📊 Volatility vs Catastrophe – What’s Happening in Markets? The S&P recently hit a 13% drawdown, is this normal volatility or the beginning of something worse? Monkey and Badger examine historical patterns and what they tell us about today’s market turbulence
📉 Understanding Market Fear Through VIX Analysis – We dive into volatility measurements showing this recent spike was the third highest in 10 years (behind only COVID and the Japan carry trade unwind), revealing investor psychology and potential opportunities
🌍 Are We Witnessing a Changing World Order? Exploring Ray Dalio’s thesis on the rise and fall of empires – is America in decline while China ascends? We discuss the historical patterns and what they mean for investors today
🧠 Managing Emotions During Market Chaos – Why the best investors focus on quality companies rather than unpredictable short-term chaos, and strategies for setting reasonable price targets in uncertain conditions
💰 Finding Value in the Wreckage – While many high-quality stocks remain expensive, we identify pockets of opportunity in beaten-down sectors like biotech, where over 200 companies trade below their cash value
🎯 Setting Smart Limit Orders – Luke shares his price targets for five top companies on his watchlist, and why patience will be rewarded
🌴 Thank You for Supporting Wall Street Wildlife on https://www.patreon.com/wallstreetwildlife
💵 Your support helps us continue bringing insightful episodes and valuable investing wisdom. Jungle Cat tier members now receive exclusive Team Badger & Team Monkey mugs!
Mentioned:
Banker on Wheels: https://www.bankeronwheels.com/how-to-take-advantage-of-a-recession/?weekend-reading-link_desc-110425/
Ray Dalio: https://www.youtube.com/watch?v=xguam0TKMw8
Segments:
00:00:00 Cold Open
00:01:05 Market Chaos and Recent Drawdowns
00:05:26 The Impact of Tariff Uncertainty
00:12:17 Managing Emotions in Volatile Markets
00:13:02 Understanding Market Fear Through VIX Analysis
00:24:00 Historical Market Catastrophes
00:28:48 Innovation and Recovery Potential
00:32:02 Ray Dalio’s Changing World Order
00:40:54 Global Corporations vs National Decline
00:44:30 Finding Value in Undervalued Sectors
00:45:00 Setting Strategic Limit Orders
00:49:00 Market Timing vs Steady Investing
00:54:30 Adapting Your Investment Approach
00:57:28 Patreon Benefits and Community
01:00:09 FinChat Partnership
E76 – Volatility vs Catastrophe with Ads
[00:00:00] Krzysztof: I don’t know when my body’s actually going to break down and never recover. But it is a weird, uh, zone moment in my life where I still think I’m 30 years younger than I actually am,
[00:00:11] Luke: how do you run a business based on like this ridiculous environment?
[00:00:15] Krzysztof: Nobody wants to buy. I mean, it’s a whole greed and fear buy while others are fearful.
[00:00:20] Luke: Like this is chaos. No one can predict the short term. Really, as an investor, the best use of your time is to try and well manage your own emotions and not panic,
[00:00:31] Krzysztof: I think better values are had when people are terrified than when they’re confident.
[00:00:35] Luke: it’s the pessimists and the bears. Those guys sound smart. But it’s the optimists that win in the end.
[00:00:41] Krzysztof: I guess the lesson being, there’s always opportunities in the market regardless of what the fear is and what the expense ratio is or whatever’s happening, there’s, there’s always a way to do well.
[00:00:54] Luke: For an advertising free version of the show, check out patreon.com/wall Street [00:01:00] Wildlife.
[00:01:05] Luke: Hello and welcome to the latest Wall Street Wildlife, Christophe and Luke. If you call our last two episodes, we were in a panic about market chaos. As of today, the 14th of April, the s and p is in a 13% drawdown. Is this just volatility or could this be catastrophe?
Are we stumbling into a changing world order That and more in this week’s hot episode,
[00:01:31] Krzysztof: Speaking of catastrophe Badger, this old dinosaur here still thinks he’s like 17
[00:01:39] Luke: you look
[00:01:40] Krzysztof: and so,
[00:01:40] Luke: beard off, you now look 17 as opposed to.
[00:01:44] Krzysztof: right. Well, you know, I made improvements, but uh. Uh, my body is a complete catastrophe because I still thought it’s wise to do a lot of running and then jiujitsu and then go into the weight room. [00:02:00] So I have, uh, my hamstrings all messed up and my elbows all messed up and I could barely roll outta bed. So, you know, I’m there.
I am like cobbled together with duct tape and, uh, crazy glue. And I’m proud of myself because, you know, with my body so broken, I’d put on a heavy ruck sack, go down to try to get some blood flowing to, to my extremities, and then what do I come back to? But your, uh. Your encouragement. Like you see my Apple watch captured like a 0.35 mile segment, somehow failed to upload the five miles beforehand.
But you are like, way to go buddy.
[00:02:46] Luke: Don’t overdo it, monkey. I believe it was my
[00:02:49] Krzysztof: That’s, that’s right. That’s right. Don’t,
[00:02:51] Luke: Alright. Okay. I thought you literally did a 0.35 mile hike and so yes, I took the [00:03:00] piss and I responded by doing a half marathon yesterday and thinking exclusively about the Patreon.
[00:03:06] Krzysztof: right. You had to
[00:03:08] Luke: But if you did five miles with a, with a pack of pack of beans, then fair play, no complaints.
[00:03:15] Krzysztof: Yeah. Uh, no, but I, I, I don’t know if, if you have, you’re, you’re my what, senior by only a couple years. Not, not too, not too many years. But
[00:03:25] Luke: Half, half decade or so. Yeah,
[00:03:27] Krzysztof: is it, is it half decade? Okay.
[00:03:29] Luke: Yeah.
[00:03:30] Krzysztof: Well, my God, I don’t know when my body’s actually going to break down and never recover. But it is a weird, uh, zone moment in my life where I still think I’m 30 years younger than I actually am, and my body just refuses to cooperate.
Uh
[00:03:48] Luke: I actually may, maybe I was unfair to you there, it might be more than a half decade, but somewhere between half and a whole decade. Like Yeah, as you get older you just get used to the fact that stuff doesn’t work as well as it used to. Like I [00:04:00] have to wear, like I did my half marathon yesterday. I actually went out with the intention of doing like 5K and I did like 5K, like actually I’m enjoying this.
