I disagree all the time. And that’s the value about having constructive conversations with people who disagree with you.
[01:14:50] Luke: Look, you come into those in the, like, the right way, you learn rather than, you know, just kind of yelling each other and shouting each other down. So if our Patreons pick a company or a sector that I overlooked, um, they, they, if they’ve got good reasons for that, they’re more power to them, right? That’s the right answer for them.
[01:15:08] Luke: Just wasn’t for me.
[01:15:09] Krys: badge. As we were at the end of this episode, I, I noticed something that should have been way more obvious at the start is that we’re both wearing yellow. A lot of yellow, my, my yellow is a little more subdued than, than the glaring, uh, neon that you’re sporting on this morning. But that is one hot, hot shirt I need to get me.
[01:15:32] Krys: I need to get me one of those, like, for God’s sakes, okay. How am I, how am, how am I not, not sporting that? Um, let’s handle that offline. But my God, that’s some fancy merch. Uh, and that’s probably because you’ve already become a beast of an investor. Yeah. So, so how do others become beasts of investors?
[01:15:57] Luke: Their journey starts here.
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