And it became 10. Then had some ideas for the Patreon, uh, because inspired by the fact that, hey, here we are. We now have some fancy Wall Street wildlife mugs. Patreon sent me some samples. Team Badger. Team monkey. Yeah. Nice. Exclusive. Exclusive. Patreon merch. So I was thinking about that when I was running and then like my 10 K turn is 20 k, but my, but I have to wear like an ankle strap because I’ve got like this just chronic, like I rolled my ankle over six months ago and I just keep twisting it and I can currently no longer lift like this, arm higher than this point ’cause I’ve given myself some kind of tennis injury ’cause I’ve been playing tennis too much.
So yeah, you just get used to the fact that like stuff doesn’t work,
[00:04:53] Krzysztof: I heard that the, that the, um, most immediate fix to all this is to get a lot of sexy [00:05:00] nurses to tend to the wounds.
[00:05:03] Luke: but that sounds fantastic. Yeah.
[00:05:05] Krzysztof: Yeah. Okay.
[00:05:06] Luke: check in with Katrina, see how she feels about that.
[00:05:10] Krzysztof: Uh, all right. So that’s one kind of catastrophe you wanna talk about, uh, market catastrophes and where we are after what, a week later, after our two episodes. When things felt like absolutely devastatingly brutal and crazy,
[00:05:26] Luke: Yeah, I mean, and, and yeah. So things still feel crazy. Like what’s the, like this is what Monday, the 14th and the latest like nonsense is, well, I saw a good summary tweet of it. It was like, um, tariffs announced on Thursday on Friday. Uh, semiconductors get a dispensation by Saturday the dispensation is rolled back and like it’s gonna be reframed as a specialist semiconductor tariff, you know, one ex, one example.
But if you were like importing a [00:06:00] ton of like technology. You’d be like, your emotions would be flipping like left and right, because this administration can’t give a coherent story about what the damn tariffs are, what they apply to, how big they are. Like how do you run a business based on like this ridiculous environment?
[00:06:20] Krzysztof: I have a great personal anecdote on this, and by great, I mean, queasy one of my good buddies here in Austin. Fantastic, fantastic, uh, guy, just sweet, sweet as can be just a mens all, all the way through. Uh, studied winemaking down in New Zealand and, uh, took his arts and skills into making cider. So now if you’re in Austin and you go to any supermarket really, and you’re in the wine section, you’re going to see the Texas keeper, uh, cider brand.
It’s absolutely delicious for any of the Austinites. Listen to this. over [00:07:00] the past week. Did not know where his glass bottles would come from because they were, apparently, he was using a company over in Europe and so when, you know, the tariff stuff went into place, he, uh, needed to get on the phone.
He’s negotiating contracts and so forth. And the takeaway last I heard him tell me about this was they said, we cannot send you bottles or, or glass because we do not know what the price is. I mean, that’s as a real example, I think like on the ground example. Like how do you, you know, you know, how do you proceed when you can’t get the bottles into which to put the cider because the company.
Can’t economically tell you what’s up and what’s down. That’s very scary. I think, um, you know, it’s one thing, like maybe if you zoom out and think of like semiconductors in Nvidia, like, like these massive macro companies like somewhere, I’m like, [00:08:00] things will sort themselves out, but the everybody else that can’t buy glass, nuts.
[00:08:07] Luke: Yeah, and well like, you know, you are, if you’re importing stuff, let’s say from China into the us, like that is a major trade corridor. Like when you bought those goods and maybe you, you know, you paid up front for them and they were on a ship, like you had no idea about the tariffs, and now they’ve landed a few weeks later and they’re like, potentially you’ve got hundreds of thousands, maybe of containers now, like en route or building up imports full of stuff that the importer can no longer afford economically.
To like pay the tariffs and actually like land the goods and use them. So like, what are these container ships gonna have to like, turn around and try and sell it a discount somewhere else? Are the American ports just gonna get clogged up with like containers that no one can afford to open? Like there’s a whole bunch of really complex questions that have, I’ve gotta wash through here.
[00:08:59] Krzysztof: [00:09:00] It is utterly bizarro. The last, uh, the last thing I heard over the weekend was that Trump backed down from, I. Tariffs on things like iPhones. Did you hear about this stuff?
[00:09:12] Luke: Uh, yeah. But then again that, that’s part of this like semi, they’re gonna, now we heard on Saturday there’s gonna be like a semiconductor tariff, which is gonna get announced in the next couple of weeks. So there you were looking, you were feeling good. If you were Tim Apple for like 24 hours and then you’re like, oh, we’re in trouble again.
[00:09:29] Krzysztof: Right. You know, I, I actually went to a store looking for a new iPhone because my battery’s getting all wonky and it’s, you know, pain in the ass. Even though I still like the phone, it’s totally fine, you know, but Right. Traveling battery. Yeah, whatever. And then it was the tariff stuff that I read, you know, some places saying, get your new phones now because they might be 2000, $3,000, you know, whatever, a couple months from now and then two days later, right.
Uh, there’s this news, uh, phones are gonna [00:10:00] be spared, but I’m thinking about all this, like, how weirdly it’s all interconnected, you know, like. Tim Cook, you know, as, I don’t know if you came across this right. He’s definitely a lefty, He’s, he’s always on the side of the, of leftist progressive politics, but there he is on stage donating to Trump.
Uh, I don’t know what the amount was, right? I mean, it was massive because obviously he’s trying to Yeah. Save his company
[00:10:27] Luke: Gotta play the game with everybody else, right? Yeah.
[00:10:30] Krzysztof: yeah. Uh, and it’s just like, I don’t know, it seems at this moment, to me, I know I’m rambling a bit, feels like I’m rambling. Like a game of, like a game, like a showmanship game that is Trump’s style, right?
Just like hardcore negotiation in the like, wild West style. Like who’s gonna blink first kind of stuff. And I just don’t, I, I don’t know if that’s even reasonable or maybe it’s so, uh, I. Unreasonable that it [00:11:00] somehow becomes reasonable in a very weird, like you, you know, you come back to the same place, but see it from a different way. I wish I had something more intelligent to say, but I think everyone’s scratching their heads and I, I still don’t know what to make of it, to be honest.
[00:11:17] Luke: And if we think back to our conversation of the last two weeks, I think our biggest conclusion really was. Like this is chaos. No one can predict the short term. Really, as an investor, the best use of your time is to try and well manage your own emotions and not panic, but just focus on like the quality and the results of the companies you own or the, on your watch list.
And then try and, you know, own the right stuff for this market. I do have limit orders on a bunch of stocks, and at the back of the episode, I’m gonna share my limit prices on a couple of stocks that I’m looking at. Um, but, uh, but yeah, you know, I, I’ve got no idea about what the [00:12:00] next couple of weeks, next couple of months are gonna hold.
[00:12:02] Krzysztof: Right. No one does. And although major, um, I think alarm bells, there are some people if, uh, if you follow them online, that claim they do know, stay away from those. They don’t, I wanna start Badger, if you don’t mind, with two charts that caught my attention. so what you can see on the VIX chart, uh, let me get into the weeds just a little bit by saying this is based on the options. Options. If you remember, have a mathematical formula that determines how much somebody is willing to pay to pay for contract. And one of the, one of the fundamental variables is called IV or volatility.
So the higher the volatility, that means the more likely the contract will go either up or down in value, making it either more or less expensive. Because if you’re right, you can make a lot more money, right? If there’s not much volatility, it’s kind of [00:13:00] assumed the contract will stay probably within a reasonable band.
[00:13:03] Luke: And in, in like explain it like I’m five language, that essentially means the options traders think we’re gonna see like a significant movement either up or down from the current price as opposed to like low volatility. We’ll probably see a smaller movement.
[00:13:19] Krzysztof: Right and translated into normal speak, I suppose non-tech speak, it’s basically gauging fear. Fear and fear is a dance partner with volatility. Why are things more volatile? Because there’s greater fear or uncertainty. Fear and uncertainty may be both, right? So what I like about this chart is there are, if you look at it, badger, uh, there’s one candlestick that is the highest. Take a guess. Do take a guess what that one, when that one was [00:14:00] without looking at anything else.
[00:14:02] Luke: One candle. You have to explain what, what is? What is a candlestick? What am I looking at? I don’t use these diagrams.
[00:14:09] Krzysztof: uh, so the candlestick, so here on this particular chart, I set it to the monthly timeframe. That means each of the bars that you see represents the price of, in, in, in particular this index. It’s low and it’s high. So that’s what one candle shows you in that month. This is the lowest price and this is the highest
[00:14:32] Luke: Got it. Okay. So that thing in the middle, which is like covid, I guess.
[00:14:36] Krzysztof: Exactly. Right. And you don’t need to know anything else. But that was the scariest things have been over the last five years, and technically reached an index price of 80 something like 82. And if we went back to that moment, right, it felt utterly terrifying because the entire global economy was shutting down and we didn’t know what was gonna happen.
So it makes sense to me that that was this kind of major peak. [00:15:00] And then we see a dropping. Uh, over the next two years. Right? And then kind of, kind of staying relatively, I mean, everything was then under 30. And then over the last, from 23 to like 25, we were kind of hovering around numbers like 15, 16, 17, this down wave.
So that meant things felt pretty stable, right? Inflation battles, trying to contain all that. And then there’s another big peak, another major, uh, giant candlestick that got up to 60 something like 62, 63. Do you remember what that was?
[00:15:41] Luke: No.
[00:15:43] Krzysztof: That was the whole Japan carry trade stuff.
[00:15:47] Luke: Oh, okay.
[00:15:48] Krzysztof: Remember everyone was panicking, like the markets start crashing because we think Japan’s gonna raise rates and then that’s messing all this leverage up and so forth.
That didn’t last very long. Notice, like, look [00:16:00] how high that, that spiked and then went down pretty, pretty, pretty quickly. Uh, for our purposes, we are right now the, because of the, I guess, tariff stuff, the VIX index spiked up to 60, which is the third highest, uh, spike on this charts in the last 10 years.
And now it’s retreated back down to, at this moment 31. So basically retreated 50% already in this moment. Um, suggesting that the markets, you know, got terrified, but now we’re 50% less terrified than we were just a week ago. Why does all this matter. Um, well, in some sense, you know, I’m telling you this is kind of more like a compass I use for myself because all other things being equal, I think better values are had when people are terrified than when they’re confident.
So that’s just one thing, right? Uh, but the other thing is [00:17:00] that I found a chart that I thought was really encouraging And what we see on this chart is it ranks the highest closes since January, 1990 to April, 2025.
The highest close ever was no surprise, actually, October 24th, 2008 were closed at 79.1 due to the great financial crisis. And all of the top ones are around 2008. The next one is the Covid stuff. Closed around 66. And then on April 4th, so two weeks ago, uh, we got a close of 45.3. So that is basically, it’s a historical kind of close, right?
It makes the.
[00:17:48] Luke: And I guess if we, again, let’s just like reground ourselves in what we’re actually talking about here. So you are drawing a line to, at the volatility, like the [00:18:00] uncertainty perhaps in the market, maybe a simpler word like the, most uncertain times of the last two decades or so have been the great financial crisis, 2008 Covid.
And then now, and I guess if we, rather than 45 on this picture we’re looking at right now, if we plug in the 65 or the whichever number you just gave us, like that puts us near the top of this chart as being one of the most uncertain periods of the last two decades.
[00:18:28] Krzysztof: Right. 24 over the last, uh, well, according to this chart, from 1990 to, so over th three and a half decades, so this is, we’re looking at 35 years. So this is certainly without question, uh, um, a moment if you will. We’re having a moment, but this is the encouraging bit. If you look at the forward s and p returns from all of these peaks in volatility, what we see is [00:19:00] that, basically the numbers are stagnantly green, the, from the.
Pickiest of the volatility indexes. 79.1, the five year return from there was 122%. Beneath that, it was 151% from covid levels of March. The returns five years afterwards were 164%. Um, and so basically there’s no, there’s no, none of these peaks were five years later. They did not, the return was not more than a hundred percent.
So if you annual analyze that, that’s over 20% per year. And that’s, I think the main takeaway that, that, uh, you and I, I’m guessing, fundamentally agree on, is that while in the moment it’s absolutely terrifying. Statistically it’s a hundred percent, like based on this chart, statistically the odds are a hundred percent in your favor that the returns from.
This particular [00:20:00] spike are going to be fairly massive now that we’re not financial advisors. This is in no sense a guarantee. Nobody really knows anything for sure, but I like these odds for sure.
[00:20:10] Luke: I, I, I’m with you and I think I agree, but let me set out some counter arguments. Um, things are still expensive right now, and I what this di what this picture we’re looking at right now probably doesn’t show us is like the extent of the drawdown at each of those periods, but right So right now the market is in a 13% drawdown. IE from the last like highest point, which looks like it was directionally like late February, um, that was the last market peak and we’re now down 13% from there. And that’s not a huge amount.
Like we’ve had much more significant drawdowns in the past and as I mentioned last week, like
[00:20:59] Krzysztof: technically, [00:21:00] if I may, um, there is one dot on this chart that does approach 20. Right? It was like 19 something
[00:21:06] Luke: sure.
[00:21:07] Krzysztof: percent. It’s.
[00:21:08] Luke: Okay. That’s fair. That’s fair. Yep. Yep. Um, so, okay. Okay. Let’s say we, the, the worst we got was like a 19% drawdown. Fair enough. Good job. Um, even that still isn’t super material. Like stocks are still expensive. We talked about this just last week on the podcast, like I’m, now, I’m trying to avoid personally looking at like big market movements and things like that.
I’m trying to focus on the specific companies I’m invested in, like in the main, they are still fricking pricey and I’ll, well, that’ll bring us onto the limit prices I’ve set at the back of this episode. Like I think we’ve got a long way to go before at least the stuff I wanna invest in is available at bargain prices.
And there is so like, you know, complex chaotic time, highly uncertain [00:22:00] time, but still at like, in my view, relatively like not cheap right now, even a few weeks ago at nine minus 19%. Like not cheap then especially.
[00:22:12] Krzysztof: Well, this is what makes us such a fantastic dynamic duo is because I think your eyes are primarily on stocks that are, as we always talk about excellent companies, and therefore still richly valued. So for you to say, stocks are mostly still expensive, is I would agree. Fundamentally true. And even if you take the index average on a whole, I think the, it’s still like a 20 forward PE ratio or something.
So yes, I fully agree with you and the stocks that I’ve been mucking around in, or stock slash something like Chainlink, which is just at the beginning of its journey I owe, I’ve been making the argument that they’re not really expensive because they’re either pre-revenue or they’re, you know, completely out of favor as in biotech and [00:23:00] they’re actually incredibly undervalued.
So for us listeners. I think it’s really useful to not categorize everything in just one bucket and know what frame you’re using to make a statement like that. because there’s, because I guess the lesson being, there’s always opportunities in the market regardless of what the fear is and what the expense ratio is or whatever’s happening, there’s, there’s always a way to do well.
[00:23:28] Luke: Yeah. And, what story have we told so far? You’ve told, you’ve told us really a nice, clear story about when things have been volatile and uncertain in the last 35 years. They’ve, without fail pretty much not financial advice. They’ve, without fail, like come back within a year and certainly within five years still like gone on to more than double over like a significant period.
And I think, you know, if you take the, say the 10 year to 20 year view, like it’s very hard. [00:24:00] There were very view points in history where you got wiped out. But there have been some points in history where you have been wiped out So here is an interesting counterpoint from, uh, a website I read quite frequently now called, um, bank on Wheels and um, and they’ve poured in some data from Bridgewater and Credit Suisse. And this is a little bit cherry picked perhaps, but it shows like when things go really, really bad, like generationally bad, not even generationally, like a hundred year bad, they can go really bad.
So, and in specific markets, so if you were invested in Russia. In like the mid 1910s, you got wiped out and your market went to zero. And the same thing if you were an investor in China [00:25:00] during 1949, your market went to zero. and if you’re invested in Germany or you know some other parts of Europe during the Great World Wars, you suffered a 99% drawdown if you were invested in Germany during World War I and it took you 47 years to recover. So I ain’t saying Trump is like Germany and World War I, but Trump. Could be precipitating something like the Great Depression where investors took an 85% drawdown and it took them 16 years to recover.
Um, Trump could be leading the US into like an example of massive inflation that the UK had in the 1970s where UK investors got wiped out the tune of [00:26:00] 72% and it took 11 years to recover. Like we could be going into a very, very significant period where perhaps, and I think we’re gonna talk about Ray Dalio’s, a changing world order.
Like perhaps the rules of trade and the rules of how the world works are changing. So fundamentally, this kind of no coming back.
[00:26:22] Krzysztof: Badger. I have one question based on that little mini lecture there. What’s the state of monkey’s body gonna be 47 years from now?
[00:26:30] Luke: Yeah,
I mean, you might be,
[00:26:35] Krzysztof: How many pull-ups will I still be doing?
[00:26:37] Luke: like, like if your portfolio gets wiped out to the extent that this picture’s showing, right? You might, that might be your job. Literally, like carrying packs of God knows what, like goods from place to place.
[00:26:48] Krzysztof: Also follow up question. I don’t know if you know the answer to this, but the Korean crisis, Asia crisis, 19 89, 19 98 has a bicycle icon on it.
[00:26:59] Luke: Oh, that’s, uh, [00:27:00] that’s Bank of On Wheels sticking his logo on the thing to say, this is my graphic. So, we’ll definitely, we’ll definitely give them a, a credit in the, uh, show notes for today.
[00:27:08] Krzysztof: Yeah. Right. So, uh, this is why I feel rather than say panicked or cautious, I feel more than anything curious because when I look at all these historical periods. Contextually, I could see, right? Russia gets wiped out because their entire world order is flipped up and down between what even is labor and ownership, right?
And anytime you kill something like hundreds of millions of people, not great, right? Like stuff like that. But now under the age of ai, which I’m translating here specifically to, not that there’s gonna be fancy robots doing stuff, although that that is coming, that the rate of innovation is [00:28:00] faster than ever.
I have almost like a built in uncertainty, um, uncertainty variable that says, okay, even if things were to get say really bad this year under Trump’s policies and things get really shaken up, I have more of a foundational confidence in the innovation bit that we could not could. That it’s as believable to me as not that we will innovate our way out certainly faster than what the shortest, uh, years of, of recovery on this chart was.
Seven. I don’t know. Like, I think to myself, things get really bad, right? Let’s say we, we entered dark times for the next one year, two year, three years. I have a hard time like really feeling like four years from now or whatever, random number with Robo taxis zooming around and whatever, and robots making [00:29:00] stuff at factories like I, it, it’s hard to kind of picture dark ages, harder to picture the dark ages now than ever before.
[00:29:09] Luke: I, I agree. And like I am an optimist in my core, and I’m an optimistic investor and like it’s the pessimists and the bears. Those guys sound smart. But it’s the optimists that win in the end. Um, and I think I made this argument like a year ago when we were chatting to your buddy, Mr. No advice about like doism.
like if you can, if you keep an optimistic view of the future and if you can invest with good principles following that view, like the upside is so significant compared to the downside, you’re probably gonna prevail. And I still feel that’s true today, but I think it’s useful for us to ground ourselves in a little bit of history and how things could go badly wrong and like, I dunno, if you wanna take us into, you shared some thoughts from Ray Dalio, like [00:30:00] there is like the end of something quite significant.
Do you wanna explain what that was all about?
[00:30:05] Krzysztof: Yes, I will. Uh, one thing first, do you know the joke about the glasses? Uh, half full. So to an optimist, the glass is half full. To a pessimist, the glass is,
[00:30:20] Luke: Half empty.
[00:30:21] Krzysztof: yep. And to an engineer,
[00:30:24] Luke: No idea.
[00:30:25] Krzysztof: the glass is two times as big as it needs to be.
[00:30:29] Luke: Okay.
[00:31:00]
[00:31:09] Krzysztof: because, you know, all of those are lenses, you know, through which we see the world. So I, um, I felt, I felt pretty sad, pretty good about the recent. Blockchain book that we did an episode on, and we got really good feedback from our Patreons over at patreon.com/wallstreet Wildlife. I thought it was a deep dive.
You know, I think, well you’re the, you’re the best Guinea pig right? About you had a view about something and then I talked about it. We talked about it, and then you ended up, I think, reframing some fundamental understandings about a big upcoming industry. Right. I have,
[00:31:47] Luke: And, and actually just for, just for podcast listeners, like that was a Patreon exclusive episode. We do plan to release it on the podcast speed, and I think we’re gonna do that in May when I go on my motorcycle tour of Sardinia. ’cause I ain’t taking the laptop [00:32:00] with me for that trip.
[00:32:01] Krzysztof: Right. Okay, cool. Uh, so I have on my two read top of the two read stack is this book next to read The Changing World Order by Ray Dalio.
[00:32:13] Luke: Now can, can I just say very quickly, like my good friend Dunya in our investing WhatsApp group, I, I’ve been chatting about the, uh, the two charts that we just showed, like the VIX and then the, the, uh, like could this be the end of the world chart? She popped up with exactly the same book and a couple of extracts for me.
So I love that you’ve picked up on this one.
[00:32:33] Krzysztof: Yeah. Excellent. And I love that you’re still not gonna read it, so.
[00:32:37] Luke: Books. Books, right? Books are out of date. Like if you, if you’re in, in this world, it’s a, like you get no value from reading a book. There you go. Controversial statement, all that shit behind you. The only thing that’s we of use behind you are the bodies of whiskey. They’re the only thing that are gonna get you through like these time.
’cause if you read a book, it’s out of date before it even hit the printers.
[00:32:57] Krzysztof: Oh my God. Yeah. [00:33:00] anyhow, I came across on Ray Dalio’s feed. I thought a really nicely animated four minute I. Semi summary of all these many pages to Badger’s Point, like why, why spend your time really thinking and taking your time and going deep when you could have pretty cartoons telling you all you need to know in four minutes.
But I was impressed with this, uh, with this little mini slideshow. So we’ll link a note, um, show note to it, what I see there is, I mean, humans are pattern making machines, so we look for patterns anywhere we can. But in this overly simplified graphic, you see the Dutch Empire. Uh, in the yellow line kind of going up and then peeking and then going down. And on the way down you see a new blue line, dark blue line with a British flag.
The old union jack starting to go up and then peeking and going down. And then [00:34:00] at a sort of similar interval, you then see a light blue line while the British is on the way down. The light blue line represents obviously the United States of America. And on this particular graphic you see that that light blue line also descending from its peak and a the beginning of a red line with the Chinese flag on its way up without them having crossed.
And of course, we don’t know how that’s going to play out, but mathematically what you’re seeing is a predictable pattern repeating at predictable intervals with basically the same shape. So a historian, which this is a kind of history, economic history is saying, um, why it’s inviting to me the question, is this time different? Uh, why would it be different if it is, if it’s not different than the US as one of our Patreons, I think wisely asked us to consider is the US now becoming uninvestible? Because why would you invest in an empire that is [00:35:00] collapsing? So I think historically zooming out like this is really, uh, interesting.
You know, the burden of proof in a sense when you’re presented with this kind of data is to say, okay, it is different because, right. And then you start naming things like AI and, and whatnot. But I, um, I think, uh, in, in the video there’s a per, I mean, that’s interesting, but he got more granular and I thought this was maybe one of the more interesting things to think about from an investing standpoint. All those lines, eventually, you know, their data. What data are they using? And he breaks it down, like, what does it mean for an empire to crumble? He came up with, I believe it was eight categories that are measurable. And you basically measure all those categories and you get a number, and then you track that number and you get, you see if the graph is going up or down.
The categories are, and then I, um, I’ll read them off. Education, [00:36:00] technology, um, competitiveness on in global markets, economic output, world trade, military strength, power of the financial center, and, uh, strength of the currency as a reserve, as an educator, and we as technologists. I think those are the first fundamental points I think we’re always talking about.
It makes sense to me that if your country’s education is somehow falling apart or behind. Then that’s a direct correlation to its capacities as a technological powerhouse. And as we now know from things like chip war and, you know, the book Chip War and how central Nvidia is to the world, well, um, everything depends.
Like the military itself, the, the, the state of America’s or the world’s security depends [00:37:00] on its access to these highly technological chips. So all these pieces are connected. And I suppose one way of assessing to the best of our ability, whether America’s on its way out or down or you know, is it gonna reverse?
The historical trend is to ask ourselves, how’s the education doing? And how’s our technological center doing? Right for all the fear and running around with craziness? Can we measure, can we get an intuitive sense of technology being stagnating, declining, or actually progressing? Because if we could.
Fundamentally sort of answer those questions, then I think the rest of it will turn out to be kind of noise and like, you know, it’s easier to interpret all that other stuff as noise and, and say, no, okay, things are shaky, but you know, our, our chip lead is still decent and yada yada. What do you think of all that?
[00:37:55] Luke: No, I think it’s good, a good observation and I don’t know if we are, I don’t know if the US [00:38:00] is dropping into like a spiral of decline that it will never clamber back out of, but it makes sense to me intuitively that those are some of the things you could measure that would give you like an objective sense as to whether your society was like rich and healthy and prosperous and.
Um, yeah, like culturally rich and, uh, like, not gonna do like a, well, he, I, I suppose in the book he probably talks about Rome as well, right. You know, the decline of Rome. And you can probably, I’m not a historian, but you can probably point out like a whole bunch of things where like Roman society fell apart and that precipitated like the end of them as being like the, the global overlords.
[00:38:42] Krzysztof: Yeah. Uh, Here we see the historical labels on what the bottom, what the rise looks like, and then what the decline looks like. And on the peak, at the peak, it’s basically, you see that there’s the biggest [00:39:00] gap in wealth between those who succeeded and those who didn’t, which when the downturn happens, leads to things like printing.
More money extending credit and eventually revolution and war because the gap between haves and haves and have nots is so big living here in the grand old us, this is exactly what it feels like. Uh, obviously inflation and printing of the money and and so forth. Um, what’s curious to me, I can’t help myself, forgive me, but, um, one of these points is the power of the financial center badger.
I think it’s obvious to you why this is another reason why I’m so intrigued and bullish on blockchain technology and chainlink because I think this is what they’re saying. Like, we need the US to remain. The sort of leader in innovation around how global finance works. [00:40:00] That’s why we need to invest so heavily in the crypto industry, not the circus stuff for the thousandth time, but the builders that are actually saying, we need everything to move on to this better way of doing things.
And if we do, then the sort of money the US would remain the money center. Um, and that’s another reason for me to be cautiously optimistic that even though we do have things like a bunch of money printing and inflationary effects, the technological stuff is also now being, you know, supported and no longer obstructed via regulation.
So, uh, my takeaway is I remain cautiously, I don’t know if optimistic is the right word. More like I see, I don’t necessarily see an inevitable decline because there’s too many other factors that make a reversal possible.
[00:40:54] Luke: I, I think you can take that same argument though, and you can apply it to any successful big tech [00:41:00] like we just take. I know Apple and, um, alphabet and Amazon, like three A’s are from the Magnificent seven. Like these are US companies and they’re probably generate the majority of their revenues in the us but they’re, they’re essentially like globally regulated.
They’re global organizations. If the us let’s take an extreme situation where the US did like fall into Ray Dalio’s, like irreversible decline and maybe he’s right and China, uh, follows that red arrow and goes into its descendancy. Like companies like Amazon and Alphabet and Apple still have such a commanding lead with very little external challenge who really is challenging Amazon, uh, at a global level.
Nobody, right? Um, and probably nobody ever will, in some ways, like these corporations perhaps could outlive. [00:42:00] The, like, the, the regimes that, that they grew within.
[00:42:05] Krzysztof: That may, that seems possible. Um,
[00:42:09] Luke: And as an investor, like maybe that’s the only important thing. Like, again, like pairing away, like 99% of the noise and all the stuff that keeps in invest keeps, like, keeps you awake If you’re like watching the news and you’re on Twitter or wherever. And if we, if we take the sort of lesson from last week’s podcast, which was, there’s all this noise unpredictability, who knows what’s gonna happen?
I certainly don’t just focus on owning like the best companies in the world. Like you could take that same somewhat selfish lens and just say, okay, like if I, even if, um, over the next 20 years, like the US disappears up its own backside for various kind of policy reasons. As long as I own the world’s best companies, like they’re still gonna be the world’s best companies in 20 years time.
[00:42:59] Krzysztof: I had like [00:43:00] that argument. fundamentally I’m a little bit, um, well, my contrarian view is, I just need to mention it again quickly, that at the same time things like biotech, for example, as an industry. We know some of the world’s most valuable companies are giant, big pharmas, right? So there’s a lot of, you know, when you invest in the right one, these are also life altering gains.
And right now, in this moment, over the last four or five years, basically since the peaks money, the, the peaks of 2021 where valuations were really high, the whole sector has been utterly decimated. So that, I think I came across a stat that right now there’s over 200 biotechs are trading for less than the cash on their balance sheets.
And I talk about Relay therapeutics is my favorite of them all. it’s in moments like this that there’s a reason people are not interested in buying these companies. [00:44:00] But if you could really hone in on the ones that have the best shot of winning you, your returns will be absolutely superior to the rest of the market.
Uh, because. Nobody wants to buy. I mean, it’s a whole greed and fear buy while others are fearful. So I, I think as investors right now, we have this really wonderful moment where you could, I think as you’re doing, uh, being very vigilant and looking at the world’s best companies and kind of trying to pick your spots when out of confidence, right, that it’s gonna be a good time to buy.
Maybe, you know, sometime soon-ish, you could tell us a little bit more about that. And I’m saying there’s also this whole other bucket that’s worth investigating specifically because others are not, and they’re throwing out the baby with the bath water type type stuff. So, do you wanna take us Badger to your own, uh, recent limit [00:45:00] order
[00:45:00] Luke: Yes, I guess. Why not? Um, I guess last week’s podcast, I would, we observe, like things are still expensive. I. Um, and I’m, I’m like bargain hunting, but not finding any. And I came up with like a really scrappy shortcut mechanism, which told me things were tested expensive. IE at the peak of pessimism last time, which was 2022, give or take, um, many of the companies I want to own more of were trading materially cheaper on a price to free cash flow basis than they are today.
So the, the step I didn’t do, ’cause this is literally like my live thinking over the last couple of weeks, like, I really wanna do something just like everybody does. Like, oh, you know, shit, like my portfolio’s down, I’m down a little bit more than the market since the last draw down. Um, I want to take action, but I got, I listen to our own podcast and I’m reminded the best thing to do is do [00:46:00] nothing.
So I’m trying to find some proxy to do nothing. I. Where I can actually feel like I’m have agency, I’m doing something. So the something I’ve done is I took that logic from last week, just one, one more step and said, okay, if we were at peak pessimism for these four or five companies, I had a long list of companies that I think are overvalued, that I own, that I wanna own more of.
I paired that down to five, four, or five companies that I really want to own more of because I feel like the world situation right now plays into the hands. Companies like Amazon, I think if we do go into a recession, it’s probably gonna help them, even though the tariffs are probably gonna hurt them. I feel like a company like Amazon under Andy Jassy are gonna navigate that probably more adeptly than smaller competitors in the same space.
And so I took those peak pessimism numbers and I just translated them to like a price [00:47:00] target for. Um, for like, the current market. And so I did something like, I felt like I’d taken control because I set some price targets and I put a couple of, as you, I didn’t quite, I said on the Patreon I put like limit buy orders in on about five things.
I didn’t quite do that because for some, whatever a weird reason I have to, if I wanna put a buy order on something, I have to actually isolate the money and I can’t use that money on anything that’s gotta sit there in cash. So I have put an actual buy order in for meta at, I’m not gonna share my specific numbers, but directionally about 350, $360.
Um, I have watch listed Amazon at around 130, $140. Um, I’ve watch listed A SML. The guys who make the machine, who make the machine that makes semiconductors, um, I’ve watched, listed them at about 400 [00:48:00] euros, and I’ve watched listed L three Harris, like one of the defense primes at around 160 bucks. The, the only other one that I’ve watched listed that I think is gonna trigger fairly soon.
Now, those are all, those prices are all materially cheaper by like 30% cheaper directionally than the current price, which is like an indicator as to how bad I think things could get from here. Um, the only other one I’m, I’ve got on my list is new, uh, ticket Nu Nubank, the, uh, Brazilian FinTech. Um, and I’ve got, I’ve got a watch list on them to buy them at a round.
$9 50 and that’s a lot closer. They’re currently trading at about $10, 15, so that one I kind of expect to execute. The other ones are probably not gonna execute, but at least I’ve satisfied my, uh, my itchy fingers, my desire to do something without actually doing something. [00:49:00] Yeah.
[00:49:00] Krzysztof: We’re the, we’re the magic gimmick. Badger does something without actually doing anything. You know what? My pushback, little bit, little pushback is this, uh, one, there’s a little bit of an anchoring fallacy when we say, because it was this high at this point and now it’s 30% lower, that kind of assumes that that 30% price was either the correct price or you know, what if it was wildly overvalued at the peak?
And
[00:49:30] Luke: just to, up the other way. So I, I derive these prices by looking at. Based, so what, what was like the free cash flow multiple at the peak of pessimism in 2022. And then if I had that same free cash flow margin today, um, what would the price be? So it’s like the other way around.
[00:49:50] Krzysztof: Oh, good. Okay, good. But I think the more significant criticism for me, and by the way, when I say criticism, it’s, it should be obvious. It’s not [00:50:00] even something I would necessarily, uh, dissuade people from doing. It’s just like a different lens to look at the issue, which is, uh, it, it feels a little bit like market timing. And I say that because we’ve known plenty of instances where somebody sets a limit order at whatever price. That seems like really, really good. never fills because it never quite drop, you know, it, it, it stops just let’s say a dollar above what you set it to and then goes on 20 years later to pro produce massive returns.
And of course, because that’s somebody’s mindset, they say, okay, I said it at this price that’s kind of cor, the correct price. It never filled, but now it’s more expensive. So of course I’m not gonna buy it when it’s now even more expensive than when I wanted to before. And then they never buy it. And then basically what it amounts to is you missed out on massive gains because you weren’t willing to pay [00:51:00] a dollar more.
Now that’s a problem because obviously you re, we all recognize that that limit is kind of arbitrary and whether it hits or not, like price movements are sort of arbitrary. So you’re kind of playing games with, hmm. Market. I think market timing is my shorthand for all of that, which is why for, I’ll, I’ll lay in this plane.
Why you saw me in the King of the Jungle. Um, as is my way. I have the companies that I know I wanna own more of, and first of the month comes, I’m basically putting in 75% of the funds without these limits because I don’t wanna market time.
[00:51:44] Luke: Yeah, no fair challenge. And you’re exactly right. I, in the, in the main, I already own these companies, like three of those five I just listed. I’ve already got like a one, it’s probably within a one and a 3% position in, they’re just companies that I want to add to, [00:52:00] to be fair, I don’t own Meta or L three Harris today, and so I am kind of market timing by sticking like quite low price targets on them.
But like, I’m gonna monitor, this is my thinking. I, my sentiment is that things are gonna get worse than before. They’re gonna get better, which is why I’m still 25% cash in my investment portfolio. Um, and like I’ve talked about it ad nauseum in the past as to why that applies to me and maybe not to the, like the majority of our listeners.
’cause I don’t have an income. I’m not adding like a chunk of my paycheck to my investment account every month. So I’m sitting on that cash cord ’cause it’s gotta pay like my monthly bills. Um, but also I wanna, like, I re, I release that cash at objectively high valuations up, up between over the last 12 months essentially.
But I went quite hard in November, December, January to sell stuff. And I want really, I get my advantage by [00:53:00] putting that money back in play at objectively reasonable valuations and looping back to where we started this conversation today. Like, I don’t feel like these are reasonable valuations today, which is why I’m trying to hold my nerve right now.
But I’ll review as we go and like if we, if we come out of this. And maybe we get some stability and it feels like I’m more confident again about the direction of the world over the next 12 months. Well, I’m just gonna forget this yet. I’m just gonna buy these stocks. I.
[00:53:30] Krzysztof: And you know, maybe the takeaway, maybe this is a good place to end today’s episode. What I like listening to ourselves too is it seems like you don’t have to pick one or either of our strategies. You could kind of hear us talking and saying, okay, well what’s stopping me from putting in a few limit orders, Badger style, but also picking up a few shares of some of monkey’s companies that seem really promising and don’t really have much to do with [00:54:00] valuation.
It’s just, are they going to succeed or not? And you kind of split the difference and you stop thinking in these kind of binary all or nothing methods. And over time you’ll see, you know, you collect the data and let’s say badger is right and monkey is completely wrong. Based on this, this, and this criteria.
So going forward you might then weigh a little more heavily towards one strategy than another and you keep adjusting and kind of being more and more flexible. That seems to me like what the better investors over time learn to do. Like pick their spots, poker play, I mean, this is the obvious poker analogy, right?
The great poker players kind of take on a persona at the table, right? But then they slightly shift it, right? Because they know somebody has pegged them as, let’s say, an overly tight investor or overly loose, but then they switch it up so that it becomes harder to know. But that requires reading the room and just being more sensitive to, [00:55:00] to the data.
So that’s what I would encourage our listeners to do, really. Uh.
[00:55:04] Luke: Yeah, and like, like maybe that the poker analogy. It certainly is true at the poker table. I don’t think it applies so much in the investing world because it’s not like you’re trying to fool the market. ’cause none of us are, have enough money in play that we actually influence the market in any way. Like maybe if you are Ray Dalio, maybe you do influence the market to some extent.
You try sentiment. But there is certainly, like, the, the takeaway from that, I think is there are lots of ways to be successful as an investor, as a poker player. And it’s about knowing like the, the styles that you are comfortable with, maybe learning the styles you’re comfortable with, and being willing to kind of experiment a little bit and kind of change up your approach and evolve, mature.
And just like learn your lessons, take a little bit of badger and a bit of monkey and maybe a bit of like a whole bunch of other podcasts and investors, famous investors [00:56:00] that, uh, that you like and then adapt it to your own style that fits your circumstances.
[00:56:05] Krzysztof: That’s exactly what I was trying to say. Adapt. Ability to adapt and being flexible. And it’s so obvious it does feel like one of these truisms that like is cliche, well of course, but human nature being what it is. Very few people are, are actually capable of doing this because it has to do with their own identity.
And then they say to themselves, this is the kind of person I am and this is what I do. So the thought of changing something is uncomfortable. You kind of really have to work at it, right? And in this moment to maybe tie it all together in this moment of extreme volatility, a particular style is definitely more suited to it than another.
What that style is requires, you know, stepping back, looking at historical cycles and, and looking yourself in the mirror and asking yourself, am I being too tight [00:57:00] here? Am I being too fearful? Oh, okay. That means I could probably loosen up a little bit to take advantage of a unquote table a k the world market that, uh, is taking themselves, you know, they’re, they’re too risk averse now, so I’m gonna be the one that takes advantage of it by bluffing more.
You know, I didn’t, bluffing doesn’t have an obvious analogy in the market, but by being a little more aggressive with, with the bets you’re making to put it that way.
[00:57:26] Luke: right. Yeah. Yeah.
[00:57:28] Krzysztof: So, uh, over what on our Patreon, we’ve got, we’ve talked about, we have our new, uh, fancy team Badger Team. Monkey mugs. Let’s see that. Let’s see that. Handsome. Oh my goodness. Look at that. Who wouldn’t want that, that handsome devil to go with their morning coffee. So, uh, yeah, that’s for the, uh, what jungle cat tier.
[00:57:53] Luke: That is our jungle cat tear. We have a couple of jungle cats. We’ve got a unicorn. They’ll all be receiving their mugs. Uh, as time wears [00:58:00] on at those tears. There’s also like a t-shirt and some stickers. I haven’t been sent samples of those yet, but if they look anywhere like the mugs, they’re gonna be awesome.
Yeah,
[00:58:09] Krzysztof: cool,
[00:58:10] Luke: get a bunch of other benefits though by being a Patreon. Um, like, not the least of which we’ve just got like private chat groups where we like shoot the shit, but also one where, uh, we talk about our trades, like our actual investment decisions in real time. Ideally, I try and flag there before I’ve done something.
It’s rare that I ever do anything. Um, but sometimes it might be, you know, today I did X and this is y and we can debate that with, um, our dolphins and above.
[00:58:41] Krzysztof: Yep. And it’s just, uh, it’s just a way to add a little more time and a little bit more reflection between doing something impulsive potentially is when you can go on the channel and say, I’m thinking about doing X, and then you have other eyes on it, and at the [00:59:00] very least you might wait to get people’s responses to this idea.
And I think it’s just a good way of being a successful investor doing it with community. So.
[00:59:10] Luke: we, we don’t wanna reveal too much, but we’ve both got a bunch of really interesting ideas for how we’re gonna make the Wall Street Wildlife Patreon even more engaging, exciting, and value add for our Patreons. So watch this space.
[00:59:23] Krzysztof: Yep. patreon.com/wall Street Wildlife. We hope to see you there. It’s a, it’s a, uh, jungle full of all kinds of critters.
[00:59:32] Luke: And you know, you know, we got, we got like a small select that’s like about a hundred Patreons, and we appreciate ’em all daily. We got. Couple of thousand listeners to the podcast on the YouTube now. And, uh, like if you’re not a Patreon, that’s all cool. And, but if you’re just enjoying the show, you’d really help us scale.
’cause we wanna get in front of more ears, particularly while the market is so wild and crazy right now. Tell a friend, just like, send a link [01:00:00] to our YouTube or send a link to the podcast to someone who you think might get a bit of value out of it. And let’s spread the word a little bit.
[01:00:07] Krzysztof: Amen. In hallelujah.
[01:00:09] Luke: Uh, we should give a quick shout out as we always do to our partner Fin chat, fin chat.io/wildlife to get a handsome discount. Um, we use fin Chat today for, to look at the s and p drawdown, but I use it literally every day. I used it to figure out my price targets and look at my price to free cash flow historical ratios.
I use the screener, increasing these, trying to identify interesting new opportunities. It’s our favorite investment. Analytics tool.
[01:00:42] Krzysztof: Very much so.
[01:00:44] Luke: Are you ready to become a beast of an investor?
[01:00:48] Krzysztof: Your journey starts right here. I. [01:01:00]
